<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-29114
Vistana, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-3415620
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8801 Vistana Centre Drive, Orlando, Florida 32821
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(Address of principal executive offices) (Zip Code)
(407) 239-3100
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for 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 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. [ ]
As of March 1, 1998, there were 21,007,630 shares of the registrant's
common stock outstanding. The aggregate market value of the registrant's voting
stock that was held by non-affiliates on such date was $301,056,923 based on the
closing sale price of the registrant's common stock on February 27, 1998 as
reported on the Nasdaq National Market.
Documents Incorporated by Reference:
Portions of Vistana, Inc.'s 1997 Annual Report to Shareholders and
definitive proxy statement for its annual meeting of shareholders to be held on
April 30, 1998 are incorporated by reference into Parts II and III of this Form
10-K, as indicated.
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PART I
Except where otherwise indicated, the information contained in this
Annual Report on Form 10-K ("Annual Report") assumes Vacation Ownership
Interests (as defined herein) are presented on an annual, as opposed to an
alternate-year, basis. See "Item 1. Business--Company Resorts." Unless the
context otherwise requires, the "Company" means Vistana, Inc., its consolidated
subsidiaries, its corporate and partnership predecessors, partnerships in which
the Company owns a controlling interest and, following September 16, 1997,
Success and Points (as defined herein). Unless otherwise indicated, all vacation
ownership industry data contained herein is derived from information prepared by
the American Resort Development Association ("ARDA"), the industry's principal
trade association.
Vistana(R) and Vistana Resort(R) are trademarks of Vistana, Inc. or
its affiliates. Embassy Vacation Resort(R), Embassy Suites(R), Hampton Vacation
Resort(R), Hampton Inn(R), Homewood Vacation Resorts, and Homewood Suites(R) are
trademarks and service marks of Promus Hotels, Inc. and other wholly-owned
subsidiaries of Promus Hotel Corporation. PGA(R) is a trademark of The
Professional Golfers' Association of America. World Golf Village(SM) is a
service mark of World Golf Foundation, Inc. Atlantis(R) is a service mark for
lodging accommodation services of Sun International Representation, Inc.
Statements in this Annual Report, including statements contained in
the "Business--Company Resorts," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Business--Promus Relationship," and "Business--PGA of America Relationship"
sections regarding the Company's prospective business opportunities, financial
performance and expansion plans are forward-looking statements that involve
substantial risks and uncertainties. Such forward-looking statements include,
without limitation, (i) the plan to develop and sell additional resorts, (ii)
the intention to acquire additional land for the expansion of existing resorts
and for the development of future resorts, (iii) the anticipation of when
construction will commence for existing and future vacation resorts, (iv) the
plan to develop future PGA of America (as defined herein) and Promus (as defined
herein) affiliated resorts, and (v) statements relating to the Company or its
operations that are preceded by terms such as "anticipates," "believes,"
"intends," "expects" and similar expressions.
In accordance with the Private Securities Litigation Reform Act of
1995, the following are important risk factors that could cause the Company's
actual results, performance or achievements to differ materially from those
implied by such forward-looking statements: (i) the Company lacks experience in
certain of the markets where it has purchased land and is developing vacation
ownership resorts, (ii) the Company is subject to significant competition from
other entities in the leisure and vacation industry, (iii) the Company's success
depends to a significant extent on its ability to hire, train and retain
qualified employees, (iv) the Company's ability to acquire, develop, and sell
Vacation Ownership Interest inventory and finance customer purchases of its
Vacation Ownership Interests requires access to external funding on satisfactory
terms, (v) the Company's indebtedness and related service obligations may
increase its vulnerability to adverse economic conditions, (vi) the Company's
agreements with Promus, the PGA of America, and Sun (as defined herein) are
subject to various conditions and requirements which may not be fulfilled, and
(vii) the Company has not yet entered into the final joint venture documents
with Sun and its subsidiaries relating to the Villas at Atlantis.
<PAGE>
Item 1. Business.
General
Founded in 1980, the Company is a leading developer and operator of
high quality timeshare resorts in the United States. The Company's principal
operations consist of (i) acquiring, developing and operating timeshare resorts,
also known as vacation ownership resorts; and (ii) marketing, selling and
financing vacation ownership interests in its resorts, which typically entitle
the buyer to ownership of a fully-furnished unit for a one-week period on either
an annual or an alternate-year basis ("Vacation Ownership Interests").
The Company currently operates and sells Vacation Ownership Interests
at six vacation ownership resorts. Three of these resorts are in Florida
(Vistana Resort in Orlando, Hampton Vacation Resort--Oak Plantation in
Kissimmee, and Vistana's Beach Club on Hutchinson Island), two in Colorado
(Eagle Point in Vail and Falcon Point in Avon) and one in Arizona (Villas of
Cave Creek located north of Scottsdale). Available inventory at two of these
resorts (Vistana's Beach Club and Eagle Point) is limited to Vacation Ownership
Interests that the Company has reacquired in connection with defaults under
customer mortgages. The Company has four new resorts under development. These
resorts are Embassy Vacation Resort at Myrtle Beach in South Carolina, Vistana
Resort at World Golf Village near St. Augustine, Florida, PGA Vacation Resort by
Vistana in Port St. Lucie, Florida, and Embassy Vacation Resort in Scottsdale,
Arizona. In addition, the Company acts as exclusive sales and marketing agent
for The Christie Lodge, a large vacation ownership resort in Avon, Colorado. The
Company has also entered into an agreement with a subsidiary of Sun
International Hotels Limited ("Sun") to form a joint venture to develop a
proposed new vacation ownership resort to be known as the Villas at Atlantis
adjacent to the Atlantis Resort and Casino on Paradise Island in The Bahamas.
See "--Company Resorts."
During its 17-year history, the Company has sold in excess of $650
million of Vacation Ownership Interests and has developed an ownership base of
over 65,000 Vacation Ownership Interest owners residing in more than 100
countries. The Company was the first to open a vacation ownership resort in the
Orlando, Florida market, which has become one of the largest vacation ownership
resort markets in the world in terms of Vacation Ownership Interests sold. Each
of the Company's existing Florida-based resorts is rated as a Gold Crown resort
by Resort Condominiums International ("RCI"), and the Villas of Cave Creek and
Falcon Point Resort are rated as Five Star Resorts by Interval International
("II"). Two of the Company's resorts under development, Vistana Resort at World
Golf Village and the Embassy Vacation Resort at Myrtle Beach, have received the
Gold Crown designation from RCI prior to their official openings.
As part of its operating strategy, the Company seeks to develop
strategic relationships with selected parties in order to broaden and enhance
its marketing and sales efforts and to provide additional vacation ownership
resort development opportunities. In furtherance of this strategy, the Company
has entered into (i) an exclusive joint venture agreement with Promus Hotels,
Inc. ("Promus"), a leading hotel company in the United States; (ii) a long-term
affiliation agreement with a subsidiary of The Professional Golfers' Association
of America ("PGA of America"); (iii) a limited partnership (in which the Company
is the general partner) which has the exclusive right to develop and market
Vacation Ownership Interests at World Golf Village; and (iv) an agreement to
form an exclusive joint venture agreement with a subsidiary of Sun to develop a
vacation ownership resort in The Bahamas.
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Since completing its initial public offering in March 1997, the
Company has been using four business strategies to achieve growth: (i)
continuing sales of Vacation Ownership Interests at the Company's existing
resorts; (ii) developing and selling additional vacation ownership resorts;
(iii) pursuing selected acquisitions; and (iv) improving margins, principally by
reducing the cost of the Company's financing. There is no assurance that these
strategies will be successful during future periods.
The Company's ability to develop and sell additional vacation
ownership resorts will depend on a number of factors, including (i) the
availability of attractive resort development opportunities; (ii) the Company's
ability to acquire unimproved real estate relating to such opportunities on
economically feasible terms; (iii) the Company's ability to obtain the capital
necessary to finance the acquisition of unimproved real estate and develop
vacation ownership resorts thereon, as well as to cover any necessary sales,
marketing and resort operation expenditures; (iv) the Company's ability to
market and sell Vacation Ownership Interests at newly-developed vacation
ownership resorts; and (v) the Company's ability to manage newly-developed
vacation ownership resorts cost-effectively and in a manner which results in
significant customer satisfaction. There can be no assurance that the Company
will be successful with respect to any or all of these factors. The acquisition,
development, construction, conversion and expansion of existing and new vacation
ownership resorts also involve a number of risks, including risks that (i)
acquisition or development opportunities may be abandoned, requiring project
costs to be expensed during the current period; (ii) construction costs may
exceed original estimates, possibly making the development, expansion or
conversion uneconomical or unprofitable; (iii) construction or conversion may
not be completed on schedule, possibly resulting in delayed recognition of
revenues and increased interest expense; (iv) zoning, land-use, construction,
occupancy and other required governmental permits and authorizations may not be
obtained or may be delayed; and (v) financing necessary to complete the
acquisition, development, construction, conversion or expansion activities may
not be obtained or may not be available on favorable terms.
Company Resorts
The following table sets forth certain information as of December 31,
1997 and for the year then ended regarding each of the Company's existing
vacation ownership resorts, resorts under construction and planned resorts,
including location, the year sales of Vacation Ownership Interests commenced (or
are expected to commence), the number of existing and total planned units, the
number of Vacation Ownership Interests sold at each existing resort since its
development by the Company and the number of Vacation Ownership Interests sold
during the year ended December 31, 1997, the average sales price of Vacation
Ownership Interests sold during the year ended December 31, 1997 and the number
of Vacation Ownership Interests available for sale at December 31, 1997 and
after giving effect to planned expansion. The exact number of units ultimately
constructed and Vacation Ownership Interests available for sale at each resort
may differ from the following planned estimates based on, among other things,
future land use, project development, site layout considerations and customer
demand. The number of Vacation Ownership Interests available for sale will also
vary depending upon whether certain two-bedroom lockoff units are sold as a
single unit (as assumed in the following table) or as two one-bedroom units. In
addition, the Company's construction and development of new vacation ownership
resorts or additional units at its existing resorts (and its sales of the
related Vacation Ownership Interests) is dependent upon general economic
conditions and other factors and may also be subject to delay as a result of
certain circumstances, some of which are not within the Company's control.
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<TABLE>
<CAPTION>
Unsold Vacation
Ownership Interests
Vacation Ownership at
Units at Resort Interest Sold(a) Resorts(a)
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Year Sales Average
Commenced/ Sales
Vacation Ownership Expected to Total Price in Current Planned
Resorts Location Commence(b) Current Planned Total 1997 1997(a) Inventory Expansion
- --------------------------- ------------ -------------- ------- ------- ------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Existing Resorts:
Vistana Resort (c) Orlando,
Florida 1980 1,205 1,539 62,476 7,552A(d) $10,267A(d) 3,078 16,371
Vistana's Beach Hutchinson
Club (e) Island,
Florida 1989 76 76 3,932 83 $ 9,394 - 0
Hampton Vacation
Resort--Oak
Plantation (f) Kissimmee,
Florida 1996 242 242 1,433 1,300 $ 7,502 11,138 0
Eagle Point Resort (g) Vail,
Colorado 1987 54 54 3,569 45 $ 9,065 11 0
Falcon Point Resort (h) Avon,
Colorado 1986 58 82 3,398 120 $10,559 261 1,224
Villas of Cave Creek (i) Cave Creek,
Arizona 1996 25 35 498 401 $10,711 399 510
Resorts Under
Development:
Embassy Vacation Myrtle
Resort at Myrtle Beach (j) Beach,
South
Carolina 1997 -- 550 497 497 $ 9,543 -- 28,050
Vistana Resort at World St.
Golf Village (k) Augustine,
Florida 1998 -- 408 -- -- -- -- 20,808
PGA Vacation Resort by Port St.
Vistana (l) Lucie,
Florida 1998 -- 387 -- -- -- -- 19,737
Embassy Vacation Resort Scottsdale,
at Scottsdale (m) Arizona 1998 -- 150 -- -- -- -- 7,650
Planned Resorts:
Villas at Atlantis (n) Paradise
Island,
Bahamas 1998 -- 375 -- -- -- -- 19,125
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TOTAL 1,660 3,898 75,803 9,998 14,887 113,475
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</TABLE>
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(a) The Company sells both annual Vacation Ownership Interests (entitling the
owner to the use of a unit for a one-week period on an annual basis) and
alternate-year Vacation Ownership Interests (entitling the owner to the use
of a unit for a one-week period on an alternate-year basis) with respect to
51 weeks per unit per year, with one week reserved for maintenance of the
unit. Accordingly, the Company is generally able to sell 51 annual Vacation
Ownership Interests or 102 alternate-year Vacation Ownership Interests per
unit (although historically sales at Eagle Point, Falcon Point and the
Villas of Cave Creek have been based on 52 weeks per unit per year). For
purposes of calculating Vacation Ownership Interests Sold and Average Sales
Price in 1997, data with respect to Vacation Ownership Interests reflects
Vacation Ownership Interests sold regardless of classification as an annual
or alternate-year Vacation Ownership Interest. For purposes of calculating
Unsold Vacation Ownership Interests at Resorts, both the Current Inventory
and Planned Expansion numbers are based on sales of Vacation Ownership
Interests on an annual basis only and assume the sale of 51 weeks per unit
per year. To the extent that alternate-year Vacation Ownership Interests or
52 weeks per unit per year are sold, the actual number of unsold Vacation
Ownership Interests at Resorts would be increased.
(b) Dates listed represent the dates the Company began recording (or expects to
begin recording) sales of Vacation Ownership Interests for financial
reporting purposes.
(c) At December 31, 1997, Vistana Resort consisted of eight development phases,
six of which had been completed and two of which were in development. The
number of units at Vistana Resort at December 31, 1997 included (i) 1,205
current existing units and (ii) 334 additional planned units (representing
an additional 16,371 unsold annual Vacation Ownership Interests).
Construction of 73 of the additional units (representing 3,723 Vacation
Ownership Interests) is currently underway. The Company constructs
additional units at various times depending upon general market conditions
and other factors. Accordingly, construction of the remaining 272 additional
units will be commenced from time to time as demand and other conditions
merit. Figures with respect to this resort assume that all units to be
constructed will consist of one- and two-bedroom units; however, the actual
number of additional Vacation Ownership Interests resulting from planned
construction could vary depending upon the configuration of these units.
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<PAGE>
(d) Includes 2,223 alternate-year Vacation Ownership Interests with an average
sales price of $7,472 and 5,329 annual Vacation Ownership Interests with an
average sales price of $11,433.
(e) Vistana's Beach Club consists of two buildings containing a total of 76
current existing units, which represent 3,876 Vacation Ownership Interests.
The Company's Current Inventory at this resort consists primarily of
previously-sold Vacation Ownership Interests that the Company has since
reacquired in connection with defaults under customer mortgages. The Company
has no plans to build any additional units at this resort.
(f) Hampton Vacation Resort--Oak Plantation consists of 242 existing units,
representing 12,342 annual Vacation Ownership Interests. Prior to its
acquisition by the Company in June 1996, this property was operated by a
third party as a rental apartment complex. The Company commenced conversion
of the property into a vacation ownership resort in July 1996. As of
December 31, 1997, the conversion of 169 units (representing 8,619 annual
Vacation Ownership Interests) had been completed. The Company intends to
convert the remaining 73 units at various times depending upon general
market conditions and other factors. The Company currently has no plans to
build any additional units at this resort. Hampton Vacation Resort--Oak
Plantation is operated on a franchise basis as the first Hampton Vacation
Resort pursuant to the Promus Agreement (as defined herein).
(g) Eagle Point Resort consists of 54 existing units, representing 2,754
Vacation Ownership Interests. This resort was acquired by the Company
pursuant to the Acquisition in September 1997, and is owned and operated by
the Company.
(h) Falcon Point Resort consists of 58 existing units, representing 2,958
Vacation Ownership Interests and 24 additional planned units to be
constructed on property which the Company recently acquired (representing an
additional 1,224 unsold annual Vacation Ownership Interests). This resort
was acquired by the Company pursuant to the Acquisition in September 1997,
and is owned and operated by the Company.
(i) Villas of Cave Creek consists of 25 existing units, representing 1,275
Vacation Ownership Interests and 10 additional planned units (representing
an additional 510 unsold annual Vacation Ownership Interests). This resort
was acquired by the Company pursuant to the Acquisition in September 1997,
and is owned and operated by the Company.
(j) In December 1996, the Company acquired the initial 14 acres of unimproved
land in Myrtle Beach, South Carolina for the development of the Embassy
Vacation Resort at Myrtle Beach. The Company also has an option until
December 31, 2003 to acquire up to 26 additional acres of contiguous
property for phased expansion of this resort. The Company commenced
construction of the 44-unit first phase of this resort (representing 2,244
annual Vacation Ownership Interests) during the third quarter of 1997.
Because the Company constructs additional units at its resorts based on
general market conditions and other factors, construction of the remaining
506 units at this resort (assuming acquisition of the remaining 26 acres)
will be commenced from time to time as demand and other conditions merit.
Myrtle Beach will be operated as an Embassy Vacation Resort franchise
pursuant to the terms of the Promus Agreement.
(k) Vistana Resort at World Golf Village will consist of an estimated 408 units,
representing an estimated 20,808 annual Vacation Ownership Interests, of
which 102 units, representing 5,202 annual Vacation Ownership Interests, are
currently under construction and scheduled for completion in the second
quarter of 1998. The Company intends to commence construction of the
remaining 306 additional units from time to time as demand and other
conditions merit.
(l) PGA Vacation Resort by Vistana will consist of an estimated 387 units,
representing an estimated 19,737 annual Vacation Ownership Interests, and
will be constructed by the Company on 25 acres of land which the Company
acquired in September 1997. The Company anticipates that it will commence
construction of the 40-unit first phase of this resort (representing 2,040
annual Vacation Ownership Interests) during the first quarter of 1998.
Because the Company constructs additional units at its resorts based on
general market conditions and other factors, construction of the remaining
347 units at this resort is expected to be commenced from time to time as
demand and other conditions merit.
(m) The Embassy Vacation Resort at Scottsdale will consist of an estimated 150
units, representing 7,650 Vacation Ownership Interests, and will be
constructed by the Company on approximately 10 acres of land which the
Company acquired in 1997. The Company anticipates that it will commence
construction during the first quarter of 1998. The Scottsdale property will
be operated as an Embassy Vacation Resort franchise pursuant to the Promus
Agreement.
(n) Villas at Atlantis will consist of an estimated 375 units, representing
19,125 Vacation Ownership Interests. The Company anticipates that it will
commence construction of the 175-unit first phase of this resort
(representing 8,925 annual Vacation Ownership Interests) on five acres of
land during the second half of 1998. The Company intends to commence
construction of the remaining 250 additional units from time to time as
demand and other conditions merit.
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<PAGE>
Pricing of Vacation Ownership Interests. The following table sets forth the
current range of selling prices of annual and alternate-year Vacation Ownership
Interests at each of the Company's resorts:
<TABLE>
<CAPTION>
Selling Prices(a)
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Annual Vacation Alternate-year Vacation
Resort Ownership Interests Ownership Interests
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<S> <C> <C>
Vistana Resort(b).............................. 7,950 - $ 17,000 4,530 - $ 10,600
Vistana's Beach Club(c)........................ 8,995 - $ 9,950 N/A
Hampton Vacation Resort--Oak Plantation(d)..... 6,700 - $ 10,750 4,020 - $ 6,450
Eagle Point Resort(d).......................... 7,995 - $ 14,995 5,995 - $ 9,495
Falcon Point Resort(b)......................... 8,995 - $ 19,995 6,495 - $ 11,995
Villas of Cave Creek(c)........................ 13,495 - $ 13,495 9,495 - $ 9,495
Embassy Vacation Resort at Myrtle Beach(b)(e).. 5,230 - $ 13,495 4,920 - $ 9,600
Vistana Resort at World Golf Village(b)(e)..... 7,950 - $ 17,000 4,920 - $ 9,600
PGA Vacation Resort by Vistana(b)(e)........... 6,000 - $ 12,000 (f)
Embassy Vacation Resort at Scottsdale(e)....... 7,000 - $ 15,000 4,200 - $ 9,000
Villas at Atlantis(c).......................... Not determined (f)
</TABLE>
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(a) Selling prices vary depending upon the specific calendar week or season to
which a Vacation Ownership Interest relates and unit-specific factors.
(b) Includes one-, two- and two-bedroom lockoff unit Vacation Ownership
Interests.
(c) Includes two-bedroom unit Vacation Ownership Interests only.
(d) Includes one- and two-bedroom unit Vacation Ownership Interests.
(e) Resort not yet in operation. Selling prices listed reflect the actual range
of pre-opening prices at Embassy Vacation Resort at Myrtle Beach and the
anticipated range of selling prices at Vistana Resort at World Golf Village,
PGA Vacation Resort by Vistana, Embassy Vacation Resort at Scottsdale and
Villas at Atlantis.
(f) The decision to offer alternate-year Vacation Ownership Interests is made on
a site-by-site basis. As the Company has not yet commenced sales at these
properties, there has been no final decision with regard to offering
alternate-year Vacation Ownership Interests or pricing.
Vistana Resort (Orlando, Florida). Vistana Resort, the Company's flagship
vacation ownership property, is located less than one mile from the Walt Disney
World(R) Resort complex. Vistana Resort was the first vacation ownership resort
in Orlando. The resort has received the RCI Gold Crown designation since the
inception of the designation by RCI. Vistana Resort opened as a vacation
ownership resort in July 1980 with an initial phase, known as the Courts Villas,
containing 98 units on a 25-acre parcel. In November 1980, the Company purchased
an additional 100 acres of surrounding unimproved land, in 1987 the Company
purchased 15 acres of contiguous land and, in January 1993, it acquired the last
available contiguous parcel to Vistana Resort, consisting of 10 acres. Through
December 31, 1997, the Company had constructed a total of eight phases at
Vistana Resort.
The gated-access resort consists of a 135-acre complex that features tropical
landscaping, lakes, waterfalls, fountains, walking paths, scenic bridges and
gazebos. The resort's athletic facilities include six recreation centers, 13
lighted tennis courts, a tennis pro shop, six outdoor temperature-controlled
swimming pools, seven outdoor whirlpools, five children's pools, an 18-hole
miniature golf course,
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<PAGE>
lighted basketball courts, sand volleyball pits, shuffleboard courts and other
recreational amenities. Other guest-oriented amenities at Vistana Resort include
two restaurants and a general store containing a Pizza Hut(R) facility.
Accommodations at Vistana Resort as of December 31, 1997 consisted of 1,163 two-
bedroom units and 34 one-bedroom units, divided into eight villages. The units
at Vistana Resort sleep from four to eight people (depending upon floorplan) and
include amenities such as a fully-equipped kitchen, washer/dryer, three color
televisions with cable service, a videocassette player, and an outdoor terrace
or balcony. Most units have master bathrooms that include a whirlpool tub or
feature screened terraces or balconies with water views. Later phases include
units with an optional two-bedroom lockoff floor plan, a feature that allows the
unit to be divided into two separate one-bedroom units or a studio and a one-
bedroom unit, depending upon floor plan. Owners of the lockoff units have
increased flexibility regarding the use of their Vacation Ownership Interest,
including splitting the unit and using each portion for separate one-week
vacations.
Vistana's Beach Club (Hutchinson Island, Florida). Vistana's Beach Club on
Hutchinson Island is located on Florida's Treasure Coast, approximately 40 miles
north of West Palm Beach and approximately a two hour drive from Orlando.
Located on a 3.5-acre parcel, Vistana's Beach Club was purchased by the Company
in January 1989. The resort consists of one nine-story building containing 48
units and one eight-story building containing 28 units. The resort contains
numerous recreational amenities, including a freshwater swimming pool, outdoor
whirlpool, children's pool, elevated sun deck and access to two tennis courts.
Vistana's Beach Club contains 76 fully-equipped two-bedroom, two-bathroom
oceanfront units, each of which includes a terrace with a view of the Atlantic
Ocean. The units at Vistana's Beach Club sleep up to six people (depending upon
floorplan) and include amenities such as a fully-equipped kitchen, washer/dryer,
color televisions with cable service and a videocassette player. The Company
continues to manage and operate the property; however, sales at this resort
consist primarily of previously-sold Vacation Ownership Interests that the
Company has since reacquired in connection with defaults under customer
mortgages. RCI has awarded the resort its Gold Crown designation.
Hampton Vacation Resort--Oak Plantation (Kissimmee, Florida). In June 1996,
the Company acquired, through a related partnership, a 242-unit multifamily
rental apartment complex located in Kissimmee, Florida, approximately ten miles
from Walt Disney World(R) Resort, which it has converted in phases into a
vacation ownership resort. Sales of the first phase containing 32 units
commenced in October 1996. The gated-access 16-acre resort contains one- and
two-bedroom units, each of which offers a fully-equipped kitchen. The landscaped
resort includes a scenic lake with a lighted fountain, swimming pools and other
recreational amenities. The resort has received the Gold Crown designation from
RCI. Pursuant to the Promus Agreement, the Company operates the resort on a
franchise basis as the first Hampton Vacation Resort. The Company holds a 67%
controlling ownership interest in the limited partnership that operates the
resort.
Falcon Point Resort (Avon, Colorado). Falcon Point is a 58-unit condominium
resort located in Avon, Colorado at the foot of Beaver Creek Ski Area in Vail
Valley. Amenities include a clubhouse, a heated swimming pool, indoor and
outdoor hot tubs, sauna, ski lockers and a coin operated laundry. This resort
contains studio, as well as one- and two-bedroom units. All Falcon Point units,
except studios, contain a fully-equipped kitchen. In 1998, the Company intends
to develop an additional 24 units on a parcel of land adjacent to Falcon Point
Resort. Presales for this adjacent development are planned to begin in 1998. II
has awarded the resort its Five Star rating.
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Villas of Cave Creek (Cave Creek, Arizona). The Villas of Cave Creek is
comprised of 25, two-story villas located at the base of Black Mountain in the
Sonoran Desert foothills, just north of Scottsdale. Amenities include two
swimming pools, a clubhouse, an exercise room, a lawn game area and a
playground. All of the villas have a master suite, fully-equipped kitchen,
dining room, living room, a second bedroom and two full baths. II has awarded
the resort its Five Star rating.
Eagle Point Resort (Vail, Colorado). Eagle Point Resort is a 54-unit,
courtyard resort which is bordered by Gore Creek and located in Vail, Colorado.
Amenities include a heated swimming pool, indoor and outdoor hot tubs, a sauna
and a coin-operated laundry. Additionally, Eagle Point Resort offers a
complimentary shuttle service to the Lionshead Gondola at Vail during the ski
season. Eagle Point is equipped with one-and two-bedroom units, each of which
includes a fully-equipped kitchen. The Company continues to operate and manage
this resort; however, active sales have been completed.
Vistana Resort at World Golf Village (St. Augustine, Florida). In September
1996, through a related partnership, the Company commenced construction of the
first 102-unit phase of a 408-unit vacation ownership resort to be known as
Vistana Resort at World Golf Village. The first phase is expected to be
completed in the second quarter of 1988. The centerpiece of an approximately
6,000-acre planned community under development near St. Augustine, Florida,
World Golf Village is a destination resort which will contain the World Golf
Hall of Fame, championship golf courses and other amenities. The units at
Vistana Resort at World Golf Village, which will consist of one- and two-bedroom
units, will sleep from four to eight people (depending upon floorplan) and
include features such as a fully-equipped kitchen, washer/dryer, color
televisions with cable service, a videocassette player and an outdoor terrace or
balcony. The resort will be located adjacent to the 17th and 18th fairways of
the first golf course at World Golf Village. Resort guests and owners will have
preferred access to daily tee times on the course.
World Golf Village is being developed in conjunction with World Golf
Foundation, Inc., which is supported by the world's leading golf organizations
and was formed to build and operate the World Golf Hall of Fame. The member
organizations of World Golf Foundation, Inc. include the PGA Tour, PGA of
America, Ladies Professional Golf Association, Augusta National Golf Club, Royal
Canadian Golf Association, Royal & Ancient Golf Club of St. Andrews, PGA
European Tour, PGA Tour of Japan and FNB Tour of Southern Africa.
In addition to the World Golf Hall of Fame and the Company's vacation
ownership resort, the World Golf Village resort complex will also include a
championship golf course named in honor of Sam Snead and Gene Sarazen, a PGA
Tour licensed golf academy, the International Golf Library and Resource Center,
the 300-room World Golf Village Resort Hotel and 80,000-square foot St. Johns
County Conference Center, themed retail space, the headquarters and television
production studios for PGA Tour Productions and a theater. The component
facilities within World Golf Village will be linked by the Walk of Champions
honoring each member of the World Golf Hall of Fame. Two additional golf courses
are also planned.
The Company holds a 37.5% controlling ownership interest in a limited
partnership which is developing Vistana Resort at World Golf Village. The
partnership has the exclusive right to develop and market Vacation Ownership
Interests at World Golf Village, and has exclusive multi-year marketing
agreements for solicitation at key locations throughout World Golf Village,
including the hotel/conference center, golf course, Walk of Champions and retail
facilities. Neither the partnership
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nor the Company is developing World Golf Village itself or any of the other
facilities or amenities. The Company also has entered into an agreement with PGA
Tour Golf Course Properties, Inc. that allows the Company access to PGA Tour
databases for marketing purposes.
PGA Vacation Resort by Vistana (Port St. Lucie, Florida). In September 1997,
the Company purchased from an affiliate of PGA of America approximately 25 acres
of land within The Reserve community in Port St. Lucie, Florida for the purpose
of developing, marketing and operating a vacation ownership resort. The resort
will be developed as a PGA Vacation Resort by Vistana and will be contiguous to
the South Course of the PGA Golf Club at The Reserve, a nationally-acclaimed $15
million golf course complex that opened in early 1996. The South Course,
designed by Tom Fazio, was named the best new course in its price category by
Golf Digest magazine in December 1996. PGA of America has announced its
intention to open a golf learning center and to build a third golf course at the
facility. In addition to resort amenities and services comparable to the
Company's other resorts, the PGA Vacation Resort by Vistana will, pursuant to a
golf access agreement, also offer its owners and renters preferred access to the
PGA Golf Club and other PGA golf courses in St. Lucie County. Owners and renters
at the resort will be able to book tee times through a centralized reservation
system that is anticipated to be developed jointly by the Company and PGA of
America.
The resort is planned to contain approximately 387 units. The 40-unit first
phase is expected to be completed during the fourth quarter of 1998 or the first
quarter of 1999. The Company believes that PGA of America, through its
approximately 20,000 golf professionals and the Company's license to use PGA of
America's name, initials, trademark and logo, will provide strategic marketing
opportunities for the Port St. Lucie vacation ownership resort and any future
PGA Vacation Resorts developed by the Company. In September 1997, the Company
and PGA of America executed a long-term affiliation agreement which provides for
the development of future vacation ownership resorts and marketing and golf
access agreements for the Port St. Lucie, Florida property. See "--PGA of
America Relationship."
Embassy Vacation Resort at Myrtle Beach (Myrtle Beach, South Carolina). In
December 1996, the Company acquired an initial 14-acre parcel of unimproved land
on a 40-acre site in Myrtle Beach, South Carolina, on which the Company plans to
construct a vacation ownership resort with up to 550 units. The Company has
options to acquire the remaining 26 acres of land in multiple phases through
December 31, 2003. The resort will be centrally located in Myrtle Beach,
adjacent to Broadway at the Beach, a large entertainment and specialty retail
complex, which includes a Hard Rock Cafe and a Planet Hollywood restaurant.
Pursuant to the Promus Agreement, the Company will operate the resort on a
franchise basis as an Embassy Vacation Resort. The Company began pre-sales in
May 1997 and commenced construction of the 88-unit first phase during the third
quarter of 1997. The first phase is expected to be completed in mid-1998.
Embassy Vacation Resort at Scottsdale (Scottsdale, Arizona). The Company
plans to construct a 150-unit Embassy Vacation Resort at Scottsdale on a 10-acre
site which the Company recently purchased near the TPC Scottsdale golf course.
Construction of the 75-unit first phase is scheduled to begin during the second
quarter of 1998. Amenities are expected to include a 12,000 square-foot
clubhouse and reception building, a recreation complex, a free-form swimming
pool, a children's club and a fully-equipped fitness center. All of the villas
are anticipated to have two-bedrooms, two baths, a fully-equipped kitchen,
dining room, living room, and an in-room washer and dryer. The Scottsdale
property will be operated as an Embassy Vacation Resort franchise pursuant to
the Promus Agreement.
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Villas at Atlantis (Paradise Island, The Bahamas). In November 1997, the
Company and Sun entered into an agreement to form a 50-50 joint venture to
design, develop, sell and manage a planned vacation ownership resort with up to
375 units adjacent to Sun's Atlantis Resort and Casino on Paradise Island, The
Bahamas. Construction of the 175-unit first phase is expected to commence in the
second half of 1998 on approximately seven acres of land that Sun plans to
contribute to the joint venture. The Company plans to contribute approximately
$7 million to the joint venture as part of the first phase of development. The
agreement calls for Sun to oversee the development and construction and manage
the hospitality elements of the Villas at Atlantis, while the Company will
oversee all timeshare operations, including portfolio management, sales and
marketing, and property management services.
Accommodations at Villas at Atlantis are expected to consist of two-bedroom,
lockoff units, each of which will contain a separate master bedroom with a
whirlpool tub, a fully-equipped kitchen, and living and dining areas. Owners and
guests at the resort will have access to Sun's Atlantis Resort and Casino,
including all of its amenities. The Atlantis Resort and Casino is a 1,147-room
luxury resort with the largest casino in the Caribbean. A significant expansion
project containing an additional 1,208 rooms is currently under construction.
Amenities of the Atlantis Resort include a 14-acre waterscape, a lagoon,
waterfalls, a water slide, underground grottos, a rope suspension bridge and
five pools. Other amenities include 12 indoor and outdoor restaurants and six
lounges. Guests can also enjoy snorkeling, scuba diving, windsurfing, sailing,
championship tennis and golf, and an extensive children's program.
Risks Associated with Expansion into New Markets
Because the Company's proposed resorts near St. Augustine, Florida, Port St.
Lucie, Florida, Myrtle Beach, South Carolina, Scottsdale, Arizona, and Paradise
Island, The Bahamas are outside the Company's historical geographical area of
operation, the Company's resort development and operation experience in the
Orlando, Florida area does not ensure the success of the development or
operation of these properties or the marketing of Vacation Ownership Interests
at these locations. Accordingly, in connection with these and other proposed new
resorts, the Company may be exposed to a number of risks, including risks
associated with (i) the lack of local market knowledge and experience; (ii) the
inability to hire, train and retain sales, marketing and resort staff at new
locations; (iii) the inability to obtain, or obtain in a timely manner,
necessary permits and approvals from state and local government agencies and
qualified construction tradesmen at competitive prices; (iv) the inability to
secure sufficient marketing relationships with local hospitality, retail and
tourist attraction operators; (v) the inability to capitalize on the new
marketing relationships and development agreements associated with certain of
the Company's growth strategies; and (vi) the uncertainty involved in, and
additional costs which may be associated with, selling Vacation Ownership
Interests prior to completion of the related units. Additionally, with respect
to any vacation ownership resort located in a foreign market, the Company's
operations may be materially and adversely affected by developments with respect
to inflation, interest rates, government policies and regulations, price and
wage controls, exchange control regulations, exchange rates, taxation, political
and social instability and other political or economic developments in or
affecting such foreign jurisdiction.
Promus Relationship
In December 1996, the Company and Promus entered into the Promus Agreement,
an exclusive five-year agreement to jointly acquire, develop, market and operate
vacation ownership resorts in North America under Promus' Embassy Vacation
Resort, Hampton Vacation Resort and Homewood Vacation
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Resort brands. Promus is a wholly-owned operating subsidiary of Promus Hotel
Corporation, a New York Stock Exchange company, which is one of the largest
companies in the hotel industry. Under the Promus Agreement, the Company is
Promus' exclusive joint venture partner for the development and operation of
vacation ownership resorts in North America and also has the option of operating
vacation ownership resorts on a franchise basis. The Company is the sole
franchisee in North America of the Hampton Vacation Resort and the Homewood
Vacation Resort brands, and one of only two franchisees in North America of the
Embassy Vacation Resort brand. In six selected markets agreed to by the parties,
the Company is the sole franchisee in North America of the Embassy Vacation
Resort brand. These six markets consist of three coastal areas of Florida
(including portions of the southeastern and western coasts of Florida and the
Panhandle); the coastal region between Jacksonville, Florida and Myrtle Beach,
South Carolina; Phoenix and Scottsdale, Arizona; and Palm Springs and Palm
Desert, California. The Promus Agreement precludes the Company from acquiring or
developing vacation ownership resorts with any other multi-hotel brand, but
preserves its ability to develop vacation ownership resorts in combination with
non-hotel brands (such as PGA of America), to develop vacation ownership resorts
with unique, non-multi-hotel brand hotel properties (such as the Atlantis Resort
and Casino), and to acquire or develop vacation ownership resorts under the
Vistana name (other than in the six selected markets referred to above).
Each vacation ownership resort jointly developed under the Promus Agreement
will be acquired, developed and operated by a newly-formed entity that will be
owned equally by Promus and the Company and will be managed by the Company. The
parties have agreed that each of these entities will enter into a sales and
marketing agreement with the Company, pursuant to which the Company will be
responsible for marketing and sales of Vacation Ownership Interests at the
resort and for which the Company will receive a fee based on a percentage of
sales and rental revenues. Additionally, the Company and Promus have agreed to
enter into a license agreement and hospitality management agreement, pursuant to
which Promus will license the applicable brand name and provide other
hospitality-related services at the resort and for which Promus will receive a
fee based on a percentage of sales and rental revenues. The Promus Agreement
provides that both parties must first offer vacation ownership resort
development opportunities in the six selected markets to the joint venture (with
certain exceptions for development of the Company's non-multi-hotel branded
resorts). In the event that one party elects not to pursue the opportunity, the
other party has certain rights to develop the resort independently or, in the
case of Promus, franchise an Embassy Vacation Resort to its existing franchisee.
However, if Promus elects not to pursue an opportunity through the joint
venture, the Company may elect to develop the resort as a Promus franchisee,
subject to Promus' standard franchise approval, on pre-agreed terms, conditions
and fees. In order to maintain its franchise relationship with Promus, the
Company may be required to incur expenditures and meet other obligations at the
franchised resorts required by the applicable franchise agreements, which may
(i) increase its operating costs, and (ii) limit the Company's flexibility with
respect to the operation of the applicable resort in order to comply with the
applicable franchise agreements. The amount of expenditures which the Company
may be required to incur and the amount of obligations which the Company may be
required to satisfy will depend upon, among other things, the extent to which
the applicable franchise agreement requires the Company to incur construction
and development costs, operating expenses and capital expenditures and
maintenance costs. The Promus Agreement may be terminated by either party in the
event that the parties have not jointly developed a resort during the first
three years of the Promus Agreement. The Promus Agreement is also terminable
upon a change in control of Promus or the Company.
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Although the Company and Promus are actively evaluating new resort
development opportunities for possible joint venture, no firm commitments have
been made for any joint venture developments. However, pursuant to the Promus
Agreement, Promus has granted franchises for two of the Company's properties:
(i) Hampton Vacation Resort--Oak Plantation, which is the first vacation
ownership resort to operate under the Hampton Vacation Resort brand and (ii) the
Embassy Vacation Resort at Myrtle Beach, currently under construction in South
Carolina. In addition, the parties have agreed to franchise the proposed resort
being developed in Scottsdale as an Embassy Vacation Resort.
The Company believes that its strategic relationship with Promus will offer
growth opportunities with respect to the development and operation of vacation
ownership resorts by enhancing the sales and marketing of Vacation Ownership
Interests and providing further management expertise. The Company anticipates
that such growth opportunities will occur as a result of Promus' strong brand
recognition, large customer base and extensive product development, marketing,
management and information technology capabilities. Moreover, the Company
believes that its strategic relationship with Promus will offer the Company
access to a target market of prospective customers who, because of their
favorable demographics and, in the case of Promus' Embassy Suites and Homewood
Suites hotel brands, preference for suite accommodations, will respond favorably
to the Company's resorts. The Company believes that the Embassy Vacation Resort,
the Hampton Vacation Resort and the Homewood Vacation Resort brands will
generally (i) conform to the relative price points; (ii) target similar
customers; and (iii) effect similar brand segmentation, as applicable to Promus'
Embassy Suites, Hampton Inn and Homewood Suites hotel brands, respectively.
There is no assurance that these anticipated benefits will accrue from the
Promus relationship or that Promus will prove to be a favorable partner for the
Company. Moreover, in order to maintain its franchise and joint venture
relationships with Promus, the Company may be required to incur franchise fees
and other expenditures which may (i) increase its operating costs and (ii) limit
the Company's flexibility with respect to the operation of the applicable
resort. The Promus Agreement may also prevent the Company from developing
resorts under its own name or entering into joint venture or franchise
agreements with other multi-hotel brand companies, even where such developments
or agreements would be in the Company's best interests.
In December 1997, Promus and Doubletree Corp., a Phoenix-based hotel
management company, merged to form a combined company called Promus Hotel
Corporation, the senior management of which is comprised of personnel from
Promus and Doubletree. Although the Company does not anticipate that the merger
will have any effect on the Promus Agreement, there can be no assurance that the
Company will continue to enjoy the same relationship which it has historically
had with Promus and its senior management.
PGA of America Relationship
The Company and an affiliate of PGA of America have entered into a ten-year
affiliation agreement (the "Affiliation Agreement"), pursuant to which the
Company has the exclusive right to acquire, develop, manage, market and sell
vacation ownership resorts in St. Lucie County, Florida, and potentially in
other, yet to be determined, areas, under the PGA name, initials, trademark and
logo. PGA Vacation Resort by Vistana is the first resort that will be developed
pursuant to the Affiliation Agreement. See "--Company Resorts."
Under the Affiliation Agreement, the Company has the right of first offer to
be the developer of additional PGA vacation resorts at other potential
properties (outside St. Lucie County, Florida)
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identified by the Company or by PGA of America or its affiliates. If the parties
mutually agree to develop any other property, the Company will have the
exclusive rights and licenses to use the PGA name, initials, trademark and logos
in connection with such property. In the event that either party elects not to
pursue development of another potential resort, the other party has certain
rights to develop that resort independently. Except for Port St. Lucie, there
are no current commitments for development of any other vacation ownership
resorts, and there is no assurance that the parties will successfully negotiate
and execute any future development agreements. If the Company and PGA of America
enter into future development agreements, the Affiliation Agreement contemplates
that the parties will execute similar agreements and covenants as those
regarding the PGA Vacation Resort by Vistana.
The Company's exclusive right to develop the PGA Vacation Resort by Vistana,
and its right of first offer for other potential vacation ownership resorts,
does not apply to development projects outside St. Lucie County, Florida which
already bear the PGA name. Likewise, the Affiliation Agreement does not limit,
prohibit or restrict the Company or any of its affiliates from conducting its
business in any manner it determines to be necessary or advantageous to it,
including, without limitation, developing, marketing, managing, owning,
operating or selling vacation ownership resorts other than the PGA Vacation
Resort by Vistana or other properties that may be developed by the parties.
The Company has the right under the Affiliation Agreement, but not the
obligation, to include one or more of the PGA Vacation Resorts in a vacation
club or other exchange program in combination with other vacation resorts of
comparable or superior quality owned or operated by the Company or one of its
affiliates, subject to PGA of America's approval.
In addition, the Company and PGA of America entered into a marketing
agreement under which the Company is granted access to the PGA mailing list
(which includes over 72,000 names of PGA members, apprentices and business
contacts) as well as media recognition in publications such as the PGA News, the
PGA International Golf Show Directory and listing on the PGA website. See "--
Company Resorts."
Acquisition of Success and Points
On September 16, 1997, the Company completed the acquisition (the
"Acquisition") of entities comprising The Success Companies, Success
Developments, L.L.C. and Points of Colorado, Inc. (collectively, "Success and
Points") from Donald J. Dubin, Larry D. Doll, Ronald R. Sharp, David E. Bruce
and David E. Friedman (collectively, the "Sellers"). Pursuant to the Agreement
and Plan of Reorganization dated as of August 15, 1997 (the "Agreement and Plan
of Reorganization"), the Company acquired all of the outstanding stock of
Success and Points for a purchase price consisting of approximately $24 million
in cash (financed with bank borrowings of approximately $24 million) and 638,444
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"). Delivery of 430,814 of such shares is contingent upon Success and
Points achieving certain operating results on a quarterly basis during the
calendar years 1998 through 2000. The consideration was determined as a result
of arm's-length negotiations between the Company and the Sellers. In addition, a
wholly-owned subsidiary of the Company entered into employment agreements with
each of the Sellers pursuant to which each of them serves as an officer of such
subsidiary.
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In connection with the Acquisition, the Company has agreed to file and use
its reasonable best efforts to cause to be declared effective prior to
approximately March 31, 1998, a shelf registration statement with the Commission
for the purpose of registering the 207,630 shares of Common Stock issued by the
Company in connection with the Acquisition and the 430,814 shares of Common
Stock contingently deliverable by the Company in connection with the
Acquisition. The Company has agreed to use its reasonable best efforts to keep
this shelf registration statement effective for a period ending on the earlier
of (i) such date as all of such shares of Common Stock are tradeable without
restriction under the Securities Act and (ii) the first date on which all of the
shares of Common Stock subject to the shelf registration statement have been
sold pursuant to the shelf registration statement. The Company will bear the
expenses incident to the registration of such shares of Common Stock, except for
any underwriting discounts or commissions, or transfer taxes relating to such
shares of Common Stock.
Prior to their acquisition by the Company, Success and Points were a closely-
held group of companies which developed, marketed, financed and operated three
vacation ownership resorts: (i) the Villas of Cave Creek, near Scottsdale,
Arizona; (ii) Eagle Point Resort in Vail, Colorado; and (iii) Falcon Point
Resort in Avon, Colorado. See "--Company Resorts." In addition, Success and
Points served, and the Company is continuing to serve, as the exclusive
marketing and sales agent for the largest vacation ownership resort in Colorado,
The Christie Lodge, located in Avon. As a result of the Acquisition, the Company
recently acquired undeveloped land in Scottsdale, Arizona on which it is
developing the Embassy Vacation Resort at Scottsdale.
Success and Points provided a foundation for the Company's sales, marketing
and resort operations in the western region of the United States and also
provided the Company with experience in direct marketing to consumers in Arizona
and Colorado. The Company believes that the strategic relationships and
operational expertise gained in the Acquisition will improve its ability to
identify additional developments and acquisitions in Arizona, Colorado and other
western states.
Additional Acquisitions and Expansion
The Company regularly examines opportunities to acquire additional vacation
ownership resorts, additional land for the expansion or development of vacation
ownership resorts, and companies having vacation ownership assets, management,
or sales or marketing expertise relevant to the Company's existing or future
business in the vacation ownership industry. Such acquisitions, if consummated,
may involve the issuance of additional debt or equity securities, increased debt
leverage, and business operations, geographic locations and risks that are
different from those associated with the Company's existing business. There is
no assurance that any such acquisitions will be consummated or, if consummated,
that they will be successfully integrated into the Company's business.
Sales and Marketing
Marketing Programs. The Company's current marketing efforts center on three
principal programs--the Vistana Preview Coordinator program (the "VPC Program"),
the VIP/In-House Program and international brokerage and sales operations. In
addition to these programs, the Company also utilizes a variety of other
marketing approaches, including vacation sampler programs (designed to allow a
prospective purchaser to be a guest at the resort and to experience vacation
ownership prior to making a decision to buy), telemarketing, direct mail and,
more recently, strategic alliances with travel, lodging
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and recreational partners, such as Promus and PGA of America. The Company
intends to increase its telemarketing, vacation sampler, and strategic alliance
marketing programs during future periods. Each of the Company's marketing
programs seeks to provide consistent access to qualified prospective buyers and
involves specific target marketing to leisure industry customers.
The VPC Program consists of public contact marketing by an employee of the
Company who provides concierge-type services in the lobby of a hotel or
condominium vacation property, or at other attractions near one of the Company's
resorts. The goal of the VPC Program is to generate a regular flow of qualified
potential Vacation Ownership Interest purchasers to visit the on-site sales
centers at the Company's resorts. Any loss or increase in the cost of the
Company's VPC Program sites could have a material adverse effect on the Company.
The VIP/In-House Program focuses on guests staying at the Company's vacation
ownership resorts, whether they are owners, renters or exchangers. Through a
combination of guest services and telephone contact, these guests are invited to
a VIP tour of the vacation ownership resort. This program is more effective at
larger resorts, such as Vistana Resort in Orlando, which have a high number of
owners, renters, and exchangers.
In order to enhance its sales and marketing operations, in November 1997, a
newly-formed subsidiary of the Company acquired substantially all of the assets
of three related entities engaged in the tour generation, guest services and
marketing businesses in Florida. In January 1998, the Company also acquired the
assets of a telemarketing firm.
In addition to the Company's domestic operations, the Company uses a
combination of independent brokers and direct sales offices to sell Vacation
Ownership Interests in its resorts to customers in various foreign countries,
primarily in Central and South America. In light of the increasing popularity of
central Florida among overseas visitors and the overall rise in vacation
ownership worldwide, the Company believes that the international market presents
significant growth opportunities. However, international interest in the
Company's future resorts is expected to vary depending upon the location of the
project. During the year ended December 31, 1997, approximately 34% of the
Company's sales were to foreign purchasers (with all sales made in United States
dollars), including sales made to customers visiting the United States and sales
made to foreign purchasers who buy the Vacation Ownership Interest "sight
unseen" based on the Company's reputation for delivering a high-quality
experience. The Company is currently increasing the number of overseas marketing
offices owned directly by the Company. The Company's intentional sales generally
involve higher sales and marketing expenses and greater risks than its sales to
domestic purchasers. These risks include potential adverse effects from foreign
governmental policies and regulations, inflation, interest rates, price and wage
controls, exchange control regulations, exchange rates, taxation, political and
social instability and other political or economic developments in or affecting
such foreign jurisdictions.
Sales Focus. The Company's marketing efforts are currently supported by
resort-based sales operations, which, in the Company's view, have been the
foundation of the Company's successful performance during its history.
Prospective purchasers are given a personalized on-site tour of the Company's
resorts and provided information about vacation ownership and available
financing options. Presentations to potential buyers, which typically last
between two and one-half and four hours, are individually tailored to take into
account each guest's particular needs and background, such as vacationing habits
and familiarity with the vacation ownership concept. Prior to closing, each sale
is verified by a settlement manager who reviews all documents and pertinent
facts of the sale with the
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purchaser and is available to answer any questions that the new owner may have.
The Company is continuing to evaluate new sales techniques.
Because the most critical component of the Company's sales effort is its
sales personnel, the Company strives to attract, train and retain a superior
sales force. The Company's policy is for each of its sales representatives to be
a licensed real estate professional and undergo instruction and training. In
addition, except for certain independent contractors, each sales representative
is an employee of the Company and receives full employment benefits. See "--
Governmental Regulation."
Customer Financing
The Company extends financing to purchasers of Vacation Ownership Interests
at its resorts. These purchasers generally make a down payment equal to at least
10% of the sales price and borrow the remaining sales price from the Company.
These borrowings bear interest at fixed rates, are secured by first mortgages on
the underlying Vacation Ownership Interests and amortize over periods ranging up
to ten years. The Company funds its resort acquisition and development and
operations in part by borrowing up to 90% of the aggregate principal amount of
its customer mortgages receivable under its credit facilities. As of December
31, 1997, the Company's credit facilities provided for an aggregate of up to
approximately $185.0 million of available customer mortgages receivable
financing to the Company (assuming the availability of sufficient receivables)
bearing interest at variable rates based on a specified reference rate. As of
December 31, 1997, the Company had approximately $79.2 million of indebtedness
outstanding under its existing customer mortgages receivable credit facilities
at a weighted average interest rate of 9.5% per annum secured by the Company's
pledge of a portion of its customer mortgages receivable. As of December 31,
1997, the Company had a portfolio of approximately 26,068 loans to customers
totalling approximately $155.0 million, net, with an average contractual yield
of 14.2% per annum. As of December 31, 1997 (i) approximately 3.0% of the
Company's customer mortgages receivable were 60 to 120 days past due; and (ii)
approximately 4.0% of the Company's customer mortgages receivable were more than
120 days past due and the subject of legal proceedings. The Company's provision
for doubtful accounts for the year ended 1997 was 6.9% of Vacation Ownership
Interest sales. The Company periodically monitors its provision for doubtful
accounts to provide for future losses associated with any defaults on customer
mortgages receivable and provides for additions to the allowance for loss on
receivables through its provision for doubtful accounts on an annual basis.
Management believes that the allowance is adequate for such future losses.
The Company has historically derived net interest income from its financing
activities as a result of the positive difference between the interest rates it
charges its customers who finance their purchase of a Vacation Ownership
Interest and the interest rates it pays its lenders. Because the Company's
indebtedness bears interest primarily at variable rates and the Company's
customer mortgages receivable bear interest at fixed rates, the Company bears
the risk of increases in interest rates with respect to its indebtedness. The
Company engages in limited interest rate hedging activities from time to time in
an effort to reduce the risk and impact of increases in interest rates with
respect to such indebtedness. There is no assurance such activities will be
adequate to protect the Company fully from any adverse changes in interest
rates. In addition, the Company also faces the risk that a reduction in interest
rates would cause customers to prepay their mortgages, which would reduce the
Company's income from financing activities.
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The Company does not presently have existing credit facilities or binding
lender commitments to supply all of the financing the Company anticipates that
it will need to construct and develop all of the resorts it plans to develop and
market, and there can be no assurance that alternative or additional credit
arrangements can be obtained on terms that are satisfactory to the Company.
Accordingly, future sales of Vacation Ownership Interests may be limited by the
availability of funds to finance the initial negative cash flow attributable to
Vacation Ownership Interest sales financed by the Company (i.e., the amount by
which the Company's product cost and marketing, sales and general administrative
expenses per Vacation Ownership Interest exceeds the customer's down payment).
In addition, if the Company were required to sell its customer mortgages
receivable in order to satisfy its cash flow needs, the Company would cease to
be eligible to report income attributable to sales of Vacation Ownership
Interests on the installment sales method for federal income tax purposes and,
as a result, the Company would be required to accelerate the payment of a
substantial federal income tax liability with respect to the customer mortgages
receivable sold. Such an event could have a material adverse effect on the
Company's cash flow from operations.
The Company bears the risk of defaults under its customer mortgages on
Vacation Ownership Interests. If a purchaser of a Vacation Ownership Interest
defaults on the mortgage during the early part of the loan amortization period,
the Company will not have recovered its marketing, selling (other than certain
sales commissions), and general and administrative costs per Vacation Ownership
Interest, and such costs will again be incurred in connection with the
subsequent resale of the Vacation Ownership Interest. As is sometimes the
practice in the vacation ownership industry, the Company does not verify the
credit history of its customers. Based on the Company's historical customer
default rate, the fact that its customers are required to make a down payment of
at least 10% of the purchase price of a Vacation Ownership Interest (which the
Company views as indicative of a customer's financial wherewithal to meet
obligations under the mortgage related to the Vacation Ownership Interest) and
that the customer mortgage is secured by the underlying Vacation Ownership
Interest, the Company does not believe that credit history verification is cost-
effective or necessary. In addition, although in certain jurisdictions
(including Florida) the Company may seek recourse against a defaulting customer
for the sales price of the Vacation Ownership Interest, the Company has not
historically pursued such a remedy. Accordingly, there is no assurance that the
sales price will be fully or partially recovered from a defaulting customer or,
in the event of such defaults, that the Company's allowance for loss will be
adequate.
The Company had historically provided customer mortgages receivable financing
for up to seven years, as had been typical for the industry. Over the past
several years, industry trends have been to lengthen the term of such financing
to up to ten years. The Company has recently begun to offer ten-year financing
for certain of its customer mortgages receivable. Although the increased term
has been introduced on a limited basis, there is no assurance that the inclusion
of customer mortgages with a ten-year maturity will not have an adverse effect
on the performance of the Company's portfolio of customer mortgages receivable.
Other Operations
Room Rental Operations. In order to generate additional revenues at its
resorts that have an inventory of unused or unsold Vacation Ownership Interests,
the Company rents units with respect to such Vacation Ownership Interests on a
nightly or weekly basis. The Company offers these unoccupied units through
direct consumer sales, travel agents and package vacation wholesalers. In
addition to
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providing the Company with supplemental revenues, the Company's room rental
operations provide it with a good source of lead generation for the sale of
Vacation Ownership Interests. As part of the management services provided by the
Company, at the request of a Vacation Ownership Interest owner, the Company, for
a fee equal to 50% of a unit's rental rate, net of commissions, generally will
rent an owner's Vacation Ownership Interest in the event the owner is unable to
use or exchange the Vacation Ownership Interest. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Resort Management. The Company currently provides both hospitality and
homeowners' association management services at its existing vacation ownership
resorts, and intends to provide, or arrange for the provision of, the same
services, directly or through subcontracts with third parties, at its future
vacation ownership resorts pursuant to management agreements with the
homeowners' associations present at such resorts (which are comprised of owners
of Vacation Ownership Interests at the resort or, in the case of Vistana Resort,
a particular phase of the resort). Pursuant to each such management agreement
the Company is paid by the applicable homeowners' association an annual
management fee which is generally equal to approximately 10% of applicable costs
and expenses incurred by the homeowners' association. The Company is responsible
for, and has authority over, all activities necessary for the day-to-day
operation of the resorts, including administrative services, procurement of
inventories and supplies, and promotion and publicity. Management agreements
between the Company and the homeowners' associations typically provide for an
initial term of three or more years, with automatic renewals. In general, the
homeowners' associations may remove the Company as manager upon obtaining the
requisite owner vote. The Company also provides, directly or indirectly,
managerial and other employees necessary for the operation of its resorts, whose
duties include, among other things, review of the maintenance of the resorts,
preparation of reports, budgets and projections and employee training.
Pursuant to management and submanagement agreements with the Company, Promus
will provide hospitality management services to the Embassy Vacation Resort at
Myrtle Beach and the Embassy Vacation Resort at Scottsdale and may provide such
services to other future resorts developed pursuant to the Promus Agreement. Sun
is also expected to provide hospitality management services to the proposed
Villas at Atlantis resort. These services will be provided for a negotiated
management fee which in some cases may result in a sharing of the homeowner
association management fee payable to the Company.
Telecommunications Services. The Company's telecommunications business
generates revenues from the installation of telephone, data and cable television
equipment and infrastructure at certain of its resorts, the rental of telephone
and related cable and equipment to the homeowners' associations, and the
provision of ongoing long-distance telephone and cable television service at its
resorts pursuant to contracts with the homeowners' associations. The Company
also derives revenues from providing telecommunications design and installation
services as a contractor or subcontractor to third parties, including hotels,
universities, hospitals and airports.
Participation in Vacation Ownership Interest Exchange Networks
In a 1995 study sponsored by the Alliance for Timeshare Excellence and ARDA,
exchange opportunity was cited by purchasers of Vacation Ownership Interests as
one of the most significant factors in their decision to purchase a Vacation
Ownership Interest. The Company believes that
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consumers are more likely to purchase its Vacation Ownership Interests as a
result of the Company's participation in the Vacation Ownership Interest
exchange network operated by RCI and II. Membership in RCI or II allows the
Company's customers to exchange in a particular year their occupancy right in
the unit in which they own a Vacation Ownership Interest for an occupancy right
at the same time or a different time in another participating resort, based upon
availability and the payment of a variable exchange fee. A member may exchange
his or her Vacation Ownership Interest for an occupancy right in another
participating resort by listing the Vacation Ownership Interest as available
with the exchange network operator and by requesting occupancy at another
participating resort, indicating the particular resort or geographic area to
which the member desires to travel, the size of the unit desired and the period
during which occupancy is desired. The exchange network assigns a rating to each
listed Vacation Ownership Interest, based upon a number of factors, including
the location and size of the unit, the quality of the resort and the period of
the year during which the Vacation Ownership Interest is available, and attempts
to satisfy the exchange request by providing an occupancy right in another
Vacation Ownership Interest with a similar rating. If RCI or II is unable to
meet the member's initial request, the network operator suggests alternative
resorts based on availability. Participants in RCI and II generally pay an
annual membership fee plus an additional fee for each exchange.
The agreements between one of the Company's predecessors and RCI generally
provide that, until May 2001, the RCI exchange program will be the only exchange
program permitted at resorts developed by that entity and any other entity which
it controls. In addition, Messrs. Gellein and Adler have agreed with RCI that,
until May 2001, each vacation ownership resort owned, developed or managed by an
entity in which Messrs. Gellein or Adler, individually or collectively, have a
controlling interest will execute an affiliation agreement with RCI with an
initial six-year term.
Competition
The Company is subject to significant competition from other entities engaged
in the leisure and vacation industry, including vacation ownership resorts,
hotels, motels and other accommodation alternatives.
The vacation ownership industry historically has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with small resort portfolios generally of differing quality.
More recently, many of the world's most widely-recognized lodging, hospitality
and entertainment companies have begun to develop and sell Vacation Ownership
Interests under their brand names, including Marriott International, Inc., The
Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons
Hotels & Resorts, Inc., Inter-Continental Hotels and Resorts, Inc., Westin
Hotels & Resorts and Promus. In addition, other publicly-traded companies
focused on the vacation ownership industry, such as Signature Resorts, Inc.,
Fairfield Communities, Inc., Silverleaf Resorts, Inc., Trendwest Resorts, Inc.
and Bluegreen Corporation have competed, currently compete, or may in the future
compete, with the Company. Moreover, competition in the Orlando market is
particularly intense, and includes many nationally recognized lodging,
hospitality and entertainment companies, as well as active privately-owned local
operators of vacation ownership resorts such as Central Florida Investments,
Inc. and Orange Lake Country Club. Significant competition also exists in other
markets in which the Company currently operates or is developing vacation
ownership resorts. Certain entities with which the Company competes possess
significantly greater financial, sales and marketing, personnel and other
resources than those of the Company and may be able to grow at
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a more rapid rate or more profitably as a result. Management believes that
competition in the vacation ownership industry will be increased by
consolidation in the industry, by increased development of vacation ownership
resorts by industry participants, and by the entry into the industry of real
estate investment trusts and additional hospitality companies.
Governmental Regulation
General. The Company's marketing and sales of Vacation Ownership Interests
and other resort operations are subject to extensive regulation by the federal
government and the states in which the Company's resorts are located and in
which its Vacation Ownership Interests are marketed and sold. Federal
legislation to which the Company is or may be subject includes the Federal Trade
Commission Act, the Fair Housing Act, the Truth-in-Lending Act, the Real Estate
Settlement Procedures Act, the Equal Credit Opportunity Act, the Interstate Land
Sales Full Disclosure Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act and the Civil Rights
Acts of 1964 and 1968. The Florida Condominium Act and the Florida Vacation Plan
and Timesharing Act extensively regulate the creation and management of
timeshare condominiums, the marketing and sale of Vacation Ownership Interests,
the escrow of purchaser funds and other property prior to completion of
construction and closing, the content and use of advertising materials and
promotional offers, the creation and operation of exchange programs and multi-
site timeshare plan reservation systems, and the resale of Vacation Ownership
Interests. In addition, many states have adopted similar legislation as well as
specific laws and regulations regarding the sale of Vacation Ownership
Interests. The laws of most states, including Arizona and Florida, require a
designated state authority to approve a detailed offering statement describing
the Company and all material aspects of the resort and sale of Vacation
Ownership Interests at such resort. In addition, the laws of most states in
which the Company sells Vacation Ownership Interests grant the purchaser of a
Vacation Ownership Interest the right to rescind a contract of purchase at any
time within a statutory rescission period. Furthermore, most states have other
laws which regulate the Company's activities, such as real estate licensure
laws, travel sales licensure laws, anti-fraud laws, telemarketing laws, prize,
gift and sweepstakes laws, and labor laws. The Company believes that it is in
material compliance with all applicable federal, state, local and foreign laws
and regulations to which it is currently subject.
Environmental Matters. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate, remediate and remove hazardous or
toxic substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and for
investigation remediation and removal costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and
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costs it incurs in connection with the contamination. Finally, the owner or
operator of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from a
site. In connection with its ownership and operation of its properties, the
Company may be potentially liable for such costs.
The Company has conducted Phase I environmental assessments at each of its
existing resorts, properties under development and properties subject to
acquisition in order to identify potential environmental concerns. These Phase I
assessments have been carried out in accordance with accepted industry practices
and consisted of non-invasive investigations of environmental conditions at the
properties owned by the Company, including a preliminary investigation of the
sites and identification of publicly known conditions concerning properties in
the vicinity of the sites, physical site inspections, review of aerial
photographs and relevant governmental records where readily available,
interviews with knowledgeable parties, investigation for the presence of above-
ground and underground storage tanks presently or formerly at the sites, a
visual inspection of potential lead-based paint and suspect friable asbestos
containing materials where appropriate, a radon survey, and the preparation and
issuance of written reports. The Company's assessments of its properties have
not revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business, assets, financial condition
or results of operations, nor is the Company aware of any such material
environmental liability.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties.
Other Regulations. Under various state and federal laws governing housing
and places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management believes that the Company's resorts are substantially in compliance
with present requirements of such laws, the Company may incur additional costs
of compliance in connection with the development of new resorts, or conversion
or renovation of existing resorts. Additional legislation may impose further
burdens or restriction on owners with respect to access by disabled persons. The
ultimate amount of the cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material effect
on the Company, such costs could be substantial. Limitations or restrictions on
the completion of certain renovations may limit application of the Company's
growth strategy in certain instances or reduce profit margins on the Company's
operations.
Employees
As of December 31, 1997, the Company had approximately 1,984 full-time
employees and utilized the services of approximately 71 independent contractors
as sales agents. The Company believes that its employee relations and relations
with its independent contractors are good. None of the Company's employees are
represented by a labor union.
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Insurance
The Company carries comprehensive liability, fire, windstorm, tropical storm
and business interruption insurance with respect to its properties and interests
in its resorts (i.e., its inventory of unsold Vacation Ownership Interests) with
policy specifications, insured limits and deductibles customarily carried for
similar properties which the Company believes are adequate. However, there are
certain types of losses that are not generally insured because they are either
uninsurable or not economically feasible to insure and for which the Company
does not have insurance coverage. Should an uninsured loss or a loss in excess
of insured limits occur, the Company could lose its investment in a resort as
well as the anticipated future revenues from such resort, and would continue to
be obligated on any mortgage indebtedness or other obligations related to the
resort. Moreover, if a homeowners' association fails to adequately insure the
property committed to the condominium form of ownership (typically, all units,
common areas, facilities and amenities), any uninsured or under-insured casualty
may affect the Company's ability to collect customer mortgages receivable
related to such condominium property. In addition, certain of the Company's
vacation ownership resorts are located in areas that are susceptible to tropical
storms, hurricanes, and tornadoes. The Company's resorts could suffer
significant damage as a result of wind storms, hurricanes, floods and other
natural disasters. Any such damage, as well as adverse weather conditions
generally, could impair or delay the Company's ability to sell Vacation
Ownership Interests at its resorts and have a material adverse effect on the
Company's results of operations.
Item 2. Properties.
The Company's other owned properties include an office plaza consisting of
two three-story buildings (totalling approximately 67,000-square feet), which
headquarters the Company's administrative operations, a 27,000-square foot two-
story reception center and resort operations complex, maintenance and laundry
facilities, a freestanding general store and a gift shop leased to an
unaffiliated entity. All of these other properties are owned by the Company, and
are located within or adjacent to Vistana Resort in Orlando. In addition, the
Company leases office and warehouse space in various locations near its existing
resorts and resorts under development for sales and marketing, construction and
development, and administrative operations.
Item 3. Legal Proceedings.
The Company is currently subject to litigation and claims respecting
employment, tort, contract, construction and commission disputes, among others.
In the judgment of the Company, none of these lawsuits or claims against the
Company, if adversely decided, is expected to have a material adverse effect on
the Company, its business, results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of its fiscal year ended December 31, 1997.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's initial public offering of Common Stock was consummated in
March 1997 (the "Initial Public Offering") at an initial public offering price
of $12.00 per share. The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol "VSTN." The following table sets forth, for the periods
indicated, the range of high and low sale prices for the Common Stock, as quoted
on the Nasdaq National Market.
<TABLE>
<CAPTION>
Common Stock
-----------------------
High Low
---------- -----------
<S> <C> <C>
Year Ending December 31, 1997:
First Quarter (commencing February 28, 1997).. $ 5 7/8 $ 11
Second Quarter................................ 15 1/2 9
Third Quarter................................. 22 7/8 14 3/4
Fourth Quarter................................ 27 3/4 18 1/2
</TABLE>
As of March 1, 1998, there were 21,007,630 shares of Common Stock
outstanding, held by approximately 55 shareholders of record.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate declaring or paying cash dividends on its Common
Stock in 1998 or in the foreseeable future. The Company currently intends to
retain future earnings to finance its operations and fund the growth of its
business. Any payment of future dividends will be at the discretion of the Board
of Directors of the Company and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect of the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
In March 1997, investors in the Company's predecessor general partnerships,
limited partnerships and corporations contributed their interests in such
entities to the Company in consideration for the issuance of 14,174,980 shares
of Common Stock. See "Item 13. Certain Relationships and Related Party
Transactions." Such securities were issued by the Company concurrently with the
completion of the Initial Public Offering in reliance upon an exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof.
Item 6. Selected Financial Data.
There is hereby incorporated by reference the information appearing under
the caption "Selected Financial Data" appearing in the Company's 1997 Annual
Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
There is hereby incorporated by reference the information appearing under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operation" appearing in the Company's 1997 Annual Report to
Shareholders.
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Item 8. Financial Statements and Supplementary Data.
There is hereby incorporated by reference from the Company's 1997 Annual
Report to Shareholders the Consolidated Balance Sheets as of December 31, 1997
and 1996, the Consolidated Statements of Income, Consolidated Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1997, the Notes to Financial Statements, and the Report of KPMG Peat Marwick
LLP.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
There is hereby incorporated by reference the information appearing under
the captions "Proposal 1: Election of Directors" and "Executive Officers" in the
Company's definitive proxy statement for its 1998 Annual Meeting of
Shareholders.
Item 11. Executive Compensation.
There is hereby incorporated by reference the information appearing under
the captions "Executive Officers--Executive Compensation" and "Executive
Officers--Employment Agreements" in the Company's definitive proxy statement for
its 1998 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
There is hereby incorporated by reference the information appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's definitive proxy statement for its 1998 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Party Transactions.
There is hereby incorporated by reference the information appearing under
the caption "Certain Relationships and Related Transactions" in the Company's
definitive proxy statement for its 1998 Annual Meeting of Shareholders.
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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:
(1) Financial Statements
There is hereby incorporated by reference from the Company's 1997
Annual Report to Shareholders the following:
(i) Report of Independent Auditors;
(ii) Consolidated Balance Sheets--December 31, 1997 and 1996;
(iii) Consolidated Statements of Income for each of the three
years in the period ended December 31, 1997;
(iv) Consolidated Statements of Shareholders' Equity for each
of the three years in the period ended December 31, 1997;
(v) Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997; and
(iv) Notes to Financial Statements.
(2) Financial Statement Schedules
None.
(3) Exhibits:
EXHIBIT INDEX
Exhibit
Number Document Description
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2.1 Agreement and Plan of Reorganization dated as of August 15, 1997 among
Vistana, Inc., V Sub-1, Inc., Donald J. Dubin, Ronald R. Sharp, David
E. Bruce, Larry D. Doll, and David H. Freidman. Complete 1 and
Schedule 1.5A thereto (incorporated by reference to the
correspondingly numbered exhibit to the Current Report on Form 8-K
dated September 29, 1997 of Vistana, Inc. (File No. 0-29114))
3.1 Articles of Incorporation of Vistana, Inc. (1)
3.2 Amended and Restated By-Laws of Vistana, Inc. (2)
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4.1 Form of Common Stock certificate of Vistana, Inc. (1)
10.1 Employment Agreement, dated as of December 27, 1995, between Vistana,
Inc. and Raymond L. Gellein, Jr. (1, 3)
10.2 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Jeffrey A. Adler (1, 3)
10.3 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Matthew E. Avril (1, 3)
10.4 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Susan Werth (1, 3)
10.5 Employment Agreement, dated as of December 27, 1996, between Vistana,
Inc. and Carol Lytle (1, 3)
10.6 Employment Agreement, dated as of February 10, 1997, between Vistana,
Inc. and John M. Sabin (1, 3)
*10.6-A Agreement, dated as of February 5, 1998, between Vistana, Inc. and
John M. Sabin (3)
*10.6-B Employment Agreement, dated as of November 18, 1997, between Vistana,
Inc. and Charles E. Harris (3)
10.7 Amended and Restated Subscription Agreement, dated as of February 10,
1997, among Vistana, Inc. and each of the persons whose signatures
appear on the execution pages thereof (1)
10.8 Vistana Stock Plan (1, 3)
10.9 Vistana, Inc. Employee Stock Purchase Plan (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-8 of Vistana,
Inc. (File No. 333-35823))
10.10 Form of Indemnification Agreement between Vistana, Inc. and certain
officers and directors of Vistana, Inc. (1)
10.11 Registration Rights Agreement, dated as of February 10, 1997, among
Vistana, Inc., the Raymond L. Gellein, Jr. Retained Annuity Grantor
Trust, the Matthew James Gellein Irrevocable Trust, the Brett Tyler
Gellein Irrevocable Trust, the Raymond L. Gellein, Jr. Revocable
Trust, the JGG Holdings Trust, the Jeffrey A. Adler Revocable Trust,
Matthew E. Avril, Susan Werth, Carol A. Lytle, John M. Sabin, Barbara
L. Hollkamp, James A. McKnight, William McLaughlin and Alain Grange
(1)
*10.11-A Joinder to Registration Rights Agreement, dated as of November 18,
1997, between Vistana, Inc. and Charles E. Harris
*10.11-B Assignment and Assumption Agreement, dated as of December 21, 1997,
between Raymond L. Gellein, Jr., Trustee of Raymond L. Gellein, Jr.
Revocable Trust, and NevWest Limited Partnership
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*10.11-C Assignment and Assumption Agreement, dated as of December 21, 1997,
between Raymond L. Gellein, Jr., Trustee of JGG Holdings Trust, and
NevEast Limited Partnership
*10.11-D Assignment and Assumption Agreement, dated as of December 21, 1997,
between Jeffrey A. Adler, Trustee of Jeffrey A. Adler Trust, and Rija
Limited Partnership
10.12 Agreement for Affiliation, dated as of May 26, 1995, among Resort
Condominiums International, Inc., Vistana Development, Ltd., Raymond
L. Gellein, Jr. and Jeffrey A. Adler (1)
10.13 Limited Partnership Agreement of Vistana WGV, Ltd., dated as of June
28, 1995, among Vistana WGV Holdings, Inc., Vistana WGV Investment,
Ltd., United Timeshares, Inc. and A. Zimand WGV Investment, Inc. (1)
10.14 Parcel One Property Sale Agreement, dated as of June 4, 1996, By and
Between SJH Partnership, Ltd. and Vistana WGV, Ltd. (1)
10.15 Amended and Restated Joint Venture Agreement, dated as of June 25,
1996, among R. Edward Noble, Andrew E. Kidd, Noble-Kidd Corporation
and VCH Oaks, Ltd. (1)
10.16 Limited Partnership Agreement of VCH Oaks, Ltd., dated as of June 25,
1996, among VCH Oaks, Inc., R. Edward Noble, Andrew E. Kidd and
Vistana OP Investment, Ltd. (1)
10.17 Exclusive Joint Venture Agreement, dated as of December 24, 1996,
between Vistana Development, Ltd. and Promus Hotels, Inc. (1)
10.17-A First Amendment to Exclusive Joint Venture Agreement, dated February
7, 1997, between Vistana Development, Ltd. and Promus Hotels, Inc. (1)
10.17-B Second Amendment to Exclusive Joint Venture Agreement, dated February
27, 1997 between Vistana Development, Ltd. and Promus Hotels, Inc. (2)
10.17-C Third Amendment to Exclusive Joint Venture Agreement, dated May 1,
1997 between Vistana Development, Ltd. and Promus Hotels, Inc. (2)
10.18 Land Purchase Agreement, dated as of December 30, 1996, between Myrtle
Beach Farms Company Inc. and Vistana Myrtle Beach, L.P. (1)
10.19 Purchase and Sale Agreement dated as of August 12, 1997 by and between
PGA Golf Development, Inc. and Vistana PSL, Inc.(2)
10.19-A First Amendment to Purchase and Sale Agreement dated as of September
12, 1997 by and between PGA Golf Development, Inc. and Vistana PSL,
Inc. (2)
10.19-B Second Amendment to Purchase and Sale Agreement dated as of September
17, 1997 by and between PGA Golf Development, Inc. and Vistana PSL,
Inc. (2)
10.20 Affiliation Agreement dated as of September 15, 1997 by and between
PGA Golf Properties, Inc. and Vistana, Inc. (2)
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*10.21 Loan and Security Agreement, dated as of November 1, 1997, between
Vistana Timeshare Mortgage Corp., as Borrower, and Dresdner Bank AG
New York and Grand Cayman Branches, as Lender
*10.22 Line of Credit Agreement, dated as of November 1, 1997, among Vistana,
Inc. and Vistana Development, Ltd. and Dresdner Bank AG New York and
Grand Cayman Branches
*13.1 Vistana, Inc. 1997 Annual Report to Shareholders
*21.1 List of subsidiaries of Vistana, Inc.
*23.1 Consent of KPMG Peat Marwick LLP
*27.1 Financial Data Schedule
_________
*Filed herewith.
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registration Statement (File No. 333-19045) on Form S-1, as
amended, filed by Vistana, Inc. under the Securities Act of 1933, as
amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to
the Registration Statement (File No. 333-38187) on Form S-1, as
amended, filed by Vistana, Inc. under the Securities Act of 1933, as
amended.
(3) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
A Current Report on Form 8-K/A, dated October 16, 1997, was filed by the
Company with the Securities and Exchange Commission to report under Item 7
thereof, the financial statements, pro forma financial information and exhibits
regarding the Company's acquisitions of entities comprising The Success
Companies, Success Developments, L.L.C. and Points of Colorado, Inc.
A Current Report on Form 8-K/A, dated October 23, 1997, was filed by the
Company with the Securities and Exchange Commission to file a conformed
signature page to the Form 8-K/A dated October 16, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City Orlando,
State of Florida, on March 26, 1998.
Vistana, Inc.
By: /s/ RAYMOND L. GELLEIN, JR.
-------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and Co-Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 26, 1998 by the following persons on behalf of
the registrant and in the capacities indicated:
<TABLE>
<S> <C>
/s/ RAYMOND L. GELLEIN, JR. Chairman of the Board, Co-Chief Executive
- ------------------------------ Officer and Director (Principal Executive Officer)
Raymond L. Gellein, Jr.
/s/ JEFFREY A. ADLER President, Co-Chief Executive Officer and
- ------------------------------ Director
Jeffrey A. Adler
/s/ CHARLES E. HARRIS Vice Chairman of the Board, Chief Financial
- ------------------------------ Officer and Director (Principal Financial Officer)
Charles E. Harris
/s/ MARK E. PATTEN Vice President and Chief Accounting Officer
- ------------------------------ (Principal Accounting Officer)
Mark E. Patten
Director
- ------------------------------
James G. Brocksmith, Jr.
/s/ LAURENCE S. GELLER Director
- ------------------------------
Laurence S. Geller
/s/ STEVEN J. HEYER Director
- ------------------------------
Steven J. Heyer
</TABLE>
-30-
<PAGE>
Exhibit 10.6-A
EXECUTION COPY
--------------
AGREEMENT
---------
AGREEMENT (this "Agreement") dated as of February 5, 1998, effective for
all purposes and respects as of December 1, 1997, by and between VISTANA, INC.,
a Delaware corporation (the "Company"), and JOHN M. SABIN ("Sabin").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sabin has been employed by the Company as its Senior Vice
President, Chief Financial Officer and Treasurer pursuant to that certain
Employment Agreement dated as of February 10, 1997 (the "Employment Agreement")
between the Company and Sabin; and
WHEREAS, on November 11, 1997, the Company gave Sabin notice of its desire
to terminate the Employment Agreement; and
WHEREAS, the Company and Sabin desire to enter into this Agreement to
resolve certain matters relating to Sabin's employment by the Company.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Effect on Contract Employment. Sabin's employment by the Company
pursuant to the Employment Agreement shall be terminated as of December 1, 1997
(the "Notice Date"). All provisions of the Employment Agreement shall survive in
accordance with their respective terms, except as otherwise set forth herein.
2. Compensation; Severance Amount.
(a) The Company shall pay Sabin all compensation and other benefits
set forth in the Employment Agreement through the Notice Date.
(b) Subject to Section 4(b) hereof, and after giving effect to
Section 2(d) hereof, from and after the Notice Date, the Company shall pay Sabin
an aggregate of $520,000 (the "Severance Amount") in 24 equal monthly
installments of $21,667.67 commencing on the first business day of December 1997
and continuing on the first business day of each calendar month thereafter until
the Severance Amount is paid in full (it being understood that the Severance
Amount may, upon mutual agreement of the parties, be paid in 52 bi-weekly
payments of $10,000 in accordance with the Company's regular payroll practices).
All payments of the Severance Amount shall be made less all applicable tax
withholding and deductions.
<PAGE>
(c) On or before February 6, 1998, the Company shall determine the
amount of accrued vacation pay (net of any vacation time utilized by Sabin
through the Notice Date) to which Sabin was entitled as of the Notice Date, and
deliver a check payable to the order of Sabin in the amount of such accrued
vacation pay less all applicable tax withholding and deductions.
(d) On or before February 6, 1998, the Company shall pay to Sabin
$9,615.40, which amount represents the difference between the Severance Amount
payable to Sabin pursuant to Section 2(b) hereof and the Base Salary (as defined
in the Employment Agreement) paid to Sabin from and after the Notice Date
through February 6, 1997.
3. At-Will Employment.
(a) From and after the Notice Date, Sabin shall continue to be
employed by the Company as the Company's Senior Vice President and Treasurer;
provided, however, that Sabin agrees that (i) Sabin's employment by the Company
pursuant to this Section is not for any specified term, is at-will and may be
terminated by the Company or Sabin at any time, for any reason, for cause or
without cause, without any liability whatsoever, except for the obligation of
the Company to make the payments provided for herein; (ii) the Company may
dismiss Sabin without regard to any general or specific policies (whether
written or oral) of the Company relating to the employment or termination of
employment of the Company employees or any statements made to Sabin, whether
made orally or contained in any document or instrument, pertaining to Sabin's
relationship with the Company; and (iii) in light of the other agreements of the
Company set forth herein, Sabin shall not be entitled to any compensation, other
than monthly installments of the Severance Amount during his employment by the
Company pursuant to this Section.
(b) From and after the Notice Date, Sabin shall cease to be the
Company's chief financial officer.
(c) During Sabin's employment by the Company pursuant to this
Section, Sabin shall be entitled to continue his participation in the group
insurance programs under which he participated prior to the Notice Date upon the
same terms of participation.
(d) During Sabin's employment by the Company pursuant to this
Section, Sabin shall not be entitled to earn, accrue or otherwise become
entitled to any vacation time, or any payment or compensation therefor.
4. Additional Understandings.
(a) In the event that Sabin relocates from the Central Florida area
prior to November 30, 1999, the Company will reimburse Sabin for up to $12,500
of relocation costs reasonably paid or incurred by Sabin upon presentation of
applicable receipts or other appropriate documentation.
-2-
<PAGE>
(b) The Company and Sabin acknowledge that the restrictive covenants
contained in Sections 9, 10, 11 and 12 of the Employment Agreement shall survive
in accordance with their respective terms; provided, however, subject to the
remainder of this Section 4(b), the Company and Sabin agree that notwithstanding
Section 10 of the Employment Agreement, upon written notice to the Company
(which notice shall contain a detailed description of the identity of Sabin's
proposed employer, the terms and conditions of proposed employment and a copy of
any employment agreement or other document or instrument relating thereto),
Sabin may propose to become employed or otherwise render services to any
national enterprise having time-share, vacation plan, vacation ownership or
interval ownership activities in violation of Section 10(e) of the Employment
Agreement. Within 15 business days after receipt of Sabin's notice pursuant to
the preceding sentence, the Company shall, in its sole and absolute discretion,
elect, by delivery of written notice to Sabin, to (y) accept Sabin's notice, in
which case from and after the date upon which Sabin commences employment with,
or first receives compensation or other remuneration from, the new employer, the
Company may offset against its obligation to pay Sabin the Severance Amount
under Section 2(b), the entire amount of compensation received or to be received
by Sabin from Sabin's new employer for the remainder of the period in which the
Severance Amount is payable, or (z) reject Sabin's notice, in which case the
Company's obligation to pay Sabin the Severance Amount under Section 2(b) shall
continue; provided, however, that if Sabin accepts such proposed employment
despite the Company's rejection of Sabin's notice, the Company's obligation to
pay Sabin the Severance Amount under Section 2(b) shall terminate for all
purposes and in all respects as of the date Sabin commences employment with, or
first receives compensation or other remuneration from, the new employer.
Notwithstanding anything to the contrary contained in this Agreement, in the
event Sabin accepts employment with a new employer (i) Sabin's employment by the
Company pursuant to Section 3 shall terminate automatically without notice; and
(ii) all restrictive covenants contained in Sections 9, 10, 11 and 12 of the
Employment Agreement shall continue to survive in accordance with their
respective terms, except that Sections 10(a), 10(b), 10(c) and 10(e) shall be of
no further force and effect.
(c) Notwithstanding the provisions of that certain Stock Option
Agreement dated as of February 27, 1997 (the "Stock Option Agreement"), the
Company and Sabin agree that of the options to purchase 75,000 shares of the
Company's common stock granted to Sabin pursuant the Stock Option Agreement (i)
options to purchase 56,250 shares of the Company's common stock were forfeited
as of the Notice Date; and (ii) options to purchase any or all of the remaining
18,750 shares of Common Stock may become vested as of March 1, 1998 at the sole
and absolute discretion of the Company's Compensation Committee (it being
understood that such options, if not vested, shall be forfeited effective March
1, 1998) (it being understood that the Compensation Committee of the Company
shall make and notify Sabin of its determination prior to March 15, 1998).
(d)(i) The Company and Sabin acknowledge that under Section 2(b) of
that certain Registration Rights Agreement dated as of February 10, 1997
(the "Registration Rights Agreement") among the Company and the other
parties thereto, Sabin has the right to require the Company to effect a
Shelf Registration (as such term
-3-
<PAGE>
is defined in the Registration Rights Agreement) with respect to the 25,000
shares (the "Shares") of the Company's common stock which may be acquired
by Sabin pursuant to the exercise of options granted to Sabin pursuant to
that certain Shareholder Option Agreement dated as of February 10, 1997
among certain affiliates of Raymond L. Gellein, Jr., Janice G. Gellein and
Jeffrey A. Adler. In consideration of the Company's agreements contained in
Section 4(d)(ii), Sabin hereby agrees to permanently waive his rights under
Section 2(b) of the Registration Rights Agreement.
(ii) In consideration for Sabin's agreement contained in Section
4(d)(i), the Company agrees to include all of the Shares in a registration
statement (the "Resale Registration Statement") to be filed by the Company
with the Securities and Exchange Commission (the "SEC"). The Resale
Registration Statement shall provide for the sale of all of the Shares from
time to time on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, as amended, but shall not provide for an
underwritten registration. The Company may, in its sole discretion, include
other securities in the Resale Registration Statement (whether for the
account of the Company or others). In the event that the Company fails to
cause the Resale Registration Statement to be declared effective by the
SEC, prior to April 30, 1998, Sabin shall have the right, exercisable by
delivery of written notice to the Company prior to June 30, 1998, to
require the Company to purchase for cash all of the Shares which were not
included in the Resale Registration Statement (it being agreed that the
Company shall notify Sabin of the date upon which the Resale Registration
Statement is declared effective by the SEC). The purchase and sale of the
Shares contemplated by this Section shall take place on a date selected by
the Company which is within 10 days after the Company's receipt of Sabin's
notice. The per Share purchase price for any of the Shares purchased by the
Company pursuant to this Section shall be equal to the average of the
closing prices of the Company's common stock on the NASDAQ National Market
System for a period 10 consecutive trading days prior to the date of
Sabin's notice described in this Section.
5. Confidentiality. The terms and provisions of this Agreement shall be
treated by both parties as confidential in all respects, and, except as required
by law or permitted by prior written consent of the other parties hereto, the
parties shall not disclose these terms and provisions to any person other than
their attorneys and accountants, the federal, state and local tax authorities,
and, in Sabin's case, his wife.
6. Non-Disparagement. Sabin shall not engage or cause others to engage in
any act detrimental to the Company, its customers, employees or other business
relations and shall not make or cause others to make any disparaging statements,
whether written or oral, with respect to the Company, its business, directors,
officers, shareholders or any affiliates thereof. The Company shall not engage
or cause others to engage in any act detrimental to Sabin or his business
relations and shall not make or cause others to make any disparaging statements,
whether written or oral, with respect to Sabin. If prospective employers
considering the employment of Sabin so request, the Company will provide the
dates of Sabin's employment by
-4-
<PAGE>
the Company, the positions held and indicate that Sabin voluntarily resigned and
remains "eligible for re-hire."
7. Release. Effective immediately on the date hereof, Sabin, for
himself, his affiliates, agents, servants, heirs, personal representatives and
legal representatives (the "Sabin Releasing Parties"), fully and unconditionally
waives, releases and forever discharges all claims, demands, causes of action,
obligations, damages and liabilities of any nature whatsoever, including, but
not limited to, claims brought under Title VII of the Civil Rights Act of 1964,
as amended (42 U.C.S. (S)(S) 2000e et seq.), Sections 1981 through 1988 of Title
42 of the United States Code (42 U.S.C. (S)(S) 1981-88), the Age Discrimination
in Employment Act (29 U.S.C. (S)(S) 621 et seq.), the Americans with
Disabilities Act (42 U.S.C. (S)(S) 12101 et seq.), the Fair Labor Standards Act
(29 U.S.C. (S)(S) 201 et seq.), or any other federal, state or local law,
ordinance, statute or regulation dealing in any respect with employment or
discrimination in employment; claims for compensation, vacation pay or benefits;
and/or any claims, demands or actions brought on the basis of any contract,
express or implied, or tort on the basis of an alleged wrongful discharge under
the common law of any state (any of the foregoing, individually, a "Claim"),
which each of the Sabin Releasing Parties ever had, now have, or hereafter may
have against the Company or any of its stockholders, subsidiaries, affiliates,
directors, officers, successors or assigns and their respective officers,
directors, controlling persons (if any), affiliates, employees, attorneys,
agents and stockholders, (each, a "Company Releasee") whether known or unknown,
whether now existing or which may hereafter arise, which any Sabin Releasing
Party had, has or claims to have against them with respect to all matters that
existed amongst the parties hereto prior to the execution of this Agreement,
except that "Claims" as herein defined shall not include claims and causes of
action arising out of or relating to this Agreement or any other agreement,
document or instrument executed and delivered at or in connection with the
transactions contemplated hereby.
Sabin intends in granting the Company this release that it shall be
effective as a bar to each and every Claim, and expressly consents that this
release shall be given full force and effect according to its terms and
provisions, including those relating to unknown and unsuspected Claims, if any,
(notwithstanding any federal, state or local law that expressly limits the
effectiveness of a general release of unknown, unsuspected and unanticipated
Claims), as well as those relating to any other Claims described or implied
above. Sabin acknowledges and agrees that this waiver is an essential and
material term of this Agreement and without such waiver, the Company would not
have entered into this Agreement. Sabin further agrees that in the event any
Sabin Releasing Party brings any Claim in which any Sabin Releasing Party seeks
damages against any Company Releasee or in the event any Sabin Releasing Party
seeks to recover against any Company Releasee in any Claim brought by a
governmental agency on behalf of any Sabin Releasing Party, this release shall
serve as a complete defense to such Claims. Sabin understands and agrees that
this Agreement and the transactions contemplated hereby are not in any way to be
interpreted as admissions by any Company Releasee that any of Sabin Releasing
Party has any viable Claims against any Company Releasee.
-5-
<PAGE>
8. Covenant Not to Sue. Sabin, for himself and each Sabin Releasing
Party, covenants and agrees with the Company to forever refrain and desist from
the institution of any demand, action, lawsuit or other proceeding against any
of the Company Releasees with respect to, relating to, or in any way arising out
of the terms and provisions of the Employment Agreement or any of the
transactions contemplated thereby (other than as may be necessary to enforce
Sabin's rights hereunder).
9. Consideration/Revocation Periods. Sabin understands and acknowledges
that he has been given twenty-one (21) days within which to consider this
Agreement before signing it and agreeing to be bound by its terms. Sabin
further understands that he shall have seven (7) days after he signs this
Agreement to revoke his signature by hand delivering written notice of such
revocation to the Chairman of the Board or the President of the Company and
that, unless so revoked prior to the expiration of such seven (7) day period,
the Agreement shall become effective upon the expiration of such seven (7) day
period.
10. Voluntary and Knowledgeable Act. Sabin hereby acknowledges that he
has read this Agreement (and particularly the Release contained in Section 7
hereof and the Covenant Not to Sue contained in Section 8 hereof); that he has
been encouraged to review it with an attorney of his choice; and that he
executes it voluntarily and with full knowledge of its meaning and consequence.
11. Miscellaneous.
(a) Expenses. Each party hereto shall bear its own costs and expenses
with respect to the transactions contemplated hereby.
(b) Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by each of the parties hereto.
(c) Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
(d) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
(e) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR
-6-
<PAGE>
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f) Forum Selection and Consent to Jurisdiction. EACH OF THE COMPANY
AND SABIN AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR
IN CONNECTION WITH THIS AGREEMENT BETWEEN OR AMONG SUCH PARTIES, SHALL BE
BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF FLORIDA LOCATED
IN ORANGE COUNTY, FLORIDA, OR IN THE UNITED STATES DISTRICT COURT MIDDLE
DISTRICT OF FLORIDA, ORLANDO DIVISION. EACH OF THE COMPANY AND SABIN HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF FLORIDA LOCATED IN ORANGE COUNTY, FLORIDA, OR IN THE UNITED STATES DISTRICT
COURT MIDDLE DISTRICT OF FLORIDA, ORLANDO DIVISION. EACH OF THE COMPANY AND
SABIN HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement are for convenience only and shall not be
deemed part of this Agreement or be given any effect in interpreting this
Agreement. The use of the masculine, feminine or neuter gender herein shall not
limit any provision of this Agreement. The use of the terms "including" or
"include" shall in all cases herein mean "including, without limitation" or
"include, without limitation," respectively.
(i) Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. No
assignment of any rights or obligations shall be made by any party without the
written consent of each other party.
(j) No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, to the extent provided herein, their
respective affiliates, directors, officers, employees, agents, heirs and
representatives, and no provision of this Agreement shall be deemed to confer
upon other third parties any remedy, claim, liability, reimbursement, cause of
action or other right.
(k) Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof
-7-
<PAGE>
shall not be affected thereby, and there shall be deemed substituted for the
provision at issue a valid, legal and enforceable provision as similar as
possible to the provision at issue.
(l) Remedies Cumulative. The remedies provided in this Agreement
shall be cumulative and shall not preclude the assertion or exercise of any
other rights or remedies available by law, in equity or otherwise.
(m) Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
set forth herein and supersedes any and all prior agreements, arrangements and
understandings among the parties, including, without limitation, the Employment
Agreement (except to the extent set forth herein) and the Stock Option
Agreement.
(n) Attorneys' Fees and Costs. In the event a dispute arises between
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE COMPANY:
VISTANA, INC., a Florida corporation
By: /S/ Matthew E. Avril
--------------------------------------
Name: Matthew E. Avril
Title: Executive Vice President, Chief
Operating Officer
SABIN:
/s/ John M. Sabin
-----------------------------------------
John M. Sabin
-8-
<PAGE>
Exhibit 10.6-B
--------------
EXECUTION COPY
--------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of November 18, 1997 (this "Agreement")
between VISTANA, INC., a Florida corporation (the "Company"), and CHARLES E.
HARRIS ("Employee") (capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in Section 13),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, through its Affiliates, is engaged in the business of
timeshare or vacation ownership, development, sales and resort management, as
well as the installation and management of voice, data and cable television
systems, and related operations; and
WHEREAS, the parties hereto desire to enter this Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions hereinafter set forth .
2. Position, Duties and Responsibilities.
(a) Position. Employee's title and primary responsibilities are set
forth on Schedule A attached hereto and incorporated herein by this reference.
(b) Place of Employment. During the term of this Agreement, Employee
shall perform the services required by this Agreement at the Company's place of
business set forth on Schedule A attached hereto; provided, however, that the
Company may at its discretion require Employee to travel extensively to other
locations on the Company's business.
(c) Other Activities. During the term of this Agreement, Employee
shall be an employee of the Company and, except as provided in Schedule C
attached hereto and incorporated herein by this reference, shall not be engaged
in any other employment or business activities, shall devote Employee's full
business time and effort to the Company and shall not serve as an officer or
director of any public company, other than the Company. Notwithstanding the
<PAGE>
foregoing, Employee shall not be prohibited from investing or trading in stocks,
bonds, commodities or other forms of passive investment, including real property
(provided that such investments do not violate Section 10 hereof).
3. Term.
(a) Effective Date. This Agreement shall become effective on November
18, 1997 (the "Effective Date").
(b) Termination Date. The term of employment under this Agreement
shall terminate upon the earliest to occur of the following events (the date
specified in each such event is referred to as the "Termination Date"):
(i) the fourth anniversary of the Effective Date; provided,
however, that such period of employment may be extended by written
agreement of the parties (it being understood that if Employee remains
employed by the Company after the Termination Date described in this clause
(i), such employment shall be "at-will" unless different terms are
established in writing);
(ii) the date upon which the Company terminates Employee's
employment by the Company for Cause or without Cause (it being understood
that the date of termination shall be the date upon which the Company
provides Employee written notice of either such event);
(iii) the date of Employee's death;
(iv) the date upon which the Company terminates Employee's
employment by the Company as a result of Employee's Permanent Disability
(it being understood that the date of termination shall be the date upon
which the Company provides Employee written notice of such event); or
(v) the date upon which Employee effects a Voluntary Termination
(it being understood that the date of termination shall be the date upon
which the Employee provides the Company written notice of such event).
(c) Performance of Duties During Notice Period. In the event that
either (i) the Company terminates Employee's employment by the Company pursuant
to Section 3(b)(ii) hereof or (ii) Employee effects a Voluntary Termination
pursuant to Section 3(b)(v), Employee, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or, if shorter, until the Termination Date), and shall, in such event,
be paid the compensation and benefits hereunder for the remainder of such
period.
-2-
<PAGE>
(d) Employment-At-Will/Employee Acknowledgement. Notwithstanding the
term of this Agreement having a duration of four years and Sections 4(a) and (b)
hereof relating to the annual salary and annual bonus to be paid to Employee
during Employee's employment by the Company, nothing in this Agreement should be
construed as to confer any right of Employee to be employed by the Company for a
fixed or definite term. Subject to Section 8 hereof, Employee agrees that the
Company may dismiss Employee under Section 3(b)(ii) without regard to (i) any
general or specific policies (whether written or oral) of the Company relating
to the employment or termination of employment of the Company employees; or (ii)
any statements made to Employee, whether made orally or contained in any
document or instrument, pertaining to Employee's relationship with the Company.
Notwithstanding anything to the contrary contained herein, Employee's employment
by the Company is not for any specified term, is at-will and may be terminated
by the Company pursuant to Section 3(b)(ii) at any time by delivery of the
notice referred to therein, for any reason, for Cause or without cause, without
any liability whatsoever, except with respect to the payments provided for in
Section 8.
(e) Termination Obligations.
(i) Employee hereby acknowledges and agrees that all personal
property and equipment, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents,
or materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished
to or prepared by Employee in the course of or incident to Employee's
employment, belongs to the Company and shall be promptly returned to the
Company within 10 days after the Termination Date. Following the
Termination Date, Employee will not retain any written or other tangible
material containing any proprietary information of the Company.
(ii) Effective as of the Termination Date, Employee shall be
deemed to have resigned from all offices then held with the Company and
from all offices and directorships then held with any Affiliate of the
Company.
(iii) The covenants and agreements of Employee contained in
Sections 3(e), 9, 10, 11, 12 and 14(b) and (c) shall survive termination of
Employee's employment by the Company and the termination of this Agreement.
(f) Release. In exchange for the Company entering into the
Agreement, Employee agrees that, at the time of Employee's resignation or
termination from the Company, Employee will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees, directors and Affiliates
-3-
<PAGE>
to Employee in connection with or arising out of Employee's employment by the
Company, except with respect to (i) any then-vested rights under the Company's
Stock Plan, (ii) any amounts which may be payable to Employee pursuant to
Section 8 and (iii) any claims Employee may have pursuant to the Company's
disability and workmen's compensation insurance policies (it being understood
that the foregoing is not intended to provide Employee duplicative rights to
those provided for in Section 8(c)(ii)).
4. Compensation.
(a) Annual Salary. The Company shall pay to Employee an annual salary
equal to the base salary set forth on Schedule B attached hereto and
incorporated herein by this reference (the "Base Salary"). The Base Salary shall
be in effect, on a pro-rated basis, from and after the Effective Date through
December 31, 1997. For each calendar year during the term of this Agreement
commencing with the 1998 calendar year, the Company shall pay Employee an annual
salary (the "Adjusted Base Salary") determined by the Company's Board of
Directors (or the Compensation Committee thereof); provided, however, that the
Adjusted Base Salary shall be no less than the greater of (i) the Formula Salary
specified in Schedule B attached hereto; and (ii) the product of (x) the Base
Salary, multiplied by (y) a fraction, the numerator of which shall be the last
Consumer Price Index figure published prior to the December 31st immediately
preceding the beginning of such calendar year (the "Base Salary Adjustment
Date") and the denominator of which shall be the most recent Consumer Price
Index figure published prior to December 31, 1996; provided, further, however,
in no event shall the Adjusted Base Salary, as so adjusted on such Base Salary
Adjustment Date, be less than the Annual Salary for the preceding calendar year.
The Base Salary and the Adjusted Base Salary shall be paid in equal
installments, subject to all applicable withholding and deductions, in
accordance with the usual payroll practices of the Company, but not less
frequently than monthly.
(b) Annual Bonus Amount. Employee shall be entitled to be paid an
annual bonus amount (the "Annual Bonus Amount") in respect of each calendar year
beginning with the 1998 calendar year as further specified and described on
Schedule B attached hereto. The Annual Bonus Amount shall be deemed earned as
of December 31 of the applicable calendar year and shall be due and payable,
subject to all applicable withholding and deductions, within 31 days following
the end of the calendar year to which such Annual Bonus Amount relates based
upon the Company's good faith preliminary estimate thereof for such calendar
year; provided, that upon certification by the Company's auditors of the
Company's consolidated financial statements for such calendar year, the
definitive Annual Bonus Amount for such calendar year shall be determined by the
Company and the Company shall promptly pay to Employee (in the case the
preliminary estimate resulted in an
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<PAGE>
underpayment), or the Employee shall promptly repay to the Company (in the case
the preliminary estimate resulted in an overpayment), the amount necessary to
provide Employee with full payment of the definitive Annual Bonus Amount as
finally determined in accordance with such audited consolidated financial
statements for such calendar year.
5. Fringe Benefits. During the term of this Agreement, Employee shall be
entitled to all such employment benefits as may, from time to time, be made
generally available to similar level management employees of the Company
including, without limitation, stock-based incentive plans, pension or other
retirement benefits, health, hospitalization and similar insurance and group or
individual life insurance, and Employee's family shall be entitled to
participate in the Company's medical and health insurance plans; provided,
however, that such benefits and arrangements are made available at the
discretion of the Company and nothing in this Agreement establishes any right of
Employee to the availability or continuance of any such plan or arrangement. If
additional rounds of stock options, restricted stock, stock appreciation rights
or similar stock-based incentives are granted by the Company to its senior
management employees, Employee shall participate in such grants with other
senior management employees of the Company on a pro rata basis (determined in
accordance with the options then held by the senior management employees as a
group).
6. Business Expenses. Except as otherwise provided herein, the Company
shall pay, either directly or by reimbursement to Employee, such reasonable and
necessary business expenses incurred by Employee, including travel and
entertainment expenses (with accommodations and class of travel comparable to
those made available to the Company's Chief Executive Officers), in the course
of employment by the Company as are consistent with the Company's policies in
existence from time to time. Such expenses shall include, but shall not be
limited to, occupational license fees, membership dues in professional
organizations, educational expenses, and subscriptions to professional journals.
7. Vacation and Sick Leave. Employee shall be entitled to four weeks'
paid vacation time, in the aggregate, per calendar year, and such paid sick
leave as shall be authorized by the Company pursuant to the Company's written
policies, as determined from time to time. Additionally, Employee may be
entitled to additional paid vacation time to the extent that the operations and
needs of the business permit as determined by the Company. All vacations shall
be taken by Employee at such time or times as may be reasonably approved by the
Company.
8. Compensation Upon Termination of Employment.
(a) Expiration of Term. If Employee's employment by the Company is
terminated as a result of the occurrence of the fourth
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<PAGE>
anniversary of the Effective Date, the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Transition Payment set forth on Schedule B
attached hereto (the "Transition Payment"), payable in 12-equal consecutive
monthly installments, commencing with the first calendar month after the
Termination Date.
(b) Death. If Employee's employment by the Company is terminated as a
result of the occurrence of Employee's death pursuant to Section 3(a)(iii), the
Company shall pay Employee's estate (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
an aggregate of the Severance Amount set forth on Schedule B attached hereto
(the "Severance Amount"), payable in 24 equal monthly installments of the amount
set forth on Schedule B attached hereto (the "Monthly Severance Payment")
commencing with the first calendar month after the Termination Date.
(c) Permanent Disability. If Employee's employment by the Company is
terminated by the Company as a result of the occurrence of Employee's Permanent
Disability pursuant to Section 3(a)(iv), the Company shall pay Employee (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date; and (ii) the Monthly Severance Payment for the lesser of
24 months or the duration of such Permanent Disability; provided, however, that
the amount of all payments of the Monthly Severance Amount shall be reduced by
the sum of the amount, if any, payable to Employee at or prior to the time of
any such payment under any disability benefit plan of the Company.
(d) Termination by the Company for Cause. If Employee's employment by
the Company is terminated by the Company for Cause pursuant to Section 3(b)(ii),
Employee shall receive the compensation and other benefits expressly provided
under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Employee's
employment by the Company is terminated by the Company without Cause pursuant to
Section 3(b)(ii), the Company shall pay Employee (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date;
and (ii) the Severance Amount, payable in 24 equal monthly installments of the
Monthly Severance Payment commencing with the first calendar month after the
Termination Date.
(f) Termination by Employee for Good Reason. If Employee's employment
by the Company is terminated by Employee for Good Reason pursuant to Section
3(b)(v), the Company shall pay Employee (i) the compensation and other benefits
expressly provided under this Agreement through the Termination Date; and (ii)
the
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<PAGE>
Severance Amount, payable in 24 equal monthly installments of the Monthly
Severance Payment commencing with the first calendar month after the Termination
Date; provided, however, that if such termination of the Employee's employment
for Good Reason results from a Voluntary Termination within 90 days after the
consummation of a Change in Control, the Company shall pay Employee, in lieu of
such amounts, the Change in Control Amount set forth in Schedule B attached
hereto.
(g) Termination by Employee without Good Reason. If Employee's
employment by the Company is terminated by Employee without Good Reason pursuant
to Section 3(b)(v), the Company shall pay Employee (i) the compensation and
other benefits expressly provided under this Agreement through the Termination
Date; and (ii) the Transition Payment, payable in 12-equal consecutive monthly
installments, commencing with the first calendar month after the Termination
Date.
(h) Continuation of Health Insurance Coverage. At Employee's own
expense, Employee and Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(i) Right of Offset; Compliance with Covenants.
(i) If the Employee's employment by the Company is terminated for
any reason, Employee shall be entitled to the compensation and other
benefits expressly provided under this Agreement, subject to the Company's
right of offset for any amounts owed by Employee to the Company (or to any
of its Affiliates).
(ii) The continuing obligation of the Company to make the Monthly
Severance Payment to Employee is expressly conditioned upon the Employee
complying in all respects and continuing to comply in all respects with
Employee's obligations under Sections 9, 10 and 11 hereof following the
Termination Date.
9. Confidential Information and Ownership of Property.
(a) Confidential Information. Employee agrees to use all Confidential
Information solely in connection with the performance of services for or on
behalf of the Company. Employee shall not, during the term of this Agreement,
or at any time after the termination of this Agreement, in any manner, either
directly or indirectly, (i) disseminate, disclose, use or communicate any
Confidential Information to any person or entity, regardless of whether such
Confidential Information is considered to be confidential by third parties, or
(ii) otherwise directly or indirectly misuse any Confidential Information;
provided, however, that (y) none of the provisions of this Section 9 shall apply
to
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<PAGE>
disclosures made for valid business purposes of the Company or (z) that Employee
shall not be obligated to treat as confidential any Confidential Information
that (I) was publicly known at the time of disclosure to Employee; (II) becomes
publicly known or available thereafter other than by means in violation of this
Agreement or any other duty owned to the Company or any of its Affiliates by any
person or entity; or (III) is lawfully disclosed to Employee by a third party.
Notwithstanding the foregoing, Employee shall be permitted to disclose
Confidential Information to the extent required to enforce Employee's rights
hereunder in any litigation arising under, or pertaining to, this Agreement
provided that Employee shall give prior written notice to the Company of any
such disclosure so that the Company may have an opportunity to protect the
confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for-hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or desirable to transfer, defend or perfect the Company's ownership
of such work and all rights incident thereto.
10. Covenant Not to Compete. Unless the Company's Board of Directors
determines that any of the following conduct is in the Company's best interests,
during the term of Employee's employment by the Company and for the Non-Compete
Period, Employee shall not:
(a) directly or indirectly for himself/herself or for any other person
or entity engage, whether as owner, investor, creditor, consultant,
partner, shareholder, director, financial backer, agent, employee or
otherwise, in the business, enterprise or employment of owning, operating,
marketing or selling a time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(b) directly or indirectly for himself/herself or for any other person
or entity sell, or otherwise procure
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<PAGE>
purchasers for, any time-share, vacation plan, vacation ownership or
interval ownership project within the Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or
providing sales, marketing or development services to, a time-share,
vacation plan, vacation ownership or interval ownership project within the
Territory, or (ii) in an activity formed or entered into for the primary
purpose of engaging in a time-share, vacation plan, vacation ownership or
interval ownership business within the Territory; or
(d) [Intentionally Omitted]
(e) directly or indirectly for himself/herself or for any other person
or entity become employed in any capacity by or otherwise render services
in any capacity to any national enterprise having time-share, vacation
plan, vacation ownership or interval ownership activities, including,
without limitation, Walt Disney Company, Hilton Hotels Corporation, Hyatt
Corporation, Four Seasons Hotels and Resorts, Inc., Marriott International,
Inc., Inter-Continental Hotels and Resorts, Inc., Promus Hotels, Inc.,
Fairfield Communities, Inc., Signature Resorts, Inc. or Vacation Break
U.S.A., Inc. or any of their respective Affiliates; or
(f) directly or indirectly for himself, herself or for any other
person or entity pursue or consummate or otherwise interfere with any
Existing Project; or
(g) (i) directly or indirectly, for himself, herself, or any other
person or entity, pursue, consummate or otherwise interfere with any
Prospective Project or (ii) directly or indirectly for himself/herself or
for any other person or entity become employed in any capacity by or
otherwise render services in any capacity to any other person or entity
(other than the Company and its Affiliates) described in clause (ii) of the
definition of Prospective Project.
Notwithstanding the foregoing, Employee may purchase stock as a stockholder
in any publicly traded company, including any company engaged in the timeshare
or vacation ownership business; provided, however, that Employee may not own
(individually or collectively with Employee's family members, trusts for the
benefit of Employee's family members and affiliates of Employee) more than 5% of
any company (other than the Company).
In light of the substantial remuneration provided to Employee
hereunder and Employee's management position with the
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<PAGE>
Company, Employee hereby specifically acknowledges and agrees that the
provisions of this Section 10 (including, without limitation, its time and
geographic limits), as well as the provisions of Sections 9 and 11, are
reasonable and appropriate, and that Employee will not claim to the contrary in
any action brought by the Company to enforce such any of such provisions.
11. Covenant Against Solicitation of Employees. During the term of
Employee's employment by the Company and for the Non-Compete Period, the
Employee shall not employ employees or agents or former employees or agents of
the Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
not apply to (i) former employees or agents who, as of the date of termination
of Employee's employment by the Company, have not worked for any of the Company
or its Affiliates during the twelve preceding months; or (ii) employees or
agents or former employees or agents who, prior to Employee's employment by the
Company, served as officers, directors, or employees of Synagen Capital
Partners, Inc. or Allen C. Ewing & Co.
12. Remedies For Breach. It is understood and agreed by the parties that
no amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the Employee
of the covenants contained in Sections 9, 10 and 11 above, and that, therefore,
the Company shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief (without the need to post bond) to
enforce the provisions of Sections 9, 10 or 11, which injunctive relief shall be
in addition to any other rights or remedies available to the Company. The
provisions of this Section 12 shall survive the termination of this Agreement.
13. Certain Defined Terms. For purposes of this Agreement the following
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
Company, shall mean (a) the commission by Employee of an act of fraud,
embezzlement or willful breach of a fiduciary duty to the Company (including the
unauthorized
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<PAGE>
disclosure of confidential or proprietary material information of the Company);
(b) the commission by Employee of a breach of any material covenant, provision,
term, condition, understanding or undertaking set forth in this Agreement; (c)
the commission by Employee (other than in Employee's capacity as an agent of the
Company) of a crime constituting a felony under applicable law (or a plea of
nolo contendere in lieu thereof); (d) the exposure of the Company to any
criminal liability substantially caused by the conduct of Employee which results
in a material adverse effect upon the Company's business, operations, financial
condition or results of operations or the exposure of the Company to any civil
liability caused by Employee's unlawful harassment in employment; (e) any
habitual absenteeism, gross negligence, bad faith, or willful misconduct by
Employee in the performance of Employee's duties to the Company which such
conduct results in a material detriment to the Company; or (f) Employee's
habitual abuse of alcohol or any controlled substance or Employee's reporting to
work under the influence of alcohol or a controlled substance (other than those
for which Employee is taking under a current prescription).
"Change in Control" means the occurrence of any one of the following
events:
(i) any (A) consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by the
holders thereof), in either case, in which any "Person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Controlling Shareholders, becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(ii) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company and its Affiliates;
(iii) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or
(iv) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial
-11-
<PAGE>
owner of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities
ordinarily having the right to vote in the election of directors.
"Confidential Information" means all software, trade secrets, work products
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development, marketing strategies and programs (including present and
prospective OPC locations and the terms of leases of similar arrangements) and
reports and other proprietary information created or obtained by Employee for
the benefit of the Company or any of its Affiliates during the course of
employment by the Company.
"Consumer Price Index" means the United States Department of Labor's Bureau
of Labor Statistics' Consumer Price Index, All Urban Consumers, All Items,
Orlando, Florida Area (1982-84 = 100), or the successor of such index (or if the
index is not published for the Orlando, Florida area, a comparable index
applicable to the Tampa, Florida or Jacksonville, Florida area or in the event
they are not available, any other areas as may be reasonably determined by the
Company).
"Controlling Shareholders" means Raymond L. Gellein, Jr., Jeffrey A. Adler
and JGG Holdings Trust, in each case together with their respective Affiliates,
family members, former spouses (if applicable) and trusts for the benefit of any
of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Project" means a time-share, vacation plan, vacation ownership or
interval ownership resort or project which the Company or any of its Affiliates
owns, operates or has commenced to develop, acquire or otherwise undertake as of
the Termination Date.
"Good Reason" shall mean the occurrence, without the express written
consent of Employee, of any of the following events unless such events are
substantially corrected within 30 days following written notification by
Employee to the Company that Employee intends to effect a Voluntary Termination
as a result of (i) a material alteration, reduction or diminution in Employee's
duties or responsibilities or relocation from the Company's office described on
Schedule A (Item No. 4) attached hereto; (ii) a material breach by the Company
of any covenant, provision, term, condition, understanding or undertaking set
forth in this Agreement; or (iii) a Voluntary Termination within 90 days after
the consummation of a Change in Control (it being understood that a Voluntary
Termination shall not be for Good Reason as a result of
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<PAGE>
any personal or family reasons not otherwise set forth in this definition).
"Non-Compete Period" shall mean the period commencing on the Termination
Date and ending on (i) the first anniversary of the Termination Date in case of
the termination of Employee's employment by the Company pursuant to Section
3(b)(i); or (ii) the second anniversary of the Termination Date in case of (w)
the termination of Employee's employment by the Company for Cause pursuant to
Section 3(b)(ii), (x) the termination of Employee's employment by the Company
without Cause pursuant to Section 3(b)(ii), (y) the termination of Employee's
employment by Employee for Good Reason pursuant to Section 3(b)(v) and (z) the
termination of Employee's employment by Employee without Good Reason pursuant to
Section 3(b)(v) (it being understood that if such termination of employment is
due to a Voluntary Termination for Good Reason in respect of a Change in Control
of which both Messrs. Raymond L. Gellein, Jr. and Jeffrey A. Adler have not
approved, by vote in their capacities as directors of the Company or otherwise,
then the Non-Compete Period shall not be applicable).
"Permanent Disability" shall mean the inability of the Employee to perform
substantially all Employee's duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity for either (i) a
continuous period of six months or (ii) 180 days during any consecutive twelve-
month period. The date of such Permanent Disability shall be (y), in the case
of clause (i) above, the last day of such six-month period or, if later, the day
on which satisfactory medical evidence of such Permanent Disability is obtained
by the Company, or (z) in the case of clause (ii) above, such date as is
determined in good faith by the Company. In the event that any disagreement or
dispute arises between the Company and Employee as to whether the Employee has
incurred a Permanent Disability, then, in any such event, Employee shall submit
to a physical and/or mental examination by a competent and qualified physician
licensed under the laws of the State of Florida who shall be mutually selected
by the Company and Employee, and such physician shall make the determination of
whether Employee suffers from any disability. In the absence of fraud or bad
faith, the determination of such physician as to Employee's condition at such
time shall be final and binding upon both the Company and the Employee. The
entire cost of any such examination shall be borne solely by the Company.
"Prospective Project" means (i) a prospective time-share, vacation plan,
vacation ownership or interval ownership resort or project with respect to which
Employee has been made aware or has been advised prior to the Termination Date
that the Company or any of its Affiliates is considering developing or
undertaking and (ii) any person or entity, including its respective Affiliates,
with respect to which Employee has been made aware or has been advised prior to
the Termination Date that the Company or any of its
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Affiliates has commenced to evaluate or negotiate with in respect of any
transaction involving (y) the acquisition by the Company or any of its
Affiliates of all or a portion of such person or entity or its consolidated
assets or (z) the acquisition by such person or entity (or its Affiliates) of
all or a portion of the Company or its consolidated assets.
"Territory" means the total geographic area located within a 150-mile
radius of each Existing Project and each Prospective Project.
"Voluntary Termination" shall mean the voluntary termination by Employee of
Employee's employment by the Company by voluntary resignation or any other means
(other than (i) death or Permanent Disability or (ii) simultaneous with or
following termination for Cause or an event which if known to the Company at the
time of such voluntary termination by Employee would constitute Cause).
14. Miscellaneous.
(a) Severability. If any provision of this Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction, the
invalidity or unenforceability of such provision shall not affect the other
provisions hereof, and this Agreement shall be construed and enforced in all
respects as if such invalid or unenforceable provision was omitted.
(b) Attorneys' Fees and Costs. In the event a dispute arises between
the parties hereto and suit is instituted, the prevailing party or parties in
such litigation shall be entitled to recover reasonable attorneys' fees and
other costs and expenses from the non-prevailing party or parties, whether
incurred at the trial level or in any appellate proceeding. For purposes
hereof, the Company shall be deemed to have prevailed in any suit involving a
breach or alleged breach by Employee of any of the covenants contained in
Sections 9, 10 and 11 above if the Company prevails to any degree in such suit
(even if such covenant or covenants are not enforced to the fullest extent
otherwise sought by the Company).
(c) Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida. In the event of
any legal or equitable action arising under this Agreement, the venue of such
action shall be exclusively within either the state courts of Florida located in
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division, and the parties waive any other
jurisdiction and venue.
(d) Completeness of Agreement. All understandings and agreements
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their
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agreement, other than certain understandings with respect to certain provisions
of the Old Agreement set forth in that certain letter dated the date hereof from
the Employers (as defined in the Old Agreement) to Employee. No change or
modification may be made to this Agreement except by instrument in writing duly
executed by the parties hereto with the same formalities as this document.
(e) Notices. Any and all notices or other communications provided for
herein shall be given in writing and shall be hand delivered or sent by United
States mail, postage prepaid, registered or certified, return receipt requested,
addressed as follows:
If to the Company:
Vistana, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: President
If to Employee: at the address specified
in Schedule A attached hereto.
provided, however, that any of the parties may, from time to time, give notice
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
the date the same is actually hand delivered or, if mailed, when deposited in
the United States mail, postage prepaid, registered or certified, return receipt
requested.
(f) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective parties hereto, their heirs, legal
representatives, successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument.
(h) Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provisions of this Agreement or in any way
affect this Agreement.
(i) Additional Understandings. Certain additional understandings
between the Company and Employee are set forth on Schedule C attached hereto and
incorporated herein by this reference.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date and year set forth above.
THE COMPANY:
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
-------------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
By: /s/ Jeffrey A. Adler
-------------------------------------
Name: Jeffrey A. Adler
Title: President and Co-Chief
Executive Officer
EMPLOYEE:
--------
/s/ Charles E. Harris
-----------------------------------------
Name: Charles E. Harris
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SCHEDULE A
----------
Employee Title and Primary Employment Responsibilities
------------------------------------------------------
1. Employee Name and Address: Charles E. Harris
3339 Northglenn Drive
Orlando, Florida 32806
2. Employee Title: Vice Chairman
3. Primary Employment Responsibilities: Employee shall serve as Vice Chairman
of the Company. In such position, Employee shall assist at a senior
executive level in formulating and implementing the Company's global
business strategy, capital markets transactions, mergers and acquisitions,
and investor relations policies and, to the extent mutually agreed upon by
the Company and Employee, in managing or overseeing the Company's finance,
legal and investor relations functions. Except as provided in Schedule C
attached hereto, Employee shall devote his best efforts and substantially
full business time and attention to the performance of services to the
Company in his capacity as an officer thereof and as may reasonably be
requested by the Board. The Company shall retain full direction and
control of the means and methods by which Employee performs his services
thereto. Both Employee and the Company agree that the nature and scope of
Employee's responsibility and authority will be consistent with being Vice
Chairman and a senior executive officer of a public company, as described
in more detail herein. Employee shall report directly to Messrs. Raymond
L. Gellein, Jr. and Jeffrey A. Adler (the "Executive Officers"), and the
Executive Officers shall be generally available to Employee on a day-to-day
basis.
4. Place of Employment: The Company's office located in Orlando, Florida.
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<PAGE>
SCHEDULE B
----------
Employee Compensation
---------------------
1. Employee Name: Charles E. Harris
2. Base Salary: $350,000
3. Formula Salary: Ninety-five percent (95%) of the annual salary payable for
the applicable calendar year to the Chief Executive Officer of the Company
or, if the Company then has more than one Chief Executive Officer, the
Chief Executive Officer having the highest annual salary.
4. Annual Bonus Amount: Up to 60% of Adjusted Base Salary; Formula to
approximate that of other senior executive officers; provided, however,
that for each of the calendar years 1998 and 1999, the aggregate of
Employee's Adjusted Base Salary and Annual Bonus Amount shall not be less
than $500,000.
5. Severance Amount: The product of (i) the greater of (x) 120% of Employee's
Adjusted Base Salary as of the Termination Date and (y) $500,000,
multiplied by (ii) two.
6. Monthly Severance Payment: The quotient of (i) the Severance Amount
determined in accordance with Item No. 5 above, divided by (ii) 12.
7. Transition Payment: The greater of (i) Employee's Adjusted Base Salary as
of the Termination Date and (ii) $500,000.
8. Change in Control Amount: The product of (i) three, multiplied by (ii) the
sum of (x) Employee's Adjusted Base Salary as of the effective date of the
Change in Control and (y) the Annual Bonus Amount paid or payable to
Employee for the calendar year immediately preceding the year in which the
Change in Control occurs (or, if such amount is higher, the Annual Bonus
Amount paid or payable to Employee for the calendar year in which the
Change in Control occurs); plus, with respect to any portion of the Change
in Control Amount, and any other amount which constitutes an "excess
parachute payment" within the meaning of Section 280G(b) of the Internal
Revenue Code of 1986 (or any other amended or successor
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provision thereto) (including, without limitation, any amounts attributable
to the value of stock options granted to Employee by the Company or by the
Controlling Shareholders that became accelerated or vested as a result of
such Change in Control), that is subject to the tax imposed pursuant to
Section 4999 of the Internal Revenue Code of 1986 (or any other amended or
successor provision thereto) (the "Excise Tax"), an amount (the "Gross-Up
Amount") that, after reduction of the amount of such Gross-Up Amount for
all federal, state and local tax to which the Gross-Up Amount is subject
(including the Excise Tax to which the Gross-Up Amount is subject), is
equal to the amount of the Excise Tax to which such Change in Control
Amount, or other amount constituting an "excess parachute payment," is
subject. For purposes of determining the amount of any Gross-Up Amount,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Amount is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of residence of
Employee on the Termination Date, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.
B-2
<PAGE>
SCHEDULE C
----------
Additional Understandings
-------------------------
During the term of Employee's employment under this Agreement, provided
that such activities do not violate the provisions of Sections 9, 10 or 11 of
this Agreement or interfere materially with Employee's performance of his
obligations to the Company:
1. Employee may, as his option and expense, maintain and perform the
responsibilities of any or all of the following business relationships:
(a) Member of the Board of Directors of Intellon Corporation;
(b) General Partner of Ewing/Synagen Partners, Ltd., the sole General
Partner of Ewing/Florida Bank Stock Fund, Limited Partnership;
(c) Non-executive Chairman or member of the Board of Directors of
Allen C. Ewing & Co., a registered broker-dealer;
(d) Non-executive Chairman or member of the Board of Directors of
Allen C. Ewing Financial Services, Inc., a holding company that owns the
outstanding stock of Allen C. Ewing & Co. and Allen C. Ewing Mortgage and
Realty, Inc.;
(e) Chairman of the Board of Directors, President, and Chief Executive
Officer of Synagen Capital Partners, Inc.;
(f) Principal, controlling, or sole shareholder of Allen C. Ewing
Financial Services, Inc. and Synagen Capital Partners, Inc. and any successor
firms;
(g) Active status licensee as a Series 7 - Registered Representative,
Series 24 - General Securities Principal, and Series 63 - Uniform Securities
Agent with Allen C. Ewing & Co. or another broker-dealer reasonably acceptable
to the Company (and in such capacities, Employee shall have the right to receive
commissions or other compensation from such firm for referrals or other business
directed by him to such firm, provided that all such referrals and business are
unrelated to the Company and its Affiliates); and
(h) Active status licensee as an attorney with The Florida Bar and the
District of Columbia Bar.
2. To allow Employee to facilitate an orderly transition and withdrawal
from his responsibilities as an executive officer and employee of such firms,
Employee may, at his option and expense:
C-1
<PAGE>
(a) for a period of up to three months following the effective date of this
Agreement, serve as President and Chief Executive Officer of Allen C. Ewing
Financial Services, Inc. and Allen C. Ewing & Co.; (b) for a period of up to
nine months following the effective date of this Agreement, assist from time to
time in advising clients of Allen C. Ewing & Co.; and (c) assist from time to
time in resolving and responding to any follow-up questions or issues that may
arise.
In connection with the foregoing activities, Employee may, at his option
and expense: (a) maintain at the Company's offices, separate telephone, fax, and
computer lines and equipment and send and receive mail and express deliveries to
facilitate communications relating to such activities; and (b) from time to time
use the services of his executive assistant in performing such activities.
Employee shall indemnify and hold harmless the Company, its Affiliates, and
their respective directors, officers, and employees from and against any and all
claims, losses, damages, and liabilities, and actions in respect thereof,
arising directly or indirectly out of any of the foregoing business
relationships and activities by Employee.
On the Effective Date, the Company will grant Employee an option to
purchase 180,000 shares of the Company's common stock pursuant to the Vistana
Stock Plan at an exercise price per share equal to the closing price per share
of the Company's common stock on the Effective Date on the NASDAQ National
Market System. Employee understands that in the event that, at the Company's
1998 Annual Meeting of Shareholders, the Company's shareholders do not approve
of an increase in the number of options available for grant under the Vistana
Stock Plan, such grant of options shall be null and void for all purposes and in
all respects; provided, however, that if the Company's shareholders do not so
approve of the increase in the number of options available for grant under the
Vistana Stock Plan, the Company will grant Employee an option to purchase
180,000 shares of the Company's common stock pursuant to the Vistana Stock Plan
on such later date as such options are available for grant at an exercise price
per share equal to the closing price per share of the Company's common stock on
the NASDAQ National Market System on the date of grant. Subject to the
foregoing, all grants of options will be made pursuant to an Option Agreement
between Vistana and Employee (which shall be substantially similar in form to
those Option Agreements currently in effect for other senior executives).
C-2
<PAGE>
Exhibit 10.11-A
---------------
EXECUTION COPY
--------------
JOINDER
TO REGISTRATION RIGHTS AGREEMENT
--------------------------------
JOINDER (the "Joinder"), dated as of November 18, 1997, to the Registration
Rights Agreement dated as of February 10, 1997 (the "Registration Rights
Agreement") among Vistana, Inc., a Florida corporation (the "Company"), and
certain holders of the Company's common stock or options to acquire shares of
the Company's common stock, between the Company and CHARLES E. HARRIS ("Joining
Party") (capitalized terms used herein but not otherwise defined shall have the
meanings set forth in the Registration Rights Agreement),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Joining Party has acquired options to acquire up to 400,000
Registrable Shares of Common Stock pursuant to a Shareholder Option Agreement
dated as of November 18, 1997 among certain Affiliates of Raymond L. Gellein,
Jr., Janice G. Gellein and Jeffrey A. Adler, as grantors, and Joining Party, as
grantee, and the Registration Rights Agreement permits Joining Party, as a
holder of such options to acquire such Registrable Shares, to become a party to
the Registration Rights Agreement as a "Holder" and as an "Executive", and
Joining Party agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound. Joining Party hereby agrees that upon execution
of this Joinder, he shall become a party to the Registration Rights Agreement
and shall be fully bound by, and subject to, all of the covenants, terms and
conditions of the Registration Rights Agreement as though an original party
thereto and shall be deemed a "Holder" and an "Executive" for all purposes
thereof.
2. Successors and Assigns. Subject to Section 9.5 of the Registration
Rights Agreement, this Joinder shall bind and inure to the benefit of and be
enforceable by each of the Company and Joining Party, and their respective
successors and assigns.
3. Counterparts. This Joinder may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
4. Notices. For purposes of Section 9.4 of the Registration Rights
Agreement, all notices, demands or other communications to Joining Party shall
be directed to:
<PAGE>
Charles E. Harris
3339 Northglen Drive
Orlando, Florida 32806
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
6. Descriptive Headings. The descriptive headings of this Joinder
are inserted for convenience only and do not constitute a part of this Joinder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE COMPANY
-----------
VISTANA, INC., a Florida corporation
By: /s/ Raymond L. Gellein, Jr.
-----------------------------------
Name: Raymond L. Gellein, Jr.
Title: Chairman of the Board and
Co-Chief Executive Officer
JOINING PARTY
-------------
/s/ Charles E. Harris
---------------------------------------
Charles E. Harris
-2-
<PAGE>
Exhibit 10.11-B
---------------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Assignment and Assumption Agreement (the "Agreement"), dated as of
December 21, 1997, between Nevwest Limited Partnership, a Delaware limited
partnership (the "Assignee"), and Raymond L. Gellein, Jr., Trustee of Raymond L.
Gellein, Jr. Revocable Trust (the "Assignor").
R E C I T A L S:
---------------
WHEREAS, Assignor is the owner of 2,769,030 shares (the "Shares") of common
stock, $.01 par value per share, of Vistana, Inc., a Florida corporation (the
"Company");
WHEREAS, Assignor is transferring a portion of the Shares to Nevgel, Inc.
("Nevgel") and the remainder of the Shares to Assignee and Nevgel is
transferring such portion of the Shares to Assignee.
WHEREAS, Assignor and certain other shareholders of the Company have
provided for the voting and transfer of their shares of common stock of the
Company, including without limitation the Shares, pursuant to that certain
Shareholders' Agreement dated as of February 10, 1997 (the "Shareholders'
Agreement");
WHEREAS, the Company has granted to Assignor certain registration rights
pursuant to that certain Registration Rights Agreement dated as of February 10,
1997 (the "Registration Rights Agreement"), among the Company, Assignor and the
other parties thereto;
WHEREAS, Assignor has agreed to certain restrictions regarding the transfer
of the Shares pursuant to that certain letter dated December 4, 1997, from
Assignor to NationsBanc Montgomery Securities, Inc. ("NationsBanc") (such
letter, together with any other lock-up letters from Assignor to Nationsbanc,
the "Lock-Up Agreements");
WHEREAS, Assignor has granted to certain employees and former employees of
the Company and its subsidiaries and affiliates options to acquire certain of
the Shares pursuant to those certain Shareholder Option Agreements described on
Schedule A, attached hereto and by this reference made a part hereof (the
"Option Agreements" and, together with the Shareholders' Agreement, the
Registration Rights Agreement and the Lock-Up Agreements, the "Agreements"); and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights
under the Agreements (other than the rights of Raymond L. Gellein, Jr. under
Section 3 of the Registration Rights Agreement) and Assignee desires to assume
the obligations of Assignor under the Agreements as provided herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Assignment. Assignor hereby assigns, transfers and conveys to
Assignee all of Assignor's right, title and interest in, to and under the
Agreements (other than the rights of Raymond L. Gellein, Jr. under Section 3 of
the Registration Rights Agreement).
2. Assumption by Assignee. Assignee hereby assumes and agrees to
perform all of the obligations of Assignor under the Agreements.
3. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns.
4. Trustee Liability. This Agreement, to the extent executed by any
person or entity in his or its capacity as trustee of a trust, is executed by
such person or entity solely as such trustee and not in an individual capacity.
The execution by such person or entity of this Agreement in his or its capacity
as trustee shall not create any liability on, or require the performance of any
covenant by, any such trustee individually nor subject the individual property
of such trustee to any liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ASSIGNOR:
/s/ Raymond L. Gellein, Jr.
------------------------------------
Raymond L. Gellein, Jr., Trustee of
Raymond L. Gellein, Jr. Revocable
Trust
ASSIGNEE:
NEVWEST LIMITED PARTNERSHIP, a
Delaware limited partnership
By: Nevgel, Inc., a Nevada
corporation, its general
partner
By: /s/ Gordon W. Stewart
--------------------------
Its: Secretary
--------------------
-2-
<PAGE>
SCHEDULE A
SHAREHOLDER OPTION AGREEMENTS
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Matthew E. Avril and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Alain J.A. Grange and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Barbara Hollkamp and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Carol A. Lytle and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
James A. McKnight and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
John M. Sabin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Susan B. Werth and the other parties thereto.
Shareholder Option Agreement dated as of November 18, 1997, among Assignor,
Charles E. Harris and the other parties thereto.
Shareholder Option Agreement dated as of November 13, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of July 17, 1997, among Assignor,
Alain J.A. Grange and the other parties thereto.
-3-
<PAGE>
Exhibit 10.11-C
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Assignment and Assumption Agreement (the "Agreement"), dated as of December
21, 1997, between Neveast Limited Partnership, a Delaware limited partnership
(the "Assignee"), and Raymond L. Gellein, Jr., Trustee of JGG Holdings Trust
(the "Assignor").
R E C I T A L S:
---------------
WHEREAS, Assignor is the owner of 2,764,175 shares (the "Shares") of common
stock, $.01 par value per share, of Vistana, Inc., a Florida corporation (the
"Company");
WHEREAS, Assignor is transferring a portion of the Shares to Nevjan I, Inc.
("Nevjan I") and the remainder of the Shares to Assignee and Nevjan I is
transferring such portion of the Shares to Assignee.
WHEREAS, Assignor and certain other shareholders of the Company have
provided for the voting and transfer of their shares of common stock of the
Company, including without limitation the Shares, pursuant to that certain
Shareholders' Agreement dated as of February 10, 1997 (the "Shareholders'
Agreement");
WHEREAS, the Company has granted to Assignor certain registration rights
pursuant to that certain Registration Rights Agreement dated as of February 10,
1997 (the "Registration Rights Agreement"), among the Company, Assignor and the
other parties thereto;
WHEREAS, Assignor has agreed to certain restrictions regarding the transfer
of the Shares pursuant to that certain letter dated December 4, 1997, from
Assignor to NationsBanc Montgomery Securities, Inc. ("NationsBanc") (such
letter, together with any other lock-up letters from Assignor to Nationsbanc,
the "Lock-Up Agreements");
WHEREAS, Assignor has granted to certain employees and former employees of
the Company and its subsidiaries and affiliates options to acquire certain of
the Shares pursuant to those certain Shareholder Option Agreements described on
Schedule A, attached hereto and by this reference made a part hereof (the
"Option Agreements" and, together with the Shareholders' Agreement, the
Registration Rights Agreement and the Lock-Up Agreements, the "Agreements"); and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights
under the Agreements and Assignee desires to assume the obligations of Assignor
under the Agreements as provided herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Assignment. Assignor hereby assigns, transfers and conveys to Assignee
all of Assignor's right, title and interest in, to and under the Agreements.
2. Assumption by Assignee. Assignee hereby assumes and agrees to perform
all of the obligations of Assignor under the Agreements.
3. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns.
4. Trustee Liability. This Agreement, to the extent executed by any
person or entity in his or its capacity as trustee of a trust, is executed by
such person or entity solely as such trustee and not in an individual capacity.
The execution by such person or entity of this Agreement in his or its capacity
as trustee shall not create any liability on, or require the performance of any
covenant by, any such trustee individually nor subject the individual property
of such trustee to any liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ASSIGNOR:
/s/ Raymond L. Gellein, Jr.
---------------------------------------
Raymond L. Gellein, Jr., Trustee of JGG
Holdings Trust
ASSIGNEE:
NEVEAST LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Nevjan 1, Inc., a Nevada
corporation, general partner
By: /s/ Gordon W. Stewart
----------------------------
Its: Secretary
----------------------------
By: Nevjan 2, Inc., a Nevada
corporation, general partner
By: /s/ Gordon W. Stewart
----------------------------
Its: Secretary
----------------------------
-2-
<PAGE>
SCHEDULE A
SHAREHOLDER OPTION AGREEMENTS
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Matthew E. Avril and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Alain J.A. Grange and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Barbara Hollkamp and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Carol A. Lytle and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
James A. McKnight and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor, John
M. Sabin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Susan B. Werth and the other parties thereto.
Shareholder Option Agreement dated as of November 18, 1997, among Assignor,
Charles E. Harris and the other parties thereto.
Shareholder Option Agreement dated as of November 13, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of July 17, 1997, among Assignor, Alain
J.A. Grange and the other parties thereto.
-3-
<PAGE>
Exhibit 10.11-D
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Assignment and Assumption Agreement (the "Agreement"), dated as of December
21, 1997, between Rija Limited Partnership, a Nevada limited partnership (the
"Assignee"), and Jeffrey A. Adler, Trustee of Jeffrey A. Adler Trust a/k/a
Jeffrey A. Adler Revocable Trust (the "Assignor").
R E C I T A L S:
---------------
WHEREAS, concurrently herewith, Assignor is transferring to Assignee
5,975,750 shares (the "Shares") of common stock, $.01 par value per share, of
Vistana, Inc., a Florida corporation (the "Company");
WHEREAS, Assignor and certain other shareholders of the Company have
provided for the voting and transfer of their shares of common stock of the
Company, including without limitation the Shares, pursuant to that certain
Shareholders' Agreement dated as of February 10, 1997 (the "Shareholders'
Agreement");
WHEREAS, the Company has granted to Assignor certain registration rights
pursuant to that certain Registration Rights Agreement dated as of February 10,
1997 (the "Registration Rights Agreement"), among the Company, Assignor and the
other parties thereto;
WHEREAS, Assignor has agreed to certain restrictions regarding the transfer
of the Shares pursuant to that certain letter dated November ___, 1997, from
Assignor to NationsBanc Montgomery Securities, Inc. ("NationsBanc") (such
letter, together with any other lock-up letters from Assignor to Nationsbanc,
the "Lock-Up Agreements");
WHEREAS, Assignor has granted to certain employees and former employees of
the Company and its subsidiaries and affiliates options to acquire certain of
the Shares pursuant to those certain Shareholder Option Agreements described on
Schedule A, attached hereto and by this reference made a part hereof (the
"Option Agreements" and, together with the Shareholders' Agreement, the
Registration Rights Agreement and the Lock-Up Agreements, the "Agreements"); and
WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights
under the Agreements (other than the rights of Jeffrey A. Adler under Section 3
of the Registration Rights Agreement) and Assignee desires to assume the
obligations of Assignor under the Agreements as provided herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Assignment. Assignor hereby assigns, transfers and conveys to Assignee
all of Assignor's right, title and interest in, to and under the Agreements
(other than the rights of Jeffrey A. Adler under Section 3 of the Registration
Rights Agreement).
2. Assumption by Assignee. Assignee hereby assumes and agrees to perform
all of the obligations of Assignor under the Agreements.
3. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns.
4. Trustee Liability. This Agreement, to the extent executed by any
person or entity in his or its capacity as trustee of a trust, is executed by
such person or entity solely as such trustee and not in an individual capacity.
The execution by such person or entity of this Agreement in his or its capacity
as trustee shall not create any liability on, or require the performance of any
covenant by, any such trustee individually nor subject the individual property
of such trustee to any liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
ASSIGNOR:
/s/ Jeffrey A. Adler
--------------------------------------
Jeffrey A. Adler, Trustee of Jeffrey
A. Adler Trust
ASSIGNEE:
RIJA LIMITED PARTNERSHIP, a Nevada
limited partnership
By: Alexdann Corporation, a Nevada
corporation, its general
partner
By: /s/ Lee Miller
---------------------------
Its: Vice President
---------------------------
-2-
<PAGE>
SCHEDULE A
SHAREHOLDER OPTION AGREEMENTS
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Matthew E. Avril and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Alain J.A. Grange and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Barbara Hollkamp and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Carol A. Lytle and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
James A. McKnight and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
John M. Sabin and the other parties thereto.
Shareholder Option Agreement dated as of February 10, 1997, among Assignor,
Susan B. Werth and the other parties thereto.
Shareholder Option Agreement dated as of November 18, 1997, among Assignor,
Charles E. Harris and the other parties thereto.
Shareholder Option Agreement dated as of November 13, 1997, among Assignor,
William J. McLaughlin and the other parties thereto.
Shareholder Option Agreement dated as of July 17, 1997, among Assignor,
Alain J.A. Grange and the other parties thereto.
-3-
<PAGE>
Exhibit 10.21
================================================================================
LOAN AND SECURITY AGREEMENT
dated as of November 1, 1997
between
VISTANA TIMESHARE MORTGAGE CORP.
as Borrower,
and
DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS...............................................................1
2. LOAN COMMITMENT; USE OF PROCEEDS.........................................24
2.1 Agreement to Lend Contingent Upon Performance.......................24
2.2 One Loan............................................................24
2.3 The Note............................................................24
2.4 Repayment...........................................................24
2.5 Interest Payments...................................................25
2.6 Repayments..........................................................25
2.7 Optional Prepayment of Principal....................................25
2.8 Manner of Payment...................................................25
2.9 Extension of Maturity...............................................25
2.10 Default Rate........................................................26
2.11 Computation of Interest.............................................26
2.12 Use of Proceeds.....................................................26
2.13 Exit Fee Payments...................................................26
2.14 Securitization......................................................26
3. DESIGNATED RECEIVABLES COLLATERAL SECURITY...............................27
3.1 Grant of Security Interest..........................................27
3.2 Replacements of Ineligible Instruments..............................27
3.3 Maintenance of Security Documents...................................28
3.5 Release of Excess Collateral........................................28
3.6 Release of Collateral Upon Repayment................................28
4. ADVANCES.................................................................29
4.1 Conditions to Advances.............................................29
(a) Conditions Precedent to the Initial Advance....................29
(c) Conditions Precedent to Each Advance...........................32
(d) Conditions Precedent for Subsequent Advances...................34
4.2 Form of Request; Timing.............................................34
4.3 Disbursement of Advances............................................34
4.4 No Waivers of Conditions Precedent..................................34
5. NOTE, MAINTENANCE OF BORROWING BASE; PAYMENTS; SERVICING AND COLLECTION..34
5.1 Repayment of Loan...................................................34
5.2 [Reserved]..........................................................34
5.3 Lockbox Bank; Servicer; Financial Reports...........................34
5.4 Application of Payments.............................................35
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.5 Obligations Absolute................................................35
6. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.....................36
6.1 Representations and Warranties of the Borrower......................36
(a) Special Purpose Entity.........................................36
(b) Collateral.....................................................36
(c) Ownership......................................................36
(d) Organization and Good Standing.................................36
(e) Due Qualification..............................................36
(f) Power and Authority............................................36
(g) Binding Obligation.............................................36
(h) No Violation...................................................37
(i) Consents.......................................................37
(j) No Proceedings.................................................37
(k) Solvent........................................................37
(l) Collateral.....................................................37
(m) Nonconsolidation...............................................37
(n) Security Interest..............................................38
(o) No Other Security Interests....................................38
(p) Correct Copies.................................................38
(q) No Defaults....................................................39
(r) Notices of Defaults............................................39
(s) No Set-Offs....................................................39
(t) Margin Stock...................................................39
(u) Taxes..........................................................39
(v) ERISA..........................................................40
(w) Securities Law.................................................40
(x) Compliance with Law............................................40
(y) Eligible Instruments...........................................41
(z) Omissions and Statements.......................................41
(aa) No Indebtedness................................................41
(bb) Mortgage Document Representations..............................41
(cc) Survival of Representations and Warranties.....................41
6.2 Affirmative Covenants of the Borrower...............................41
(a) Special Purpose Entity.........................................42
(b) Tax Returns....................................................42
(c) Principal Place of Business....................................42
(d) Originator Defaults............................................42
(e) Security Interest in Future Collateral.........................42
(f) Servicer's Reports, Monthly Reports............................42
(g) Notice Upon Event of Default...................................42
(h) Other Information..............................................43
(i) Existence; Compliance with Law.................................43
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(j) Taxes and Other Liabilities....................................43
(k) Inspection Rights; Assistance..................................43
(l) Supplemental Disclosure........................................43
(m) Notice of Liens................................................43
(n) Performance Obligations........................................44
(o) Documentation; Further Assurances..............................44
(p) Assumption of Purchaser's Obligations..........................44
(q) Collection of Payments.........................................44
(r) Lender as Additional Insured...................................44
(s) No Indebtedness................................................45
(t) Payment of Fees and Expenses...................................45
(u) Indemnification................................................45
6.3 Borrower's Negative Covenants.......................................46
(a) Liens; Negative Pledges; and Encumbrances......................46
(b) Disposition of Assets..........................................46
(c) No Subsidiaries................................................46
(d) Amendments of Organizational Documents.........................46
(e) Events of Default..............................................46
(f) Other Activities of Borrower...................................46
(g) No Advances....................................................47
(h) Existence; Qualification.......................................47
(i) Other Transactions.............................................47
(j) Validity of Liens..............................................47
(k) Extensions.....................................................47
(l) ERISA..........................................................47
(m) No Modifications of Instruments................................47
(n) No Modification of Timeshare Documents.........................48
(o) No Distributions...............................................48
(p) Securities Law.................................................48
(q) Additional Insurance...........................................48
(r) No Petition....................................................48
6.4 Notification of Originators.........................................48
6.5 Inspection..........................................................49
6.6 Supplemental Nature of Article 6....................................49
7. DEFAULT..................................................................49
7.1 Events of Default...................................................49
7.2 Remedies............................................................51
7.3 Application of Funds Received.......................................52
7.4 Foreclosure.........................................................52
7.5 Proceeds from Sale of Collateral....................................52
7.6 Performance by Lender...............................................53
7.7 Remedies Non-Exclusive..............................................53
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.8 Waiver..............................................................53
7.9 Power of Attorney...................................................53
8. MISCELLANEOUS............................................................53
8.1 Payment of Funds to Lender..........................................53
8.2 Merger..............................................................53
8.3 Powers Coupled with an Interest.....................................54
8.4 Counterparts........................................................54
8.5 Notices.............................................................54
8.6 Assignees of Borrower and Lender....................................54
8.7 Unenforceability....................................................55
8.8 Time is of the Essence..............................................55
8.9 Delay not Waiver....................................................55
8.10 Headings............................................................55
8.11 CHOICE OF LAW: JURISDICTION: VENUE AND WAIVER OF JURY TRIAL.........55
8.12 Usury Law...........................................................57
8.13 NO LIABILITY TO PURCHASERS..........................................57
8.14 Reserved............................................................57
8.15 Reliance by Lender..................................................57
8.16 Termination; Survival...............................................57
8.17 Amendments..........................................................57
8.18 Marshalling; Payments Set Aside.....................................58
8.19 No Set-Offs by Borrower.............................................58
8.20 Equitable Relief....................................................58
8.21 Waiver of Punitive Damages..........................................58
8.22 General Interpretive Principals.....................................58
</TABLE>
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LIST OF EXHIBITS
[intentionally omitted]
<TABLE>
<CAPTION>
<C> <S>
Exhibit A Assignment of Mortgage(s) (Fee Simple Timeshare Instruments)
Exhibit B Form of Transfer Agreement
Exhibit C Servicer Report
Exhibit D Promissory Note
Exhibit E Permitted Encumbrances
Exhibit F List and Description of Timeshare Projects, Resorts and Related
Real Property
Exhibit G Borrower's Certificate pursuant to Section 3.2 of the Loan and
Security Agreement
Exhibit H Assignment of Mortgage(s) (Fee Simple Timeshare Instruments)
pursuant to Section 3.2 of the Loan and Security Agreement
Exhibit I Notice of Defaulted Instrument
Exhibit J Request for Advance and Certification pursuant to Section 3.2 of
the Loan and Security Agreement
Exhibit K Reserved
Exhibit L Real Estate Due Diligence Checklist
</TABLE>
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<PAGE>
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT ("Agreement") dated as of November 1,
1997, by DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES, a New York State
licensed branch of a bank incorporated in the Federal Republic of Germany and
licensed to operate branches in New York State and the Cayman Islands (together
with its successors and assigns, "Lender"), and VISTANA TIMESHARE MORTGAGE
CORP., a Delaware corporation ("Borrower").
RECITALS:
A. WHEREAS Borrower has requested that Lender make a revolving loan
("Loan") secured by certain level pay promissory notes and related mortgages on
timeshare interests, the Loan to be in the maximum principal amount of
$70,000,000;
B. WHEREAS Lender desires to make such Loan to Borrower;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto do hereby
agree as follows:
1. DEFINITIONS
As used in this Agreement and the other Documents (as defined below)
unless otherwise expressly indicated in this Agreement or the other Documents,
the following terms shall have the following meanings (such meanings to be
applicable equally both to the singular and plural terms defined). Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Transfer and Servicing Agreement.
1.1 "Advance": an advance of the proceeds of the Loan by Lender to
Borrower in accordance with the terms and provisions of this Agreement.
1.2 "Adverse Financial Conditions": the per annum coupon rate
inclusive of any letter of credit cost ("Anticipated Rate") of any single class
debt securities (the "Anticipated Securities") to be issued during the 180-day
period following receipt by Lender of a Notice to Securitize in connection with
any Securitization transaction sponsored by the Borrower and secured by the
Collateral would be reasonably likely to be greater than a spread of 2.25% over
the yield to maturity of the U.S. treasury security having a maturity most
nearly equal to the weighted average life of the Anticipated Securities ("Target
Rate"), provided however, that if (i) the face amount of the letter of credit to
be issued or arranged by the Lender or its Affiliate as credit enhancement in
connection with such Securitization is at least $20,000,000, (ii) the
Anticipated Securities are
<PAGE>
reasonably likely to be rated less than A by DCR ("Rating Failure"), (iii) the
Anticipated Rate is expected to be greater than the Target Rate because of the
Rating Failure and (iv) it is anticipated that there would not be a Rating
Failure but for potential adverse tax liability to the anticipated issuer of
Anticipated Securities due to the exposure of such issuer to the tax liabilities
of Vistana or any Affiliate thereof, such reasonable likelihood of a failure to
meet the Target Rate shall not constitute an Adverse Financial Condition.
1.3 "Affiliate": with respect to any individual or entity, any other
individual or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such individual or entity.
1.4 "Agents": the Servicer, Custodian and the Lockbox Bank.
1.5 "Anticipated Securities": has the meaning set forth in the
definition of "Adverse Financial Condition" herein.
1.6 "Applicable Usury Law": any or all of the usury laws,
regulations and rules that apply to, when used with respect to any Mortgage
Loan, such Mortgage Loan, and, when used with respect to the Note, the Note.
1.7 "Articles of Organization": the charter, certificate of
incorporation, certificate of trust, trust agreement, articles, operating
agreement, partnership agreement, by-laws and any other written documents
evidencing the formation, organization and continuing existence of the entity
related thereto.
1.8 "Assignment of Mortgage": a written assignment of one or more
specific Mortgages (and, only when delivered to Lender in blank) relating to one
or more Instruments in recordable form, sufficient under the laws of the
jurisdiction wherein the related Unit is located to give record notice of a
transfer of a Mortgage and its proceeds, delivered by Borrower to Lender in the
form of Exhibit A.
1.9 "Association": the Timeshare Association related to the pertinent
Time Share Interest.
1.10 "Bankruptcy Code": the Bankruptcy Code of 1978, as amended, as
codified under Title 11 of the United States Code, and the Bankruptcy Rules
promulgated thereunder, as the same may be in effect from time to time.
1.11 "Borrower": Vistana Timeshare Mortgage Corp., a Delaware
Corporation, and, subject to the restrictions on merger, consolidation and
assignment contained in the Documents, its permitted successors and assigns.
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1.12 "Borrowing Base": with respect to an Eligible Instrument, shall
be an amount equal to the product of (i) the Borrowing Base Percentage
multiplied by (ii) the unpaid principal balance of such Eligible Instrument and,
with respect to all Eligible Instruments in the aggregate, shall be an amount
equal to the product of (i) the Borrowing Base Percentage, multiplied by (ii)
the aggregate Outstanding principal balance of all such Eligible Instruments
constituting Designated Receivables Collateral hereunder then owned by the
Borrower.
1.13 "Borrowing Base Percentage": ninety percent (90%).
1.14 "Borrowing Term": the period commencing on the Closing Date and
terminating upon the close of business 364 days thereafter, and as the same may
be extended any number of times by the Lender, in its sole discretion, for a 364
day period that commences upon the date upon which the Borrowing Term would have
expired but for the Lender's election to so extend (each such date upon which
such extension occurs, an "Extension Commencement Date"); provided that the
Lender shall have delivered at least sixty (60) days prior to such Extension
Commencement Date written notice to the Borrower that sets forth the Lender's
decision to make or not to make such election, as the case may be, or such
shorter period of time as is acceptable to the Borrower, provided, further, that
if the Lender shall not provide any notice of its intention to so extend, any
Advance extended to the Borrower after the expiry of such 60 day period shall be
conclusive evidence of acceptability to the Borrower.
1.15 "Business Day": any day other than a Saturday, Sunday or a day
on which banks in New York, New York or the State of Florida (and, with respect
to the calculation of LIBOR, London, England) are required or permitted to
close.
1.16 "Certificate of Borrower": a certificate from the Borrower as
required pursuant to Section 3.2 hereof and substantially in the form of Exhibit
G hereto.
1.17 "Closing Date": November 25, 1997.
1.18 "Collateral": (a) the Designated Receivables Collateral, (b) any
and all other assets now or hereafter serving as security for the Performance of
the Obligations, (c) the Borrower's rights in, to and under the Transfer and
Servicing Agreement, (d) rights of the Intermediary Corporation in, to and under
each Transfer Agreement transferred to the Borrower pursuant to the Transfer and
Servicing Agreement, (e) any other rights acquired by the Borrower pursuant to
the Documents, (f) any rights of the Borrower, the Intermediary Corporation, and
each Originator in, to and under any interest rate swap agreement pertaining to
or otherwise directly affecting the Loan or any and each of the Mortgage Loan
Coupon Rates that are Mortgage Loan Coupon Rates related to Designated
Instruments and (g) all products, income and proceeds from any of the foregoing.
1.19 "Collection Account": an account at Dresdner Bank AG New York and
Grand Cayman Branches, account number 100869-15, Account Name Vistana Timeshare
Mortgage Corp. Collection Account.
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<PAGE>
1.20 "Collection Period": from the opening of business on the first
day to and including the close of business on the last day of, in either case,
each calendar month during the Term, provided, however, that the last Collection
Period shall terminate simultaneously with the expiration of the Borrowing Term.
With respect to any Payment Date, the Collection Period related thereto shall be
deemed to be the Collection Period occurring immediately prior to such Payment
Date.
1.21 "Credit and Collection Policies": the credit and collection
policies of the Servicer.
1.22 "Custodial Agreement": the document dated the Closing Date among
the Borrower, the Lender and the Custodian whereby the Custodian will take
possession of the Designated Instruments on behalf of Lender, and as the same
may be from time to time renewed, amended, restated or replaced.
1.23 "Custodian": First Union National Bank, a national banking
association, and its permitted successors as Custodian, under the Custodial
Agreement.
1.24 "Custodian's Certificate": a certificate substantially similar to
Exhibit B of the Custodial Agreement and required to be received by the Lender
prior to the making of any Advance, as further described in Article Four hereof.
1.25 "Custodian's Fee": shall be as provided in the Custodial
Agreement.
1.26 "DCR": Duff and Phelps Credit Rating Co. and its successors.
1.27 "Default Rate": a rate per annum equal to the sum of (i) LIBOR
plus (ii) 2.75%.
1.28 "Defaulted Instrument": a Designated Instrument that shall be
deemed defaulted at the earlier of the date on which (i) the Servicer has
determined, in its sole discretion, in accordance with the Servicing Standard,
that such Designated Instrument is not collectible, (ii) all or part of a
Scheduled Payment thereunder is more than 60 days delinquent as of the last day
of any calendar month or (iii) otherwise ceases to be an Eligible Mortgage Loan.
1.29 "Designated Instrument": an Instrument which has been endorsed
by Borrower to Lender and which, as of the Transfer Date related thereto, (a)
satisfies each of the representations made with respect to it under Section 2.03
of the Transfer Agreement related to it, (b) does not otherwise cause a breach
of any other representation or warranty set forth in such Section 2.03 and (c)
is not 60 days or more past due at the end of the calendar month immediately
preceding such Transfer Date, and such endorsement has not been released.
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<PAGE>
1.30 "Designated Receivables Collateral": all Designated Instruments
which have not been previously replaced pursuant to Section 3.2 hereof, their
proceeds, and that other part of the Receivables Collateral related to the
Designated Instruments.
1.31 "Determination Date": with respect to a Payment Date, the date
which is the fourteenth Business Day of the calendar month in which such Payment
Date occurs, provided, however, that in no event shall such Determination Date
be later than one Business Day prior to such Payment Date.
1.32 "Document Default": any one or more of the following: (a) an
Event of Default hereunder, (b) a Servicer Default, (c) a Guarantor Default or
(d) any "Default" or other Event of Default as defined in any Document.
1.33 "Documents": the Note, each Security Document, the Lockbox
Agreement, each Transfer Agreement, the Custodial Agreement, the Transfer and
Servicing Agreement, the Guaranty and all other documents executed in connection
with the Loan, as they may be from time to time renewed, amended, restated or
replaced.
1.34 "Eligible Instrument": a Designated Instrument which evidences
debt of an Eligible Mortgage Loan, as defined in the Transfer Agreement under
which such Designated Instrument is sold, transferred, conveyed and assigned to
the Intermediary Corporation. An Instrument that has qualified as an Eligible
Instrument shall cease to be an Eligible Instrument upon the date of the first
occurrence of any of the following: (a) any installment due with respect to that
Instrument becomes more than 60 days past due as of the last day of any calendar
month; or (b) the Eligible Mortgage Loan as defined in the related Transfer
Agreement related to such Designated Instrument ceases to be an Eligible
Mortgage Loan or becomes a Defaulted Mortgage Loan.
1.35 "Environmental Laws": all foreign, federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control
Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act and the Emergency Planning and
Community Right-to-Know Act.
1.36 "ERISA": the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
1.37 "Event of Default": the meaning set forth in paragraph 7.1
hereof.
1.38 "Excess Interest": as set forth in Section 8.12 hereof.
5
<PAGE>
1.39 "Exit Fee": means the product, expressed in dollars, of 0.0035
and (i) with respect to repurchases of Instruments made under Section 2.13(b)
hereof, the aggregate Borrowing Base Percentage of the Outstanding principal
balance of such Instruments, and (ii) with respect to payment of the Exit Fee
pursuant to Section 2.13(a) hereof, the Borrowing Base Percentage of the
Outstanding principal balance of all Instruments that have been endorsed by
Borrower to Lender and which, before the date on which the Exit Fee is due
pursuant to Section 2.13(a), such endorsement has not been released; provided,
however, that the total Exit Fee during the initial Borrowing Term if a
Securitization has not been completed for reasons other than due to the
existence of an Adverse Financial Condition shall not be less than $175,000.00.
1.40 "Extension Commencement Date": as set forth in the definition of
"Borrowing Term" above.
1.41 "Federal Reserve Board": the Board of Governors of the Federal
Reserve System and any successor thereto.
1.42 "GAAP": generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
1.43 "Governmental Authority": (a) any federal, state, county,
municipal or foreign government, or political subdivision, (b) any governmental
or quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to whose jurisdiction that Person has consented.
1.44 "Grant": grant, bargain, sell, convey, assign, transfer,
mortgage, pledge, create and perfect a Security Interest in and right of set-off
against, deposit, set over and continue.
1.45 "Guarantor": Vistana.
1.46 "Guarantor Default": as defined in Section 5.1 of the Guaranty.
1.47 "Guaranty": the Guaranty, dated as of the Closing Date, executed
by Guarantor in favor of the Lender, as the same may be amended from time to
time.
1.48 "Hazard Insurance Documents": all current insurance documentation
that exists with respect to a Unit related to a Designated Instrument and that
pertains to damage or loss
6
<PAGE>
of economic value that such Unit may suffer as a result of fire, flood,
earthquakes, volcanoes, wind or any other type of storm, typhoon, Act of God or
other similar event.
1.49 "Incipient Default": an event which, after notice and/or lapse of
time, would constitute an Event of Default.
1.50 "Income Taxes": any federal, state, local or foreign taxes based
upon, measured by, or imposed upon gross or net income, gross or net receipts,
capital, net worth, or the privilege of doing business, and any minimum taxes or
withholding taxes based upon any of the foregoing, including any penalties,
interest or additions to tax imposed with respect thereto.
1.51 "Indebtedness": as to any Person, (a) all indebtedness of such
Person for borrowed money, (b) all leases of equipment of such Person, including
all capital leases of such Person, (c) any obligation of such Person for the
deferred purchase price of Property or services (other than trade or other
accounts payable in the ordinary course of business and not more than ninety
(90) days past due), (d) any obligation of such Person that is secured by a Lien
on assets of such Person, whether or not that Person has assumed such obligation
or whether or not such obligation is non-recourse to the credit of such Person,
(e) obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person and (f) any
obligation of such Person to reimburse the issuer of any letter of credit issued
for the account of such Person upon which a draw has been made.
1.52 "Independent Director": with respect to a corporation, a director
of the corporation, and, with respect to a trust, a trustee of such trust who,
in each of the foregoing cases, shall at no time be, or have been, a director,
officer, member, trustee, or partner of, be employed by, or hold any beneficial
or economic interest in any Affiliate of such corporation or trust, as the case
may be, or, indirectly or directly, gain any benefit from, engage in any
activity (other than as contemplated herein) with, or be controlled or
influenced by, any Affiliate of such corporation and who shall at no time hold
any beneficial or economic interest in such corporation or trust, as the case
may be. For the purpose of the preceding sentence, "Affiliate" shall mean any
Person other than such corporation or trust, as the case may be (i) which owns
beneficially, directly or indirectly, 10% or more of the outstanding shares of
common stock of the corporation or beneficial interest of such trust; or (ii) of
which 10% or more of the outstanding shares of its common stock or trust
certificates, as the case may be, is the owned beneficially, directly or
indirectly, by any entity described in clause (i) above, (iii) which is
"controlled", as defined in Section 230.405 of the Rules and Regulations of the
Securities and Exchange Commission, 17 C.F.R. Section 230.405 by an entity
described in clause (i) above or (iv) receives a substantial income from such
corporation or trust.
1.53 "Independent Public Accountant": any of (a) Arthur Andersen &
Co., (b) Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young (e) KPMG
Peat Marwick and (f) Price Waterhouse and (g) any successors thereof; provided,
that such firm is independent with respect to the Servicer, as the case may be,
within the meaning of the Securities Act of 1933, as amended.
7
<PAGE>
1.54 "Ineligibility Date": with respect to any Instrument, the earlier
of (a) Borrower having obtained Knowledge the Instrument is, or will become an
Ineligible Instrument or (b) the Instrument ceasing to qualify as an Eligible
Instrument.
1.55 "Ineligible Instrument": an Instrument that either (a) was, and
subsequently ceases to be, an Eligible Instrument or (b) was not an Eligible
Instrument at the time such Instrument was assigned to Lender.
1.56 "Initial Instruments": each Instrument delivered to the
Custodian in connection with the initial Advance under this Agreement.
1.57 "Instrument": with respect to each Timeshare Interest, the
original executed promissory note evidencing the indebtedness of a Mortgagor in
connection with the sale of a Timeshare Interest by a Timeshare Developer to
such Mortgagor as Purchaser thereunder.
1.58 "Insurance Policies": the insurance policies that (a) the
Borrower is required to cause to be maintained and delivered pursuant to Section
6.2(r) hereof and (b) property insurance, Hazard Insurance, private mortgage
insurance (but without implying any obligation on the part of Borrower to
provide same) and the flood insurance (if any) and the Title Policies (Mortgage)
that exist and pertain to the related Timeshare Interest or Unit, as applicable.
1.59 "Interest": the amount of interest payable by the Borrower on
the Note in accordance with the terms and conditions thereof and hereof.
1.60 "Interest Collection Period": with respect to each Advance, that
portion of the Interest Period related thereto that falls within one Collection
Period.
1.61 "Interest Period": when used in the singular, any one of, and,
when used in the plural, each thirty (30) day period commencing upon, and
inclusive of, the first day of the Advance related thereto, concluding upon, and
inclusive of, the last day of such thirty (30) day period, provided that, the
final Interest Period shall conclude upon the Maturity Date of the Loan.
1.62 "Interest Rate": with respect to each Interest Period a rate per
annum equal to the sum of (i) LIBOR plus (ii) one hundred basis points per
annum, provided, however, that in the event that all principal and Interest due
under the Note shall not be paid upon the end of the Maturity Date, then the
Interest Rate applicable to all Outstanding payments of Interest shall be the
Default Rate.
1.63 "Intermediary Corporation": VTM Corp., a Delaware corporation
having its chief executive offices at c/o VCH Administration, Inc., 8801 Vistana
Centre Drive, Orlando, Florida 32821.
8
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1.64 "Interstate Land Sales Full Disclosure Act": Interstate Land
Sales Full Disclosure Act, as amended.
1.65 "Investment Company Act": the Investment Company Act of 1940, as
amended (15 U.S.C. 80a-1 et seq.), as the same may be in effect from time to
time, or any successor statute thereto.
1.66 "Knowledge": as to any natural person, the actual awareness of
the fact, event or circumstance at issue or proper delivery of notification of
such fact, event or circumstance at the place held out by such person as the
place for receipt of such communications and, as to any Person that is not a
natural Person, that (i) the fact, event or circumstance at issue is brought to
the attention of a Responsible Officer or (ii) notice has been delivered to such
Person in accordance with the provisions of the relevant Documents; provided,
however, that each such Person that is not a natural person shall be deemed to
have Knowledge of any fact, event or circumstance if such fact, event or
circumstance should have been known or would have been brought to the attention
of a Responsible Officer if the Person had exercised commercially reasonable due
diligence.
1.67 "Lender": Dresdner Bank AG New York and Grand Cayman Branches
and its permitted successors and assigns.
1.68 "Lender's Attorneys Fee": lender's attorney's fees with respect
to the closing and post-closing plus disbursements (which, through November 25,
1997, are $121,307.18, which figures reflect the fee cap of $50,000 through
October 31, 1997), and with respect to any Advance thereafter, the reasonable
fees and disbursements of Lender's counsel incurred in connection with such
Advance as determined by Lender in its sole discretion.
1.69 "Lender's Bill": as set forth in Section 5.3(b) hereof.
1.70 "LIBOR": the offered rate for United States dollar deposits for
30 days appears on Telerate Page 3750 as of 11:00 A.M., London Time, on such
LIBOR Determination Date; provided that if such rate does not appear on Telerate
page 3750 on any LIBOR Determination Date, the Lender will request each of the
reference banks (which shall be major banks that are engaged in transactions in
the London interbank market selected by the Lender) to provide the Lender with
its offered quotation for United States dollar deposits for one month to prime
banks in the London interbank market as of 11:00 A.M., London time, on such
date. If at least two reference banks provide the Lender with such offered
quotations, LIBOR on such date will be the arithmetic mean, rounded upwards, if
necessary, to the nearest one-sixteenth (1/16) of 1% of all such quotations. If
on such date fewer than two reference banks provide the Lender with such offered
quotations, LIBOR on such date will be the arithmetic mean, rounded upwards, if
necessary, to the nearest one-sixteenth (1/16) of 1% of the offered per annum
rates that one or more leading banks in the City of New York selected by the
Lender are quoting as of 11:00 A.M., New York City time, on such date to leading
European banks for United States dollar deposits for one month. If such banks
in the City of New York are not quoting as provided above, LIBOR for such date
will be LIBOR as determined
9
<PAGE>
by the Lender using such method as it shall deem reasonable under the
circumstances. The establishment of LIBOR by the Lender in the absence of
manifest error shall be final and binding.
1.71 "LIBOR Determination Date": the second Business Day prior to the
first day of the applicable Interest Period.
1.72 "Lien": any mortgage, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge upon any and,
whether voluntarily incurred or arising by operation of law or otherwise,
affecting any property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and the filing of or agreement to file or deliver any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.73 "Line of Credit Agreement": the Line of Credit Agreement, dated
the date hereof, among Lender, Vistana and Vistana Development, Ltd., as the
same may be amended from time to time.
1.74 "Loan": the Loan of up to $70,000,000.00 evidenced by the Note.
1.75 "Loan Event of Default": an Event of Default hereunder.
1.76 "Lockbox Agreement": each agreement made between the Lender, the
Borrower, the Servicer and the Lockbox Bank, which provides for the Lockbox Bank
to collect through a lockbox payments made on Instruments constituting part of
the Designated Receivables Collateral and to remit them to the Collection
Account, subject to the provisions of Section 5.3 hereof, as it may be from time
to time renewed, amended, restated or replaced.
1.77 "Lockbox Bank": First Union National Bank, a national banking
association, and its permitted successor as Lockbox Bank under the Lockbox
Agreement.
1.78 "Lockbox Bank Fee": as provided in the Lockbox Agreement.
1.79 "Management Agreement(s)": any management agreement now or
hereafter existing by and between a Manager and the Association related to the
Resort managed pursuant to such Management Agreement and as the same may be as
amended, renewed, restated or replaced in which a Person agrees to perform
certain management services with respect to any Unit related to the Collateral
on behalf of the Originator that owns such Unit.
1.80 "Manager": a Person with whom an Association enters into a
Management Agreement. As of the Closing Date, such Managers were Points of
Colorado, Inc., with respect to Eagle Pointe and Falcon Pointe, Resort Advisory
Group, Inc., with respect to Christie Lodge and Vistana MB Management, Inc. with
respect to Embassy Vacation Resort at Myrtle Beach.
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1.81 "Material Adverse Effect": any set of circumstances or events
which (a) has, or would reasonably be expected to have, any material adverse
effect whatsoever upon the validity or enforceability of any Document against
any Vistana Transaction Entity or Agent(s), including the Note; (b) is, or would
reasonably be expected to be, material and adverse to the condition (financial
or otherwise) or business operations of any Vistana Transaction Entity or
constitute grounds for the revocation of any license, charter or permit material
to the conduct of such Person's business and a suspension of sales or a
liability incurred outside the ordinary course of business with respect to
Borrower or the Intermediary Corporation, in an amount greater than $10,000 or,
with respect to any Originator or any Servicer, in an amount greater than
$250,000 or, with respect to Vistana, in an amount greater than $1,000,000 or
more shall be deemed such a material and adverse effect; (c) materially impairs,
or could reasonably be expected to materially impair, the ability of any Vistana
Transaction Entity to perform any of its obligations under any of the Documents;
(d) materially and adversely affects any Resort related to any Timeshare
Interest comprising any part, or all, of the Collateral as of the date of
determination which is not fully covered by insurance; (e) materially impairs,
or would reasonably be expected to materially impair, the ability of the
Custodian, Lender or any Trustee or Noteholder to enforce any of the remedies
set forth in, or any interest under, any of the Documents such that the
Documents do not contain adequate provisions for the practical realization of
the rights and benefits afforded thereby; (f) materially and adversely affects
or would reasonably be expected to materially impair the interests of the
Custodian, Lender, any Trustee or any Noteholder in the Collateral including the
Grant of the Security Interest to the Lender in the Designated Receivables
Collateral, (g) materially and adversely affects, or could reasonably be
expected to have a material and adverse effect upon, the condition (financial or
otherwise) of any Association, any Manager, any Timeshare Developer or
constitute grounds for the revocation of any license, charter or permit material
to the conduct of such Person's business to which any Designated Investment
relates as of the date of determination, or (h) when used with respect to any
single Mortgage Loan, materially and adversely affects or impairs, or would
reasonably be expected to so affect or impair, any of the following: (i) the
enforceability, legality or binding nature of any document in the Mortgage Loan
File; (ii) the repayment of either principal or interest of the Instrument;
(iii) the Mortgage Loan Coupon Rate; (iv) the Lender's or any Trustee's
interests under, Security Interest in, or ability to enforce its rights under,
any Mortgage Document; (v) the enforceability, legality or validity of any
Mortgage Document; and, when used with reference to the Collateral, or the
property sold, transferred, conveyed and assigned by any Originator, means the
effects and impairments described in subclauses (h)(i) through and including
(h)(v) but only as when applied to a material number of Mortgage Loans that
constitute Designated Receivables Collateral. To the extent that the definition
of Material Adverse Effect makes a direct or indirect reference to a particular
Instrument, Mortgage Loan, Mortgage File, Timeshare Interval, Unit, Resort or
Timeshare Project, then no Material Adverse Effect shall be deemed to have
occurred if Borrower causes the Designated Instruments related to the foregoing
to be replaced or repaid by the end of the calendar month following the month in
which Borrower obtains Knowledge of such occurrence.
1.82 "Maturity Date": The date which is 180 days after the last day
of the Borrowing Term.
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1.83 "Moody's": Moody's Investors Service, Inc. and its successors.
1.84 "Mortgage": the purchase money mortgage or deed of trust given
to secure an Instrument, which shall in each case constitute a first priority,
perfected security interest in a Timeshare Interest granted by the Purchaser.
1.85 "Mortgage Documents": (a) the original Instrument and any
amendments or modifications thereto; (b) each executed, original Assignment of
Mortgage (which may relate to more than one Mortgage); (c) the original Mortgage
(or copy thereof) and any amendments or modifications thereto; (d) the
Certificate of Private mortgage insurance (but without implying any obligation
on the part of Borrower to provide same), if any, for the Unit; (e) the Title
Policy (Mortgage) or a commitment that such Title Policy (Mortgage) will be
delivered within sixty (60) days from the date of the relevant Advance and (f)
each Time Share Declaration, Time Share Program Consumer Documents and Timeshare
Program Governing Documents related to the Unit provided that, for the purposes
of any delivery requirements hereunder, the documents, in their most current
form, referenced in clause (f) hereof need (A) not be so delivered if previously
received by the required recipient and (B) notwithstanding the provisions of any
other Document, shall be delivered to the Lender.
1.86 "Mortgagor": the Person obligated to make the payments due under
each Instrument in accordance with the terms and conditions related to such
Instrument.
1.87 [RESERVED]
1.88 "Note": the Promissory Note from Borrower in favor of Lender in
a form substantially similar to Exhibit D in the original principal amount of up
to $70,000,000, as it may from time to time be renewed, amended, restated, or
replaced.
1.89 "Noteholders": the holders of any notes, certificates or other
debt security issued in connection with any securitization of the Collateral.
1.90 "Notice to Securitize": has the meaning set forth in Section
2.14 hereof.
1.91 "Obligations": all obligations, agreement, duties, covenants and
conditions that Borrower is now or hereafter required to Perform under any and
all of the Documents, including, without limitation, the obligation to make
timely payment under the Note.
1.92 "Originator": in the singular, any one of, and, in the plural,
all of, the entities that, as of the date of determination, have executed a
Transfer Agreement and have sold at least one Eligible Instrument to the
Intermediary Corporation which constitutes Designated Receivables Collateral as
of the date of determination; provided, however, that on the Closing Date, the
Originators are deemed to be: Points of Colorado, Inc., a Colorado corporation,
and Vistana MB, Inc., a South Carolina corporation.
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1.93 "Outstanding": as of the date of determination, either any
obligation that has yet to be performed or amount that has yet to be paid, as
the case may be.
1.94 "Partial GAAP": GAAP with the exception that such financial
statements shall not contain consolidating and eliminating entries, disclosure
or footnotes.
1.95 "Payment Date": the twentieth day of each calendar month, or if
such day is not a Business Day, the immediately succeeding Business Day,
commencing on December 20, 1997. With respect to any Advance, Interest Period or
Maturity Date, the Payment Date related thereto shall be the Payment Date
immediately following such Interest Period or Maturity Date, respectively.
1.96 "Performance" or "Perform": full, timely and faithful
performance.
1.97 "Permitted Encumbrances": the rights, restrictions, reservations,
encumbrances, easements and liens of record which Lender has agreed to accept as
set forth in Exhibit E.
1.97A "Permitted Investments": means any of the following, in each
case as determined at the time of the investment or contractual commitment to
invest therein:
(1) negotiable instruments or securities represented by
instruments in bearer or registered or book-entry form which evidence:
(1) obligations which have the benefit of the full faith and
credit of the United States of America, including depository receipts
issued by a bank as custodian with respect to any such instrument or
security held by the custodian for the benefit of the holder of such
depository receipt,
(2) demand deposits or time deposits in, or bankers'
acceptances issued by, any depositary institution or trust company
incorporated under the laws of the United States of America of any state
thereof and subject to supervision and examination by Federal or state
banking or depositary institution authorities; provided that at the time of
the investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term
unsecured debt obligations (other than such obligations whose rating is
based on collateral or on the credit of a Person other than such
institution or trust company) of such depositary institution or trust
company has a credit rating in the highest rating category from DCR,
Standard & Poor's or Moody's (each a "Rating Agency"),
(3) certificates of deposit having a rating in the highest
rating category by a Rating Agency, or
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(4) investments in money market funds which are (or which are
composed of instruments or other investments which are) rated in the
highest rating category by a Rating Agency;
(b) commercial paper (having original or remaining maturities of
no more than 270 days) having a credit rating in the highest rating
category by a Rating Agency;
(c) Eurodollar time deposits that are obligations of
institutions whose time deposits carry a credit rating in the highest
rating category by a Rating Agency; and
(d) repurchase agreements involving any Permitted Investment
described in any of clauses (a)(I), (a)(iii) or (d) above, so long as the
other party to the repurchase agreement has its long-term unsecured debt
obligations rated in the highest rating category by a Rating Agency and so
long as the Lender has approved of such repurchase agreement in writing.
Any Permitted Investment must mature no later than the Business Day
prior to the next Payment Date.
1.98 "Person": any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, firm, joint
stock company, estate, entity or Governmental Authority.
1.99 "Proceeding": any suit in equity, action at law or other judicial
or administrative proceeding.
1.100 "Plan": any pension plan (as defined in Section 3(2) of
ERISA) covered by Title IV of ERISA or section 412 of the Tax Code or section
302 of ERISA, which is maintained by a "Commonly Controlled Entity" as described
in Section 4001(b) of ERISA or in respect of which such Commonly Controlled
Entity has liability or any welfare plan (as defined in section 3(3) of ERISA
which requires contributions or payments to be made on account of persons who
are no longer employees except as required by section 4980B of the Tax Code).
1.101 "Principal Redemption Price": has the meaning set forth in
Section 6.2(v) herein.
1.102 "Private Mortgage Insurance": a primary mortgage guaranty
insurance policy. The inclusion of this definition shall not be construed as a
requirement that any such insurance be obtained.
1.103 "Property": means any interest in any kind of property or
asset, whether real, personal or mixed, whether tangible or intangible.
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1.104 "Purchaser": a purchaser of a Timeshare Interest from a
Timeshare Developer.
1.105 "Real Property": any and all real property upon or in which
a Unit related to any Instrument is located as further described on Exhibit F
hereto.
1.106 "Receivables Collateral": (a) the Instruments which are now or
hereafter assigned, endorsed or delivered to Borrower and not thereafter
reassigned by Borrower as permitted by Section 6.3(b); (b) all rights under the
Mortgage Documents and all documents evidencing, securing or otherwise
pertaining to such Instruments; (c) the proceeds of such Mortgage Documents
(including the Instrument related thereto), the right to receive all amounts due
or to become due thereunder after the related Transfer Date, but excluding any
Late Fees and Miscellaneous Amounts; (d) the Mortgage Loan Files relating to
each such Mortgage Loan; (e) all guarantees, cash deposits or credit support
supporting or securing payment to the extent specifically relating to any such
Mortgage Loan; (f) all of the Borrower's rights and interest in, but none of its
obligations or liabilities under, each of the Documents, including, without
limitation, each Transfer Agreement; (g) all files, books and records of
Borrower pertaining to the foregoing; and (h) the proceeds and income from each
and all of the foregoing.
1.107 [Reserved]
1.108 "Regulations G, T, U and X": collectively, Regulations G, T, U
and X adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and
224, respectively) and any other regulation in substance substituted therefor.
1.109 "Replacement Date": the date upon which an Ineligible
Instrument must be replaced pursuant to the terms and conditions of Section 3.2
hereof.
1.110 "Replacement Instrument": the meaning set forth in Section
3.2 hereof.
1.111 "Reportable Event": shall mean a Reportable Event as defined
in section 4043(b) or 4063(a) of ERISA or the regulations promulgated
thereunder, except for those Respectable Events for which the PBGC has waived
notice.
1.112 "Resolutions": as the context may require, either any or all of
the following, as appropriate: (a) a resolution of a corporation (including the
corporation as a general partner) certified as true and correct by an authorized
officer of such corporation, (b) a certificate signed by the manager of a
limited liability company and/or such other members whose approval is required,
(c) a partnership certificate signed by all of the general partners of such
partnership and such other partners whose approval is required or (d) the legal,
valid and binding consent of the Trustees of a business trust.
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1.113 "Resorts": the projects, described in Exhibit F hereto,
developed by the Timeshare Developers; which include Eagle Pointe, Avon County,
CO; Falcon Pointe, Avon County, CO; Christie Lodge, Eagle County, CO; Embassy
Vacation Resort at Myrtle Beach, Horry County, SC; Vistana Lakes, Orange County,
FL; Vistana Condominium, Orange County, FL; Vistana Falls, Orange County, FL;
Vistana Fountains, Orange County, FL; Vistana Cascades, Orange County, Fl;
Vistana Fountains II, Orange County, FL; Vistana Spa, Orange County, FL; Vistana
Springs, Orange County, FL; Vistana's Beach Club, St. Lucie County, FL; Villas
at Cave Creek, Maricopa County, AZ; and any additional resorts designated in
writing by the Borrower and consented to, in writing, by the Lender.
1.114 "Responsible Officer": the chairman of the board, the
president, any executive vice president, any vice president, the treasurer, any
assistant treasurer, the secretary, any assistant secretary, the controller or
any assistant controller if the entity of determination is a corporation; if
such entity is a partnership, any one of the foregoing corporate officers of any
general partner thereof, and if such entity is a trust, any one of the foregoing
corporate officers of any trustee thereof, and if such entity is a limited
liability company, any one of the foregoing corporate officers of the managing
member thereof.
1.115 "S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
1.116 "Scheduled Borrowing Termination Date": as of the date of
determination, the date upon which the Borrowing Term is scheduled to expire in
accordance with the terms and conditions of this Agreement.
1.117 "Scheduled Payments": with respect to an Instrument, when used
in the singular, the periodic payment, including but not limited to (exclusive
of any amounts in respect of insurance or taxes and reflecting any adjustment
for any partial prepayment and further reflecting the effect of any permitted
modification to such Instrument) scheduled to be paid by a Mortgagor pursuant to
the terms and conditions of an Instrument, due from the Mortgagor during the
related Collection Period; and when used in the plural, all such payments under
all such Instruments that are Designated Instruments.
1.118 "SEC": the Securities and Exchange Commission and any
successor thereto.
1.119 "Securities Act" or the "Securities Act of 1933": the
Securities Act of 1933, as amended.
1.120 "Securitization": a securitization of assets that comprise any
part of, or all of, the Collateral effected in accordance with a Notice to
Securitize.
1.121 "Security Documents": each Transfer Agreement, each Transfer
and Servicing Agreement, this Agreement, the Mortgage Documents and any and all
other documents
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now or hereafter executed by Borrower and securing Performance of the
Obligations, as they may be from time to time renewed, amended, restated or
replaced.
1.122 "Security Interest": a perfected, direct, first and (with
respect to any property constituting Collateral, subject only to the Permitted
Encumbrances applicable thereto) exclusive security interest in and charge upon
the property intended to be covered by it.
1.123 "Servicer": VCH Portfolio Services, Inc., a Florida corporation,
serving in the capacity of Servicer pursuant to the Transfer and Servicing
Agreement and any permitted successor thereto.
1.124 "Servicer Default": any and each "Event of Default" as defined
in Section 7.01 of the Transfer and Servicing Agreement.
1.125 "Servicer Report": as set forth in Section 5.3(b) hereof.
1.126 "Servicing Officer List": as set forth in the definition of
"Servicing Officer" in the Transfer and Servicing Agreement.
1.127 "Servicing Standard": the customary standard of prudent
servicers of loans secured by fee simple timeshare interests similar to the
Timeshare Interests, but in no event lower than the standard employed by the
Servicer used when servicing such loans for its own account and such third
parties, but, in any case, without regard for:
(i) any relationship that the Servicer or any Affiliate of the
Servicer may have with the related Mortgagor;
(ii) the Servicer's right to receive compensation for its services
hereunder or with respect to any particular transaction; or
(iii) the fact that the Servicer or any Affiliate of the Servicer may
be a Noteholder;
and, in any case, shall include the following servicing activities:
(i) perform standard accounting services and general recordkeeping
services with respect to the Mortgage Loans;
(ii) respond to any telephone and written inquiries of Mortgagors
concerning the Mortgage Loans;
(iii) keep Mortgagors informed of the proper place and method for
making payments with respect to the Mortgage Loans;
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(iv) contact Mortgagors to effect collection and to encourage prompt
payment of Mortgage Loans, doing so by lawful means in accordance with
industry standards;
(v) report tax information to Mortgagors as required by law; and
(vi) take such other action as may be necessary or appropriate in the
reasonable judgment of the Servicer for the purpose of collecting and
transferring to the Collection Account or the related Lockbox Account, as
required, all payments received in respect of Mortgage Loans (except as
otherwise expressly provided herein), and to carry out the duties and
obligations imposed upon the Servicer.
1.128 "Solvent": as to any Person at any time, that (a) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (b) the present fair saleable value of the
property in an orderly liquidation of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
1.129 "Special Purpose Entity": means, as applicable, a corporation,
limited partnership, owner trust arrangement, business trust or limited
liability company which at all times since its formation and at all times
thereafter shall have complied with each of the following:
(i) Affiliate Securities. Such entity has not acquired obligations
or securities of its partners, members or shareholders.
(ii) Allocations. Such entity has allocated fairly and reasonably
any overhead for shared office space and uses separate stationery, invoices
and checks.
(iii) Arm's length Transactions. Such entity has not entered into,
nor has it been a party to, any transaction with its partners, members,
shareholders or Affiliates except (i) for the Documents and (ii) in the
ordinary course of its business and on terms which are intrinsically fair
and are no less favorable to it than would be obtained in a comparable
arm's-length transaction with an unrelated third party.
(iv) Bankruptcy Filing. Such entity, without the unanimous consent
of all of the general partners, directors, trustees or members, as
applicable, has not filed a bankruptcy or insolvency petition or otherwise
instituted insolvency proceedings with respect to itself or
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to any other entity in which it has or had a direct or indirect legal or
beneficial ownership interest, or dissolved, liquidated, consolidated,
merged, or sold all or substantially all of its assets or any other entity
in which it has or had a direct or indirect legal or beneficial ownership
interest, engaged in any other business activity, or amended its
organizational documents without the prior written consent of the
Independent Director.
(v) Commingling. Such entity has not commingled its funds or
assets with those of any other entity, and has held its assets in its own
name.
(vi) Divisions. Such entity has not identified its partners,
members or shareholders, or any affiliates of either of them as a division
or part of it.
(vii) Formalities. Such entity has observed all partnership,
corporate trust or limited liability company formalities, as applicable.
(viii) General Partner. If such entity is a general partnership, at
least one general partner of such entity is a Special Purpose Entity that
is also a corporation.
(ix) Guarantees. Such entity has not assumed or guaranteed or
become obligated for the debts of any other entity or held out its credit
as being available to satisfy the obligations of any other entity for
liabilities permitted to be guaranteed by its Articles of Incorporation.
(x) Identification. Such entity has held and identified itself as
a separate and distinct entity under its own name and not as a division or
part of any other person or entity.
(xi) Independent Director. If such entity is a corporation or
business trust, it has and has covenanted always to have at least one
director that is an Independent Director.
(xii) Limited Liability Companies. If such entity is a limited
liability company, (A) its articles of organization, certificate of
formation and/or operating agreement, as applicable, provides that the vote
of a majority-in-interest of the remaining members is sufficient to
continue the life of the limited liability company in the event of a
termination event, such as a bankruptcy of the managing member; (B) if the
vote of a majority-in-interest of the remaining members is not obtained to
continue the life of the limited liability company upon a termination
event, its articles of organization, certificate of formation and/or
operating agreement as applicable, provides that the limited liability
company may not liquidate collateral without the consent of the holders of
the related securities; (C) the only managing member of the liability
company is the Special Purpose Entity member; and (D) it has at least one
member that is a Special Purpose Entity that is a corporation.
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(xiii) Limited Partnership. If such entity is a limited partnership
with multiple general partners, the limited partnership agreement requires
the remaining partners to continue the partnership as long as one solvent
general partner exists.
(xiv) Loans. Such entity has not made loans to any Person.
(xv) No Dissolution. Such entity has not engaged in, sought, or
consented to any dissolution, winding up, liquidation, consolidation,
merger, asset sale, transfer of partnership or membership interest, or
amendment of its limited partnership agreement, articles of incorporation,
articles of organization, certificate of formation or operating agreement,
as applicable without the prior written consent of the Independent
Director.
(xvi) No Other Assets. Such entity has not had any assets as of the
Closing Date other than those related, if such entity is a trust, to its
trust property and if such entity is not a trust, as has been disclosed in
writing to Lender.
(xvii) No Other Business. As of the Closing Date, such entity has not
engaged in any business unrelated to the ownership of its assets.
(xviii) No Other Indebtedness. As of the Closing Date, such entity has
no Indebtedness other than, with respect to the Borrower only, the
Indebtedness evidenced by the Note and existing under the Loan and Security
Agreement, and liabilities in the ordinary course of business relating to
the ownership and operation of its assets.
(xix) Own Liabilities. Such entity has paid its own liabilities out
of its own funds and assets.
(xx) Own Name. Such entity has conducted its business in its own
name.
(xxi) Pledges. Such entity has not pledged its assets for the
benefit of any other person or entity other than pursuant to the Documents.
(xxii) Purpose. Such entity was organized solely for the purpose of
owning the Collateral, entering into the Documents, and, with respect to
the Borrower only, issuing the Note and, if agreed to with the Lender
pursuant to the terms and conditions hereof, securitizing certain
Instruments.
(xxiii) Separate Accounts. Such entity has maintained its accounts,
books and records separate from any other person or entity and in
accordance with Partial GAAP.
(xxiv) Separate Records. Such entity has maintained its accounting
records and other entity documents separate from any other person or
entity.
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(xxv) Unanimous Consent. Such entity has not caused or allowed the
board of directors of such entity to take any action requiring the
unanimous affirmative vote of 100% of the members of the board of directors
unless an Independent Director shall have participated in such vote.
1.130 "Subordination Agreement(s)": when used in the singular,
any one of, and, when used in the plural, each and every subordination
agreement(s) made and delivered to Lender pursuant to Section 6.2(s) hereof, as
it may be from time to time renewed, amended, restated or replaced.
1.131 "Substitute Instrument Transfer Date": With respect to the
Instrument being substituted, the date upon which such Instrument is sold,
transferred, conveyed and assigned by a Originator pursuant to the terms of a
Transfer Agreement or this Agreement.
1.132 "Substitute Instrument": An Eligible Instrument related to a
Substitute Mortgage Loan, as defined in the Transfer Agreement related thereto,
or a Replacement Instrument.
1.133 "Tax Code": the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations adopted thereunder, as the same may be in effect
from time to time and any successor thereto.
1.134 "Term": the duration of this Agreement, commencing on the
Closing Date and ending on the Maturity Date and the expiration of any
applicable bankruptcy preference period (but in no case less than one year and
one day after all Obligations shall have been performed).
1.135 "Third Party Consents": those consents which Lender
requires Borrower and its Affiliates to obtain or which one or more of them is
contractually or legally obligated to obtain, from others in connection with the
transaction contemplated by the Documents.
1.136 "TIA" or "the Trust Indenture Act of 1939": the Trust
Indenture Act of 1939, as amended.
1.137 "Timeshare Association": the not-for-profit corporation
responsible for operating a particular Resort.
1.138 "Timeshare Declaration": the declaration or other document
recorded/or to be recorded in the real estate records where the pertinent
Timeshare Project is located for the purpose of creating and governing the
rights of owners of Timeshare Interests related thereto, as it may be in effect
from time to time.
1.139 "Timeshare Developer": unless otherwise set forth in the
terms of the applicable Transfer Agreement, the Originators that offer and
solicit offers to purchase Timeshare Interests related to the Collateral.
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1.140 "Timeshare Interest": an undivided 1/52 or 1/51 fee simple
interest in either perpetuity or every other year in perpetuity in a particular
Unit, together with the right to the exclusive occupancy and use and enjoyment
of such Unit for seven (7) consecutive days each calendar year or every other
calendar year, as the case may be, together with an appurtenant undivided
fractional interest in the common elements of the Timeshare Project and the non-
exclusive right to use such common elements during such same seven (7) day
period including rights as members of the Association related thereto, all in
accordance with, and subject to, the Timeshare Program Governing Documents.
1.141 "Timeshare Program": the program under which (1) Purchasers
have purchased fee simple Timeshare Interests and (2) owners of Timeshare
Interests share the expenses associated with the operation and management of
such program.
1.142 "Timeshare Program Consumer Documents": the purchase
contract, Instrument, Mortgage, credit application, credit disclosures,
rescission right notices, final subdivision public reports/prospectuses/public
offering statements, Timeshare Project exchange affiliation agreement, and other
documents and advertising materials used or to be used by a Timeshare Developer
in connection with the sale of Timeshare Interests.
1.143 "Timeshare Program Governing Documents": the Articles of
Organization of each Timeshare Association, the rules and regulations of each
Timeshare Association, the Timeshare Program management contract between each
Timeshare Association and a management company, and any subsidy agreement by
which a Timeshare Developer is obligated to subsidize shortfalls in the budget
of a Timeshare Program in lieu of paying assessments, as they may be from time
to time in effect and all amendments, modifications and restatements of any of
the foregoing.
1.144 "Timeshare Projects": the part of the Resorts as described
in Exhibit F hereof and such other part of the Resorts as Lender may from time
to time hereafter approve in writing in either case, related to the Collateral
at the time of determination.
1.145 "Title Insurer (Mortgage)": any of First American Title
Insurance Company, Chicago Title Insurance Company, Ticor Title Insurance
Company, Old Republic, Lawyer's Title Insurance Company or another title company
which the Lender has approved of in writing to the Borrower and issues a Title
Policy (Mortgage).
1.146 "Title Policy (Mortgage)": the original lender's policy of
title insurance securing an Instrument as a perfected, direct, first and
exclusive lien on the Timeshare Interest encumbered thereby, subject only to any
Permitted Encumbrances, issued by a Title Insurer (Mortgage) and in form and
substance acceptable to Lender, and all amendments, restatements and
modifications thereto.
1.147 "Transfer Agreement": when used in the singular, any one
of, and, when used in the plural, each and every, Transfer Agreement, as the
same may be amended, modified or
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restated as permitted under the Documents, each to be made among an Originator,
as transferor, and the Intermediary Corporation, as transferee in a form
substantially similar to Exhibit B hereto.
1.148 "Transfer and Servicing Agreement": that certain Transfer
and Servicing Agreement, dated as of November 1, 1997, by and between the
Borrower, as transferee, and the Intermediary Corporation, as transferor, and
VCH Portfolio Services, Inc., as Servicer, transferring the Collateral,
including but not limited to specific Instruments, Mortgages, rights under the
Documents, and any and all proceeds of the foregoing, as the same may be amended
or modified from time to time.
1.149 "Transfer Date": with respect to each Substitute
Instrument, the related Substitute Instrument Transfer Date, and with respect to
any other Instrument, the date upon which such Eligible Instrument is sold,
transferred, conveyed and assigned by the related Originator to the Intermediary
Corporation, and transferred by the Intermediary Corporation to the Borrower,
and pledged by the Borrower to the Lender.
1.150 "Trustee": the indenture trustee for any holders of notes
issued in a Securitization.
1.151 "UCC": the Uniform Commercial Code as in effect in the
applicable jurisdiction.
1.152 "Unit": a dwelling unit in a Timeshare Project.
1.153 "Vistana": Vistana, Inc., a Florida corporation having its
principal place of business at 8801 Vistana Centre Drive, Orlando, Florida
32821, and its permitted successors and assigns.
1.154 "Vistana Transaction Entity": when used in the singular,
any of, and when used in the plural, all of the following Persons: the
Guarantor, the Servicer, each Originator, the Intermediary Corporation and the
Borrower.
1.155 "Weighted Average Interest Rate": the weighted average of
each Interest Rate in effect for each Advance made hereunder as of the date of
determination giving full credit to any interest rate protection agreement
entered into by Borrower.
1.156 "Working Capital Loan": the loan in the maximum principal
amount of $20,000,000.00 and evidenced by a promissory note for the same maximum
amount from Vistana and Vistana Development, Ltd. in favor of Lender made
pursuant to the Working Capital Loan Agreement.
1.157 "Working Capital Loan Agreement": the Line of Credit
Agreement.
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2. LOAN COMMITMENT; USE OF PROCEEDS
2.1 Agreement to Lend Contingent Upon Performance. Lender hereby
agrees, subject to performance by Borrower of all of the Obligations due as of
the date of determination and to fulfillment of all conditions precedent, to
make Advances to Borrower in amounts up to (a) the then Borrowing Base of the
Eligible Instruments less (b) the then unpaid principal balance of the Loan;
provided, however, at no time shall the unpaid principal balance of the Loan
exceed Seventy Million Dollars ($70,000,000.00). Lender shall have no obligation
to make any Advance (a) after the Borrowing Term has expired and (b) on any day
that is not a Business Day. For the avoidance of doubt, the parties acknowledge
that amounts advanced and repaid hereunder may be re-advanced in accordance with
the terms and conditions hereof.
2.2 One Loan. Notwithstanding that the Loan is a revolving line of
credit, all of the Advances shall be deemed to constitute a single loan.
Borrower shall not be entitled to obtain Advances after the expiration of the
Borrowing Term unless Lender agrees in writing with Borrower to make Advances
thereafter on terms and conditions satisfactory to Lender and such action, if
taken, shall not be deemed a waiver with respect to subsequent advances. This
Agreement and Borrower's liability for Performance of the Obligations shall
continue until the Obligations have been completely satisfied or waived in
writing by Lender.
2.3 The Note. The Loan shall be evidenced by the Note. The Note
shall be dated the Closing Date, shall be in the maximum principal amount of
$70,000,000 and payable to the order of Lender in an amount equal to the sum of
(a) the aggregate unpaid principal amount of all Advances made to the Borrower
by the Lender and (b) all other Obligations hereunder. The date of each
borrowing, the principal amount thereof, and the aggregate principal amount of
Advances Outstanding thereunder shall be recorded by the Lender on the schedule
attached to the Note, provided, however, that the failure of the Lender to
record any such information shall not affect the Obligations of the Borrower
hereunder or under the Note. The aggregate unpaid principal amount of Advances
set forth on such schedule shall be presumptive evidence of the principal amount
owing and unpaid thereon.
2.4 Repayment. (a) Principal. The Outstanding principal balance
on the Note shall be due on the Maturity Date. Unless otherwise directed by
Servicer, Lender shall apply all payments received in the Collection Account
prior to 1:30 P.M. Eastern Time on the day of receipt (unless such day is not a
Business Day, in which case on the next Business Day), and otherwise, on the
next Business Day (i) if no Event of Default has occurred and is continuing, to
the payment of principal on the Note and (ii) if an Event of Default has
occurred and is continuing, first to pay Interest and Default Interest and then
to repay principal, all in accordance with Section 5.4 hereof.
(b) Interest on Loans. Each Advance shall bear Interest at the
applicable Interest Rate in effect at the commencement of each Interest Period
related thereto throughout such Interest Period. The Lender hereby acknowledges
that the Borrower may use some or all of the proceeds
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of any Advance to pay Interest hereunder, as further described in Section 2.12
hereof. Notwithstanding any provision to the contrary in this Agreement or any
other Document, upon the occurrence and continuance of an Event of Default, any
Outstanding principal balance thereafter shall bear Interest at the Default
Rate. Lender will compute the amount of Interest on the Loan for the Collection
Period ending immediately prior to such Determination Date and which shall be
payable on the Payment Date occurring immediately after such Determination Date,
and will notify Borrower of such Interest on the Loan due on such Payment Date
(such notice, a "Lender's Bill") and (y) Borrower will remit to Lender on each
Payment Date the amounts of Interest pursuant to each such Lender's Bill.
(c) Prepayment Mortgage Interest Collected. Prior to the related
Payment Date, the Borrower shall deposit or cause the prompt deposit into the
Lockbox Account of an amount equal to the amount of interest, if any, pre-paid
by each Mortgagor during the related Collection Period.
2.5 Interest Payments. Interest accrued during each Interest
Collection Period shall be payable in arrears on the next immediately succeeding
Payment Date.
2.6 Repayments. (a) On each Payment Date, the Borrower shall pay (i)
all Interest and (ii) any prepayments received from Instruments payable, in
either case, in accordance with the terms of Sections 2.4 and 2.5 hereof.
(b) On the Maturity Date, the Borrower will repay the entire
Outstanding principal balance of the Loan together with all Interest accrued
thereon and all other sums due hereunder.
2.7 Optional Prepayment of Principal. Other than principal payments
made pursuant to Section 2.4(a), at its option, and upon not less than five (5)
Business Days' prior written notice, the Borrower may prepay on any Payment Date
the Outstanding principal balance in whole or in part. Except after the
occurrence and continuance of an Event of Default, the Borrower may not prepay
Interest.
2.8 Manner of Payment. Each payment of principal of the Note and each
payment of Interest on the Note shall be made by the Borrower to the Collection
Account not later than 2:00 p.m., Eastern Time, on the date on which payable
with notice to Lender thereof, or with respect to Interest, paid by an Advance,
as set forth in Section 2.4(b) above.
2.9 Extension of Maturity. Should any installment of Interest become
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day, and, in the case of principal,
shall be payable with Interest accrued to such date.
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2.10 Default Rate. The Borrower shall pay a penalty on any principal
and/or Interest payment due under the Note which is not received by the Lender
on the date when the same is due by making payments at the Default Rate, as set
forth in the definition of "Interest Rate".
2.11 Computation of Interest. Interest on the Note shall be computed
on the basis of a 360 day year, and paid for the actual number of days involved.
2.12 Use of Proceeds. Borrower will use the proceeds of all Advances
only to (1) acquire additional Eligible Instruments (provided, however, that, if
the Instrument becomes part of a Securitization, for the purposes of this
Section 2.12, such Instrument need not be designated by the Borrower to become
part of the Designated Receivables Collateral hereunder to be deemed an Eligible
Instrument) and other Mortgage Documents related thereto, (2) pay Interest or
(3) pay expenses of the Borrower incidental to the transactions contemplated
hereunder (including, but not limited to, Custodial Fees, Lockbox Fees, servicer
fees, reasonable attorneys' fees, taxes and licensing fees, in each case, of the
Borrower).
2.13 Exit Fee Payments. (a) End of Borrowing Term. On the expiration
of the Borrowing Term the Borrower shall pay the Lender the Exit Fee, provided
that, no Exit Fee shall be due under the terms of this subsection 2.13(a) to the
extent that the Lender has, prior to the end of the Borrowing Term, received a
Notice to Securitize from the Borrower and the Lender and the Borrower are, in
the good faith judgment of the Lender, then working to consummate the
Securitization contemplated thereby, provided further, that in the event the
Lender informs the Borrower in writing after the expiration of the Borrowing
Term (whether the initial or as extended) that, in the Lender's sole good faith
judgement, the Securitization contemplated by the Notice to Securitize will not
be consummated, the Exit Fee shall be due on demand upon the Borrower's receipt
of such notification, unless the failure to be able to so consummate is due to
an Adverse Financial Condition.
(b) Other Payments of Exit Fee. An Exit Fee shall be payable by the
Borrower, on demand, on all repurchases of Instruments made under the terms of
Sections 3.5 hereof, or under Section 3.2 hereof with respect to breaches of the
conditions set forth in Sections 2.03 (o), (r) or (s) of a Transfer Agreement.
2.14 Securitization. Borrower, at Borrower's election, may from
time to time during the Borrowing Term deliver to Lender a notice (the "Notice
to Securitize"). The Notice to Securitize shall set forth the anticipated size
of the Securitization and such other parameters as Borrower shall elect,
consistent with other agreements between the Lender and the Borrower or their
Affiliates related to the Securitization. Within thirty (30) days after
Lender's receipt of the Notice to Securitize, Lender shall deliver a written
proposal to Borrower, indicating whether a Securitization as contemplated by the
Notice to Securitize is feasible and, if so, providing the anticipated details
of the Securitization, taking into account the information contained in the
Notice to Securitize and consistent with such agreements between the Lender and
the Borrower or their Affiliates. The
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obligations of the Borrower and the Lender to negotiate or consummate a
Securitization contemplated by a Notice to Securitize shall be governed by such
agreements, other than the Documents, as shall be entered into by the Borrower,
the Lender or their Affiliates from time to time.
3. DESIGNATED RECEIVABLES COLLATERAL SECURITY
3.1 Grant of Security Interest. To secure the Performance of all of
the Obligations, Borrower hereby grants to Lender a Security Interest in the
Collateral. Such Security Interest shall be absolute, continuing and applicable
to all initial and subsequent Advances and to all of the Obligations. All of
the Collateral shall secure repayment of the Loan and the Performance of the
Obligations. Borrower will unconditionally deliver to Custodian, as bailee for
Lender pursuant to the Custodial Agreement, with recourse for all Designated
Instruments that fail to be Eligible Instruments, all Mortgage Documents which
are part of the Receivables Collateral. Lender is hereby appointed Borrower's
attorney-in-fact to take any and all actions in the name of Borrower or on
behalf of Borrower which are deemed necessary or appropriate by Lender with
respect to the collection and remittance of payments (including the endorsement
of payment items) received on account of any of the Collateral.
3.2 Replacements of Ineligible Instruments. If an Instrument which
is part of the Designated Receivables Collateral becomes an Ineligible
Instrument and the Outstanding principal balance of the Note is greater than or
equal to the Borrowing Base of all Eligible Instruments then, (x) not later than
the immediately succeeding Payment Date after the Borrower or any Affiliate
thereof acquires Knowledge that such Instrument has become an Ineligible
Instrument (each such Payment Date, a "Replacement Date"), Borrower will either
pay, or cause to be paid to Lender an amount equal to the sum of (i) the
Borrowing Base Percentage of the Outstanding principal balance of such
Ineligible Instrument, plus (ii) all outstanding Interest, together with costs
and expenses attributable to it not already paid on such Payment Date pursuant
to Sections 2.4 and 2.5 hereof, or (y) prior to the applicable Replacement Date,
the Borrower will replace such Ineligible Instrument with an Eligible Instrument
or Eligible Instruments having, in either case, an aggregate Borrowing Base not
less than the Borrowing Base (calculated on the applicable Replacement Date) of
the Ineligible Instrument being replaced (each such Instrument, a "Replacement
Instrument"). Simultaneously with such payment or the delivery of each
Replacement Instrument to Custodian on behalf of Lender, the Borrower will cause
to be delivered to Custodian all of the items (except for a "Request for Advance
and Certification") required to be delivered by Borrower to Custodian pursuant
to Section 4 hereof, together with a "Borrower's Certificate" in a form
substantially similar to Exhibit G hereto. If neither an Event of Default nor
Incipient Default has occurred and is continuing, then, (A) with respect to
Ineligible Instruments for which no repayment or replacement was required
pursuant to this Section 3.2, Lender will execute a reassignment instrument
prepared by Borrower substantially in the form of Exhibit H hereto within ten
(10) Business Days after Lender's receipt of request therefor; and (B) with
respect to Ineligible Instruments for which repayment or replacement was
required pursuant to this Section 3.2, Lender will execute a reassignment
instrument prepared by Borrower substantially in the form of Exhibit H hereto
within ten (10) Business Days after Lender's receipt of request therefor,
provided that either (i) the
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repayment, was made or (ii) Custodian has acknowledged receipt of the Mortgage
Documents for the Replacement Instrument, in accordance with the requirements of
the Custodial Agreement, as applicable. Upon Lender's execution of the
reassignment instrument, Lender will instruct the Custodian to deliver the
Mortgage Loan Documents related thereto to or at the direction of Borrower.
3.3 Maintenance of Security Documents. Borrower will deliver or
cause to be delivered to Lender, and will maintain or cause to be maintained
throughout the Term in full force and effect in accordance with their terms, the
Security Documents not required to be delivered to the Custodian pursuant to
Section 4 hereof or any other express provision of this Agreement, any
Subordination Agreement(s), and all other security agreements required pursuant
to the Documents.
3.4 Immediate Replenishing of Borrowing Base Levels. Subject to
Borrower's rights under Section 3.2 hereof to provide Replacement Instruments,
if for any reason the aggregate Outstanding principal amount of the Loan at any
time shall exceed the then Borrowing Base of all Eligible Instruments, Borrower,
without notice or demand, will immediately make to Lender a principal payment in
an amount equal to such excess plus accrued and unpaid Interest on such
principal payment.
3.5 Release of Excess Collateral. Provided that no Event of Default
or, in the good faith and reasonable business judgment of the Lender, no
Incipient Event of Default has occurred and is continuing, in the event, as of
the date of determination, that the aggregate Outstanding principal balance of
the Loan is less than ninety percent (90%) of the aggregate Outstanding
principal balance of all of the Designated Instruments that comprise Designated
Receivables Collateral on such date, Borrower may request in writing that Lender
release, and within four Business Days after receipt of such request Lender
shall release, an amount of Designated Receivables Collateral equal to the
amount requested in such writing by Borrower, provided, that the Borrower pay
the Exit Fee thereon, and provided, further, that the amount of Designated
Receivables Collateral which may be requested by Borrower to be so released
shall not, upon either the date so released or, as of the date of determination
on any Payment Date thereafter, reduce the Borrowing Base to be less than the
product of the Borrowing Base Percentage multiplied by the Outstanding principal
balance of all Designated Instruments.
3.6 Release of Collateral Upon Repayment. Notwithstanding any
provision of this Agreement to the contrary (including, without limitation, the
continuation of the Term of this Agreement beyond the Maturity Date), upon
receipt by Lender of all, and not less than all, amounts of principal, Interest
and any other amounts then due and payable under this Agreement (including,
without limitation, the entire Exit Fee, if any) or any other Document
(including, without limitation, the Guaranty), Lender will execute a
reassignment instrument prepared by Borrower substantially in the form of
Exhibit H hereto within ten (10) Business Days after Lender's receipt of request
therefor provided, however, that the Borrower may request the release of certain
specified individual Mortgage Loans as necessitated by the terms of Section 3.2
hereof or otherwise if the conditions of Section 3.5 hereof are met. Upon
Lender's execution of the reassignment instrument, Lender will
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instruct the Custodian to deliver the Mortgage Loan Documents related thereto to
or at the direction of Borrower.
4. ADVANCES
4.1 Conditions to Advances. Lender's obligation to make each
Advance shall be subject to and conditioned upon the terms and conditions set
forth in the following sections and elsewhere in this Agreement being satisfied
and remaining satisfied during the Term.
(a) Conditions Precedent to the Initial Advance.
(1) Borrower shall have delivered to Lender prior to the Closing Date
(except with respect to item (N), which shall be provided within 10 days after
the Closing Date) or, with respect to paragraph (H) below, Lender shall have
received, unless otherwise requested by Lender, the original of each of the
following documents, duly executed and delivered by all parties thereto, and in
form and substance satisfactory to Lender and its counsel:
(A) the Note;
(B) [Reserved]
(C) UCC financing statements for perfection of any of or
all of the Collateral as reasonably requested by the Lender;
(D) the Lockbox Agreement;
(E) each Transfer Agreement;
(F) the Custodial Agreement;
(G) this Agreement;
(H) final approval of Lender's credit committee to make the
Loan (which approval shall be deemed granted upon the making of the first
Advance);
(I) the Transfer and Servicing Agreement;
(J) each document comprising part of the Articles of
Incorporation and Resolutions for the Borrower, the Intermediary
Corporation, the Servicer, the Guarantor and each Originator certified by a
Responsible Officer of the related entity; and
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(K) at least five Business Days prior to the Closing, favorable
opinions in form and substance satisfactory to Lender and its counsel, from
independent, nationally-recognized counsel for Borrower, with respect to
(I) the Security Interest in the Collateral in favor of the Lender, as
being first priority, perfected, valid and enforceable, (II) the "true
sale" of the Instruments from each Originator related to such Timeshare
Project to the Intermediary Corporation, and non-consolidation of, each
Originator and the Intermediary Corporation, the Intermediary Corporation
and its owners (if not addressed in the immediately preceding clause), and
either "true sale" or first priority perfected security interest from the
Intermediary Corporation to the Borrower, (III) the due organization, valid
existence and good standing of the Custodian, the Lockbox Bank each
Originator, the Intermediary Corporation, the Guarantor, the Servicer and
the Borrower, (IV) the enforceability, legal, valid and binding nature of
the Obligations of, due authorization of, the Custodian, the Lockbox Bank,
the Borrower, the Intermediary Corporation, the Originator related to each
such Timeshare Project, the Servicer, and Vistana with regard to the
Documents and the Loan, (V) federal and applicable state and local real
estate and securities law pertaining to the Guarantor, the Servicer, each
Originator, the Intermediary Corporation and the Borrower, as applicable,
including, without limitation, or as otherwise acceptable to Lender, the
Securities Act of 1933, the Investment Company Act, the Real Estate
Settlement and Procedures Act, the Truth-in-Lending Settlement Act,
applicable local and state law and (VI) any other opinions reasonably
requested by Lender, including, but not limited to if the Timeshare Project
has not been registered under Interstate Land Sales Full Disclosure Act and
Lender requests such an opinion, a copy of an advisory opinion issued by
the federal Office of Interstate Land Sales Registration that the Project
does not fall within the purview of the Interstate Land Sales Full
Disclosure Act, and such opinions, shall be dated the Closing Date and
opine to such entities and the Collateral, as applicable, not only as to
the Closing Date but also as to each future Transfer Date as to
subsequently-acquired Collateral. Lender may in its sole discretion, accept
the opinion of Borrower's counsel on the applicability of such act;
(L) lien, litigation and judgment searches, in form and substance
satisfactory to Lender, for the Borrower, the Intermediary Corporation,
each Originator and Vistana conducted in such jurisdictions as Lender deems
appropriate;
(M) [Reserved]
(N) evidence of fidelity bond coverage and errors and omissions
insurance insuring each Servicer and subservicer are acting with respect to
the Collateral to the reasonable satisfaction of the Lender;
(O) payment of the Lender's Attorney's Fees due with respect to
the closing;
(P) such other documents as Lender may reasonably require; and
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(Q) the Guaranty.
(20) Conditions Precedent to First Advance and Subsequent Advances
Introducing New Timeshare Projects. For the first Advance, and for each Advance
made with respect to an Instrument stemming from a Timeshare Project or Resort
that, as of the Closing Date, was not previously related to any Designated
Receivables, the Lender shall have received the following in form and substance
satisfactory to the Lender and Lender's counsel at least 12 Business Days prior
to the date such Advance is to be made:
(A) evidence that no taxes and assessments on the Timeshare
Projects or Resort, as the case may be, are delinquent;
(B) the approved subdivision plat of each Timeshare Project (if
applicable);
(C) a copy of the registrations/consents to sell, the final
subdivision public reports/public offering statements and/or prospectuses
and approvals thereof required to be issued by or used in the state where
the Timeshare Projects are located and other jurisdictions where Timeshare
Interests are offered for sale or sold;
(D) a favorable opinion in form and substance satisfactory to
Lender and its counsel which is from independent, nationally-recognized
counsel for Borrower, with respect to such Timeshare Project or Resort, as
applicable, satisfactory to Lender and, with respect to (A) the Security
Interest in the Collateral in favor of the Lender, as being first priority,
perfected, valid and enforceable, (B) the "true sale" of the Instruments
from the Originator related to such Timeshare Project or Resort, as
applicable, to the Intermediary Corporation, and non-consolidation of, the
applicable Originator and the Intermediary Corporation, (C) the due
organization, valid existence and good standing of such related Originator,
(D) the enforceability, legal, valid and binding nature of the Obligations
of, due authorization of such Originator with regard to the Documents, (F)
real estate and securities law in a form substantial similar to that given
on the Closing Date, as applied to the pertinent Timeshare project, the
related Originator, the Intermediary Corporation and Borrower, and (G) any
other opinions reasonably requested by Lender, including, but not limited
to if the Timeshare Project has not been registered under Interstate Land
Sales Full Disclosure Act and Lender requests such an opinion, a copy of an
advisory opinion issued by the federal Office of Interstate Land Sales
Registration that the Project does not fall within the purview of the
Interstate Land Sales Full Disclosure Act. Lender may in its sole
discretion, accept the opinion of Borrower's counsel on the applicability
of such act;
(E) a copy of the form of the Timeshare Program Consumer
Documents and the Timeshare Program Governing Documents which have been or
are being
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used by the Timeshare Developers, including, without limitation, the
Management Agreements, and the Timeshare Declaration;
(F) the Insurance Policies;
(G) if requested by the Lender, a structural inspection report of
the Timeshare Projects by an engineer satisfactory to the Lender;
(c) Conditions Precedent to Each Advance. With respect to each
Advance, the following conditions precedent shall be true:
(i) no Material Adverse Effect shall have occurred;
(ii) there shall have been no breach in the warranties and
representations made in the Documents by Borrower, the Intermediary
Corporation, any Originator, any Servicer or the Guarantor or failure in
the Performance of any of them, with regard to their respective Obligations
under the Documents, and all such representations and warranties shall be
true as of the related Transfer Date other than any representation or
warranty limited by its terms to a specific date and taking into account
any amendments thereto as a result of any written disclosures made by
Borrower to Lender after the date hereof and approved in writing by Lender;
(iii) neither an Event of Default nor any event that, in the
Borrower's good faith and reasonable business judgment (without giving
effect to any applicable grace period thereto), constitutes an Incipient
Default shall have occurred and be continuing;
(iv) the Interest Rate applicable to the Advance (before giving
effect to any savings clause) will not exceed the maximum rate permitted by
the Applicable Usury Law;
(v) Borrower shall have paid to Lender (or its designee) at least
one Business Day prior to the date that such Advance is requested to be
made, or authorized such payment be made out of the Advance, any Lender's
Attorney's Fee, any Custodian Fee, any Lockbox Bank Fee, and any other fees
required to be paid at the time of the Advance; and
(vi) Lender and its counsel shall have completed its due
diligence investigation of the items set forth on Exhibit L hereto and
shall be satisfied with the results thereof and no material amendments,
modifications or waivers shall have occurred with respect thereto since the
time when Lender or its counsel completed such investigation. Lender
acknowledges that as of the Closing Date it and its counsel are, with
respect to the Resorts actually named in Section 1.113, satisfied with the
items indicated on Exhibit L that
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were delivered to them. Lender agrees that no additional diligence items
shall be required with respect to the Resorts listed in the footnote to
Exhibit L (the "Secondary Resorts") unless the aggregate Outstanding
principal balance of Mortgage Loans from Secondary Resorts is greater than
ten percent (10%) of the Borrowing Base in which event Borrower shall
supply such additional diligence items as are requested by the Lender.
(vii) Delivery of Mortgage Documents and other Documentation.
Borrower shall have delivered, or caused delivery, to Custodian or Lender
of the following items at least ten (10) Business Days prior to the date of
each Advance, all of which shall be in form and substance satisfactory to
Lender:
(A) the Articles of Organization of Borrower as in effect on
the date thereof, the Intermediary Corporation, each Originator, the
Servicer, the Guarantor and, if applicable, their respective managers,
members and partners, to the extent any such entity is not a natural
person, and (if not already provided by the terms hereof) Vistana,
provided, however, the Borrower shall be under no obligation to
deliver such documents if the Lender has previously received copies of
such documents from the Borrower that are, at the time of such later
requested Advance, still in full force and effect;
(B) the Resolutions of Borrower, the Intermediary
Corporation, each Originator, the Servicer, the Guarantor and (if not
already provided by the terms hereof) Vistana and, if applicable,
their respective managers, members and general partners, to the extent
any such entity is not a natural person as in effect on the date
thereof, provided, however, the Borrower shall be under no obligation
to deliver such documents if the Lender has previously received copies
of such documents from the Borrower that are, at the time of such
later requested Advance, still in full force and effect;
(C) any written amendments, written modifications, or
written waivers or updated versions of any documents, certificates,
instruments or agreements listed in Section 4.1(a) hereof or written
notice of any material oral agreements having the same effect;
(D) the Borrower shall have delivered to Custodian all
Mortgage Documents related to the Designated Instruments related to
such Advance at least six (6) Business Days prior to the date upon
which such Advance is requested to be made.
(viii) Borrower shall have delivered to the Lender and the
Custodian a duly executed and authorized "Borrower's Certificate",
substantially in the form of Exhibit G hereto, at least six (6) Business
Days prior to the date that such Advance is requested to be made.
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(ix) Borrower shall have delivered a duly executed and authorized
"Request for Advance and Certification" substantially in the form of
Exhibit J hereto, and including a Schedule of Instruments, as described in
the Transfer Agreements, to Lender prior to 3:00 p.m. New York City time on
a Business Day that is as least six (6) Business Days prior to the date
upon which such Advance is requested to be made.
(x) Lender shall have received a duly executed and authorized
Custodian Certificate by fax (to be followed by original thereof) by 11:00
a.m. New York Time on the Business Day prior to the date that such Advance
is requested to be made.
(xi) the Borrower shall have caused the delivery of an accurate,
current Servicing Officer List, certified by the Servicer, to the Lender
and the Custodian provided that, if the last delivered Servicing Officer
List (if any was previously delivered) is, as of the date of determination,
still accurate and current in all respects, this clause will be deemed
satisfied.
(d) Conditions Precedent for Subsequent Advances. After the
initial Advance, the obligation of Lender to make a subsequent Advance
shall be subject to the satisfaction of the conditions precedent set
forth in Sections 4.1(b), 4.1(c) and 4.2 hereof.
4.2 Form of Request; Timing. Advances shall be requested in writing of
a "Request for Advance and Certification" by a Responsible Officer of Borrower
and shall not be made more than one time in any calendar week; or (ii) in
amounts less than $250,000.00.
4.3 Disbursement of Advances. Advances may be disbursed by wire
transfers or drafts payable to Borrower as requested by Borrower. Lender may, at
its option and upon notice to Borrower, withhold from any Advance any sum due it
(including costs and expenses) under the terms of any Document.
4.4 No Waivers of Conditions Precedent. Although Lender shall have no
obligation to make an Advance unless and until all of the conditions precedent
to the Advance have been satisfied, Lender may, at its discretion, make Advances
prior to that time without waiving or releasing any of the Obligations.
5. NOTE, MAINTENANCE OF BORROWING BASE; PAYMENTS; SERVICING AND
COLLECTION
5.1 Repayment of Loan. The Loan shall be evidenced by the Note and
shall be repaid in immediately available funds according to the terms of the
Note and this Agreement.
5.2 [Reserved]
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5.3 Lockbox Bank; Servicer; Financial Reports. (a) Borrower shall
cause the Lockbox Bank to collect payments on all of the Instruments
constituting part of the Designated Receivables Collateral and remit all amounts
collected in respect thereof and with respect to any other Collateral to the
Collection Account pursuant to the terms and conditions of each related Lockbox
Agreement.
(b) The Borrower shall cause the Servicer, pursuant to the Transfer
and Servicing Agreement, to furnish on the fifteenth Business Day, but in no
event later than the twentieth calendar day of each calendar month, to Lender
and Borrower, at Borrower's sole cost and expense, on each Servicer Report Date,
separate reports (each, a "Servicer Report"), dated as of the last Business Day
of the calendar month immediately preceding the calendar month in which such
report is to be delivered, substantially in the format attached hereto as
Exhibit C. Within five (5) Business Days after receipt of Lender's written
request therefor, Borrower will have delivered or cause the Servicer to have
delivered to Lender a current list of the names, addresses and phone numbers of
the Mortgagors on each of the Instruments constituting part of the Designated
Receivables Collateral and Lender shall use such information only for the
purpose of monitoring, administering or verifying the particular Designated
Instrument. Borrower will also deliver or cause Servicer to deliver to Lender,
promptly after receipt of a written request therefore, such other reports with
respect to Instruments constituting part of the Designated Receivables
Collateral as Lender may from time to time reasonably request.
(c) Lender, subject to any restriction contained in any Lockbox
Agreement, Custodial Agreement or Transfer and Servicing Agreement, as the case
may be, may at any time and from time to time, substitute or require Borrower to
substitute a successor or successors to any Agent acting under the Lockbox
Agreement, Custodial Agreement or the Transfer and Servicing Agreement.
5.4 Application of Payments. Subject to Lender's rights under
Article 7, all payments and proceeds from the Designated Receivables Collateral
(except Miscellaneous Payments and Late Fees) shall be applied as follows:
first, to principal on the Note (and applied to the repayment of Advances in the
order of their extension); second, to accrued and unpaid Interest on the Note
(and applied to the payment of interest on Advances in the order of the
extension of such Advances extension); third, to the other Obligations in such
order and manner as Lender may determine, and fourth, the payment of all late
charges, costs, fees, disbursements and expenses and other out-of-pocket amounts
required by the Documents to be paid by Borrower pursuant to the terms hereof
which are, as of the applicable Payment Date, due, payable and outstanding and
fifth, any balance remaining to the Borrower or, its designee provided that, if
at the time of application an Event of Default shall have occurred and be
continuing, the order of payments first and second shall be reversed.
5.5 Obligations Absolute. Whether or not the proceeds from the
Designated Receivables Collateral shall be sufficient for that purpose, Borrower
will pay when due all payments
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required to be made by Borrower pursuant to any of the Documents, Borrower's
Obligation to make such payments being absolute and unconditional.
6. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations and Warranties of the Borrower. The Borrower
hereby represents and warrants that, on the Closing Date and on each Transfer
Date, provided however, that any representation or warranty limited by its terms
to a specific date shall be so limited and taking into account any subsequent
amendments related thereto made as a result of any written disclosures made by
Borrower to Lender after the date hereof and approved in writing by Lender:
(a) Special Purpose Entity. The Borrower is a Special Purpose
Entity.
(b) Collateral. On the date hereof the Borrower is the sole owner
of the Collateral free and clear of all Liens whatsoever, except for the
Permitted Encumbrances.
(c) Ownership. VTM Corp. is the sole legal and beneficial owner
of the Borrower and owns 100% of the issued stock thereof. The legal names of
the Borrower and its owner are as set forth in this Agreement. The Borrower has
not operated under any other names. The Borrower does not have any trade names,
fictitious names, assumed names or "doing business as" names.
(d) Organization and Good Standing. The Borrower is a corporation
that has been duly organized and is validly existing and in good standing under
the laws of Delaware, with power and authority to own the Collateral and to
enter into the transaction contemplated by the Documents to which it is a party.
(e) Due Qualification. The Borrower is duly qualified to do
business as a foreign entity in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the conduct of its
business shall require such qualification, license or approval (except where the
failure to be so qualified, licensed and approved would not individually or in
the aggregate have a Material Adverse Effect.
(f) Power and Authority. The Borrower has the power and authority
to execute and deliver this Agreement and the other Documents to which it is a
party and carry out their terms and to grant the Security Interest in the
Collateral to the Lender; and the execution, delivery and performance of this
Agreement and the other Documents to which the Borrower is a party have been
duly authorized by the Borrower by all necessary action.
(g) Binding Obligation. This Agreement and the other Documents to
which the Borrower is a party constitute legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms except as the
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enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights and by general principles of
equity.
(h) No Violation. The consummation of the transactions
contemplated by the Documents and the fulfillment of the terms hereof shall not
conflict with, result in any material breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default under,
the organizational documents of the Borrower, the Intermediary Corporation or
any Originator, or any Designated Instrument, Mortgage, Timeshare Declaration or
any indenture, agreement or other instrument to which the Borrower is a party or
by which it is 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 this Agreement); nor violate any law, order, rule
or regulation applicable to the Borrower of any Governmental Authority having
jurisdiction over the Borrower or its Properties where such violation would have
a Material Adverse Effect.
(i) Consents. No approval, authorization or consent of any other
Person under any agreement, contract, lease or license or similar document or
instrument to which Borrower is a party or by which Borrower is bound, is
required to be obtained by Borrower in order to make or consummate the
transactions contemplated under the Documents which has not been obtained. All
consents and approvals of, filings and registrations with, and other actions in
respect of, all Governmental Authorities required to be obtained by Borrower in
order to make or consummate the transactions contemplated under this Agreement
and the other Documents have been, or prior to the time when required will have
been, obtained, given, filed or taken and are or will be in full force and
effect.
(j) No Proceedings. There are no Proceedings or investigations
pending or, to the Borrower's Knowledge, threatened before any Governmental
Authority having jurisdiction over the Borrower or its Properties: (A) asserting
the invalidity of this Agreement or the other Documents; (B) seeking to prevent
the consummation of any of the transactions contemplated by this Agreement or
the other Documents; or (C) seeking any determination or ruling that might have
a Material Adverse Effect. There are no Proceedings pending or, to the best of
the Borrower's Knowledge, threatened before any Governmental Authority involving
the Timeshare Projects or Resorts that will cause a Material Adverse Effect.
(k) Solvent. The Borrower is Solvent.
(l) Collateral. The representations and warranties regarding the
Collateral contained in the Documents to which the Borrower is a party are true
and correct in all material respects. Any Servicer and the Lender may rely on
such representations and warranties to the same extent as if such
representations and warranties were set forth by the Borrower herein.
(m) Nonconsolidation. The Borrower is operated in such a manner
that it would not be substantively consolidated with the Servicer, each or any
Originator or the
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Intermediary Corporation, in accordance with applicable bankruptcy or insolvency
laws, such that the separate existence of the Borrower would not be disregarded
in the event of a bankruptcy or insolvency of any Servicer, any Originator or
the Intermediary Corporation, and in such regard, among other things:
(i) None of any Servicer, any Originator or the Intermediary
Corporation, is involved in any day-to-day management of the Borrower;
provided however, that nothing contained in this clause (i) shall prohibit
VCH Portfolio Services, Inc. from acting as Servicer pursuant to the terms
of this Agreement;
(ii) the Intermediary Corporation maintains a separate business
office from the Borrower;
(iii) all business correspondence of the Borrower and other
communications are conducted in the Borrower's own name and on its own
stationery; and
(iv) the Borrower does not act as an agent of Vistana, the
Servicer, any Originator or the Intermediary Corporation in any capacity
and neither Vistana, any Originator nor the Intermediary Corporation
thereof acts as agent for the Borrower, but instead presents itself to the
public as a corporation separate from the Borrower; provided that VCH
Financial Services, Inc. may act as the Servicer under the Transfer and
Servicing Agreement.
(n) Security Interest. The Lender will have, on the related Transfer
Date, a valid perfected Security Interest in the Collateral transferred as of
such date which has not been released by the Lender from the Grant of Security
Interest in accordance with the terms and conditions of this Agreement, and
which Security Interest will be prior to all other Liens.
(o) No Other Security Interests. No Security Interest (other than the
Security Interest granted to the Lender hereunder, or as may be conveyed to the
Borrower pursuant to the Transfer and Servicing Agreement) has been or will be
granted by any Vistana Transaction Entity or Vistana with respect to any
component or part of the Designated Receivables Collateral (other than as may be
granted with respect to a Securitization) that has not been, as of the related
Transfer Date, released and such release is the legal, valid and binding release
of the party releasing such Security Interest.
(p) Correct Copies. The Instruments and each other Mortgage Document
related thereto has been delivered by Borrower to Custodian, as bailee on behalf
of the Lender, prior to the applicable Transfer Date, and are true and correct
copies of such documents, each of which is in full force and effect and has not
been amended, modified or terminated in any respect through the date hereof as
of such Transfer Date other than such amendments, modifications or terminations
as have been previously and explicitly approved by Lender in writing.
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(q) No Defaults. No payment under an Instrument being sold,
transferred, conveyed or assigned on any Transfer Date is more than thirty (30)
days past due as of the end of the calendar month immediately preceding such
Transfer Date pursuant to the terms of such Instrument, and, to Borrower's
Knowledge, no Originator related to any such Instrument is otherwise in default
under any of its obligations under such Instrument(s).
(r) Notices of Defaults. No Originator, Intermediary Corporation or
Servicer has notified Borrower, directly or indirectly, that any Originator, the
Intermediary Corporation or Servicer is in default under any of its obligations
under any Instrument or Mortgage which is part of the Receivables Collateral as
of the date this representation is made or deemed re-made.
(s) No Set-Offs. To the Knowledge of the Borrower, after due inquiry,
there are no setoffs, counterclaims, or defenses on the part of any Mortgagor to
pay any amounts due under any Instrument related to it.
(t) Margin Stock. Borrower does not own any "margin security", as that
term is defined in Regulations G and U of the Federal Reserve Board, and the
proceeds of the Loan under this Agreement will be used only for the purposes
contemplated hereunder. None of the proceeds of the Loan will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin security,
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any such "margin security" or for any other
purpose which might cause the Loan to be considered a "purpose credit" within
the meaning of Regulations G, T, U and X of the Federal Reserve Board. Borrower
will not take or permit any agent acting on its behalf to take any action which
might cause this Agreement or any document or instrument delivered pursuant
hereto to violate any regulation of the Federal Reserve Board.
(u) Taxes. All federal, state, local and foreign tax returns, reports
and statements required to be filed by Borrower have been filed with the
appropriate Governmental Authority except where failure to file will not have
any Material Adverse Effect, and all material charges and other impositions
shown thereon to be due and payable by Borrower have been paid prior to the date
on which any fine, penalty, interest or late charge may be added thereto for
nonpayment thereof other than those charges that the Borrower is protesting in
good faith and has set aside adequate reserves therefore in accordance with
GAAP. Borrower has paid when due and payable all material charges upon the books
of Borrower and no Government Authority has asserted any Lien against the
Borrower with respect to unpaid charges. Proper and accurate amounts have been
withheld by Borrower from any employees for all periods in full and complete
compliance (other than such non-compliance that shall not have any Material
Adverse Effect) with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.
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(v) ERISA. The Borrower and each of its Affiliates are in compliance
in all material respects with the applicable provisions of ERISA and the
regulations and published interpretations thereunder, and neither the Borrower
nor any of its Affiliates have received, and the Borrower has no reason to
believe that it or any of its respective Subsidiaries will receive, any
notification of non-compliance thereunder. No Reportable Event has occurred
with respect to any Plan administered by the Borrower or any of its respective
Subsidiaries or any administrator designated by the Borrower or any of its
respective Subsidiaries. With respect to each Plan: (i) the Borrower and each
of its respective Subsidiaries have made all payments due from them to date, and
all amounts properly accrued to date as liabilities of the Borrower and each of
its respective Subsidiaries, which have not been paid, have been properly
recorded on the books of the Borrower and each of its respective Subsidiaries;
(ii) no such Plan which is subject to section 302 of ERISA or section 412 of the
Code has incurred any "accumulated funding deficiency" (as defined in either
such section), whether or not waived; (iii) the Borrower and each of its
respective Subsidiaries have complied with and each such Plan conforms to all
applicable laws and regulations, including but not limited to ERISA and the
Code; (iv) each such Plan which is a pension plan intended to qualify under
section 401(a) or 403(a) of the Code has received a favorable determination
letter form the Internal Revenue Service with respect to such qualification, its
related trust has been determined to be exempt from taxation under section
501(a) of the Code and nothing has occurred since the date of such letter that
would adversely affect such qualification or exemption; and (v) there are no
actions, suits or claims pending (other than routine claims for benefits) or, to
the Knowledge of the Borrower, threatened with respect to any Plan or against
the assets of any Plan. Neither the Borrower nor any of its respective
Subsidiaries nor any Plan administered by the Borrower or any of its respective
Subsidiaries has engaged in any Prohibited Transaction within the meaning of
section 405 of ERISA and section 4970 of the Code for which the Borrower or any
of its Subsidiaries may incur liability.
(w) Securities Law. Neither the Borrower, directly or indirectly, nor
anyone acting on its behalf has offered the Note or any part thereof for issue
or sale to, or has solicited or will solicit any offer to acquire any of the
same from, anyone so as to bring the issuance and sale of the Note within the
provisions of Section 5 of the Securities Act of 1933, as amended. The Borrower
is neither an "investment company" nor a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
This Agreement need not be qualified as an "indenture" pursuant to the terms of
the TIA, as amended.
(x) Compliance with Law. Borrower has complied with all applicable
laws and regulations, including, without limitation, all federal and state laws
and regulations of all of the states in which each of the Timeshare Projects
relating to any component, as of the applicable Transfer Date, of the
Receivables Collateral are located and all other governmental jurisdictions in
which such Timeshare Projects are located or in which Timeshare Interests
relating thereto have been or are being sold or offered for sale, other than any
noncompliance that shall not have a Material Adverse Effect.
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(y) Eligible Instruments. Each Instrument which is assigned to Lender
pursuant to this Agreement and against which an Advance is requested or which is
assigned in satisfaction of Borrower's obligations under Section 3.2 hereof is,
or shall be at the time that it is assigned, as the case may be, an Eligible
Instrument and in conformance with the terms and conditions of this Agreement
and all of the other Documents applicable to Instruments at the time of
assignment; provided however, that, if such Instrument is in fact an Ineligible
Instrument due to a lack of enforceability and if the Borrower replaces or
substitutes such instrument in accordance with the provisions of Section 3.2
hereof, no Event of Default shall thereby occur hereunder. As of the related
Transfer Date, Borrower, each Originator and each Servicer shall have performed
all their obligations to Purchasers required to be performed as of such date,
and there shall be no executory obligations to Purchasers to be Performed by
Borrower, any Originator or any Servicer or other than obligations which by
their nature or by agreement are to be executed in the future. Each Instrument
pledged to the Lender hereunder has been duly endorsed by the Borrower to such
Lender, and in a manner that satisfies all requirements of endorsement and
assignment, in order to transfer all right, title and interest of the Borrower
in each such Instrument.
(z) Omissions and Statements. The Documents and all certificates,
financial statements and written materials furnished to Lender by Borrower in
connection with the Loan do not contain any untrue statement of a material fact
or omit to state a fact which has or will have a Material Adverse Effect.
(aa) No Indebtedness. Borrower is not in default of any payment on
account of indebtedness for borrowed money or of any repurchase obligations in
connection with any other receivables purchase financing, or in violation of or
in default under any material term in any agreement, order, decree or judgment
of any court, arbitration or governmental authority to which it is a party or by
which it is bound.
(bb) Mortgage Document Representations. The representations and
warranties relating to any or all of the Instruments, Mortgages and other
Mortgage Documents made by any Originator, any Servicer, the Intermediary
Corporation or any other Vistana Transaction Entity in the Documents are true
and correct as of the date made provided, however, that if such representations
or warranties relate to Instruments that constitute Ineligible Instruments or,
such Mortgages or other Mortgage Documents are related to Ineligible
Instruments, and Borrower replaces or substitutes same in accordance with the
provisions of Section 3.2, no Event of Default shall occur hereunder.
(cc) Survival of Representations and Warranties. Until payment and
Performance in full of the Obligations, the representations and warranties
contained herein shall have a continuing effect as having been true when made.
6.2 Affirmative Covenants of the Borrower. The Borrower hereby
agrees that, until full, complete and indefeasible payment and performance of
the Obligations, unless the Lender shall otherwise consent in writing, Borrower
shall do or cause to have done all of the following:
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(a) Special Purpose Entity. The Borrower at all times shall
remain a Special Purpose Entity.
(b) Tax Returns. The Borrower will deliver, or cause to be delivered,
to the Lender the annual federal income tax return of each of the Borrower, each
Originator, the Intermediary Corporation, each Servicer and Vistana.
(c) Principal Place of Business. The Borrower shall give Lender at
least 30 days' prior written notice of any change in the location of its, the
Intermediary Corporation's, any Originator's, any Servicer's or Vistana's
principal place of business, chief executive office or the place at which its
books and records are kept from its current principal place of business.
(d) Originator Defaults. The Borrower shall use its best efforts to
cooperate fully with Lender and Servicer in connection with the collection of
any amounts payable by an Originator or an Mortgagor, as the case may be.
(e) Security Interest in Future Collateral. The Borrower promptly
will take all action (1) necessary to maintain the Security Interest of Lender
in the Collateral and (2) as reasonably requested by the Lender.
(f) Servicer's Reports, Monthly Reports. The Borrower shall cause to
be delivered to the Lender when due the certified monthly portfolio performance
data and quarterly compliance certificate of the Servicer as further described
in Section 6.01 of each Transfer and Servicing Agreement.
(g) Notice Upon Event of Default. Promptly upon any officer of
Borrower obtaining Knowledge (i) of any condition or event which constitutes an
Event of Default, or, in the good faith and reasonable business judgment of the
Borrower or any Affiliate of the Borrower, an Incipient Default under this
Agreement, (ii) that any Person has given any notice to Borrower or taken any
other action with respect to a claimed misrepresentation, breach or default
under any Document or event or condition of the type referred to in Section 7.1
hereof, provided that, if such Person (or Persons with related claims) is not a
Vistana Transaction Entity, such claim (or related claims in the aggregate), if
true, could give rise to a liability of no less than $100,000, (iii) of the
institution of any litigation or of the receipt of written notice from any
Governmental Authority as to the commencement of any formal investigation
involving an alleged or asserted liability of Borrower of any amount or any
adverse judgment in any litigation involving a potential liability of Borrower
of any amount, or (iv) of a Material Adverse Effect, Borrower shall deliver to
Lender and Custodian a certificate of Borrower signed by a responsible Officer
of Borrower, specifying the notice given or action taken by such Person and the
nature of such claimed misrepresentation, breach, litigation, Event of Default,
Incipient Default, Material Adverse Effect and what action Borrower has taken,
is taking and proposes to take with respect thereto.
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(h) Other Information. Borrower shall deliver to Lender such other
information respecting the condition or operations, financial or otherwise, of
Borrower as the Lender may from time to time reasonably request.
(i) Existence; Compliance with Law. Borrower shall preserve and
maintain its existence and all of its licenses, permits, governmental approvals,
rights, privileges and franchises necessary or desirable in the normal conduct
of its business as now conducted or presently proposed to be conducted
(including, without limitation, its qualification to do business in each
jurisdiction in which such qualification is necessary or desirable in view of
its business other than such qualification that shall not have a Material
Adverse Effect); to conduct its business and maintain its Property in an orderly
and regular manner; and comply with (a) the provisions of its Articles of
Incorporation, (b) the requirements of all applicable laws, rules, regulations
or orders of any Governmental Authority and requirements for the maintenance of
Borrower's insurance, licenses, permits, governmental approvals, rights,
privileges and franchises and (c) the requirement of all Environmental Laws (as
applicable), except, in any case, to the extent that the failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect.
(j) Taxes and Other Liabilities. Borrower shall pay or cause to be
paid all taxes (which individually or in the aggregate are material), fees,
assessments, governmental charges and levies, including claims for labor,
material and supplies when due and payable or levied against its or any of its
affiliate's assets, properties or income, including any Property that is part of
the Collateral, except to the extent Borrower or such Affiliate is contesting
the same in good faith and has set aside adequate reserves in accordance with
Partial GAAP for the payment thereof.
(k) Inspection Rights; Assistance. Upon ten Business Days' prior
notice, at any reasonable time and from time to time during normal business
hours, permit the Lender or any agent, representative or employee thereof, to
examine and make copies of and abstracts from the financial records and books of
account of Borrower and other documents in the possession or under the control
of Borrower relating to any Obligation of Borrower arising under or contemplated
by this Agreement or any other Document, and to visit the offices of Borrower to
discuss the affairs, finances and accounts of Borrower with any of the officers
of Borrower.
(l) Supplemental Disclosure. From time to time as may be necessary
(in the event that such information is not otherwise delivered by Borrower to
Lender pursuant to this Agreement) disclose to Lender in writing any material
matter hereafter arising which would have a Material Adverse Effect or which
would have been required to be set forth or described by Borrower in this
Agreement (including any and all Schedules and Exhibits hereto) or which is
necessary to correct any information set forth or described by Borrower
hereunder or in connection herewith which has been rendered inaccurate thereby.
(m) Notice of Liens. Borrower will notify Lender of the existence of
any Lien (except Permitted Encumbrances) on any of the Collateral immediately
upon discovery thereof.
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Borrower shall defend the Security Interest of the Lender in the Collateral,
whether now existing or hereafter arising, against all claims of third parties.
(n) Performance Obligations. Borrower will duly and punctually
fulfill all obligations on its part to be fulfilled under or in connection with
each Document to which it is a party and will do nothing to impair the rights of
the Lender in the Collateral and the Documents.
(o) Documentation; Further Assurances.
(i) Borrower shall from time to time, at the expense of Borrower,
promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or desirable that the Lender
may request in order to maintain and protect the Lien and Security Interest
of the Lender in the Collateral or to enable the Lender to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, within ten (10) Business
Days after receipt of written request therefor, Borrower shall execute and
file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, and make such recordings, as may be
necessary or desirable, or as the Lender may request, in order to perfect
and preserve the lien and Security Interest Granted or purported to be
Granted in this Agreement and the other Documents.
(ii) Borrower shall furnish to the Lender from time to time or
upon reasonable request of the Lender statements and schedules further
identifying and describing the Collateral.
(p) Assumption of Purchaser's Obligations. Borrower at all times will
fulfill and will cause its agents and independent contractors at all times to
fulfill all obligations to Purchasers, except where failure to do so will not
have a Material Adverse Effect. Borrower will cause its Affiliates to perform,
prior to the expiration of any applicable grace period, all of their respective
obligations under the Timeshare Program Governing Documents except where failure
to so perform would not give rise to a Material Adverse Effect.
(q) Collection of Payments. Borrower will cause Servicer to undertake
the diligent and timely collection of amounts delinquent under each Instrument
which constitutes part of the Designated Receivables Collateral and will bear
the entire expense of such collection. Lender shall have no obligation to
undertake any action to collect under any Instrument.
(r) Lender as Additional Insured. Timely after the closing, Borrower
will use reasonable commercial efforts to (i) cause to be maintained and (ii)
deliver or cause to be delivered to Lender, evidence of insurance policies
required by Lender relating to the Resorts, naming Lender an additional insured
and written by insurers, in amounts and on forms as are customary in the
timeshare resort industry.
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(s) No Indebtedness. Borrower will promptly discharge any and all
Indebtedness owing by it other than the Note. Borrower will cause any and all
Indebtedness owing by it or secured by its property (including the Collateral)
which does not relate to a Permitted Encumbrance, or that otherwise could have
a Material Adverse Effect and all Liens, and other charges upon any Property
thereof of Borrower to be fully subordinated in writing in all aspects to the
Obligations and Lender's claims now held or hereafter acquired to the assets of
Borrower, including, without limitation, the Collateral; provided, however, that
if no Event of Default has occurred and is continuing, Borrower may make
regularly scheduled payments on any such Indebtedness and other normal and
customary payments for services rendered.
(t) Payment of Fees and Expenses.
(i) Borrower shall, at the time of the initial Advance of the
Loan, pay or cause to be paid all of Lender's Attorneys Fees for services
rendered in connection with this Loan.
(ii) Borrower will pay Custodian the Custodial Fee and recurring
fees that are set forth in the Custodial Agreement.
(iii) Borrower will pay upon demand any and all costs
incurred by the Lender in connection with the making of Advances, the
protection of the Collateral, or the enforcement of the obligations against
Borrower, including, without limitation, all attorneys' and other
professionals' fees and costs, revenue, documentary stamp and intangible
taxes and any other taxes imposed on the Documents.
(u) Indemnification. Borrower will INDEMNIFY, PROTECT, HOLD HARMLESS,
AND DEFEND Lender, its successors, assigns and shareholders (including corporate
shareholders), and the directors, officers, employees, agents and servants of
the foregoing, for, from and against any and all losses, costs, expenses
(including, without limitation, any attorneys' fees and costs), demands, claims,
suits, proceedings (whether civil or criminal), orders, judgments, penalties,
fines and other sanctions arising from or brought in connection with (a) the
Timeshare Projects, the Collateral, Lender's status by virtue of the Security
Documents, creation of Security Interests, the terms of the Documents or the
transactions related thereto or any act or omission of Borrower or any Agent or
their respective employees, contractors or agents, whether actual or alleged,
unless arising out of Lender's negligence or wilful misconduct and (b) any and
all brokers' commissions or finders' fees or other costs of similar type by any
party in connection with the Loan. On written request by a person or other
entity covered by the above agreement of indemnity, Borrower will undertake, at
its own cost and expense, on behalf of such indemnitee, using counsel
satisfactory to the indemnitee, the defense of any legal action or proceeding to
which such person or entity shall be a party. At Lender's option, Lender may at
Borrower's expense prosecute or defend any action involving the priority,
validity or enforceability of the Security Interests in the Collateral.
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6.3 Borrower's Negative Covenants. Borrower covenants and agrees as
follows that, until full, complete and indefeasible payment and performance of
the Obligations, unless the Lender shall otherwise consent in writing, Borrower
shall not do any of the following:
(a) Liens; Negative Pledges; and Encumbrances. Borrower shall not
create, incur, assume or suffer to exist (i) any Lien of any nature upon or with
respect to the Collateral (except for Permitted Encumbrances under this
Agreement); (ii) any Indebtedness in excess of $10,000 (other than the
Obligations, any Securitization, and indebtedness incurred in the ordinary
course of business) with respect to itself or (iii) any direct or indirect
contingent obligation with respect to itself except in the ordinary course of
business; nor shall Borrower do anything to impair the rights of the Lender in
the Collateral.
(b) Disposition of Assets. Borrower shall not sell, assign, convey,
transfer or otherwise dispose of, any of the Receivables Collateral, nor enter
into any sale and sale agreement covering any of the Receivables Collateral
other than as expressly contemplated by the Documents. The foregoing shall not
prohibit the sale, assignment, conveyance or other transfer of any Instrument
that is not part of the Receivables Collateral.
(c) No Subsidiaries. Borrower shall not create any Subsidiaries.
(d) Amendments of Organizational Documents. Borrower shall not amend
its Articles of Organization.
(e) Events of Default. Borrower shall not take or omit to take any
action, which act or omission would constitute (a) an Event of Default under
this Agreement, (b) any other Documents Default or (c) a default under any other
material agreement, contract, lease, license, mortgage, deed of trust or
instrument to which it is a party or by which it or any of its Properties or
assets is bound, which default or event of default (after the expiration of any
applicable grace period) in the good faith reasonable judgment of the Borrower
may have a Material Adverse Effect.
(f) Other Activities of Borrower. Borrower shall not (x) make any
capital expenditures that create, in the aggregate and at any one time, an
Outstanding Indebtedness of the Borrower in excess of $10,000, (y) without the
prior written consent of its Independent Director, (1) commence any case,
proceeding or other action under any existing or future bankruptcy, insolvency
or similar law seeking to have an order for relief entered with respect to it,
or seeking reorganization, arrangement, adjustment, wind-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, (2)
seek appointment of a receiver, trustee, custodian or other similar official for
it or any part of its assets, (3) make a general assignment for the benefit of
creditors, or (4) take any action in furtherance of, or consenting or
acquiescing in, any of the foregoing, (z) guarantee (directly or indirectly),
endorse the obligations of (except in the ordinary course of business), or own
or purchase any stock, obligations or securities of or any other interest in, or
make any capital contribution to, any other Person, or engage in any other
action that bears on whether the separate legal identity of Borrower shall be
respected, including, without limitation (i)
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holding itself out as being liable for the debts of any other party or (ii)
acting other than in its corporate name and through its duly authorized officers
or agents.
(g) No Advances. The Borrower shall not make any advances, loans,
extensions of credit, acquisitions or investments other than the acquisition of
Permitted Investments.
(h) Existence; Qualification. The Borrower shall not dissolve or
terminate its existence as a Delaware corporation.
(i) Other Transactions. The Borrower shall not engage in any business
or activity other than in connection with, or relating to, this Agreement, the
other Documents and the specific transactions contemplated thereby (which
permitted transactions include any Securitization).
(j) Validity of Liens. The Borrower shall not permit the validity or
effectiveness of this Agreement or any Security Interest set forth herein to be
impaired, or permit the Lien of this Agreement to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released from
any covenants or obligations under any of the Documents, except as may be
expressly permitted hereby.
(k) Extensions. The Borrower shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or other law that would prohibit or forgive the
Borrower from paying all or any portion of the principal of or Interest on the
Note as contemplated herein or in the Note, wherever enacted, now or at any time
hereafter in force, or that may affect the covenants or the performance of this
Agreement; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Lender or the Custodian, but will suffer and permit the execution of every
such power as though no such law had been enacted.
(l) ERISA. The Borrower shall not permit any Plan to engage in a
prohibited transaction within the meaning of section 406 of ERISA or section
4975 of the Code, except in those cases for which there is a statutory or
administrative exemption available under section 408 of ERISA or section 4975(d)
of the Code where such action could reasonably be expected to have a Material
Adverse Effect, or permit to exist with respect to any Plan any accumulated
funding deficiency within the meaning of section 412 of the Code, or incur any
liability (other than for required insurance premiums) where such action could
reasonably be expected to have a Material Adverse Effect.
(m) No Modifications of Instruments. Without the prior written
consent of Lender (which shall not be unreasonably withheld), Borrower will not
cancel or materially modify, or consent to or acquiesce in any material
modification (including, without limitation, any change in the Mortgage Loan
Coupon Rate or the amount, frequency or number of payments of
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principal or interest on any Instrument) to, or solicit the prepayment of, any
Instrument (provided however, that if prompt notice of such modification is
provided to the Lender and the affected modified Instrument is replaced no later
than the next succeeding Payment Date in accordance with the provisions of
Section 3.2, no Event of Default shall occur hereunder) which constitutes part
of the Designated Receivables Collateral; waive the timely performance of the
obligations of the Mortgagor under any such Instrument or its security; or
release the security for any such Instrument. Borrower will not pay or advance
directly or indirectly for the account of any Originator, the Intermediary
Corporation or any sum requested to be deposited or owing by any Mortgage under
any Instrument (whether or not an Eligible Instrument) which constitutes part of
the Receivables Collateral.
(n) No Modification of Timeshare Documents. The Borrower will not,
without the prior written consent of Lender, cancel, amend, or materially
modify, waive or permit or acquiesce in the cancellation or material
modification of any underlying transaction document relating to an Instrument,
including but not limited to, any Mortgage Document, true and complete copies of
which have been delivered in accordance with Article Four hereof, provided
however, that if prompt notice of such modification is provided to the Lender
and such modified Instrument is replaced no later than the next succeeding
Payment Date in accordance with the provisions of Section 3.2, no Event of
Default shall occur hereunder.
(o) No Distributions. Borrower will not make, any distribution
(inclusive of dividends, stock repurchases and redemptions, the repayment of
loans from, and the making of loans to or investments in the distributees)
unless at the time of the distribution and after giving effect thereto, there
exists neither an Event of Default nor any Incipient Default.
(p) Securities Law. Unless substantially due to an action of the
Lender, neither the Borrower, directly or indirectly, nor anyone acting on its
behalf (provided Bank shall not be considered to be acting on behalf of
Borrower) will offer the Note or any part thereof or any similar securities for
issue or sale to, or will solicit any offer to acquire any of the same from,
anyone so as to bring the issuance and sale of the Note within the provisions of
Section 5 of the Securities Act of 1933, as amended. Borrower will not conduct
its activities in such a manner that would make it subject to the provisions of
the Investment Company Act.
(q) Additional Insurance. Borrower will not obtain or carry insurance
relating to the Instruments separate from that required by any Document, unless
the Lender shall have the same rights with respect thereto as it has with
respect to the insurance required by such Document.
(r) No Petition. Borrower hereby agrees and covenants that it will
not commence or join in any action or proceeding against the Intermediary
Corporation or itself under any liquidation, conservatorship, bankruptcy,
reorganization, rearrangement, or other insolvency law now or hereafter
existing.
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6.4 Notification of Originators. Lender may notify Purchasers or
Originators of the existence of Lender's or Trustee's interest as assignee in
the Receivables Collateral and reasonably request from such Purchasers or
Originators any information relating to the Receivables Collateral but, with
respect to the Purchasers, solely for the purpose of monitoring, administering
or verifying the Receivables Collateral. Borrower will deliver such notice of
the Lender under its letterhead if so requested by Lender.
6.5 Inspection. Lender's examination, inspection, or receipt of
information pertaining to the Collateral or the Timeshare Projects and their
respective proposed operation shall not in any way be deemed to reduce the full
scope and protection of the warranties, representations and Obligations
contained in this Agreement.
6.6 Supplemental Nature of Article 6. The representations,
warranties and covenants contained in this Article 6 are in addition to, and not
in derogation of, the representations, warranties and covenants contained
elsewhere in the Documents and shall be deemed to be made and reaffirmed on each
Transfer Date, provided that, when specifically referencing Instruments, shall
be made only with respect to all of the Instruments being sold, transferred,
conveyed or assigned upon such Transfer Date.
7. DEFAULT
7.1 Events of Default. The occurrence of any of the following events
or conditions shall constitute an event of default ("Event of Default")
hereunder:
(a) if any payment or prepayment of all or any part of the principal
of or Interest on any Advance and/or any other amounts payable by Borrower under
this Agreement or any other Document (after the expiration of any applicable
grace period expressly set forth in such Document), whether at the stated
maturity thereof or at any date fixed for payment by acceleration, by notice of
prepayment or otherwise shall not be paid within three (3) Business Days
immediately succeeding the date as and when due;
(b) any representation or warranty of a Person other than Lender
contained in the Documents or in any certificate furnished to Lender under the
Documents by or on behalf of Borrower proves to be, in any respect, false or
misleading as of the date deemed made and has a Material Adverse Effect;
(c) a default in the Performance of the Obligations set forth in
Sections 3.2, 6.2(j), 6.2(k), 6.2(o), 6.2(p), 6.2(q), 6.2(t)(i), 6.3(a), 6.3(o),
6.3(p), or 6.3(r) hereof;
(d) reserved;
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(e) breach by any of the Borrower, the Intermediary Corporation, any
Originator, any Servicer (if it is an Affiliate of the Borrower) or Vistana in
the performance of any negative covenant contained in any of the Documents;
(f) a default in the Performance of any Obligations by the Borrower,
the Intermediary Corporation, any Originator or the Servicer or a violation of
any term, covenant or provision of the Documents (other than a default or
violation referred to elsewhere in this Section 7.1) which continues unremedied
(i) for a period of ten (10) Days after notice of such default or violation of
Borrower in the case of a default under or violation of Section 6.3(a) hereof or
any other default or violation which can be cured by the payment of money alone
or (ii) in the case of any other default or violation, for a period of twenty
(20) Business Days after the earlier of knowledge of such breach by such non-
performing person or notice to such Person of such default or violation, plus
only if such default or violation cannot be cured by such Person within twenty
(20) Business Days and such Person has been, in the good faith and reasonable
commercial judgment of the Lender, as determined by the Lender in its sole
discretion, diligent in attempting to effect cure, such additional period not to
exceed an additional ten (10) Business Days as may be required by Borrower
proceeding diligently to effect cure, provided that if any grace period
expressly set forth and relating to such specific covenant pursuant to the terms
of the Documents applies, such grace period shall be the only applicable grace
period for the purposes of this Section 7.01(f);
(g) the occurrence of an "Event of Default", "Servicer Default" or
"Guarantor Default" or other "Event of Default" as defined elsewhere in any of
the Documents;
(h) any final, non-appealable judgment or decree for money damages or
for a fine or penalty against Borrower which is not paid and discharged or
stayed within 30 days thereafter and when aggregated with all other judgments or
decree(s) that have remained unpaid and undischarged or stayed for such period
is in excess of $100,000;
(i) Borrower, the Intermediary Corporation, any Originator, the
Servicer or Vistana shall (i) generally not be paying its debts as they become
due, (ii) file or consent by answer or otherwise to the filing against it of a
petition for relief or reorganization, arrangement or liquidation or any other
petition in bankruptcy or insolvency or the appointment of a custodian under the
laws of any jurisdiction, (iii) or any other commencement by such Person of a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of it in an involuntary
case or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, (iv) make an assignment for the
benefit of its creditors, (v) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers for itself or any
substantial part of its property, (vi) be adjudicated insolvent, (vii) dissolve;
commence to wind-up its affairs, (viii) take any action for purposes of the
foregoing; or a petition for relief or reorganization, arrangement or
liquidation or any other petition in bankruptcy or insolvency or the appointment
of a custodian under the laws
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of-any jurisdiction is filed against it or a custodian is appointed for
Borrower, the Collateral or any material part of its properties and such
proceeding is not dismissed and appointment vacated within forty-five (45) days
thereafter or (ix) a final judgment, fine or other order for the payment of
money shall be rendered by any Governmental Authority against such Person and
the applicable Person shall not discharge the same or provide for its discharge
in accordance with its terms, or obtain an adequate bond with respect thereto,
or procure a stay of execution thereof within thirty (30) days from the date of
its entry and the Lender shall have reasonably determined that such final
judgment, fine or order is likely to have a Material Adverse Effect;
(j) a material adverse change in any of the Timeshare Projects
which is uninsured for less than the full value of such claim and which would
have a Material Adverse Effect that affects, directly or indirectly, Instruments
having, at the time such Material Adverse Effect occurs (as determined by the
Lender in its sole discretion) an Outstanding principal balance of more than
$100,000 or in the business or financial condition of Borrower or in the
Collateral, which change (i) is not otherwise enumerated in this Section 7.1 as
an Event of Default, (ii) is not fully cured by Borrower within thirty (30) days
of the occurrence thereof, and (iii) as the result of which Lender in good faith
deems the prospect of Performance of the Obligations impaired or its Collateral
imperiled. A change shall not be deemed material and adverse until it results in
cumulative damages of at least $100,000 or, in Lender's reasonable opinion, is
not subject to quantification;
(k) an order or decree has been entered by any court or
Governmental Authority of competent jurisdiction enjoining the intended use as
Timeshare resorts of any Timeshare Project or Timeshare Projects that, in either
case, gave rise to a material number of Designated Instruments having a then-
Outstanding principal balance of $100,000 and such order or decree is not
vacated, or such Designated Instruments are not repurchased or replaced within
sixty (60) days of entry thereof;
(l) If an "Event of Default", as defined under the Line of
Credit Agreement, occurs and is not cured within the applicable grace period (if
any) provided therein.
7.2 Remedies. At any time after an Event of Default has occurred and
while it is continuing, Lender may, but without obligation, in addition to the
rights and powers granted elsewhere in the Documents and not in limitation
thereof, do any one or more of the following:
(a) cease to make further Advances;
(b) declare all Outstanding principal of, and Interest accrued
to the date of payment on the Note, and all other sums owing by Borrower to
Lender in connection with the Documents, immediately due and payable without
notice, presentment, demand or protest, which are hereby waived by Borrower;
(c) receive and retain any proceeds from the other items of
Collateral;
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(d) with respect to the Receivables Collateral, (i) institute
collection, foreclosure and other enforcement actions against Purchasers and
other persons obligated on the Receivables Collateral, (ii) enter into
modification agreements and make extension agreements with respect to payments
and other performances, (iii) release persons liable for performance, (iv)
settle and compromise disputes with respect to payments and performances claimed
due, all without notice to Borrower, without being called to account for such
actions by Borrower and without relieving Borrower from Performance of the
Obligations, and (v) receive, collect, open and read all mail of Borrower for
the purpose of obtaining all items pertaining to the Receivables Collateral; and
(e) proceed to protect and enforce its rights and remedies under the
Documents and any other documents or instruments related thereto, to foreclose
or otherwise realize upon the collateral and/or to exercise any other rights and
remedies available to it at law, in equity or by statute.
7.3 Application of Funds Received. Notwithstanding anything in the
Documents to the contrary, while an Event of Default exists, any cash received
and retained by Lender in connection with the Collateral may be applied to
payment of the Obligations in the manner provided in Section 7.5 hereof.
7.4 Foreclosure. (a) Lender shall have all of the rights and remedies
of a secured party under the Uniform Commercial Code of the relevant
jurisdiction and all other rights and remedies accorded to a secured party in
equity or at law. Any notice of sale or other disposition of the Collateral
given not less than ten (10) Business Days prior to such proposed action in
connection with the exercise of Lender's remedies shall constitute reasonable
and fair notice of such action. Lender may postpone or adjourn any such sale
from time to time by announcement at the time and place of sale stated on the
notice of sale or by announcement of any adjourned sale, without being required
to give a further notice of sale. Any such sale may be for cash or, unless
prohibited by applicable law, upon such credit or installment as Lender may
determine. Borrower shall be credited with the net proceeds of such sale only
when such proceeds are actually received by Lender in good current funds.
Despite the consummation of any such sale, Borrower shall remain liable for any
deficiency on the Obligations which remains outstanding following such sale. All
net proceeds recovered pursuant to a sale shall be applied in accordance with
the provisions of Section 7.5 hereof.
(b) Lender may, in the name of Borrower, or in its own name, make and
execute all conveyances, assignments and transfers of the Collateral sold in
connection with the exercise of Lender's remedies; and for this purpose Lender
is hereby appointed attorney-in-fact for Borrower.
(c) Upon request of Lender when an Event of Default exists, Borrower
shall assemble the Collateral not already in Lender's possession and make it
available to Lender at a time and place designated by Lender.
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7.5 Proceeds from Sale of Collateral. The proceeds realized from any
sale of all or any part of the Collateral made in connection with the exercise
of Lender's remedies shall be applied in the following order of priorities;
first, to the payment of all costs and expenses of such sale, including, without
reasonable compensation to Lender and its agents, attorneys fees, and all other
expenses, liabilities and advances incurred or made by Lender, its agents and
attorneys in connection with such sale, and any other unreimbursed expenses for
which Lender may be reimbursed pursuant to the Documents; second, to the payment
of the Obligations, in such order and manner as Lender shall determine, with no
amounts applied to payment of principal until all Interest has been paid; and
third, to the payment to Borrower, its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
7.6 Performance by Lender. Lender may, at its option, and without any
obligation to do so, pay, perform and discharge any and all liabilities agreed
to be paid or performed in the Documents by Borrower, any Guarantor or any
surety for the Performance of the Obligations if the person obligated fails to
do so. For such purposes Lender may use the proceeds of the Collateral. All
amounts expended by Lender in so doing or in exercising its remedies under the
Documents following an Event of Default shall become part of the Obligations,
shall be immediately due and payable by Borrower to Lender upon demand, and
shall bear Interest at the Default Rate from the dates of such expenditures
until paid.
7.7 Remedies Non-Exclusive. No remedy in any Document conferred on or
reserved to Lender is intended to be exclusive of any other remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under any Document or now or hereafter existing at law
or in equity. No delay or omission to exercise any right or power shall be
construed to be a waiver of or acquiescence to any default or a waiver of any
right or power; and every such right and power may be exercised from time to
time and as often as may be deemed expedient.
7.8 Waiver. Borrower, for itself and for all who may claim through or
under it, hereby expressly waives and releases all right to have the Collateral
or any part thereof, marshalled on any foreclosure sale or other enforcement of
Lender's rights and remedies.
7.9 Power of Attorney. For the purpose of exercising its rights and
remedies under Sections 7.2(d) and 7.6 hereof, Lender may do so in the name of
Borrower or its name and is hereby appointed as Borrower's attorney-in-fact to
take any and all actions in the name of Borrower and/or on behalf of Borrower as
Lender may deem necessary or appropriate in the accomplishment of such purposes.
8. MISCELLANEOUS
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8.1 Payment of Funds to Lender. All moneys payable under the
Documents shall be paid to Lender at its address set forth herein in lawful
monies of the United States of America, unless otherwise designated in the
Documents or by Lender by notice.
8.2 Merger. The Documents exclusively and completely state the rights
and obligations of Lender and Borrower with respect to the Loan. No
modification, variation, termination, discharge, abandonment or waiver of any of
the terms or conditions of the Documents shall be valid unless in writing and
signed by duly authorized representatives of the party sought to be bound by
such action. The Documents supersede any and all prior representations,
warranties and/or inducements, written or oral, heretofore made by Lender.
8.3 Powers Coupled with an Interest. The powers and agency granted to
Lender by Borrower in the Documents are coupled with an interest and are
irrevocable and are granted as cumulative to Lender's other remedies for
collection and enforcement of the Oblations.
8.4 Counterparts. Any Document may be executed simultaneously in any
number of identical copies each of which shall constitute an original for all
purposes.
8.5 Notices. Except as otherwise expressly provided in the Documents,
any notice required or permitted to be given under any Document by any Person to
the other shall be in writing and shall be (a) personally delivered, (b) sent by
overnight express carrier, or (c) sent by telecopy, to such other Person (or
Persons) at its address and/or telecopy number as set forth below, or at such
other address and/or telecopy number as any party thereto may designate for such
purpose in a notice given to the other party. Such notice shall be deemed
received upon the earliest of the following to occur: (a) upon personal
delivery; (b) on the next Business Day following the day sent, if sent by
overnight express courier; and (c) on the day sent if the time of transmission
is prior to 2:30 p.m. or if such day is not a Business Day on the next Business
Day after the day sent, if sent by telecopy.
Notices to Borrower: VISTANA TIMESHARE MORTGAGE
CORP.
c/o VCH Administration, Inc.
8801 Vistana Centre Drive
Orlando, Florida 32821
Attn: Chief Financial Officer
Telephone: (407) 239-3100
Telecopy: (407) 239-3222
With a copy to: VISTANA, INC.
701 Brickell Avenue, Suite 2100
Miami, Florida 33131
Attn: Susan Werth, Esq.
Telephone: (305) 577-3150
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Telecopy: (305) 374-7159
Notices to Lender: DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
75 Wall Street
New York, New York 10005-2889
Attn: Asset-Backed Finance
Telephone: (212) 429-2552
Telecopy: (212) 429-2780
8.6 Assignees of Borrower and Lender. This Agreement, the Note and
any other Document shall be binding upon, and inure to the benefit of, the
parties hereto and their permitted successors and assigns, whether so expressed
or not. The Lender shall have the right (i) to sell, assign or otherwise
transfer to any Person all or any portion of its interest under this Agreement
and the Note and (ii) to grant any participation or other interest herein or
therein; provided that Lender shall give Borrower at least ten (10) Business
Days written advance notice of Lender's intent to assign any of its rights
hereunder; provided, further, however, that Lender shall not disseminate any
information regarding the Borrower or the Collateral to any timeshare developer,
timeshare exchange company or hospitality industry company without Borrower's
advance written consent, which consent shall not be withheld unreasonably.
Borrower may not assign its rights in the Documents in whole or in part except
as may be expressly provided in a Document or with the prior written consent of
the Lender.
8.7 Unenforceability. If any one or more of the provisions contained
in any Document shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
in the Document shall not in any way be affected or impaired thereby.
8.8 Time is of the Essence. Time is of the essence in the Performance
of the Obligations.
8.9 Delay not Waiver. No modification, variation, termination,
discharge, abandonment or waiver granted or consented to by Lender including a
waiver of the time of the essence standard, shall be deemed to be an abandonment
of such rights.
8.10 Headings. All headings are inserted for convenience only and
shall not affect any construction or interpretation of the Documents. Unless
otherwise indicated, all references in a Document to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of the Document; the words "herein", "hereof", "hereto",
"hereunder" and words of similar import refer to the Document as a whole and not
to any particular section, paragraph, clause or other subdivision; the use of
any gender shall be deemed to include other genders, unless inappropriate; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article, section or paragraph which is
applicable to but not within
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such numbered or lettered subdivision; the word "or" shall be deemed to have the
expansive meaning of "and/or". All Schedules and Exhibits referred to in this
Agreement are incorporated in this Agreement by reference.
8.11 CHOICE OF LAW: JURISDICTION: VENUE AND WAIVER OF JURY TRIAL.
BORROWER HEREBY IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT SHALL BE LITIGATED, AT LENDER'S SOLE DISCRETION AND ELECTION,
ONLY IN COURTS HAVING A SITUS WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID COUNTY AND STATE. BORROWER HEREBY IRREVOCABLY
APPOINTS AND DESIGNATES CT CORPORATION SYSTEM, WHOSE ADDRESS IS C/O CT
CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DULY
AUTHORIZED AGENT FOR SERVICE OF LEGAL PROCESS AND AGREES THAT SERVICE OF SUCH
PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF PROCESS UPON
BORROWER PROVIDED THAT A COPY OF SUCH PROCESS BE DELIVERED TO BORROWER PURSUANT
TO THE PROVISIONS OF SECTION 8.5 ABOVE. IN THE EVENT SERVICE IS UNDELIVERABLE
BECAUSE SUCH AGENT MOVES OR CEASES TO DO BUSINESS IN NEW YORK, NEW YORK, OR
LENDER WISHES TO HAVE A DIFFERENT AGENT, BORROWER SHALL, WITHIN TEN (10) DAYS
AFTER LENDER'S REQUEST, APPOINT A SUBSTITUTE AGENT (IN NEW YORK, NEW YORK) ON
ITS BEHALF AND WITHIN SUCH PERIOD NOTIFY LENDER OF SUCH APPOINTMENT. IF SUCH
SUBSTITUTE AGENT IS NOT TIMELY APPOINTED, LENDER SHALL, IN ITS SOLE DISCRETION,
HAVE THE RIGHT TO DESIGNATE A SUBSTITUTE AGENT UPON FIVE (5) DAYS NOTICE TO
BORROWER. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY LENDER ON THE LOAN DOCUMENTS IN
ACCORDANCE WITH THIS PARAGRAPH.
BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER
OF THIS AGREEMENT AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND BY
LENDER, AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON
BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF
TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS
EFFECT, BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT BORROWER AND LENDER HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH OF
THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS.
56
<PAGE>
BORROWER AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED IN THE
SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL.
THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF
THE UNITED STATE SOF AMERICA.
8.12 Usury Law. It is the intent of the parties hereto to comply with
any applicable usury law. In no event whatsoever shall the amount of Interest
paid or agreed to be paid by Borrower pursuant to this Agreement or the Note or
any of the other Documents exceed the highest lawful rate of interest
permissible under applicable law. If, from any circumstances whatsoever,
fulfillment of any provision of this Agreement or the Note or of the other
Documents shall involve exceeding the lawful rate of interest which a court of
competent jurisdiction may deem applicable hereto ("Excess Interest"), then ipso
facto, the obligation to be fulfilled shall be reduced to the highest lawful
rate of interest permissible under such law, and, if for any reason whatsoever,
Lender shall receive, as Interest, an amount which would be deemed unlawful
under such applicable law, such amount shall be applied to the Loan (whether or
not due and payable), and not to the payment of Interest, or refunded to
Borrower if the Loan has been paid in full. Borrower shall not have any action
against Lender for any damages whatsoever arising out of the payment or
collection of any such Excess Interest.
8.13 NO LIABILITY TO PURCHASERS. LENDER DOES NOT HEREBY ASSUME AND
SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S
RELATIONSHIP BEING THAT ONLY OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR
INDEBTEDNESS OWED TO IT, AN ASSIGNMENT FROM BORROWER OF THE INSTRUMENTS. EXCEPT
AS REQUIRED BY LAW, INCLUDING WITHOUT LIMITATION, ANY REPORT OR REQUEST BY THE
SEC, BORROWER WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER
WITH RESPECT TO THE TIMESHARE PROJECTS, THE SALE OF TIMESHARE INTERESTS OR
OTHERWISE, WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF LENDER.
8.14 Reserved.
8.15 Reliance by Lender. All representations, warranties, covenants
and agreements made by Borrower herein, in the other Documents or in any other
agreement, document, instrument or certificate delivered by or on behalf of
Borrower under or pursuant to the Documents shall be considered to have been
relied upon by Lender and shall survive the delivery to Lender of such Documents
and the extension of the Loan (and each part thereof), regardless of any
investigation made by or on behalf of Lender.
57
<PAGE>
8.16 Termination; Survival. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loan hereunder. This Agreement
shall terminate promptly at the end of the Term, provided, however, that any
obligation that the Borrower may have hereunder to indemnify the Lender or the
Custodian shall survive such termination.
8.17 Amendments. Any and all amendments, modifications, discharges or
waivers of, or consents to any departures from any provision of this Agreement
or any Note shall not be effective unless set forth in a writing signed by, in
any case, Borrower and Lender. Any waiver or consent with respect to any
provision of this Agreement or the Note shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in similar or other circumstances.
8.18 Marshalling; Payments Set Aside. Lender shall be under no
obligation to marshall any assets in favor of Borrower or any other Person or
against or in Performance of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lender, or Lender enforces its Liens and
such payment or payments or the proceeds of such enforcement or set-off or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under the Bankruptcy Code or under any other similar federal or
state law, common law or equitable cause, then to the extent of such recovery
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set-off had not occurred.
8.19 No Set-Offs by Borrower. All sums payable by Borrower pursuant
to this Agreement or the Note shall be payable without notice or demand and
shall be payable in United States Dollars without set-off, counterclaim,
defense, abatement, recoupment or reduction of any manner whatsoever.
8.20 Equitable Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement or the Note, any remedy at law may prove to be
inadequate relief to the Lender; therefore, Borrower agrees that the Lender
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
8.21 Waiver of Punitive Damages. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, EACH OF THE PARTIES HERETO AGREES THAT IT
SHALL NOT SEEK ANY PUNITIVE DAMAGES FROM THE OTHER PARTY HERETO UNDER ANY THEORY
OF LIABILITY, INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORT.
58
<PAGE>
8.22 General Interpretive Principals. For purposes of this Agreement
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) the term "include" or "including" shall mean without limitation
by reason of enumeration.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their respective names, personally or by their duly authorized
representatives as of the date above written.
BORROWER:
VISTANA TIMESHARE MORTGAGE CORP.
a Delaware corporation
By: /s/ John M. Sabin
-------------------------------------
Name: John M. Sabin
Title: Sr. Vice President
LENDER:
DRESDNER BANK AG NEW YORK AND GRAND
CAYMAN BRANCHES
By: /S/ Michael M. Kownacki
--------------------------------------
Name: Michael M. Kownacki
------------------------------------
Title: Vice President
-----------------------------------
By: /S/ Harry C. Forsyth
--------------------------------------
Name: Harry C. Forsyth
------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
Exhibit 10.22
================================================================================
LINE OF CREDIT AGREEMENT
among
VISTANA, INC.
and
VISTANA DEVELOPMENT, LTD.
and
DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES
Dated as of November 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.01. Definitions......................................... -1-
SECTION 1.02. Accounting Terms.................................... -10-
ARTICLE II THE LOANS AND THE LETTERS OF CREDIT
SECTION 2.01. The Loans........................................... -11-
SECTION 2.02. Notice of Borrowing, Note and Maturity.............. -11-
SECTION 2.03. Interest on Loans................................... -12-
SECTION 2.04. Interest Periods.................................... -12-
SECTION 2.05. Interest Payments................................... -12-
SECTION 2.06. Repayment of Principal.............................. -12-
SECTION 2.07. Optional Prepayment; Breakage Costs................. -12-
SECTION 2.08. Manner of Payment................................... -13-
SECTION 2.09. Payments Generally.................................. -13-
SECTION 2.10. Extension of Maturity............................... -13-
SECTION 2.11. Late Payment Penalties.............................. -13-
SECTION 2.12. Computation of Interest and LOC Commission.......... -13-
SECTION 2.13. The Letters of Credit............................... -13-
SECTION 2.14. Payments by Bank under Letters of Credit............ -14-
SECTION 2.15. Illegality, Increased Cost, Capital Adequacy........ -15-
SECTION 2.16. Non-Utilization Fees................................ -15-
SECTION 2.17. Determination of LIBOR.............................. -15-
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
SECTION 3.01. Organization; Power; Authorization.................. -17-
SECTION 3.02. No Conflict with, Violation of or Default under
Laws or other Agreements............................ -17-
SECTION 3.03. Litigation; Official Approvals...................... -17-
SECTION 3.04. Information and Financial Data Accurate; Financial
Statements; No Adverse Changes...................... -18-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.05. Title to Assets..................................... -18-
SECTION 3.06. Taxes............................................... -19-
SECTION 3.07. Agreements Legal, Valid, Binding and Enforceable.... -19-
SECTION 3.08. No Untrue Statements................................ -19-
SECTION 3.09. Employee Benefit Plans.............................. -19-
SECTION 3.10. Use of Proceeds..................................... -20-
SECTION 3.11. Subsidiaries........................................ -20-
SECTION 3.12. Compliance.......................................... -20-
SECTION 3.13. Burdensome Obligations.............................. -20-
SECTION 3.14. Trademarks, Patents, etc............................ -21-
SECTION 3.15. Labor Matters....................................... -21-
SECTION 3.16. Investment Company Act.............................. -21-
ARTICLE IV CONDITIONS OF LENDING
SECTION 4.01. Representations and Warranties...................... -22-
SECTION 4.02. No Default.......................................... -22-
SECTION 4.03. Officer's Certificate............................... -22-
SECTION 4.04. Litigation.......................................... -22-
SECTION 4.05. Supporting Documents................................ -23-
SECTION 4.06. Opinion of Counsel for the Borrowers and Guarantor.. -23-
SECTION 4.07. Approval of Counsel for the Bank.................... -23-
SECTION 4.08. Other Documents..................................... -23-
SECTION 4.09. Additional Conditions to Each Loan.................. -24-
SECTION 4.10. Additional Conditions to Each Letter of Credit...... -24-
SECTION 4.11. Compliance.......................................... -25-
SECTION 4.12. Execution of Related Documents...................... -25-
ARTICLE V AFFIRMATIVE COVENANTS OF EACH OF THE BORROWERS
SECTION 5.01. Corporate Existence................................. -26-
SECTION 5.02. Payment of Debts.................................... -26-
SECTION 5.03. Accounts and Records................................ -26-
SECTION 5.04. Payment of Taxes and Claims......................... -26-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.05. Compliance with Law................................. -26-
SECTION 5.06. Contract and Lease Obligations...................... -27-
SECTION 5.07. Financial Statements................................ -27-
SECTION 5.08. Access to Books and Records......................... -28-
SECTION 5.09. Notification of Event of Default.................... -28-
SECTION 5.10. Certificate of No Default........................... -29-
SECTION 5.11. Notification of Litigation and Adverse Business
Development......................................... -29-
SECTION 5.12. Environmental Matters............................... -29-
SECTION 5.13. Compliance with ERISA............................... -30-
SECTION 5.14. Federal Reserve Regulations, Etc.................... -30-
SECTION 5.15. Insurance........................................... -30-
SECTION 5.16. Notification of Adverse Legal Development........... -30-
SECTION 5.17. Conduct of Business................................. -30-
SECTION 5.18. Further Assurances.................................. -30-
SECTION 5.19. Performance of Obligations.......................... -31-
SECTION 5.20. Separateness........................................ -31-
SECTION 5.21. New Significant Subsidiaries........................ -31-
SECTION 5.22. Use of Proceeds..................................... -31-
ARTICLE VI AFFIRMATIVE COVENANTS OF VISTANA, INC.
SECTION 6.01. Minimum Tangible Net Worth.......................... -32-
SECTION 6.02. Minimum Interest Coverage Ratio..................... -32-
SECTION 6.03. Maximum Debt Service Coverage Ratio................. -32-
SECTION 6.04. Maximum Debt/EBITDA Ratio........................... -32-
SECTION 6.05. Maximum Debt/Capitalization Ratio................... -32-
SECTION 6.06. Raw Land............................................ -33-
ARTICLE VII AFFIRMATIVE COVENANTS OF VISTANA DEVELOPMENT, LTD.
SECTION 7.01. VDL Minimum Net Worth............................... -34-
SECTION 7.02. VDL Minimum Net Earnings............................ -34-
SECTION 7.03. Subordinated Obligations............................ -34-
</TABLE>
-iii-
<PAGE>
ARTICLE VIII NEGATIVE COVENANTS OF EACH OF THE BORROWERS
<TABLE>
<S> <C> <C>
SECTION 8.01. ERISA............................................... -36-
SECTION 8.02. Merger, Dissolution................................. -36-
SECTION 8.03. Sale, Etc........................................... -37-
SECTION 8.04. Nature of Business.................................. -37-
SECTION 8.05. Liens and Encumbrances.............................. -37-
SECTION 8.06. Guarantees.......................................... -39-
SECTION 8.07. Sale of Receivables................................. -39-
SECTION 8.08. Hazardous Substances................................ -39-
SECTION 8.09. Transactions With Affiliates........................ -39-
SECTION 8.10. Limitation on Restrictions on Subsidiary Dividends
and Other Distributions............................. -39-
SECTION 8.11. Pari Passu Ranking.................................. -40-
SECTION 8.12. Indebtedness........................................ -40-
ARTICLE IX EVENTS OF DEFAULT; REMEDIES; APPLICATION OF PROCEEDS
SECTION 9.01. Events of Default................................... -42-
SECTION 9.02. Bank's Remedies..................................... -43-
SECTION 9.03. Specific Performance................................ -44-
SECTION 9.04. Application of Proceeds............................. -45-
SECTION 9.05. No Remedy Exclusive................................. -45-
ARTICLE X MISCELLANEOUS
SECTION 10.01. Notices............................................. -46-
SECTION 10.02. Survival............................................ -48-
SECTION 10.03. Expenses of the Bank................................ -48-
SECTION 10.04. Applicable Law...................................... -48-
SECTION 10.05. Amendments, Changes, Modifications and Waivers...... -48-
SECTION 10.06. Separability........................................ -49-
SECTION 10.07. Counterparts........................................ -49-
SECTION 10.08. Entire Agreement.................................... -49-
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 10.09. Headings; Interpretation; Gender and Number......... -49-
SECTION 10.10. Term................................................ -49-
SECTION 10.11. Successors and Assigns.............................. -50-
SECTION 10.12. Waiver of Counterclaim, Jury Trial.................. -50-
SECTION 10.13. Submission to Jurisdiction.......................... -50-
SECTION 10.14. Joint and Several Liability......................... -51-
SECTION 10.15. Representation by Counsel........................... -51-
SECTION 10.16. Summary Judgment.................................... -51-
</TABLE>
[intentionally omitted]
Schedule I -- Subsidiaries of the Borrowers
Schedule II -- Items Not Reflected in Financial Statement ((S)3.04(b))
Schedule III -- Pending or Threatened Actions, Proceedings or
Investigations ((S)3.03)
Schedule IV -- Disclosure Pursuant to Section 3.14
Schedule V -- Liens ((S)8.05(8))
Schedule VI -- Indebtedness ((S)8.12(a))
Schedule VII -- Authorized Representatives
Exhibit A -- Form of Line of Credit Note
Exhibit B -- Form of Opinion of Counsel
Exhibit C -- Form of Application for Standby Letter of Credit
Exhibit D -- Form of Notice of Loan
Exhibit E -- Form of Letter of Credit
Exhibit F -- Form of Guaranty
-v-
<PAGE>
LINE OF CREDIT AGREEMENT dated as of November 1, 1997, among VISTANA,
INC., a Florida corporation, VISTANA DEVELOPMENT, LTD., a Florida limited
partnership, (each a "Borrower"; and together, the "Borrowers"), and the New
York and Grand Cayman Branches of DRESDNER BANK AG (the "Bank"), a bank
incorporated under the laws of the Federal Republic of Germany and licensed to
operate a branch under the laws of the State of New York.
RECITALS
--------
The Borrowers have applied to the Bank for a line of credit consisting
of Loans and Letters of Credit for the purposes and in the amounts more
particularly described herein. The Bank is willing to make such facility
available to the Borrowers pursuant to this Agreement subject to the Commitment
upon the terms and conditions hereinafter set forth.
Accordingly, each of the Borrowers jointly and severally and the Bank
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used herein, the following words and
terms shall have the meanings designated below (terms defined in the singular to
have a correlative meaning when used in the plural and vice versa):
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliate Lender" shall mean any shareholder, partner, or Affiliate
of Development to whom Development owes indebtedness; provided, however, that
the term Affiliate Lender shall not include any Guarantor.
"Agreement" shall mean this Line of Credit Agreement including all
Exhibits and Schedules, as the same may be supplemented, modified or amended
from time to time in accordance with the terms hereof.
"Applicable Interest Rate" shall mean an annual rate of interest equal
to (a) the Base Rate or (b) LIBOR plus two hundred twenty-five (225) basis
points, as selected by the applicable Borrower pursuant to this Agreement.
"Application" shall have the meaning assigned to that term in Section
3.04 hereof.
"Auditors" shall have the meaning assigned to that term in Section
5.07(b) hereof.
<PAGE>
"Authorized Representative" with respect to any Person means any
individual designated in writing to the Bank and duly authorized by such Person
to act on its behalf. As of the date of this Agreement, the Authorized
Representatives of Borrower are as shown on Schedule VII hereto.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York City or Florida and whenever such
day relates to a LIBOR Loan or notice with respect to any LIBOR Loan, a day on
which dealings in Dollar deposits are also carried out in the London interbank
market.
"Base Rate" shall mean either: (i) the Prime Rate or (ii) the Federal
Funds Rate plus fifty (50) basis points, as selected by the applicable Borrower
pursuant to this Agreement.
"Base Rate Loan" shall mean a Loan bearing interest at (i) the Prime
Rate or (ii) the Federal Funds Rate plus fifty (50) basis points.
"Borrower Loan Documents" shall have the meaning assigned to that term
in Section 3.01 hereof.
"Borrower's Account" shall mean demand deposit account entitled
"Vistana, Inc." or demand deposit account entitled "Vistana Development, Ltd.",
as the case may be, maintained by the Borrowers with the Bank.
"Borrowing Date" shall mean the date upon which (i) any Loan is made
by the Bank, or (ii) any Letter of Credit is issued by the Bank.
"Business Day" shall mean any day except a Saturday, Sunday and any
day which shall be in New York City a legal holiday or any other day on which
banking institutions in the State are authorized by law or executive order to
close.
"Capitalization" shall mean the sum of Debt plus amounts shown on the
Vistana
-2-
<PAGE>
consolidated financial statements as "equity".
"Capitalization Ratio" shall mean the ratio of (a) Debt to (b)
Capitalization for the most recently concluded Fiscal Quarter.
"Closing" shall mean the closing of this Agreement on the Closing
Date.
"Closing Date" shall mean the date on which this Agreement shall have
been executed and delivered by all the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor legislation, and any Treasury Regulations and administrative
pronouncements promulgated, from time to time, thereunder.
"Commitment" shall mean the obligation of the Bank to make available
(a) Loans hereunder in an aggregate principal amount at any one time outstanding
not to exceed the excess of (i) twenty million dollars ($20,000,000) over (ii)
the sum of (x) the aggregate undrawn amount of all outstanding Letters of Credit
at such time, plus (y) the aggregate unpaid Reimbursement Obligations of the
Borrowers at such time in respect of any drawings under any Letters of Credit,
plus (z) the aggregate Outstanding Balance of all Loans under this Agreement and
(b) Letters of Credit in an aggregate undrawn face amount not to exceed the
excess of (i) twenty million dollars ($20,000,000) over (ii) the sum of (x) the
aggregate undrawn amount of all outstanding Letters of Credit at such time, plus
(y) the aggregate unpaid Reimbursement Obligations of the Borrowers at such time
in respect of any drawings under any Letters of Credit, plus (z) the aggregate
Outstanding Balance of all Loans under this Agreement.
"Consolidated Net Income" shall mean the net income of Vistana and its
Consolidated Subsidiaries on a consolidated basis, as determined in accordance
with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Vistana in accordance
with GAAP.
-3-
<PAGE>
"Consolidated Tangible Net Worth" means Tangible Net Worth of Vistana
and its Consolidated Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"Debt" shall mean the sum of the amounts shown on the consolidated
financial statements of Vistana as "Notes and mortgages payable" plus known and
identified contingent liabilities including but not limited to: (i) guaranteed
obligations of non-consolidated entities, (ii) the aggregate undrawn amount of
all Letters of Credit issued hereunder and (iii) unpaid Reimbursement
Obligations hereunder; provided, however, that other than as specified in
clauses (i), (ii) and (iii) above, contingent liabilities shall include only
those contingent liabilities required to be disclosed in the footnotes to the
consolidated financial statements of Vistana, prepared in accordance with GAAP,
consistently applied.
"Debt Ratio" shall mean the ratio of (a) Debt to (b) EBITDA, for the
most recently concluded four (4) Fiscal Quarters.
"Debt Service" shall mean Interest Expense plus any scheduled
principal payments on "Notes and mortgages payable", as shown on the
consolidated financial statements of Vistana; provided, however, that scheduled
principal payments shall not include (i) principal payments made on receivables
based debt and (ii) release payments on construction loans.
"Debt Service Coverage Ratio" shall mean the ratio of (a) EBITDA to
(b) Debt Service, for the most recently concluded four (4) Fiscal Quarters.
"Default Rate" shall mean the rate per annum equal to the Applicable
Interest Rate plus two percent (2%).
"Development" shall mean Vistana Development, Ltd.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
EBITDA: For any period, earnings (losses) before Interest Expense,
taxes, depreciation and amortization.
-4-
<PAGE>
"Environmental Law" shall have the meaning assigned to that term in
Section 5.12(c) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean any Event of Default set forth in
Article IX hereof.
"Executive Officer" shall mean the Chairman of the Board, Chief
Operating Officer, Chief Executive Officer, Chief Financial Officer, President,
Treasurer or Controller of the Borrower, and if more than one such Person, each
of them.
"Federal Bankruptcy Code" shall mean Title 11 of the United States
Code, as amended, or any successor legislation, and any regulations and
administrative pronouncements promulgated from time to time thereunder.
"Federal Funds Loan" shall mean a Loan funded at the Federal Funds
Rate plus fifty (50) basis points.
"Federal Funds Rate" shall mean, for any day, the rate per annum equal
to the weighted average of the rates on overnight federal funds transactions as
published by the Federal Reserve Bank of New York for such day (or for any day
that is not a Banking Day, for the immediately preceding Banking Day).
"Fiscal Quarter" shall mean each of the three month periods ending on
the last day of March, June, September and December of each year.
"Fiscal Year" shall mean the twelve month period ending December 31 of
each year.
"Generally Accepted Accounting Principles" or "GAAP" shall have the
meaning assigned to that term in Section 1.02 hereof.
-5-
<PAGE>
"Guarantor" shall mean as of the Closing Date, Points of Colorado,
Inc.; together with any entity which is or becomes a Significant Subsidiary at
any time after the Closing Date or their permitted successors.
"Guaranty" shall mean each Guaranty, dated as of the date hereof, to
the Bank from a Guarantor.
"Hazardous Substance" shall have the meaning assigned to that term in
Section 5.12(c) hereof.
"Indebtedness" shall mean all items which would properly be classified
as liabilities (excluding accounts payable and accrued liabilities, compensation
and benefits) in accordance with Generally Accepted Accounting Principles at the
date Indebtedness is to be determined, including, without limitation but without
duplication, the face amount of all outstanding Letters of Credit, all
Reimbursement Obligations, the full principal amount of any guarantees of the
obligations of any other Person, but not including capital stock, capital
surplus, retained earnings, minority interests and valuation and contingency
reserves.
"Interest Coverage Ratio" shall mean the ratio of (a) EBITDA to (b)
Interest Expense, for the most recently concluded four (4) Fiscal Quarters.
"Interest Expense" shall mean for any period amounts shown as interest
expense for such period on Vistana's consolidated statement of operations,
determined in accordance with GAAP.
"Interest Period" shall mean the period commencing on the date a Loan
is made, and ending, as the Borrower may select pursuant to Section 2.04: (a)
in the case of Base Rate Loans, 30 days thereafter; (b) in the case of LIBOR
Loans, on the numerically corresponding day in the first, second or third
calendar month thereafter, provided that each such Interest Period which
commences on the last Banking Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the
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last Banking Day of the appropriate calendar month.
"Knowledge" shall mean as to any natural person, the actual awareness
of the fact, event or circumstance at issue or proper delivery of notification
of such fact, event or circumstance at the place held out by such person as the
place for receipt of such communications and, as to any Person that is not a
natural Person, that (i) the fact, event or circumstance at issue is brought to
the attention of a Responsible Officer or (ii) notice has been delivered to such
Person in accordance with the provisions of this Agreement or any other Loan
Document; provided, however, that each such Person that is not a natural person
shall be deemed to have Knowledge of any fact, event or circumstance if such
fact, event or circumstance should have been known or would have been brought to
the attention of a Responsible Officer if the Person had exercised commercially
reasonable due diligence.
"Letter of Credit" shall have the meaning assigned to that term in
Section 2.13(a) hereof.
"LIBOR" shall mean the rate per annum equal to the London interbank
offered rate for U.S. dollar deposits determined by the Bank on the related
LIBOR Determination Date pursuant to Section 2.17 for a period of time
comparable to the number of days in the applicable Interest Period.
"LIBOR Business Day" shall mean any day that is both a Banking Day and
a day on which banking institutions in the City of London, England are not
required or authorized by law to be closed.
"LIBOR Determination Date" shall mean the second LIBOR Business Day
prior to the first day of the applicable Interest Period.
"LIBOR Loan" shall mean a Loan bearing interest at LIBOR.
"Loan" shall mean each separate advance of funds pursuant to Section
2.01 of this Agreement by the Bank to a Borrower.
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"Loan Amount" shall mean, with respect to each Loan hereunder, the
amount requested by the Borrower and approved by the Bank pursuant to Section
2.02(a) hereof.
"Loan and Security Agreement" shall mean the Loan and Security
Agreement, dated as of November 1, 1997, between the Bank and the Vistana
Timeshare Mortgage Corp.
"Loan Documents" shall mean, collectively, this Agreement, the Note,
the Guaranty and all other documents executed by the Borrowers or the Guarantors
in connection with this Agreement.
"Loan Request" shall mean a written request for a Loan hereunder,
consisting of a Notice of Loan together with all other documents required under
Section 4.09 hereof;
"LOC Commission" shall mean an amount equal to the product of (x) the
aggregate of the undrawn face amounts of all Letters of Credit issued hereunder
and (y) two hundred twenty-five (225) basis points per annum.
"LOC Fee" shall mean, with respect to each Letter of Credit issued,
five hundred dollars ($500).
"Material Adverse Effect" shall mean any set of circumstances or
events which (a) has, or would reasonably be expected to have, any material
adverse effect whatsoever upon the validity or enforceability of any Loan
Document or the Note; (b) is, or would reasonably be expected to be, material
and adverse to the condition (financial or otherwise) or business operations of
any Borrower and Significant Subsidiary taken as a whole or constitute grounds
for the revocation of any license, charter or permit material to the conduct of
such Person's business; and a liability incurred outside the ordinary course of
business of any Borrower or its respective Significant Subsidiary taken as a
whole in the amount of $100,000 or more shall be deemed such a material and
adverse effect unless such liability is (i) insured or (ii) satisfied within
thirty (30) days; provided, that the satisfaction of such liability would not
violate any other provision of this definition; (c) materially impairs, or could
reasonably be expected to materially impair, the
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ability of any Borrower or Guarantor to perform its obligations under any of the
Loan Documents; or (d) materially impairs, or would reasonably be expected to
materially impair, the ability of the Bank to enforce any of the remedies set
forth in any of the Loan Documents.
"Maturity Date" shall mean November 30, 2000; provided, however, that
on November 30th of each year commencing November 30, 1998, the Bank may (in its
sole discretion), upon written request of the Borrowers, delivered not later
than 45 days prior to the then current anniversary date, extend the Maturity
Date for a period of one year.
"Mortgage Loan" shall have the meaning assigned to such term in the
Loan and Security Agreement.
"Non-Utilization Fee" shall have the meaning set forth in Section 2.16
hereof.
"Note" shall mean the Line of Credit Note made by the Borrowers
pursuant to Section 2.02(b) hereof, payable to the order of the Bank in the form
of Exhibit A hereto.
"Notice of Loan" shall mean each notice of loan in the form of Exhibit
D hereto delivered by applicable Borrower to the Bank.
"Obligations" shall mean any and all of the obligations of the
Borrowers (including, without limitation, Reimbursement Obligations) under this
Agreement, each Letter of Credit issued hereunder, and any of the other Loan
Documents.
"Officer's Certificate" shall have the meaning assigned to that term
in Section 4.03 hereof.
"Outstanding Balance" shall mean on any date, the aggregate principal
amount of Loans made on or prior to such date which has not been repaid on or
prior to such date.
"Partial GAAP" shall mean GAAP with the exception that such financial
statements shall not contain consolidating and eliminating entries, disclosure
or footnotes.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" shall mean any single employer or multi-employer plan as
defined in Section 4001 of ERISA.
"Prime Rate" shall mean, for any day, the prime commercial lending
rate per annum of the Bank as publicly announced to be in effect from time to
time, such rate to be adjusted automatically, without notice, on the effective
date of any change in such rate.
"Property" shall mean goods and merchandise and any and all documents
relating thereto, securities, funds, choses in action, and any and all other
forms of property, whether real, personal or mixed and any other right or
interest therein.
"Raw Land" shall mean any undeveloped real property owned by any
Borrower for which such Borrower has not commenced development activities. A
Borrower shall be considered to have commenced development activities if the
Borrower has done any one or more of the following: (i) obtained project
specific development financing, (ii) entered into a formal commitment for the
development of such property, (iii) obtained a development permit for such
property, or (iv) obtained completed architectural renderings of such property.
"Real Property" shall have the meaning assigned to that term in
Section 5.12(a) hereof.
"Reimbursement Obligations" shall include all charges, costs and
expenses paid or incurred by the Bank in connection with drawings on the Letters
of Credit, including fees and charges of external counsel.
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"Remedial Work" shall have the meaning assigned to that term in
Section 5.12(b) hereof.
"Reportable Event" shall mean a Reportable Event as defined in section
4043(b) or 4063(a) of ERISA or the regulations promulgated thereunder, except
for those Reportable Events for which the PBGC has waived notice.
"Responsible Officer" shall mean the duly appointed chairman of the
board, the president, chief operating officer, chief executive officer, chief
financial officer, any executive vice president, any vice president, the
treasurer, any assistant treasurer, controller, assistant controller, the
secretary, or any assistant secretary of Vistana, the general partner of
Development, and after the transfer described in Section 8.02 hereof, of
Development.
"State" shall mean the State of New York.
"Significant Subsidiary" shall mean any Subsidiary that (A) is
required to be included on Vistana's consolidated financial statements, prepared
in accordance with Generally Accepted Accounting Principles and either (B) has a
Tangible Net Worth in excess of $2,000,000, measured from time to time as of the
end of the most recently completed Fiscal Quarter or (C) owns directly or
indirectly controlling interests in any entity that has a Tangible Net Worth in
excess of $2,000,000, measured from time to time as of the end of each Fiscal
Quarter. The term Significant Subsidiary shall (a) include any Significant
Subsidiary that has at any time satisfied the requirements of this definition
and executed a Guaranty but no longer has a Tangible Net Worth in excess of
$2,000,000 and (b) exclude all business trusts and other entities used for the
purposes of securitization of time share receivables, including, without
limitation, Vistana Timeshare Mortgage Corp., as the borrower under the
Warehouse Loan, and VTM Corp. created in connection therewith.
"Subsidiary" shall mean, as to any Person, any corporation or other
entity of which at least a majority of the securities (including shares arising
out of other securities convertible, at the option of the holder, into shares of
voting stock) or other ownership interests having ordinary voting power
(absolutely or contingently) for the election of directors or other
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persons performing similar functions are at the time owned directly or
indirectly by such Person; provided, however, that the term Subsidiary shall not
include Vistana WGV, Ltd. or Oak Plantation Joint Venture.
"Tangible Net Worth" means total shareholders' equity as shown on the
balance sheet of the entity in question (the balance sheet with regard to
Vistana, Inc. shall be prepared on a consolidated basis) determined in
accordance with GAAP with respect to either Borrower and determined in
accordance with Partial GAAP with respect to any other entity minus (i)
"capitalized fees", (ii) "covenant not to compete", (iii) unamortized "excess
value over consideration", each as shown on the balance sheet of the entity in
question (the balance sheet with regard to Vistana, Inc. shall be prepared on a
consolidated basis) determined in accordance with GAAP with respect to either
Borrower and determined in accordance with Partial GAAP with respect to any
other entity, and (iv) any other intangible asset (excluding, however, customer
mortgage receivables), determined in accordance with GAAP.
"Telerate Page 3750" shall mean the page so designated 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 nominated as the information vendor,
for the purpose of displaying London interbank offered rates of major banks.
"Timeshare Receivable Debt" shall mean at any date, Indebtedness of
any Borrower which is secured by a pledge of one or more Mortgage Loans to the
extent such Indebtedness does not exceed the principal amount of such Mortgage
Loans.
"Unused Commitment" shall mean, with respect to any day, the amount by
which (x) 100% of the Commitment exceeds (y) the sum of (A) Outstanding Balance
of all Loans, (B) the aggregate undrawn amount of all outstanding Letters of
Credit at such time and (C) the aggregate unpaid Reimbursement Obligations of
the Borrowers at such time in respect of any drawings under any Letters of
Credit.
"Vacation Ownership Interest" shall have the meaning assigned to the
term "Timeshare Interest" as such term is defined in the Loan and Security
Agreement.
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"VDL Minimum Net Worth" shall mean a minimum net worth of $25,000,000
as shown on Development's interim financial statements, prepared in accordance
with Development's current method of financial reporting and Development's year
end financial statements prepared in accordance with GAAP.
"VDL Minimum Net Earnings" shall mean pre-tax net income, not
including depreciation and provisions for loan loss, of not less than 15% of
gross revenue of Development (each as shown on the income statements of
Development for the current Fiscal Quarter and the three (3) previous Fiscal
Quarters, prepared in accordance with GAAP) and pre-tax net income of not less
than 5.0% of gross revenue of Development (each as shown on the income
statements of Development for the current Fiscal Quarter and the three (3)
previous Fiscal Quarters, prepared in accordance with GAAP).
"Vistana" shall mean Vistana, Inc.
"Warehouse Loan" shall mean that certain loan evidenced by the Loan
and Security Agreement.
SECTION 1.02. Accounting Terms. Except as otherwise herein
specifically provided, each accounting term used herein shall have the meaning
given to it under Generally Accepted Accounting Principles. "Generally Accepted
Accounting Principles" or "GAAP" shall mean those generally accepted accounting
principles and practices which are recognized as such by the American Institute
of Certified Public Accountants acting through its Accounting Principles Board
or by the Financial Accounting Standards Board or through other appropriate
boards or committees thereof, as in effect from time to time.
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ARTICLE II
THE LOANS AND THE LETTERS OF CREDIT
SECTION 2.01. The Loans. Subject to the Commitment and the terms and
conditions contained in this Agreement and provided that an Event of Default has
not occurred and is not continuing, the Bank agrees to make Loans to the
Borrowers from time to time and including the date hereof, but prior to the
Maturity Date in principal amounts not less than $500,000 and in multiples of
$100,000 in excess thereof and not to exceed the Unused Commitment. During such
period, the Borrowers may use the Commitment by borrowing, repaying, prepaying
and reborrowing, all in accordance with the terms and conditions of this
Agreement.
SECTION 2.02. Notice of Borrowing, Note and Maturity.
(a) When a Borrower desires to borrow hereunder, it shall give the
Bank at least two (2) Business Days prior irrevocable written notice of its
intention to borrow under this Article II by delivering to the Bank a Loan
Request (which may be delivered via properly addressed facsimile transmission
delivered by the requesting Borrower to the Bank), specifying the date of the
proposed borrowing (which shall be a Business Day), the amount to be borrowed,
which shall be not less than $500,000 or, if greater than $500,000 then in
multiples of $100,000 in excess thereof, whether the Loan is to be funded at the
Prime Rate, Federal Funds Rate or LIBOR, and if LIBOR, the Interest Period of
such LIBOR Loan. Any Loan Request received after 12:00 noon Eastern Time on any
Business Day shall be deemed to have been received by the Bank on the
immediately succeeding Business Day. If the Bank's computation of the Loan
Amount of any Loan shall conflict with the Borrower's computation thereof set
forth in the Loan Request or if the Bank shall disapprove of any of the
documents submitted by the requesting Borrower with the Loan Request for any
reason, then the Bank shall promptly inform an Authorized Representative of the
requesting Borrower by telephonic notice of the Bank's reasons for disapproval.
Such disapproval shall not prohibit resubmission of a corrected Loan Request.
(b) The Loans shall be evidenced by the Note. The Note shall be dated
the
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date set forth in Exhibit A hereto, shall be payable to the order of the Bank in
the principal amount of twenty million dollars ($20,000,000) or the aggregate
unpaid principal amount of all Loans made to the Borrowers by the Bank as shown
on the grid annexed to the Note, whichever is less, and shall be payable on the
Maturity Date. The date of each borrowing, the principal amount thereof, and the
aggregate principal amount of Loans outstanding thereunder shall be recorded by
the Bank on the schedule attached to the Note; provided, however, that the
failure of the Bank to record any such information shall not affect the
obligations of the Borrowers hereunder or under the Note. The aggregate unpaid
principal amount of Loans set forth on such schedule shall be presumptive
evidence of the principal amount owing and unpaid thereon.
(c) Each Loan shall be made at the Bank's office at 75 Wall Street,
New York, New York 10005, not later than the close of business on the second
Business Day after receipt and acceptance of the Loan Request with respect to
such Loan, by the Bank's crediting the requesting Borrower's Account or by wire
to the account designated by such Borrower, in each case in the principal amount
thereof.
(d) No more than six (6) Loans of all types and six (6) Letters of
Credit may be outstanding at any one time.
SECTION 2.03. Interest on Loans. Each Loan shall bear interest at
the Applicable Interest Rate for the applicable Interest Period from and
including the date such Loan is made to but not including the date such Loan is
repaid. Notwithstanding the foregoing, upon the earlier to occur of (i) an Event
of Default, and (ii) the Maturity Date, the Outstanding Balance of each Loan
shall bear interest at the applicable Default Rate.
SECTION 2.04. Interest Periods. In the case of each LIBOR Loan, the
requesting Borrower shall select an Interest Period of any duration in
accordance with the definition of Interest Period in Section 1.01, subject to
the following limitations: (a) no Interest Period may extend beyond the Maturity
Date; (b) no Interest Period for a LIBOR Loan shall have a duration less than
one month, and if any such proposed Interest Period would otherwise be for a
shorter period, such Interest Period shall not be available; and (c) if an
Interest Period would end on a day which is not a Banking Day, such Interest
Period shall be extended to the next
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Banking Day, unless, in the case of a LIBOR Loan, such Banking Day would fall in
the next calendar month in which event such Interest Period shall end on the
immediately preceding Banking Day.
SECTION 2.05. Interest Payments. Accrued interest shall be due and
payable (i) monthly in arrears with respect to Base Rate Loans on the last day
of each month, commencing November 30, 1997 and (ii) on the last day of the
Interest Period with respect to LIBOR Loans; provided that any interest which
accrues at the Default Rate shall be due and payable from time to time on demand
of the Bank.
SECTION 2.06. Repayment of Principal. On the Maturity Date, the
Borrowers shall pay the entire unpaid Outstanding Balance together with all
interest accrued thereon and all other sums due hereunder.
SECTION 2.07. Optional Prepayment; Breakage Costs. (a) At its
option, and upon not less than two (2) Business Days' prior written notice
(which may be delivered via properly addressed facsimile transmission delivered
by the respective Borrower to the Bank), any one or more Borrowers may prepay
the Outstanding Balance of any Loan (as designated by the applicable Borrower)
in whole at any time, or in part from time to time in a minimum amount of
$500,000, or, if greater than $500,000 then in multiples of $100,000 in excess
thereof, without premium or penalty, but with accrued interest on the principal
being prepaid to the date of such prepayment. Any prepayment of a LIBOR Loan
made prior to the expiration of the applicable Interest Period shall be made
together with such additional amounts, if any, as are due pursuant to Section
2.07(b) hereof.
(b) If any Borrower fails to borrow after irrevocable notice has been
given, or if any payment or prepayment of any LIBOR Loan, whether resulting from
acceleration or required or permitted by any provision of this Agreement, is
made or deemed made on a day other than the last day of its related Interest
Period, then such Borrower will pay to the Bank, upon demand, any loss, premium,
penalty or expense (not including lost profits) incurred by the Bank in
liquidating obligations to fund the prepaid Loan or in reinvesting the amount so
prepaid from the date of prepayment until the stated maturity of the prepaid
Loan; provided, however,
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that if the Bank shall incur such costs or receive income from a cancellation
with respect to more than one such Loan, only the net amount of such costs
(after application of such income) shall be payable to the Bank. Amounts prepaid
may be reborrowed provided that the aggregate amount of all outstanding Loans
shall at no time exceed the Commitment.
SECTION 2.08. Manner of Payment. Each payment and prepayment of
principal of the Note and each payment of interest on the Note shall be made by
wire transfer to the account designated by the Bank to the Borrowers not later
than 2:00 p.m., Eastern Time, on the date on which payable.
SECTION 2.09. Payments Generally. All payments under this Agreement
or the Note shall be made in lawful money of the United States, in immediately
available funds.
SECTION 2.10. Extension of Maturity. Should any installment of
interest or principal become due and payable on a day other than a Business Day,
the maturity thereof shall be extended to the next succeeding Business Day, and,
in the case of principal, shall be payable with interest accrued to such date.
SECTION 2.11. Late Payment Penalties. The Borrowers shall pay a
penalty on (i) any interest payment due under the Note, (ii) any LOC Commission
and (iii) any LOC Fee which is not received by the Bank within five (5) days
after the date when the same is due, in an amount equal to five percent (5%) of
the amount of such overdue payment.
SECTION 2.12. Computation of Interest and LOC Commission.
(a) Interest on the Note shall be computed (i) with respect to LIBOR
Loans, on the basis of a 360 day year, and paid for the actual number of days
elapsed and (ii) with respect to Base Rate Loans on the basis of a 365 or 366
day year, as the case may be, and paid for the actual number of days elapsed.
(b) The LOC Commission shall be computed on the basis of a 365 or 366
day year, as the case may be, and shall be due and payable monthly in arrears
commencing the last
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day of the first month in which a Letter of Credit is Issued and the last day of
each succeeding month in which a Letter of Credit is Outstanding based on the
actual number of days elapsed.
SECTION 2.13. The Letters of Credit.
(a) Subject to the Commitment and the terms and conditions set forth
in this Agreement, and provided that no Event of Default has occurred and is
continuing, the Bank agrees to issue commercial standby letters of credit each
of which shall be in an amount not less than $100,000 (each, a "Letter of
Credit") from time to time prior to the Maturity Date. Each such Letter of
Credit issued pursuant hereto shall be issued only for the account of either
Borrower but may be issued for the benefit of any escrow agent or other named
beneficiary named therein. Letters of Credit issued hereunder may be used for
any one or more of the following purposes: (i) to ensure the application or
return of initial deposits or additional deposits previously paid by purchasers
of Vacation Ownership Interests to a Borrower or an Affiliate of a Borrower and
held in escrow in connection with the purchase of such Vacation Ownership
Interest from a Borrower or an Affiliate of a Borrower and (ii) for other
corporate purposes normal and incidental to the conduct of any Borrower's
business. The maximum amount of all Letters of Credit which can be issued
hereunder shall not exceed the excess of (A) Twenty Million ($20,000,000)
Dollars over (B) the sum of (i) the aggregate undrawn amount of all Letters of
Credit outstanding at such time plus (ii) the aggregate unpaid Reimbursement
Obligations of the Borrowers at such time in respect of any drawings under any
Letters of Credit, plus (iii) the Outstanding Balance of all Loans. No more than
six (6) Letters of Credit may be outstanding at any one time.
(b) When a Borrower desires to request the issuance of a Letter of
Credit hereunder, it shall give the Bank not less than two (2) Business Days
prior irrevocable written notice of such request, specifying the face amount of
the requested Letter of Credit and the name and address of the beneficiary
thereof. The Bank shall issue such Letter of Credit within two (2) Business Days
after receipt and acceptance of such notice. The form of such request for a
Letter of Credit is attached hereto as Exhibit C.
(c) The requesting Borrower shall pay on account of each Letter of
Credit (i)
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the LOC Fee at the time such Letter of Credit is issued and (ii) the LOC
Commission, if any, monthly in arrears on the last day of each month, commencing
on the last day of the first month in which a Letter of Credit is issued.
(d) Each Borrower shall pay within two (2) Business Days after
receipt of written demand of all sums (including, without limitation, principal,
interest, penalties and premiums) which shall become due hereunder, with respect
to Reimbursement Obligations.
(e) The terms and conditions of each Letter of Credit issued
hereunder shall be specified in such Letter of Credit, the form of which is
attached hereto as Exhibit E and shall contain such conditions precedent to draw
and transfer as the Bank and Borrower shall mutually agree, if any. Each Letter
of Credit shall expire, pursuant to its terms, not less than twenty (20)
Business Days prior to the Maturity Date.
SECTION 2.14. Payments by Bank under Letters of Credit. After the
payment by the Bank to a beneficiary on account of a draw on a Letter of Credit,
the Bank shall give notice to the applicable Borrower and such payment shall,
for all purposes be treated as a Loan hereunder from the date of such payment;
provided, however, that the Bank shall use reasonable efforts to give such
notice to the applicable Borrower prior to payment thereof by the Bank and if
the Borrower on whose behalf the Letter of Credit is so paid has not selected
the type of Loan (Base Rate or LIBOR and the appropriate Interest Period) by
5:00 p.m. on the date of such payment, the applicable Borrower shall be deemed
to have selected a LIBOR Loan and an Interest Period of thirty (30) days;
provided, further, that any failure to give such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of such treatment.
SECTION 2.15. Illegality, Increased Cost, Capital Adequacy. In the
event that the Bank shall have determined that any applicable law, rule,
regulation or guideline regarding capital adequacy adopted after the date
hereof, or any change therein adopted after the date hereof, or any change
adopted after the date hereof in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any
lending office of the Bank) with any request or directive adopted after the date
hereof regarding capital adequacy
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(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder to a level
below that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank to be material, then, from
time to time, the Borrowers in their sole discretion shall either (i) pay upon
demand to the Bank such additional amount or amounts as will compensate the Bank
for such reduction or (ii) repay the Bank all Obligations hereunder upon 90 days
notice delivered to the Borrowers. In determining such amount or amounts, the
Bank may use any reasonable averaging and attribution methods. The protection of
this Section 2.15 shall be available to the Bank regard less of any possible
contention of invalidity or inapplicability of the law, regulation or condition
which shall have been imposed. The obligations of the Borrowers under this
Section 2.15 incurred prior to the date of termination of this Agreement shall
survive termination of this Agreement and payment of the Note.
SECTION 2.16. Non-Utilization Fees. A Non-Utilization Fee (the "Non-
Utilization Fee") shall accrue on the daily average Unused Commitment for the
period from and including the Closing Date to the Maturity Date at a rate per
annum equal to 0.375% calculated on the basis of a 365 or 366 day year, as the
case may be, for the actual number of days elapsed. The accrued Non-Utilization
Fee shall be due and payable monthly in arrears commencing on November 30, 1997
and on the last day of each succeeding month and immediately upon any
termination of the Commitment by written notice by any Borrower to the Bank.
SECTION 2.17. Determination of LIBOR. On each LIBOR Determination
Date, the Bank shall calculate LIBOR for the related Interest Period using the
following method. If the offered rate for United States dollar deposits for one,
two or three months (as applicable and as selected by the applicable Borrower
pursuant to Section 2.04 hereof) appears on Telerate Page 3750 as of 11:00 A.M.,
London Time, on such LIBOR Determination Date, LIBOR for the related Interest
Period shall be such rate as it appears on Telerate Page 3750. If such rate does
not appear on Telerate Page 3750 on any LIBOR Determination Date, the Bank will
request each of the reference banks (which shall be major banks that are engaged
in transactions in the London interbank market selected by the Bank) to provide
the Bank with its offered quotation for United
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States dollar deposits for one, two or three months (as applicable) to prime
banks in the London interbank market as of 11:00 A.M., London time, on such
date. If at least two reference banks provide the Bank with such offered
quotations, LIBOR on such date will be the arithmetic mean, rounded upwards, if
necessary, to the nearest one-sixteenth (1/16) of 1% of the offered per annum
rates that one or more leading banks in the City of New York selected by the
Bank are quoting as of 11:00 A.M., New York City time, on such date to leading
European banks for United States dollar deposits for one, two or three months
(as applicable). If such banks in the City of New York are not quoting as
provided above, LIBOR for such date will be as determined by the Bank using such
method as it shall deem reasonable under the circumstances. The establishment of
LIBOR by the Bank in the absence of manifest error, shall be final and binding.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
Each of the Borrowers hereby represents and warrants to the Bank that:
SECTION 3.01. Organization; Power; Authorization. Each Borrower, and
each Significant Subsidiary of each Borrower, is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, and is duly qualified to transact business in each
state where the character of its properties or the nature of the business
conducted by it makes such qualification necessary, except where failure to do
so would not have a Material Adverse Effect. Each Borrower has the power,
authority, franchises and licenses to borrow hereunder and has the power,
authority, franchises and licenses (a) to own its Property and assets and to
carry on and conduct its business except where failure to do so would not have a
Material Adverse Effect and (b) to execute and deliver this Agreement, the Note,
and all other Loan Documents to which it is a party (the "Borrower Loan
Documents") and to perform each and every one of its obligations hereunder and
thereunder. Each Significant Subsidiary of each Borrower has the power,
authority, franchises and licenses to own its properties and assets and to carry
on and conduct its business, except where failure to do so would not have a
Material Adverse Effect. The execution, delivery and performance by the
Borrowers of this Agreement, the Note and each of the other Borrower Loan
Documents have been duly authorized by all requisite action.
SECTION 3.02. No Conflict with, Violation of or Default under Laws or
other Agreements. Neither the execution or delivery of this Agreement or any
other Borrower Loan Document, nor the consummation of the transactions
contemplated hereby or thereby, nor the compliance with or performance of the
terms and conditions of this Agreement or any other Borrower Loan Document by
any Borrower (a) is prevented or limited by, conflicts with, or will result in
the breach or violation of, or a default under the terms, conditions or
provisions of (and with respect to any Borrowing Date after the Closing Date,
where such breach, violation or default would have a Material Adverse Effect)
(i) any mortgage, security agreement, lease, indenture, evidence of
indebtedness, loan or financing agreement, partnership agreement, certif-
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icate of incorporation, by-laws or other agreement or instrument to which any
Borrower or any of its respective Subsidiaries is a party or by which it is
bound or (ii) any provision of law, any order of any court or administrative
agency or any rule or regulation applicable to any Borro wer or any of its
respective Subsidiaries or their respective businesses; (b) requires any conse
nt or approval of any of the stockholders, partners or members of any Borrower
or any of its respective Subsidiaries which has not been obtained; or (c) will
result in the creation or imposition of any lien, upon or with respect to any
assets now owned or hereafter acquired by any Borrower or any of its respective
Subsidiaries. Neither of the Borrowers nor any Signifi cant Subsidiary of any
Borrower is in default beyond any applicable grace period under, or in violation
of, any of its obligations under any contract, agreement or undertaking to which
it is a party or by which it is bound where such default would have a Material
Adverse Effect.
SECTION 3.03. Litigation; Official Approvals. Except as shown on
Schedule III hereto, there is no action, proceeding or investigation pending or
threatened against any Borrower or any Significant Subsidiary of any Borrower
before any court or administrative agency that if adversely determined would (i)
in any case or in the aggregate have a Material Adverse Effect on its ability to
perform its obligations under the Borrower Loan Documents or the other Loan
Documents, (ii) involve the possibility of any judgment or liability which is
uninsured in an amount that would have a Material Adverse Effect, (iii) affect
the enforceability of the Borrower Loan Documents; or (iv) have a Material
Adverse Effect on any Borrower or any of its respective Significant
Subsidiaries. All authorizations, consents and approvals of govern mental bodies
and agencies required in connection with the execution and delivery of the
Borrower Loan Documents and the performance by each of the Borrowers of their
respective obligations hereunder and thereunder have been obtained.
SECTION 3.04. Information and Financial Data Accurate; Financial
Statements; No Adverse Changes. (a) All information and financial and other data
delivered to the Bank by any Borrower or Guarantor in connection with or as an
inducement to the Bank to enter into this Agreement and the transactions
contemplated hereby (collectively, the "Application") relating to each of the
Borrowers and each of their respective Subsidiaries, is true, correct and compl
ete as of the Closing Date and no information has been omitted therefrom which
would make the Application misleading in any material respect. The financial
statements of the Borrowers and
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the Guarantors dated December 31, 1996, June 30, 1997 and September 30, 1997
included in the Application or otherwise supplied to the Bank (a) present
fairly the financial position of each Borrower as at their respective dates and
the results of operations and cash flows for the periods to which they apply and
(b) with respect to the financial statements of Borrowers for any Fiscal Year
have been prepared in conformity with Generally Accepted Accounting Principles
and with respect to Guarantors have been prepared in accordance with Partial
GAAP, each applied on a consistent basis throughout the periods involved. Since
September 30, 1997, there has not been any material adverse change in the
condition (financial or otherwise), assets, liabilities, business, property or
operations of the Borrowers or any of their Significant Subsidiaries. The
financial statements referred to in Section 4.05(d)-(e) hereof accurately
reflect the financial position of each Borrower as of the date thereof and there
has been no change since the date thereof which would have a material adverse
effect on each of the Borrowers or any of their respective Significant
Subsidiaries.
(b) Except as fully reflected on the financial statements referred to
in 3.04(a), there will be as of the Closing Date no liabilities or obligations
with respect to any Borrower or any of its respective Significant Subsidiaries
of any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in the aggregate, would be
material to the Borrowers or to the Borrowers and their respective Significant
Subsidiaries taken as a whole. Except as set forth in Schedule II, as of the
Closing Date the Borrowers have no Knowledge of any basis for the assertion
against the Borrowers or any of their respective Significant Subsidiaries of any
liability or obligation of any nature whatsoever that is not fully reflected in
the financial statements referred to in Section 3.04(a) which, either
individually or in the aggregate, could have a Material Adverse Effect on any
Borrower.
SECTION 3.05. Title to Assets. Each of the Borrowers and each of
their respective Significant Subsidiaries has good and marketable title to its
Property and assets, including the properties and assets reflected in the
financial statements referred to above. Such properties and assets are not
subject to any mortgage, pledge, lien, lease, encumbrance or charge, except
those expressly permitted under the terms of this Agreement or as are disclosed
in the consolidated financial statements of Vistana, Inc. or would not have a
Material Adverse Effect.
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SECTION 3.06. Taxes. With respect to all taxable periods of the
Borrowers, each of the Borrowers and each of their Significant Subsidiaries has
filed (or has requested extensions of the time within which to file) returns for
all federal, state, local and other taxes which are required to be filed except
where failure to file would not have a Material Adverse Effect, and taxes shown
to be due and payable on such filed returns have been paid or have been reserved
against as required by Generally Accepted Accounting Principles, and each
Borrower knows of no currently due and payable assessment against it or against
any of its Subsidiaries which is unpaid and where failure to pay would have a
Material Adverse Effect. All of such returns are true, correct and complete in
all material respects.
SECTION 3.07. Agreements Legal, Valid, Binding and Enforceable. This
Agreement, the Note and the other Borrower Loan Documents have been duly
executed and delivered by, and are the legal, valid and binding obligations of,
each of the Borrowers, enforceable against each of the Borrowers in accordance
with their respective terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of the creditors' rights generally and by gener
al equitable principles (regardless of whether the issue of enforceability is
considered in a preceding in equity or at law).
SECTION 3.08. No Untrue Statements. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrowers in writin g to the Bank (including without limitation the
representations, statements and warranties of each Borrower set forth in this
Agreement and the other Borrower Loan Documents) in all material respects (a)
are true, correct and complete, (b) do not contain any untrue statement of a
material fact, and (c) do not omit to state a material fact necessary in order
to make the statements con tained herein or therein not misleading or
incomplete. Each Borrower understands that all such statements, representations
and warranties have been relied upon as an inducement by the Bank to enter into
this Agreement and the transactions contemplated hereby.
SECTION 3.09. Employee Benefit Plans. The Borrowers and each of
their respective Subsidiaries are in compliance in all material respects with
the applicable provisions of
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ERISA and the regulations and published interpretations thereunder, and neither
the Borrowers nor any of their respective Subsidiaries have received, and the
Borrowers have no reason to believe that it or any of their respective
Subsidiaries will receive, any notification of non-compliance thereunder. No
Reportable Event has occurred with respect to any Plan administered by the
Borrowers or any of their respective Subsidiaries or any administrator
designated by the Borrowers or any of their respective Subsidiaries. With
respect to each Plan: (i) the Borrowers and each of their respective
Subsidiaries have made all payments due from them to date, and all amounts
properly accrued to date as liabilities of the Borrowers and each of their
respective Subsidiaries, which have not been paid, have been properly recorded
on the books of the Borrowers and each of their respective Subsidiaries; (ii) no
such Plan which is subject to section 302 of ERISA or section 412 of the Code
has incurred any "accumulated funding deficiency" (as defined in either such
section), whether or not waived; (iii) the Borrowers and each of their
respective Subsidiaries have complied with and each such Plan conforms to all
applicable laws and regulations, including but not limited to ERISA and the
Code; (iv) each such Plan which is a pension plan intended to qualify under
section 401(a) or 403(a) of the Code has received a favorable determination
letter form the Internal Revenue Service with respect to such qualification, its
related trust has been determined to be exempt from taxation under section
501(a) of the Code and nothing has occurred since the date of such letter that
would adversely affect such qualification or exemption; and (v) there are no
actions, suits or claims pending (other than routine claims for benefits) or, to
the knowledge of the Borrowers, threatened with respect to any Plan or against
the assets of any Plan. Neither the Borrowers nor any of their respective
Subsidiaries nor any Plan administered by the Borrowers or any of their
respective Subsidiaries have engaged in any Prohibited Transaction within the
meaning of section 405 of ERISA and section 4970 of the Code for which the
Borrowers or any of its Subsidiaries may incur liability.
SECTION 3.10. Use of Proceeds. Neither the Borrowers nor any of
their respective Subsidiaries is engaged principally in, nor has as one of its
important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System of the United States, as
amended to the date hereof). If requested by the Bank, the Borrowers and each
of their respective Subsidiaries will furnish to the Bank a statement on Federal
Reserve Form U-1.
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SECTION 3.11. Subsidiaries. The Borrowers have no Subsidiaries other
than as set forth on Schedule I hereto. Schedule I is a complete and accurate
list of the Subsidiaries of the Borrowers, if any, showing the jurisdiction of
incorporation or formation of each Subsidiary, the percentage of each Borrower's
ownership of the outstanding stock or other interest of each such Subsidiary and
the jurisdiction of such Subsidiary's headquarters/chief executive office. All
of the outstanding capital stock or other interest of each such Subsidiary has
been validly issued, is fully paid and nonassessable and is owned by each
Borrower free and clear of all liens.
SECTION 3.12. Compliance. Neither the Borrowers nor any of their
respective Significant Subsidiaries is in default with respect to any order,
writ, injunction or decree of any court or of any federal, state, municipal or
other governmental department, commission, board, bureau, agency, authority or
official or, to the knowledge of the Borrowers, in violation of any law
(including, without limitation, any Environmental Law), statute, rule or
regulation to which it or its properties is or are subject in either case, where
the default would have a Material Adverse Effect. Neither the Borrowers nor any
of their respective Significant Subsidiaries is in default beyond any applicable
grace period in the payment or performance of any of its obligations or in the
performance of any mortgage, indenture, lease, contract or other agreement to
which it is a party or by which it or any of its assets or properties are bound
where such default would have a Material Adverse Effect.
SECTION 3.13. Burdensome Obligations. Neither the Borrowers nor any
of their respective Subsidiaries is a party to or bound by any franchise,
agreement, deed, lease or other instrument, or subject to any charter, by-law or
other restriction not customary in the timeshare or hospitality industry which
is so unusual or burdensome that it will have a Material Adverse Effect on any
Borrower. Neither the Borrowers nor any of their respective Subsidiaries have
any obligation of any kind (to the Borrower's Knowledge whether fixed, accrued,
contingent, unmatured or otherwise) that will have a Material Adverse Effect on
any Borrower. The Borrowers do not presently anticipate that future expenditures
needed to meet the provisions of federal or state statutes, orders, rules or
regulations will be so burdensome as to have a Material Adverse Effect on the
Borrowers or any of their respective Significant Subsidiaries.
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SECTION 3.14. Trademarks, Patents, etc. Except as disclosed in
Schedule IV, the Borrowers and each Subsidiary of the Borrowers have the legal
right to use all the trademarks, trade names, copyrights, licenses, or rights in
any thereof, adequate in all material respects for the conduct of its business
as now conducted and presently proposed to be conducted, without conflict with
the rights or claimed rights of others, except where such conflict or claim
would not have a Material Adverse Effect. Neither the Borrowers nor any of their
respective Subsidiaries within the four year period preceding the date hereof
have received any notice of any deemed rights of others with respect to the
foregoing which is inconsistent with a Borrower's or Subsidiary's use thereof
and which would have a Material Adverse Effect.
SECTION 3.15. Labor Matters. Neither the Borrowers nor any of their
respective Significant Subsidiaries have experienced any strike, labor dispute,
slowdown or work stoppage due to labor disagreements which would have a Material
Adverse Effect on either Borrower or such Significant Subsidiary's business or
condition, financial or otherwise, and, to the best knowledge of the Borrowers,
there is no such strike, dispute, slowdown or work stoppage threatened against
any Borrower or any of its respective Significant Subsidiaries.
SECTION 3.16. Investment Company Act. Neither of the Borrowers nor
any of their respective Significant Subsidiaries are "investment companies"
within the meaning of the United States Investment Company Act of 1940.
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ARTICLE IV
CONDITIONS OF LENDING
The obligation of the Bank to make Loans hereunder and to issue
Letters of Credit hereunder is subject to execution and delivery to the Bank of
this Agreement, the Note, the Guaranty and each other Loan Document, and with
respect to Loans made and Letters of Credit issued on the Closing Date to
fulfillment of and compliance with all of the conditions precedent contained in
this Article and with respect to Loans made and Letters of Credit issued on any
Borrowing Date thereafter to the fulfillment of and compliance with Sections
4.08, 4.09 and 4.10.
SECTION 4.01. Representations and Warranties. The representations
and warranties set forth in Article III hereof shall be true and correct on and
as of the Closing Date and each Borrowing Date, with the same effect as though
each such representation and warranty had been made on and as of each such date
in all material respects, except for any representation or warranty limited by
its terms to a specific date and taking into account any amendments thereto as a
result of any written disclosures made by the applicable Borrower to Bank after
the date hereof and approved in writing by Bank.
SECTION 4.02. No Default. On the Closing Date and on each Borrowing
Date, the Borrowers and each of their respective Significant Subsidiaries shall
be in compliance with all the terms and provisions set forth herein and under
all other Loan Documents on their respective parts to be observed or performed
and no Event of Default specified in Article IX hereof, nor any event of which
any Borrower has Knowledge which upon notice or lapse of time or both would
constitute such an Event of Default, shall have occurred and be continuing as of
the Closing Date or such Borrowing Date.
SECTION 4.03. Officer's Certificate. On the Closing Date and on each
Borrowing Date, the Bank shall have received a certificate in the form attached
hereto as Exhibit D-2, dated such date, and signed by an Executive Officer of
the applicable Borrower to the effect that such Borrower is in compliance with
the conditions precedent set forth in Sections 4.01, 4.02
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and 4.04 (an "Officer's Certificate").
SECTION 4.04. Litigation. On the Closing Date and on each Borrowing
Date, there shall be no action, suit, arbitration or other proceeding, inquiry
or investigation, at law or in equity, or before or by any court, public board
or body, arbitrator or arbitral body, pending against any Borrower or any of
their respective Significant Subsidiaries, of which any Borrower has otherwise
received official notice or, which to the Knowledge of any Borrower, is
threatened against such Person, wherein any other Person is challenging any of
the transactions contemplated by this Agreement or any of the other Loan
Documents or wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect on the ability of any Borrower or any of its respective
Significant Subsidiaries to perform their respective obligations under the Loan
Documents to which they are a party.
SECTION 4.05. Supporting Documents. Prior to the Closing Date, the
Bank shall have received (a) copies of the Certificate of Incorporation or other
organizational document of each Borrower and the organizational document of each
Guarantor, as amended, certified by the Secretary of State of its jurisdiction
of incorporation or formation; (b) a certificate of the Secretary of State of
its jurisdiction of incorporation or formation, and the Secretary of State of
each other state in which such Borrower or Guarantor is transacting any material
amount business as to the good standing of such Borrower and each Guarantor in
those respective states, each dated a recent date; (c) a certificate of an
Authorized Representative of each Borrower and Guarantor dated the Closing Date
and certifying (i) that (A) attached thereto is a copy of the By-laws,
partnership agreement or operating agreement of such Borrower or Guarantor in
existence as of the date of such certificate and since the day before the date
of the resolutions or other authorization referenced in clause (ii) below, and
(B) there have been no amendments to the Certificate of Incorporation or other
organizational document of such Borrower since the date of the last amendment
thereto indicated on the certificates of the Secretary of State furnished
pursuant to clause (a) above; (ii) that attached thereto is a true and complete
copy of resolutions or other authorization adopted by the Board of Directors or
other governing body of such Borrower and Guarantor authorizing the execution
and delivery of the Loan Documents executed by such Borrower or Guarantor; (iii)
that attached thereto is the incumbency and specimen signature of the Authorized
Representative of such Borrower and Guarantor executing the
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respective Loan Documents executed by such Borrower or Guarantor and any other
documents and instruments furnished pursuant hereto or thereto and a
certification by another officer of such Borrower or Guarantor as to the
incumbency and signature of the Authorized Representative of each Borrower or
Guarantor; (d) the audited annual financial statements for the Borrowers (and
Guarantors, if separately shown, prepared in accordance with Partial GAAP) for
the Fiscal Year ending December 31, 1996 and (e) quarterly financial statements
of the Borrowers (and Guarantors, if separately shown, prepared in accordance
with Partial GAAP) for the Fiscal Quarter ending June 30, 1997 and the quarterly
financial statements for the most recent Fiscal Quarter thereafter, if
available.
SECTION 4.06. Opinion of Counsel for the Borrowers and Guarantor. On
the Closing Date, the Bank shall have received the favorable written opinion of
counsel to the Borrowers and Guarantor, dated the Closing Date, substantially in
the form annexed hereto as Exhibit B.
SECTION 4.07. Approval of Counsel for the Bank. All legal matters
incident to this Agreement shall be satisfactory to the Bank and its counsel,
and the Borrowers shall have paid the fees and expenses of counsel to the Bank
incurred in connection with the preparation, negotiation and execution of the
Loan Documents and the transactions contemplated by this Agreement.
SECTION 4.08. Other Documents. On or prior to the Closing Date and
each Borrowing Date, the Bank shall have received any additional documents,
affidavits, certificates reports, statements, opinions of counsel, wiring
instructions, confirmation of billing addresses and taxpayer identification
numbers, documents or further information regarding this Agreement, any Loan, or
the Note or the business, assets, liabilities, financial condition, results of
operations or business prospects of any Borrower, any Guarantor or any other
Person as it may reasonably require, including evidence satisfactory to the Bank
that all federal and state statutes, regulations, rules and orders, applicable
to the Bank, have been complied with in connection with its execution and
delivery of this Agreement and the other Loan Documents and the performance of
the obligations thereunder.
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SECTION 4.09. Additional Conditions to Each Loan. Not less than two
(2) Business Days prior to the making of each Loan hereunder the Bank shall have
received, in each case in form and substance satisfactory to the Bank and its
counsel:
(a) A Notice of Loan;
(b) An Officer's Certificate dated as of the date of such Loan
Request;
(c) The Guaranty, substantially in the form of Exhibit F hereto, by
each Significant Subsidiary which has become a Significant
Subsidiary after the Closing Date and an opinion of Counsel,
substantially in the form of Exhibit B hereto, with respect to
such Guarantor and Guaranty; provided , however, that each
Significant Subsidiary shall not be required to re-execute such
Guaranty or provide such opinion with each subsequent Loan; and
(d) Such other information or documentation as the Bank may
reasonably request in connection with such requested Loan.
Each Loan Request shall constitute a representation and warranty by
the applicable Borrower made as of the time of the making of the requested Loan
that the conditions specified herein have been fulfilled as of such time.
SECTION 4.10. Additional Conditions to Each Letter of Credit. Not
less than two (2) Business Days prior to the issuance of each Letter of Credit,
the Bank shall have received, in each case in form and substance satisfactory to
the Bank and its counsel:
(a) An Officer's Certificate dated as of the date of such request for
a Letter of Credit;
(b) Payment of the LOC Fee, any due and unpaid Reimbursement
Obligations and any due and unpaid LOC Commission;
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(c) The Guaranty, substantially in the form of Exhibit F hereto, by
each Significant Subsidiary which has become a Significant
Subsidiary after the Closing Date and an opinion of Counsel,
substantially in the form of Exhibit B hereto, with respect to
such Guarantor and Guaranty; provided, however, that each
Significant Subsidiary shall not be required to re-execute such
Guaranty or provide such opinion with each subsequent issuance
of a Letter of Credit; and
(d) Such other information or documentation as the Bank may
reasonably request in connection with the issuance of such
Letter of Credit.
Each request for the issuance of a Letter of Credit shall constitute a
representation and warranty by the applicable Borrower made as of the time of
the request for the issuance of a Letter of Credit that the conditions specified
herein have been fulfilled as of such time.
SECTION 4.11. Compliance. As soon as available, and in any event
within fifteen (15) days after the required filing date of each Quarterly Report
on Form 10-Q, each Borrower shall, commencing with the Quarterly Report for the
Fiscal Quarter beginning on October 1, 1997, deliver to the Bank: (i) an
Officer's Certificate and (ii) a certificate of a Responsible Officer
certifying that, as of the end of the preceding Fiscal Quarter, such Borrower is
in compliance with the covenants set forth in Article VI and Article VII hereof,
as applicable, and showing the calculations involved in the determination
thereof.
SECTION 4.12. Execution of Related Documents. On or prior to the
Closing Date, the Loan and Security Agreement shall have been executed and
delivered to the Bank.
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ARTICLE V
AFFIRMATIVE COVENANTS OF EACH OF THE BORROWERS
Each Borrower covenants and agrees that, unless the Bank otherwise
consents in writing, so long as this Agreement shall remain in effect or the
Note, any Letter of Credit, any Reimbursement Obligation, or any of the other
Obligations shall be outstanding, each Borrower shall, and shall cause each of
its respective Significant Subsidiaries to:
SECTION 5.01. Corporate Existence. Do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises and comply with all laws applicable to it and at all times be
qualified to do business in the jurisdictions where it is required to be so
qualified, except where failure to comply would not have a Material Adverse
Effect and except as provided in Section 8.02 hereof with respect to
Development.
SECTION 5.02. Payment of Debts. Pay its debts, liabilities and
obligations when due, except those which are contested in good faith by it and
for which it has maintained adequate reserves reasonably satisfactory to the
Bank, provided that such contest shall not result in a lien being placed on any
of its assets in excess of the amount reserved or result in such assets or any
part thereof being subject to imminent forfeiture.
SECTION 5.03. Accounts and Records. Keep and maintain full and
accurate accounts and records in accordance with Generally Accepted Accounting
Principles, consistently applied; provided, however, that with respect to any
Subsidiary, such Subsidiary shall keep and maintain full and accurate accounts
and records consistently applied.
SECTION 5.04. Payment of Taxes and Claims. Prepare and timely file
all federal, state and local tax returns required to be filed by it and pay and
discharge all taxes, assessments and other governmental charges or levies
imposed upon it or in respect of any of its property and assets as and when they
become due and payable, as well as all lawful claims (including, without
limitation, claims for labor, materials and supplies) which, if unpaid, might
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become a lien or charge upon its property and assets or any part thereof, except
(i) where failure to timely file or pay would not have a Material Adverse Effect
and (ii) except those which are contested in good faith by it and for which it
has maintained adequate reserves satisfactory to the Bank; provided that such
contest shall not result in a lien being placed on its Property in excess of the
amount reserved or any part thereof being subject to imminent forfeiture. Each
Borrower and each of its respective Significant Subsidiaries shall establish, to
the extent necessary, reserves which are reasonably believed by the Auditors to
be adequate for the payment of additional taxes for years which have not been
audited by the respective taxing authorities.
SECTION 5.05. Compliance with Law. Comply in all material respects
with all applicable federal, state, county and municipal laws, ordinances,
rules, orders and regulations (including, without limitation, Environmental
Laws) now in force or hereafter enacted and with all writs, injunctions and
decrees of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency, authority or official, except
where failure to comply would not have a Material Adverse Effect.
SECTION 5.06. Contract and Lease Obligations. Comply in all material
respects with all requirements of all contracts and leases to which it is a
party or by which it is bound, except where failure to comply would not have a
Material Adverse Effect.
SECTION 5.07. Financial Statements. Furnish, or cause to be
furnished, to the Bank the following financial statements:
(a) As soon as available and in any event within fifteen (15) days
after the required filing date of each Quarterly Report on Form 10-Q, interim
financial statements of the Borrower and Guarantor (on a consolidated basis for
Vistana with each of its Subsidiaries) (including a balance sheet, statements of
income, retained earnings and cash flows) to include in comparative form the
corresponding figures for the corresponding period of the preceding Fiscal Year,
in form and substance reasonably satisfactory to the Bank, and certified by an
Executive Officer of each Borrower or Guarantor;
(b) As soon as available and in any event within fifteen (15) days
after the
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required filing date of each Annual Report on Form 10-K copies of the annual
audited financial statements of such Borrower and where available financial
statements for each Guarantor (on a consolidated basis (for Vistana) with each
of its Subsidiaries) (including a balance sheet, statements of income, retained
earnings, cash flows and footnotes), to include in comparative form the
corresponding figures for the preceding Fiscal Year, in form and substance
reasonably satisfactory to the Bank, prepared by KPMG Peat Marwick or other
independent certified public accountants of nationally recognized standing,
selected by such Borrower or Guarantor and acceptable to the Bank (the
"Auditors"), together with the Auditor's management letter as and when issued,
together with the unqualified opinion of such Auditors to the effect that such
financial statements present fairly the consolidated financial position of such
Borrower and Guarantor as at their respective dates and results of operations
and cash flows for the respective periods to which they apply, in accordance
with Generally Accepted Accounting Principles, together with such other
information in connection with the financial statements supplied pursuant to
this subsection as the Bank reasonably may request;
(c) Concurrently with the delivery of the statements set forth in (b)
above, a certificate of the Auditors stating that they have calculated the
covenants set forth in Article VI and Article VII hereof (excluding Section
6.06) and, based on the information contained in the financial statements,
stating whether as a result of such calculations an Event of Default under such
covenants exists and if so, stating the facts with respect thereto, and
concurrently with the delivery of the statements set forth in (a) and (b) above,
a certificate dated the date of delivery of such statements, and signed by an
Executive Officer of each Borrower to the effect that (i) all representations
and warranties set forth in Article III of this Agreement are true, correct and
complete as of the date of the certificate as though each such representation
and warranty had been made on and as of the date of the certificate as though
such date is a Borrowing Date, except for any representation or warranty limited
by its terms to a specific date and taking into account any amendments thereto
as a result of any written disclosures made by the applicable Borrower to Bank
after the date hereof and approved in writing by Bank; (ii) such Borrower has
complied with all of the requirements in the Loan Documents required to be
performed or complied with by it on or prior to the date of the certificate; and
(iii) no Event of Default, or any condition, event or act which with the giving
of notice or the lapse of time, or both, would constitute an Event of Default,
exists under this Agreement or any of the Loan Documents;
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(d) Promptly upon request by the Bank, copies of all documents filed
with any governmental agencies and/or shareholders relating to the business of
any Borrower or any of its respective Subsidiaries, as the Bank reasonably may
request, other than any such reports, information statements and/or documents
prepared and/or submitted solely in the ordinary course of each of the Borrowers
or such Subsidiary's business;
(e) Promptly upon request by the Bank, copies of all reports, forms,
information statements and/or documents filed with the PBGC with respect to any
Plan of any Borrower or any of its respective Subsidiaries, other than any such
reports, forms, information statements and/or documents prepared and/or
submitted solely in the ordinary course of such Borrower's or Subsidiary's
business;
(f) Promptly upon request by the Bank, information and schedules
relating to all other indebtedness and obligations of the Borrowers or any of
their respective Subsidiaries as the Bank reasonably may request; and
(g) As soon as practicable, any other information regarding the
operations, business, affairs and condition (financial or otherwise) of the
Borrowers or any of their respective Subsidiaries, as the Bank reasonably may
request.
SECTION 5.08. Access to Books and Records. Permit the Bank, and its
duly authorized agents, officers and independent auditors, during normal
business hours and upon twenty (20) Business Days prior notice (except upon the
occurrence of an Event of Default, in which circumstance no notice shall be
required) to (a) examine the books and records of any Borrower and each of its
respective Subsidiaries and to make copies and extracts therefrom, and (b)
discuss the affairs, finances and accounts of any Borrower, and/or any of its
respective Subsidiaries with, and be advised as to the same by, their respective
officers, as shall be relevant to the performance or observance of the terms,
covenants or conditions of this Agreement or the financial condition of such
Borrower, and/or any of its respective Subsidiaries.
SECTION 5.09. Notification of Event of Default. (a) Give prompt
written
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notice to the Bank of (i) any Event of Default or of any condition, event or act
which with the giving of notice or the lapse of time, or both, would constitute
an Event of Default, specifying the same and the steps being taken to remedy the
same and (ii) any default, event of default or any condition, event or act
which, with the giving of notice or the lapse of time or both, would constitute
such a default or event of default under any other agreement or contract to
which any Borrower or any of its respective Subsidiaries is a party or by which
any of its property or assets is bound which would have a Material Adverse
Effect on the business or condition (financial or otherwise) of any Borrower or
any of its respective Significant Subsidiaries.
(b) Promptly notify the Bank in writing of (i) any change in the business
or the operations which may be materially adverse to any Borrower or any of its
respective Significant Subsidiaries, disclosing the nature thereof, and (ii) any
information which indicates that any financial statements which are the subject
of any representation contained in this Agreement, or which are furnished to the
Bank in connection with this Agreement, fail, to any material extent, to present
fairly the financial condition and results of operations purported to be
presented therein, disclosing the nature thereof.
SECTION 5.10. Certificate of No Default. Upon twenty (20) days prior
request by the Bank, an Authorized Representative of each Borrower shall
execute, acknowledge and deliver to the Bank a certificate of such Authorized
Representative stating whether or not an Event of Default or any condition,
event or act which, with the giving of notice or the lapse of time, or both,
would constitute an Event of Default has occurred, and if any such condition,
event or act exists, specifying the facts with respect thereto and whether same
has been cured and/or the steps being taken to remedy the same.
SECTION 5.11. Notification of Litigation and Adverse Business
Development. Give prompt written notice to the Bank of (i) any action,
proceeding or investigation pending or threatened against any Borrower or any of
its Significant Subsidiaries before any court or governmental instrumentality or
other administrative agency which involves the possibility of any judgment or
liability which would have a Material Adverse Effect on either Borrower, either
individually or in the aggregate, or (b) any change in the financial condition,
assets, liabilities, business or operations of any Borrower which would have a
Material Adverse Effect.
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SECTION 5.12. Environmental Matters. (a) Keep and maintain all real
property owned or leased by it ("Real Property") in compliance in all material
respects with all Environmental Laws (as defined below).
(b) In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature (the
"Remedial Work") with respect to the Real Property is required to be performed
by any Borrower under any applicable local, state or federal law or regulation,
any judicial order, or by any governmental or nongovernmental entity or Person
because of, or in connection with, the current or future presence, suspected
presence, release or suspected release of a Hazardous Substance (as defined
below) in or into the air, soil, ground-water, surface water or soil vapor at,
on, about under or within the Real Property (or any portion thereof), the
Borrowers shall within thirty (30) days after written demand for performance
thereof by the Bank (or such shorter period of time as may be required under any
applicable law, regulation, order or agreement), commence and thereafter
diligently prosecute to completion, all such Remedial Work.
(c) As used in this Section 5.12, (i) "Environmental Law" means any
federal, state or local law, statute, ordinance, or regulation pertaining to
health, industrial hygiene, or the environmental conditions on, under or about
the Real Property, and (ii) the term "Hazardous Substance" means those
substances included within the definitions of "hazardous substances", "hazardous
materials", "toxic substances", or "solid waste" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended 42
U.S.C. (S) 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. (S) 6901 et seq. and the Hazardous Materials Transportation Act, 49
U.S.C. (S)(S) 1801 et seq., and in the regulations promulgated pursuant to said
laws, and such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or which are classified
as hazardous or toxic under federal, state or local laws or regulations.
SECTION 5.13. Compliance with ERISA. (a) Comply in all material
respects with the applicable provisions of ERISA and (b) furnish to the Bank (i)
as soon as possible, and in any event within five (5) Business Days after any
Executive Officer of any Borrower or any of
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its respective Subsidiaries knows or has reason to know that any Reportable
Event with respect to any Plan of any Borrower or any of its respective
Subsidiaries have occurred, a statement of the Executive Officer of such
Borrower or such Subsidiary setting forth details as to such Reportable Event
and the action which such Borrower or such Subsidiary proposes to take with
respect thereto, together with a copy of the notice of such Reportable Event, if
any, given to the PBGC, and (ii) promptly after receipt thereof, a copy of any
notice any Borrower or any Subsidiary may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or to appoint a trustee to
administer any Plan.
SECTION 5.14. Federal Reserve Regulations, Etc. Not use any part of
the proceeds of any Loan and no Letter of Credit, whether directly or
indirectly, and whether immediately, incidentally or ultimately (a) to purchase
or to carry margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock, or to refund indebtedness originally
incurred for such purpose, or (b) for any purpose which violates, or is
inconsistent with, any of the provisions of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
SECTION 5.15. Insurance. Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers.
SECTION 5.16. Notification of Adverse Legal Development. Give prompt
written notice to the Bank of (i) any change in any Federal, state or local law,
statute, rule or regulation, which change would have a Material Adverse Effect,
and of which change such Borrower has Knowledge, (ii) any dispute, contest or
litigation relating to any agreement to which any Borrower or any of its
respective Subsidiaries is a party which would have a Material Adverse Effect.
SECTION 5.17. Conduct of Business. Continue to engage in an
efficient and economical manner in a business of the same type conducted by it
on the date of this Agreement.
SECTION 5.18. Further Assurances. At its cost and expense, upon
request of the Bank, duly execute and deliver, or cause to be duly executed and
delivered, such further
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instruments and do and cause to be done such further acts as may be necessary or
proper in the reasonable opinion of the Bank to carry out more effectively the
provisions and purposes of this Agreement.
SECTION 5.19. Performance of Obligations. Perform all of its
obligations under the terms of each mortgage, indenture, security agreement and
other debt instrument by which it is bound, except such non-performances as
could not in the aggregate, have a Material Adverse Effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
such Borrower or of the Borrowers and their respective Significant Subsidiaries
taken as a whole.
SECTION 5.20. Separateness. Take such actions as are necessary to
keep its operations and the operations of each of its Subsidiaries separate and
apart from each of the others, including, without limitation, insuring that all
customary formalities regarding the existence of each Borrower and each such
Subsidiary, including holding regular meetings and maintenance of its current
minute books, are followed.
SECTION 5.21. New Significant Subsidiaries. Promptly notify the Bank
of any newly formed or acquired Significant Subsidiary and cause each newly
formed or acquired Significant Subsidiary to (a) execute and deliver to the Bank
a Guaranty, and (b) deliver to the Bank an opinion of counsel (consistent with
the opinions delivered in connection with the execution of the Guaranties) and
other documentation as may be required by the Bank, in form and substance
satisfactory to the Bank.
SECTION 5.22. Use of Proceeds.
Use the proceeds of any Loan only for (i) cash advances to acquire
land to be held for development and (ii) other corporate purposes normal and
incidental to the conduct of any Borrower's business and use each Letter of
Credit issued pursuant hereto only (i) in substitution for initial deposits or
additional deposits previously paid by a purchaser of a Vacation Ownership
Interest in connection with the purchase of such Vacation Ownership Interest or
(ii) for other corporate purposes normal and incidental to the conduct of any
Borrower's business.
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SECTION 5.23. Management Continuity. Cause either Mr. Raymond L.
Gellein, Jr. or Mr. Jeffrey A. Adler (or such other person as is acceptable to
the Bank in its sole discretion) to act as Chief Executive Officer of Vistana
(and of Development after the transfer described in Section 8.02 hereof), and
prior to such transfer cause either Mr. Raymond L. Gellein, Jr. or Mr. Jeffrey
A. Adler (or such other person as is acceptable to the Bank in its sole
discretion) to act as Chief Executive Officer or to constitute a majority of
directors of any corporation, other than Vistana, that controls (whether as sole
general partner, managing partner or otherwise) Development.
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ARTICLE VI
AFFIRMATIVE COVENANTS OF VISTANA, INC.
Vistana covenants and agrees that so long as this Agreement shall
remain in effect or the Note, any Letter of Credit, any Reimbursement
Obligations or any other Obligations shall be Outstanding, it shall, unless
otherwise consented to in writing by the Bank comply with the following
covenants.
SECTION 6.01. Minimum Tangible Net Worth. Vistana shall have, on
the last day of each Fiscal Quarter commencing with the Fiscal Quarter
commencing on October 1, 1997, a Consolidated Tangible Net Worth of not less
than the sum of (x) forty-five million dollars ($45,000,000) and (y) for Fiscal
Quarters commencing with the Fiscal Quarter beginning with January 1, 1998,
fifty percent (50%) of the Consolidated Net Income (measured from the first day
of the Fiscal Quarter beginning January 1, 1998 through the last day of the most
recently completed Fiscal Quarter) as shown on Vistana's consolidated financial
statements for the most recently completed Fiscal Quarter or Fiscal Year, as the
case may be; provided, however that if Vistana shall at any time hereafter
complete an equity offering, clause (x) above shall thereafter read "fifty
million dollars ($50,000,000)".
SECTION 6.02. Minimum Interest Coverage Ratio. Vistana, on the last
day of each Fiscal Quarter commencing with the Fiscal Quarter commencing on
October 1, 1997, shall have an Interest Coverage Ratio of not less than 2.4 to
1.0 as shown on Vistana's consolidated financial statements for the most
recently completed Fiscal Quarter or Fiscal Year, as the case may be.
SECTION 6.03. Maximum Debt Service Coverage Ratio. Vistana, on the
last day of each Fiscal Quarter commencing with the Fiscal Quarter commencing on
October 1, 1997, shall have a Debt Service Coverage Ratio of not less than 2.00
to 1.0 as shown on Vistana's consolidated financial statements for the most
recently completed Fiscal Quarter or Fiscal Year, as the case may be.
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SECTION 6.04. Maximum Debt/EBITDA Ratio. Vistana, on the last day of
each Fiscal Quarter commencing with the Fiscal Quarter commencing on October 1,
1997, shall have a Debt Ratio of not greater than (i) 5.5 to 1.0 for the period
commencing on the Closing Date and ending on each Fiscal Quarter ending on or
prior to December 31, 1999 and (ii) 5.25 to 1.0 thereafter as shown on Vistana's
consolidated financial statements for the most recently completed Fiscal Quarter
or Fiscal Year, as the case may be.
SECTION 6.05. Maximum Debt/Capitalization Ratio. Vistana, on the
last day of each Fiscal Quarter commencing with the Fiscal Quarter commencing on
October 1, 1997, shall have a Capitalization Ratio of not greater than (i) 72.5%
for the period commencing on the Closing Date and ending on each Fiscal Quarter
ending on or prior to December 31, 1999 and (ii) 70.0% thereafter as shown on
Vistana's consolidated financial statements for the most recently completed
Fiscal Quarter or Fiscal Year, as the case may be.
SECTION 6.06. Raw Land. Vistana shall limit Raw Land to no more
than five percent (5%) of its "total assets" each as shown on the most recent
consolidated financial statements of Vistana.
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ARTICLE VII
AFFIRMATIVE COVENANTS OF VISTANA DEVELOPMENT, LTD.
Development covenants and agrees that so long as this Agreement shall
remain in effect or the Note, any Letter of Credit, any Reimbursement
Obligations or any other Obligations shall be Outstanding, it shall, unless
otherwise consented to in writing by the Bank comply with the following
covenants.
SECTION 7.01. VDL Minimum Net Worth. From and after the Closing Date,
Development shall satisfy and maintain the VDL Minimum Net Worth at all times,
subject, however, to the right of Development to cause an Affiliate Lender to
subordinate an amount of indebtedness from Development to it, as further
described in Section 7.03 hereof in order to satisfy the VDL Minimum Net Worth.
Compliance pursuant to this Section 7.01 shall be monitored on a quarterly basis
through the end of each Fiscal Quarter in accordance with the procedures set
forth in Section 4.11 hereof. Upon the occurrence of an Event of Default with
respect to VDL Minimum Net Worth, Development's future compliance with the VDL
Minimum Net Worth requirement shall be monitored by Bank on a monthly basis
through the end of each monthly period throughout the term of this Agreement by
Development's execution and delivery of an Officer's Certificate within 20
Business Days after the close of each month containing the required
calculations.
SECTION 7.02. VDL Minimum Net Earnings. From and after the Closing
Date, Development shall maintain the VDL Minimum Net Earnings at all times.
Compliance pursuant to this Section 7.02 shall be monitored by Bank on a rolling
quarterly basis for the previous twelve (12) month period in accordance with the
procedures set forth in Section 4.11 hereof; for example, VDL Minimum Net
Earnings for the twelve (12) month period ending December 31, 1997 must satisfy
the requirements of VDL Minimum Net Earnings.
SECTION 7.03. Subordinated Obligations. (a) The indebtedness of
Development to an Affiliate Lender is not, solely by reason of the execution of
this Agreement subordinated to any Loan or other obligation hereunder; provided,
however, that in the event
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Development shall fail to satisfy the VDL Minimum Net Worth requirement, then an
amount of indebtedness of Development to any Affiliate Lender shall be
immediately subordinated (automatically, in the case of Vistana, or in the case
of any other Affiliate Lender, pursuant to documents delivered to the Bank and
satisfactory to Bank in form and substance) to the Loan, the Letter of Credit
and Reimbursement Obligations to the extent necessary (the "Required Amount") to
allow Development to satisfy the VDL Minimum Net Worth requirement. The Required
Amount shall continue to be subordinated to the Loan, the Letters of Credit and
Reimbursement Obligations until such time as Development, without giving effect
to such subordination, satisfies the VDL Minimum Net Worth requirement. To the
extent required by Bank, Development shall cause any Affiliate Lender related to
the Required Amount to execute and deliver (as a condition to the effectiveness
of such subordination) to Bank a subordination agreement and related documents
satisfactory to Bank, wherein, indebtedness related to the Required Amount will
be subordinated to the extent required by this Section 7.03(a) to any amounts
now or hereafter due to Bank under this Agreement. If indebtedness owing to
Affiliate Lenders is subordinated pursuant to this Section 7.03(a) as Required
Amounts, an amount of indebtedness, up to but not exceeding the Required Amount,
shall be subordinated in the following order: first, indebtedness owing to
Vistana shall be subordinated to the extent of the lesser of the amount of
indebtedness or the Required Amount; second, if amounts subordinated pursuant to
clause first are less than the Required Amount, indebtedness owing to the other
Affiliate Lenders shall be subordinated, pro rata, based on their proportionate
share of the remaining indebtedness owing to Affiliate Lenders.
(b) During the continuation of an Event of Default, arising from
Development's failure to satisfy the VDL Minimum Net Worth requirement,
Development will not, directly or indirectly permit any payment to be made in
respect of the Required Amount, which payments shall be and are hereby made
subordinate to the payment of principal and interest on, the Loan and the other
Obligations.
(c) Vistana shall not sell, assign, lease, transfer, pledge, encumber,
offer participation interests in or otherwise dispose of any intercompany
indebtedness owed by Development to Vistana.
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ARTICLE VIII
NEGATIVE COVENANTS OF EACH OF THE BORROWERS
Each Borrower covenants and agrees that, so long as this Agreement
shall remain in effect or the Note, any Letter of Credit, any Reimbursement
Obligations, or any of the other Obligations shall be outstanding, it shall not,
and it shall not permit any of its Significant Subsidiaries to, without the
prior written consent of the Bank:
SECTION 8.01. ERISA. Permit any Plan to engage in a prohibited
transaction within the meaning of section 406 of ERISA or section 4975 of the
Code, except in those cases for which there is a statutory or administrative
exemption available under section 408 of ERISA or section 4975(d) of the Code
where such action would have a Material Adverse Effect, or permit to exist with
respect to any Plan any accumulated funding deficiency within the meaning of
section 412 of the Code, or incur any liability to the PBGC other than for
required insurance premiums where such action would have a Material Adverse
Effect.
SECTION 8.02. Merger, Dissolution. Dissolve, merge into, acquire or
consolidate with or into, or sell all or substantially all its assets to, any
Person unless such Borrower or Significant Subsidiary is the surviving entity
and as long as after giving effect to the transaction, the ownership and
management of such Borrower is not materially changed, and such Borrower and
each of its respective Significant Subsidiaries continue the conduct of business
in the same industry, and remain in compliance with all of the terms and
conditions of the Loan Documents, except with respect to reorganizations within
the Vistana, Inc. consolidated group that will not have a Material Adverse
Effect; provided, however, that Development shall be permitted to transfer, by
operation of law, all of its assets and liabilities to Vistana Capital Holdings,
Inc., a Florida corporation ("Development Corp.") following the merger of
WE4FUN, Inc. into Vistana Capital Holdings, Inc. and the subsequent change of
Development's legal name to Vistana Development Ltd., Inc., and assign all of
its rights and obligations under the Loan Documents to Development Corp.,
provided that, in addition to all of the foregoing conditions, all of the
following conditions precedent are performed to the satisfaction of the Bank:
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(a) Development Corp. shall have a net worth, determined in accordance
with GAAP, of not less than the net worth of Development immediately prior to
such transfer;
(b) Development Corp. shall have duly acquired all assets and assumed
all liabilities of Development, including all rights and obligations of
Development under the Loan Documents, pursuant to documents (the "Transfer and
Assumption Documents") acceptable in form and substance to the Bank;
(c) The Bank shall have received an opinion of counsel to the effect
that (i) Development Corp. is duly organized, validly existing and in good
standing under the laws of Florida, has duly assumed all obligations of
Development under the Loan Documents and the Loan Documents and the Transfer and
Assumption Documents have been duly and validly authorized, executed and
delivered and are the legal, valid, binding and enforceable obligations of
Development Corp.; (ii) Development Corp. has the necessary corporate power and
authority to enter into and perform its obligations under the Loan Documents and
the Transfer and Assumption Documents; (iii) the execution, delivery and
performance by Development and Development Corp. of the Transfer and Assumption
Documents does not and will not conflict with or result in a violation of its
partnership agreement, certificate of incorporation or by-laws, as applicable,
and any instrument or instrument to which Development or Development Corp. is a
party or by which Development or Development Corp. is bound, or any statute,
order or regulation applicable to Development or Development Corp., or any
order, judgment, award or decree of any court, regulatory body, administrative
agency or governmental body having jurisdiction over Development or Development
Corp. affecting either Development or Development Corp.; (iv) all consents or
approvals, authorizations, or orders of any court or governmental agency or body
as is required for the execution and delivery by Development or Development Corp
of, or compliance by Development or Development Corp. with, the Loan Documents
and the Transfer and Assumption Documents or the consummation by Development or
Development Corp. of the transactions contemplated by the Loan Documents and the
Transfer and Assumption Documents as are necessary in connection with the
Transfer and Assumption Documents have been obtained or waived; (v) as of the
effective date of the Transfer and Assumption Documents there are no actions,
suits or proceedings pending or threatened against Development or Development
Corp. before any court, administrative agency, or other tribunal
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(A) assertingthe invalidity of the Loan Documents and the Transfer and
Assumption Documents, (B) seeking to prevent the consummation of any of the
transactions contemplated by the Loan Documents and the Transfer and Assumption
Documents, or (C) which would have a Material Adverse effect on the performance
by Development or Development Corp. of its respective obligations under, or the
validity or enforceability of, the Loan Documents and the Transfer and
Assumption Documents;
(d) The Bank shall have received an officer's certificate to the
effect that no Material Adverse Effect or Event of Default shall have occurred
and be continuing on the effective date of the Transfer and Assumption
Documents;
(e) The Bank shall have approved the form and substance of the
certificate of incorporation and by-laws of Development Corp., and of
resolutions adopted by the board of directors of Development Corp. authorizing
the execution, delivery and performance by Development Corp. of the Transfer
and Assumption Documents.
SECTION 8.03. Sale, Etc. Other than sales pursuant to Section 8.07
hereof, sell, assign, lease, transfer, encumber or otherwise dispose of (whether
in one transaction or in a series of transactions) its assets (whether now owned
or hereafter acquired) for less than fair consideration in an aggregate amount
in excess of five million dollars ($5,000,000) in any one Fiscal Year, other
than in the ordinary course of business.
SECTION 8.04. Nature of Business. Materially change, alter or amend
the nature or conduct of its business from that engaged in by it on the Closing
Date.
SECTION 8.05. Liens and Encumbrances. Other than with respect to the
Bank, to incur, create or permit to exist any mortgage, pledge, lien, charge or
other encumbrance of any of its stock or the stock of any of its Subsidiaries or
their assets other than with respect to:
(1) Liens to secure taxes, assessments and other governmental charges,
to the extent that payment thereof shall not at the time be required by Section
5.04.
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(2) Deposits or pledges made (a) in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions or
other social security, (b) in connection with casualty insurance maintained in
accordance with Section 5.15, (c) to secure the performance of bids, tenders,
contracts (other than contracts relating to Indebtedness) or leases, (d) to
secure statutory obligations or surety or appeal bonds, (e) to secure indemnity,
performance or other similar bonds in the ordinary course of business or (f) in
connection with contested amounts to the extent that payment thereof shall not
at that time be required by Section 5.02.
(3) Liens in respect of judgments or awards, to the extent that such
judgments or awards are permitted by Section 5.11.
(4) Liens of carriers, warehouses, mechanics and similar liens, in
each case (a) in existence less than 90 days from the date of creation thereof
or (b) being contested in good faith by the Borrower in appropriate proceedings
(so long as the Borrower shall, in accordance with GAAP (if applicable), have
set aside on its books adequate reserves with respect thereto).
(5) Encumbrances in the nature of (a) zoning restrictions, (b)
easements, (c) restrictions of record on the use of real property, (d)
landlords' and lessors' liens on rented premises and (e) restrictions on
transfers or assignment of leases, which in each case do not materially detract
from the value of the encumbered property or impair the use thereof for its
current or intended purpose.
(6) Restrictions under federal and state securities laws on the
transfer of securities.
(7) Liens constituting (a) purchase money security interests
(including mortgages, conditional sales, capitalized leases and any other title
retention or deferred purchase devises) in real property, interests in leases
or tangible personal property (other than inventory) existing or created on the
date on which such property is acquired, and (b) the renewal, extension or
refunding of any security interest referred to in the foregoing clause (a) in an
amount not to exceed the amount thereof remaining unpaid immediately prior to
such renewal, extension or
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refunding.
(8) Liens described in Schedule V as in effect on the date hereof and
all renewals, refinancings and extensions thereof not in excess of the amount
thereof outstanding on September 30, 1997.
(9) Liens on timeshare receivables securing Timeshare Receivable Debt
permitted by Section 8.12(10).
(10) Liens on construction and development projects to secure
Indebtedness permitted by Section 8.12(13).
SECTION 8.06. Guarantees. Neither Borrower (not including any
Significant Subsidiary) shall become or remain liable with respect to any
guarantee, including reimbursement obligations under letters of credit or other
financial guarantees by third parties, except the following:
a. Guarantees by either Borrower to timeshare associations in respect
of maintenance fees, taxes and other amounts required by Chapters 718 or
721 of the Florida Statutes or similar statutes in other states.
b. Payment or performance bonds and guarantees to governmental
entities in respect of timeshare advertising or construction and
development of timeshare properties and related improvements, all in the
ordinary course of any Borrower's business.
c. The Guaranty, dated as of November 1, 1997 from Vistana, Inc. to
the Bank with respect to the Warehouse Loan.
d. Guarantees that would be included in the term Debt as defined
herein, so long as each Borrower is in compliance with Section 8.12 hereof
after giving effect to each such guarantee.
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e. Guarantees of consolidated entities (in accordance with GAAP), so
long as each Borrower is in compliance with Section 8.12 hereof after
giving effect to each such guarantee.
SECTION 8.07. Sale of Receivables. Sell, transfer, discount or
otherwise dispose of notes, accounts receivable or other rights to receive
payment with or without recourse for less than fair value.
SECTION 8.08. Hazardous Substances. Use, generate, manufacture,
produce, store, release, discharge or dispose of on, under or about any
Property, or transport to or from any Property, any Hazardous Substance, or
permit any other Person to do so in violation of any Environmental Law where
such action would have a Material Adverse Effect.
SECTION 8.09. Transactions With Affiliates. Directly or indirectly
enter into any transaction, whether or not in the ordinary course of business,
with any Affiliate which is not consolidated (in accordance with GAAP) with
Vistana, Inc., other than on terms and conditions taken as a whole at least as
favorable to the applicable Borrowers, or the affected Significant Subsidiary,
as those that would be obtained through an arm's length negotiation with an
unaffiliated third party.
SECTION 8.10. Limitation on Restrictions on Subsidiary Dividends and
Other Distributions. Other than with respect to agreements in effect on the
date hereof, permit any of its Significant Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Significant Subsidiary to
(a) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by Vistana or any
Significant Subsidiary of Vistana, or pay any Indebtedness (other than
indebtedness of a type specified in Section 8.12) owed to Vistana or any
Significant Subsidiary of Vistana, (b) make loans or advances to Vistana (other
than loans or advances of a type permitted by Section 8.12) or (c) transfer any
of its properties or assets to Vistana, except for such encumbrances or
restrictions existing under or by reasons of (i) applicable law, (ii) this
Agreement and (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest of Vistana or any Significant
Subsidiary of
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Vistana.
SECTION 8.11. Pari Passu Ranking. From and after the date hereof,
neither Borrower (not including any Significant Subsidiary) shall enter into any
loan agreement which contains covenants applicable to such Borrower more
stringent than the provisions of Article VI or VII hereof, as applicable.
SECTION 8.12. Indebtedness. Neither Borrower (not including any
Significant Subsidiary) shall create, incur, assume or otherwise become or
remain liable with respect to any Indebtedness except the following:
(1) Indebtedness in respect of the Loans, Letters of Credit,
Reimbursement Obligations and the Warehouse Loan.
(2) Indebtedness incurred in the ordinary course of business and
payable in full within 12 months.
(3) To the extent that payment thereof shall not at the time be
otherwise required by this Agreement, Indebtedness in respect of taxes,
assessments, governmen tal charges and claims for labor, materials and
supplies.
(4) Indebtedness secured by liens of carriers, warehousemen, mechanics
and landlords.
(5) Indebtedness in respect of judgments or awards (a) which have been
in force for less than the applicable appeal period or (b) in respect of
which the Borrower shall at the time in good faith be prosecuting an appeal
or proceedings for review and, in the case of each of clauses (a) and (b),
the applicable Borrower shall have taken appropriate reserves therefor in
accordance with GAAP (to the extent applicable) and execution of such
judgment or award shall not be levied.
(6) Indebtedness in respect of capitalized lease obligations or
secured by
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purchase money security interests; provided, however, that the aggregate
principal amount of all Indebtedness permitted by this Section 8.12(6) at
any one time outstanding shall not exceed twenty-five million dollars
($25,000,000).
(7) Indebtedness in respect of deferred taxes or deferred credits
arising in the ordinary course of business.
(8) Unfunded current liabilities (as defined in Section 412 of ERISA)
with respect to Plans so long as the Borrower is in compliance with Section
5.13.
(9) Indebtedness outstanding on the date hereof and described in
Schedule VI as in effect on September 30, 1997 and all renewals,
refinancings and extensions there of not in excess of the amount thereof
outstanding immediately prior to such renewal, refinancing or extension.
(10) Timeshare Receivable Debt.
(11) Accrued compensation and benefits in the ordinary course of
business.
(12) Liability for customer deposits received in the ordinary course
of business.
(13) Indebtedness incurred to finance construction and development of
times hare properties and related improvements and secured by the assets
being developed.
(14) Indebtedness which is expressly subordinated by its terms to the
Loans.
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ARTICLE IX
EVENTS OF DEFAULT; REMEDIES; APPLICATION OF PROCEEDS
SECTION 9.01. Events of Default. Any one or more of the following
events shall constitute an Event of Default:
(a) if any payment or prepayment of all or any part of the principal
of or interest on, the Loans and/or any other amounts payable under this
Agreement, whether at the stated maturity thereof (or upon demand, with respect
to matured Reimbursement Obligations) or at any date fixed for payment by
acceleration, by notice of prepayment or otherwise shall not be paid within
three (3) Business Days after the due date therefor.
(b) (1) if any Borrower shall default in the performance or
observance of any other covenant, agreement or condition (other than such
referred to in Articles VI (but not including Section 6.06), VII, VIII and in
Section 9.01(a) hereof) set forth in this Agreement and such default is not
cured within thirty (30) days after the earlier of receipt by the applicable
Borrower of written notice from the Bank of such Event of Default or Knowledge
of such Event of Default by such Borrower; (2) or if any Borrower or Guarantor
shall default in the performance or observance of any covenant (including the
covenant set forth in Section 6.06), agreement or condition set forth in any
other Loan Document and such default is not cured within thirty (30) days after
the earlier of receipt by the applicable Borrower of written notice from the
Bank of such Event of Default or Knowledge of such Event of Default by such
Borrower; or (3) if any Borrower shall default in the performance or observance
of any covenant, agreement or condition referred to in Articles VI (other than
Section 6.06), VII and VIII;
(c) if (i) any representation or warranty made by any Borrower herein
or by any party in any other Loan Document or (ii) any certificate, financial
statement, report or opinion delivered pursuant hereto or to the Loan Documents,
shall in either case prove to have been false, incorrect or misleading in any
material respect on the date as of which made; provided, however, that such
occurrence shall not constitute an Event of Default unless (as determined in the
Bank's sole discretion) such occurrence shall have a Material Adverse Effect;
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(d) if any Borrower or any of its respective Significant Subsidiaries
shall make an assignment for the benefit of creditors, admit in writing its
inability to pay its debts as they become due, generally fail to pay its debts
as they become due, file a voluntary petition under the Federal Bankruptcy Code
(as now or hereafter in effect), is adjudicated bankrupt or insolvent, file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any present or
future statute, law or regulation of any jurisdiction, petition or apply to any
tribunal for any custodian, trustee, receiver, liquidator or fiscal agent for
all or a substantial part of its properties, or there is commenced against any
Borrower or any of its respective Significant Subsidiaries such case or
proceeding, or any Borrower or any of its respective Significant Subsidiaries
shall file any answer admitting or not contesting the material allegations of a
petition filed against such Borrower or any of its respective Significant
Subsidiaries in any such case or proceeding, or any Borrower or any of its
respective Significant Subsidiaries seek, approve, consent to or acquiesce in,
any such case or proceeding or in the appointment of any custodian, trustee,
receiver, liquidator or fiscal agent of any Borrower or any of its respective
Significant Subsidiaries for all or a substantial part of the property of such
Borrower or any of its Significant Subsidiaries or any of the directors or
majority shareholders or partners shall take any action looking to the
dissolution of liquidation of any Borrower or any of its respective Significant
Subsidiaries; or
(e) if any judgment against any Borrower or any of its Significant
Subsidiaries or any attachment, execution, levy or restraining notice against
its property in excess of $100,000 remains unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of sixty (60) days;
(f) if there shall occur any Reportable Event with respect to any Plan
of any Borrower or any of its Significant Subsidiaries;
(g) if any Loan Document is invalidated or declared null and void;
(h) (1) if Vistana or Development or any of their respective
Significant Subsidiaries shall (i) default in any payment of any Indebtedness in
excess of $100,000 pursuant
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to which Vistana or Development or any of their Significant Subsidiaries is
obligated in any manner (other than the Obligations) beyond the period of grace,
if any, provided in the instru ment or agreement under which such was created or
(ii) default beyond the period of grace in the observance or performance of any
agreement or condition relating to any such Indebtedness (other than the
Obligations) or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, any such Indebtedness to become due prior to its
stated maturity; or
(i) if the validity or enforceability of this Agreement is or any
other Loan Document is challenged by any Borrower or if any Borrower or any
Affiliate of Borrower party to any other Loan Document denies hereunder or
thereunder.
(2) Any Indebtedness (other than the Obligations) of Vistana or
Development or any Indebtedness of their respective Significant Subsidiaries in
excess of $100,000 pursuant to which Vistana or Development or any of their
respective Significant Subsidiaries is obligated in any manner shall be declared
to be due and payable, or required to be prepaid other than by (x) regularly
scheduled required prepayment or (y) as a mandatory prepayment (unless such
required prepayment or mandatory prepayment results from a defaul t thereunder
or an event of the type that constitutes an Event of Default), prior to the
stated maturity thereof. The voluntary prepayment of Indebtedness shall not
constitute an Event of Default under this Section 9.01(h)(2).
SECTION 9.02. Bank's Remedies. In case an Event of Default shall
have occurred under Subsection 9.01(d), (i) the entire Outstanding Balance, (ii)
the undrawn face amount of all Letters of Credit, (iii) all Reimbursement
Obligations, all interest accrued on each of the foregoing and all other amounts
due hereunder shall forthwith automatically be immediately due and payable and
the Bank shall have all the rights and remedies set forth below in Subsections
9.02(b) and 9.02(c). In case any other Event of Default shall have occurred the
Bank shall have the following rights and remedies:
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(a) at any time thereafter and so long as such Event of Default shall
be continuing, to declare any or all of (i) the entire Outstanding Balance, (ii)
the undrawn face amount of all Letters of Credit, (iii) all Reimbursement
Obligations, all interest accrued on each of the foregoing and all other amounts
due hereunder to be immediately due and payable;
(b) to take any action at law or in equity to collect the payments due
under the Note or to enforce performance and observance of the Obligations of
the Borrowers under this Agreement and the other Loan Documents, or to recover
damages for breach thereof;
(c) to exercise the right of setoff against any assets of any
Borrower, and/or any Guarantor, held by the Bank, other than any assets held by
VTM Corp., Vistana Timeshare Mortgage Corp. or any other entity formed for the
purpose of securitization.
Any amounts received by the Bank in respect of the undrawn face amount
of any Letters of Credit pursuant to the first paragraph of Section 9.02, or
pursuant to Section 9.02( a) shall be held by the Bank, in a non-interest-
bearing account, and applied from time to time to reimburse the Bank for any
subsequent draws under any Letters of Credit. At such time as all Letters of
Credit have expired and all Reimbursement Obligations and all other amounts
payable to the Bank under the Note and this Agreement have been paid in full,
the Bank promptly shall pay to the Borrowers all such amounts previously
received and then held by the Bank.
Each of the Borrowers expressly waives any presentment, demand,
protest, notice of protest or notice of any bond. The exercise by the Bank of
any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy against any Guarantor or any Borrower, as the case may be.
If the Bank shall have proceeded to enforce its rights under this
Agreement and such proceedings shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Bank, then the Borrowers
and the Bank shall be restored to their respective positions hereunder, and all
rights, remedies and powers of the Borrowers and the Bank shall continue as
though the proceedings had not taken place.
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SECTION 9.03. Specific Performance. In addition to the above
remedies, if any Borrower commits a breach or threatens to commit a breach of
this Agreement or any other Loan Document, the Bank shall have the right and
remedy, without posting bond or other security, to have the provisions of this
Agreement or such other Loan Document specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause immediate and irreparable injury to the Bank and
that money damages will not provide an adequate remedy therefor.
SECTION 9.04. Application of Proceeds. All payments received after
an Event of Default shall be applied as follows:
(a) First: to the payment of all fees, costs and expenses incurred
by the Bank as a result of or in connection with the exercise of the remedies
set forth in Section 9.02 and Section 9.03 hereof;
(b) Second: to the payment in full of the Loans, the Reimbursement
Obligations, and the other Obligations with all such payments being applied
first to the payment ent of interest, with any balance applied first to the
payment and reduction of principal of Loans or Reimbursement Obligations as the
Bank (in its sole discretion) may determine, and then to other amounts due; and
(c) Third: the balance, if any, of such proceeds remaining after
payment in full of the foregoing items, to the Borrowers pro rata, based on each
Borrower's amounts owing prior to the application of this Section or as a court
of competent jurisdiction may otherwise direct.
SECTION 9.05. No Remedy Exclusive. No remedy herein conferred on or
reserved to the Bank is intended to be exclusive of any other available remedy,
but each and every remedy shall be cumulative and shall be in addition to every
other remedy given under this Agreement or any other Loan Document or now or
hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right or power accruing upon any Event of Default
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shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed expedient. In order to entitle the Bank to exercise any
remedy reserved to it in this Agree ment, it shall not be necessary to give
notice.
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ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. All notices, certificates or other
communications given pursuant to or in connection with this Agreement shall be a
duly executed writing (unless otherwise expressly indicated herein) delivered to
the applicable Borrower or the Bank, as the case may be, at the respective
address set forth below (or such other address as may be provided by one party
in a notice to the other); provided that the copies to be delivered as set forth
below shall be for convenience and courtesy only and shall not be required to
constitute effective notice to the Bank or any Borrower, as the case may be:
If to the Bank:
Dresdner Bank AG
New York and Grand Cayman Branches
75 Wall Street
New York, New York 10005-2889
Telephone: (212) 429-2269
Telecopy: (212) 429-2130
Attention: Loan Administration (with respect to fees, borrowings
and repayments under the Note and the issuance of
Letters of Credit)
Telephone: (212) 429-2269
Telecopy: (212) 429-2130
Credit Underwriting Unit -- Financial Institutions
(with respect to all other matters)
Telephone: (212) 429-2484
Telecopy: (212) 429-2780
If to Vistana, Inc.:
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8801 Vistana Centre Drive
Orlando, Florida 32821
Telephone: (407) 239-3100
Telecopy: (407) 239-3198
Attention: President
With a copy to:
Vistana, Inc.
Attn: Chief Financial Officer
8801 Vistana Centre Drive
Orlando, Florida 32821-6353
Telephone: (407) 239-3100
Telecopy: (407) 239-3198
And to:
Vistana, Inc.
Attn: Susan Werth
701 Brickell Avenue
Suite 2100
Miami, Florida 33131
Telephone: (305) 577-3150
Telecopy: (305) 374-7159
If to Vistana Development, Ltd.:
8801 Vistana Centre Drive
Orlando, Florida 32821
Telephone: (407) 239-3100
Telecopy: (407) 239-3222
Attention: President, Vistana Capital Holdings, Inc.
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With a copy to:
Vistana, Inc.
Attn: Chief Financial Officer
8801 Vistana Centre Drive
Orlando, Florida 32821-6353
Telephone: (407) 239-3100
Telecopy: (407) 239-3222
And to:
Vistana, Inc.
Attn: Susan Werth
701 Brickell Avenue
Suite 2100
Miami, Florida 33134
Telephone: (305) 577-3150
Telecopy: (305) 374-7159
Notices delivered in accordance with the foregoing shall be: (a) personally
delivered, (b) sent by overnight express carrier, or (c) sent by telecopy, to
the Bank or the applicable Borrower at its address and/or telecopy number as set
forth above, or at such other address and/or telecopy number as either party may
designate for such purpose in a notice given to the other party. Such notice
shall be deemed received upon the earliest of the following to occur: (a) upon
personal delivery; (b) on the next Business Day following the day sent, if sent
by overnight express courier; and (c) on the day sent or if such day is not a
Business Day on the next Business Day after the day sent, if sent by telecopy. A
Loan Request and an application for a standby Letter of Credit may each be
delivered to the Bank via facsimile transmission, addressed to the attention of:
Loan Administration at the following facsimile number, or such other number as
may be designated from time to time by the Bank: (212) 429-2130.
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SECTION 10.02. Survival. All covenants, agreements, obligations,
representations and warranties made by any Borrower herein and in the
certificates delivered pursuant hereto shall be deemed to have been relied upon
by the Bank and shall survive the making by the Bank of the Loans, the issuance
by the Bank of each Letter of Credit and the execution and delivery to the Bank
of the Note regardless of any investigation made by the Bank or on its behalf
and without regard to any modification, extension, renewal, amendment or waiver
of any provision of any Loan Document, and shall continue in full force and
effect until such time as the principal of, premium, if any, interest on and all
other amounts due under the Note shall have been paid, and all fees, costs and
expenses due under the Loan Documents have been paid and any liability to the
Bank under the Loan Documents shall have been discharged in a manner
satisfactory to the Bank.
SECTION 10.03. Expenses of the Bank. The Borrowers shall pay,
promptly upon receipt of an invoice with respect thereto all out-of-pocket
expenses (including without limitation, the reasonable fees and disbursements of
counsel incurred by the Bank; provided that such counsel fees shall be no more
than $20,000 through October 31, 1997) in connection with (a) the preparation of
this Agreement and the other Loan Documents (whether or not the transactions
hereby contemplated shall be consummated), (b) the enforcement and protection of
the rights of the Bank in connection with this Agreement or the other Loan
Documents, or with the Loans made or the Note or any Letters of Credit issued
hereunder, and with respect to any action which may be instituted against the
Bank in respect of the foregoing; (c) any amendment or modification of any Loan
Document; (d) the payment of any tax (excepting only Federal, State and local
taxes based on or measured by the net income of the Bank), assessment, recording
fee or similar charge; (e) any waiver of any right of the Bank under any Loan
Document, and (f) the reasonable fees and disbursements of any counsel for the
Bank, incurred from time to time, in connection with the transactions
contemplated by this Agreement, including the reasonable fees and disbursements
of any local counsel retained by the Bank from time to time.
SECTION 10.04. Applicable Law. This Agreement and the Note shall be
construed in accordance with and governed by the laws of the State of New York,
without regard to its conflicts of law provisions, and applicable federal law.
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SECTION 10.05. Amendments, Changes, Modifications and Waivers. Except
as otherwise provided in this Agreement or in the other Loan Documents, no
modification, amendment, alteration, release or termination of any provision of
this Agreement or of the Note, and no consent to any departure by any Borrower
from the provisions hereof, shall in any event be effective unless the same
shall be in writing and signed by the Bank and any Borrower. Any such
modification, amendment, release, termination or consent shall be effective only
in the specific instance and for the purpose for which given. No notice to or
demand on the Borro wers in any case shall entitle the Borrowers to any other or
further notice or demand in the same, similar or other circumstance. No waiver
of any of the provisions of this Agreement (a) shall be valid unless evidenced
by a writing executed by the Bank, (b) shall be deemed or shall constitute a
waiver of any other provision of this Agreement (whether or not similar), or (c)
shall constitute a continuing waiver unless otherwise expressly provided. The
failure or delay on the part of the Bank at any time or times in exercising any
right or remedy hereunder shall not operate as a waiver thereof nor shall any
single or partial exercise of any power or right or remedy preclude other or
further exercise thereof or the exercise of any other right or remedy.
SECTION 10.06. Separability. In case any one or more of the
provisions contained in this Agreement or in the Note should be determined to be
superseded, invalid, illegal or otherwise unenforceable in any respect, pursuant
to applicable law, such determination shall not affect the validity, legality
and enforceability of the remaining provisions contained herein and therein and
such provisions shall not in any way be affected or impaired thereby, and such
provisions shall be enforced as if the invalid provision were deleted. Should
any provision of this Agreement be determined to be unenforceable in any
jurisdiction, such unenforceability shall not invalidate or render unenforceable
such provision in any other jurisdiction.
SECTION 10.07. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one and the same Agreement.
SECTION 10.08. Entire Agreement. This Agreement together with the
Guara nties and the other Loan Documents constitute the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous
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agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth or incorporated herein.
SECTION 10.09. Headings; Interpretation; Gender and Number. Section
and paragraph headings and the table of contents are not to be considered part
of this Agreement, are included solely for convenience, are not intended to be
full or accurate descriptions of the contents thereof, and shall not affect its
meaning, construction or effect. Sections and paragraphs mentioned by number
only are the respective sections and paragraphs of this Agreement. The use of
the terms "herein", "hereunder", "hereof", and like terms shall be deemed to
refer to this entire Agreement and not merely to the particular provision in
which the term is contained, unless the context clearly indicates otherwise.
Capitalized terms used and not otherwise defined herein shall have the meanings
given to them in the other Loan Documents or the Uniform Commercial Code adopted
by the State of New York, as amended from time to time in accordance therewith.
Words importing a particular gender mean and include every other gender and
words importing the singular number mean and include the plural number and vice-
versa.
SECTION 10.10. Term. This Agreement shall become effective upon its
execution and delivery by the parties hereto, shall remain in full force and
effect from the date hereof and, subject to the provisions hereof, shall expire
on such date as all amounts due and payable under the Note and have been fully
paid and retired and all other Obligations under the Loan Documents have been
fully paid and performed.
SECTION 10.11. Successors and Assigns. (a) Whenever in this
Agreement reference is made to any party, such reference shall be deemed to
include the successors or assigns thereof. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective transferees, legal representatives, heirs,
successors and assigns. The provisions of this Agreement are intended to be for
the benefit of the Bank, its successors and assigns as holder of the Note. This
Section 10.11 shall not be deemed to create any right for any Borrower to assign
its interest in this Agreement, or the Loans.
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(b) The Bank, in its sole discretion, shall have the right, at any
time and from time to time, to pledge the Loans to a Federal Reserve Bank, to
sell the Loans or participation interests therein to other Persons or to assign
all or any portion of its rights to any other Person or Persons acceptable to
the Bank. Prior to the sale of any Loan or any participation interest pursuant
to this Section 10.11(b), the Bank shall provide at least thirty (30) days prior
written notice to the Borrowers setting forth the party to whom such Loan or
participation interest is to be sold. Each Borrower hereby consents to the
dissemination to such Persons of credit information relating to the Borrowers in
connection with any proposed pledge, sale or participations by the Bank of any
of the rights and obligations hereunder; provided, however, that the Bank shall
not disseminate any such information to any timeshare developer, timeshare
exchange company or hospitality industry company without Borrowers' advance
written consent, which consent may be withheld in the Borrowers' sole
discretion.
(c) Except as provided in Section 8.02 hereof with respect to the
transfer of Development to Development Corp., a Borrower may not assign its
rights or delegate its obligations under this Agreement without the express
written consent of the Bank.
SECTION 10.12. WAIVER OF COUNTERCLAIM, JURY TRIAL. EACH BORROWER
HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM OTHER THAN MANDATORY OR
COMPULSORY COUNTERCLAIMS ARISING OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS, IN
ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY THE BANK AND WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE
OTHER OR IN ANY COUNTERCLAIM ASSERTED BY THE BANK AGAINST BORROWER, OR IN ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT,
THE NOTE OR ANY OF THE LOAN DOCUMENTS.
SECTION 10.13. Submission to Jurisdiction. With respect to any claim
or action arising under this Agreement or the other Loan Documents, each
Borrower hereby (a) irrevocably submits to the nonexclusive jurisdiction of the
courts of the State of New York and the United States District Court located in
the Borough of Manhattan in New York City, (b)
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irrevocably waives any objection which it may have at any time to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement or the other Loan Documents brought in any such court, irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum and further irrevocably waives
the right to object, with respect to such claim, suit, action or proceeding
brought in any such court, that such court does not have jurisdiction over such
party and (c) irrevocably waives any immunity it or its Property may now or
hereafter have from suit, jurisdiction, attachment (whether prior to judgment or
in aid of execution), execution or other legal process. Nothing in this
Agreement will be deemed to preclude the Bank from bringing an action or
proceeding in respect hereof in any other jurisdiction. Service of process in
any action or suit arising out of or in connection with this Agreement or any
other Loan Document may be made upon any Borrower by mailing a copy of the
summons to such Borrower at the address set forth herein or at such Borrower's
last address appearing in the Bank's records; provided, however, that if any
Borrower has designated an agent for receipt of service of process in writing to
the Bank, such service shall be made upon such agent with respect to service of
process on such Borrower.
SECTION 10.14. Joint and Several Liability. Each Borrower hereby
agrees that hereunder and under any other Loan Document it shall be jointly and
severally liable for payment of all amounts (whether as principal, interest,
fees, costs, expenses, Reimbursement Obligations or otherwise) payable by it or
any other Borrower. Each Borrower further hereby unconditionally and
irrevocably agrees to make full and prompt payment to the Bank of any amounts
owing pursuant to this Agreement, without regard to such Borrower's borrowings
and issuances of Letters of Credit to and on behalf of such Borrower. The
obligations of any Borrower hereunder shall be an absolute, continuing,
irrevocable and unconditional obligation of payment and performance and any
Borrower shall remain liable on its obligations and the obligations of any other
Borrower hereunder until the payment and performance in full of the obligations
hereunder. No set-off counterclaim recoupment, reduction or diminution of any
obligation, or any defense of any kind or nature which any Borrower or any
Guarantor may have against Bank, shall be available to, or shall be asserted by
any Borrower against payment of the obligations hereunder or any part thereof.
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SECTION 10.15. Representation by Counsel. The parties hereto each
hereby acknowledge to the others that such party has been represented by counsel
during the course of the negotiation of this Agreement and other Loan Documents,
to the extent it is a party thereto.
SECTION 10.16. Summary Judgment. Each Borrower hereby acknowledges
and agrees that any enforcement action relating to this Agreement, the Note or
the other Loan Documents may be brought by motion for summary judgment, in lieu
of a complaint, pursuant to Section 3213 of the New York Civil Practice Law and
Rules (to the extent such provision is applicable).
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IN WITNESS WHEREOF, each of the Borrowers and the Bank have caused
this Line of Credit Agreement to be duly executed by their duly authorized
officers, all as of the day and year first above written.
VISTANA, INC.
By /s/ John M. Sabin
-----------------------------------
Name: John M. Sabin
Title: Sr. Vice President
VISTANA DEVELOPMENT, LTD
By: Vistana Capital Holdings, Inc.
its general partner
By /S/ John M. Sabin
-----------------------------------
Name: John M. Sabin
Title: Sr. Vice President
DRESDNER BANK AG
NEW YORK AND GRAND CAYMAN BRANCHES
By /S/ Michael M. Kownacki
-----------------------------------
Name: Michael M. Kownacki
Title: Vice President
By /S/ J. Curtin Beaudouin
-----------------------------------
Name: J. Curtin Beaudouin
Title: First Vice President
-70-
<PAGE>
SELECTED FINANCIAL DATA VISTANA, INC. AND SUBSIDIARIES
(amounts in thousands, except for per share and operating data)
The following table sets forth selected financial data of the Company for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993. The selected financial
data of the Company for the three years ended December 31, 1997 was derived from
the Company's consolidated financial statements, which were audited by KPMG Peat
Marwick LLP, independent auditors, whose report with respect to the three-year
period ended December 31, 1997, together with such consolidated financial
statements appears elsewhere herein. The selected financial data of the Company
for the year ended December 31, 1993 was derived from audited financial
statements of the Company not included herein.
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 historical consolidated financial statements of the Company and Notes
thereto appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results For the Years Ended December 31:
Vacation Ownership Interest sales.............................. $100,887 $ 60,063 $ 50,156 $ 54,186 $55,658
Interest income................................................ 19,296 15,546 12,886 7,654 5,096
Total revenues................................................. 145,352 96,936 81,109 77,636 74,162
Vacation Ownership Interest cost of sales...................... 22,898 14,595 12,053 11,391 11,521
Sales and marketing expense.................................... 45,616 27,877 22,318 22,872 21,866
Total interest expense......................................... 8,945 11,019 9,684 5,711 4,339
Provision for doubtful accounts................................ 6,971 4,271 3,522 3,803 3,903
General and administrative expense............................. 11,988 7,873 6,979 7,988 7,419
Total costs and operating expenses............................. 122,906 86,447 75,478 67,287 62,651
Operating income............................................... 22,446 10,489 5,631 10,349 11,511
Income before income taxes and extraordinary item.............. 23,025 10,594 5,850 10,714 12,212
Provision for taxes............................................ 8,101 -- -- -- --
Non-recurring charge associated with the change of tax status.. 13,201 -- -- -- --
Income (loss) before extraordinary item........................ 1,723 10,594 5,850 10,714 12,212
Extraordinary item early extinguishment of debt (net of tax)... (1,425) -- -- -- --
Net income..................................................... $ 298 $ 10,594 $ 5,850 $ 10,714 $12,212
Net income per share--diluted.................................. $ .02 $ -- $ -- $ -- $ --
Pro forma income before income taxes........................... $ 23,025 $ 10,594 $ 5,850 $ -- $ --
Pro forma net income........................................... 12,874 6,568 3,627 -- --
Pro forma net income per share--diluted........................ $ .69 $ .46 $ .26 $ -- $ --
- --------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data As of December 31:
Total assets................................................... $287,209 $173,922 $140,651 $117,989 $99,431
Long-term debt................................................. $109,547 $118,557 $101,504 $ 64,769 $57,474
Shareholders' equity........................................... $119,405 $ 26,648 $ 17,904 $ 33,658 $23,726
</TABLE>
Statements in this Annual Report regarding the Company's prospective business
opportunities, financial performance and expansion plans, are forward-looking
statements that involve substantial risks and uncertainties. Such forward-
looking statements include, without limitation, (i) the plan to develop and sell
additional resorts, (ii) the intention to acquire additional land for the
expansion of existing resorts and for the development of future resorts,
(iii) the anticipation of when construction will commence for existing and
future vacation resorts, (iv) the plans to develop future resorts affiliated
with Promus Hotel Corporation ("Promus"), the PGA, and Sun International Hotels,
Limited ("Sun"), and (v) statements relating to the Company or its operations
that are preceded by terms such as "anticipates," "believes," "intends,"
"expects," and similar expressions. In accordance with the Private Securities
Litigation Reform Act of 1995, the following are important risk factors that
could cause the Company's actual results, performance, or achievements to differ
materially from those implied by such forward-looking statements: (i) the
Company lacks experience in certain of the markets where it has purchased land
and is developing vacation ownership resorts, (ii) the Company is subject to
significant competition from other entities in the leisure and vacation
industry, (iii) the Company's success depends to a significant extent on its
ability to hire, train, and retain qualified employees, (iv) the Company's
ability to acquire, develop and sell VOI inventory and finance customer
purchases of its VOI's requires access to external funding on satisfactory
terms, (v) the Company's indebtedness and related service obligations may
increase its vulnerability to adverse economic conditions, (vi) the Company's
agreements with Promus, the PGA, and Sun are subject to various conditions and
requirements which may not be fulfilled, and (vii) the Company has not yet
entered into the final joint venture documents with Sun and its subsidiaries
relating to the Villas at Atlantis.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS VISTANA, INC. AND SUBSIDIARIES
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company was organized in December 1996 to combine the vacation ownership
resort acquisition, development and management businesses conducted by the
Company's corporate and partnership predecessors. The Company generates revenues
from the sale and financing of annual and alternate-year Vacation Ownership
Interests ("VOI's") at its resorts, which typically entitle the purchaser to
ownership of a fully-furnished unit for a one-week period, on either an annual
or alternate-year basis, respectively. For purposes of the following discussion,
sales of VOI's reflect sales of both annual VOI's and alternate-year VOI's each
as a sale of a single Vacation Ownership Interest. The Company generates
additional revenues from resort operations, which include room rental operations
and auxiliary resort operations such as food and beverage sales, and from
management fees and telecommunications services provided by the Company at its
resorts.
The Company recognizes revenues attributable to sales of VOI's on an accrual
basis after the execution of a binding sales contract between the Company and
the purchaser and receipt by the Company of a down payment of at least 10% of
the sales price.
The Company historically has not sold VOI's prior to completion of construction;
however, in connection with the Embassy Vacation Resort at Myrtle Beach, the
Company is selling, and in other appropriate circumstances may sell, VOI's prior
to completion of construction. To the extent the Company sells VOI's prior to
completion of construction, the Company recognizes such sales in accordance with
the percentage of completion method. Under this method, costs associated with
the acquisition and development of vacation ownership resorts, including
carrying costs such as interest and taxes, and sales and marketing costs, are
generally capitalized and subsequently recorded as a cost of sales as the
related revenues are recognized.
The Company, through its predecessor corporations and partnerships, has operated
in the vacation ownership industry since 1980. In November 1991, Messrs. Gellein
and Adler, together with a third individual, acquired the Company from a
corporate entity that had purchased the Company in 1986. In May 1995, the
Company purchased (the "Executive Repurchase") the entire interest in the
Company held by the third individual, who was a shareholder/executive of the
Company. Also in 1995, the Company redeemed options (the "Option Redemption") to
purchase interests in the partnerships which operate Vistana Resort and
Vistana's Beach Club, which were held by two institutions which had purchased
receivables from the Company. Together, the Executive Repurchase and the Option
Redemption affected the financial results in that the Company incurred
additional debt to finance the Executive Repurchase and the Option Redemption.
Additionally, in connection with the Executive Repurchase, the Company paid its
former shareholder/executive for a five-year covenant not to compete, which is
being amortized through April 2000. In February 1997, the Company completed its
initial public offering (the "Initial Offering") of Common Stock, using the
majority of the $49.5 million net proceeds to repay outstanding indebtedness. In
September 1997, the Company acquired the Success Companies and Points of
Colorado ("Success and Points") in a business combination accounted for as a
purchase. Also, in December 1997, the Company completed a secondary offering of
Common Stock (the "Secondary Offering"), using all of the $41.5 million net
proceeds to repay outstanding indebtedness.
Results of Operations
The following discussion of results of operations relates to entities comprising
the Company on a consolidated basis. Results of operations only reflect
operations of entities in existence for each respective reporting year. The
following table sets forth certain consolidated operating information for the
entities comprising the Company for the three years ended December 31, 1997,
1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statement of Operations:
As a percentage of Total Revenues
VOI sales..................................... 69.4% 62.0% 61.8%
Interest income............................... 13.3% 16.0% 15.9%
Resort revenue................................ 11.6% 14.0% 15.6%
Telecommunications revenue.................... 5.2% 7.3% 5.9%
Other revenue................................. 0.5% 0.7% 0.8%
----------------------
Total revenues................................ 100.0% 100.0% 100.0%
======================
As a percentage of VOI sales
VOI cost of sales............................. 22.7% 24.3% 24.0%
Sales and marketing expense................... 45.2% 46.4% 44.5%
Provision for doubtful accounts............... 6.9% 7.1% 7.0%
As a percentage of Interest Income
Interest expense--treasury.................... 37.5% 44.2% 50.6%
As a percentage of Total Revenues
General and administrative expense............ 8.2% 8.1% 8.6%
Depreciation and amortization
expense....................................... 2.4% 2.6% 2.7%
Interest expense--other....................... 1.2% 4.3% 3.9%
Other expense................................. 2.1% 0.5% 1.3%
Total costs and operating expenses............ 84.6% 89.2% 93.1%
As a percentage of Resort Revenues
Resort expenses(1)............................ 82.2% 81.6% 83.9%
As a percentage of Telecommunications Revenues
Telecommunications expenses(1)................ 81.5% 79.6% 76.1%
Selected Operating Data:
Number of resorts at year-end................. 6 3 2
Number of VOI's sold(2)....................... 10,260 5,794 5,190
Number of VOI's in inventory at end
of period(3)................................ 14,405 14,774 3,054
Average price of VOI's sold(2)................ $9,833 $10,366 $9,664
</TABLE>
(1) Does not include interest and depreciation expenses.
(2) Includes sales of both annual and alternate-year VOI's.
(3) Inventory classified as annual VOI's.
14
<PAGE>
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996.
For the year ended December 31, 1997, the Company recognized total revenues of
$145.4 million compared to $96.9 million for 1996, an increase of $48.5 million
or 50.1%. This increase is primarily due to a $40.8 million, or 67.9%, increase
in sales of VOI's from $60.1 million during 1996 to $100.9 million during 1997.
VOI sales increased due to a 77.1% increase in the number of VOI's sold from
5,794 in 1996 to 10,260 in 1997, reduced by a 5.1% decrease in the average sales
price. The increase in VOI sales resulted from record sales levels at the
Company's flagship Vistana Resort in Orlando, Florida, and the addition of
Success and Points beginning September 16, 1997. The decrease in average sales
price primarily resulted from an increasing product mix of resorts with lower
price points including Hampton Vacation Resort--Oak Plantation and certain
resorts acquired in the Success and Points transaction. The increase in VOI's
sold was also the product of expanded sales and marketing programs, both in
central Florida and internationally, and sales of VOI's at the Hampton Vacation
Resort--Oak Plantation which were included in sales for all of 1997 and for a
limited period in 1996.
Interest income increased $3.8 million or 24.5% to $19.3 million from $15.5
million due to a 54.7% increase in the principal amount of net customer
mortgages receivable from $100.2 million to $155.0 million, offset by a decline
in the weighted average yield on customer receivables from 14.4% to 14.2%.
Interest income includes the discount amortization on customer mortgages
receivable of $3.1 million and $2.8 million recognized during the twelve month
periods ended December 31, 1997 and December 31, 1996, respectively, relating to
the repurchase of customer mortgages receivable. This discount resulted from a
1995 transaction in which the Company re-acquired customer mortgages receivable
(pursuant to a related clean-up call provision pertaining to the original
transaction) which had been previously sold in 1991, as well as recognition of a
discount on certain customer mortgages receivable repurchased in 1996 (pursuant
to a related clean-up call provision pertaining to the original transaction)
from an investment partnership. As of December 31, 1997, $2.4 million of total
unamortized discount remained and is expected to be amortized through 2000.
Resort revenue increased $3.3 million or 24.3% from $13.6 million to $16.9
million, primarily as a result of increased room rentals due to the impact of
Hampton Vacation Resort--Oak Plantation, which is included for all of 1997 and
for a limited period in 1996. Telecommunication revenues (guest telephone
charges relating to the existing resorts and revenues from contracting services
provided to third parties) increased $.4 million or 5.6% from $7.1 million in
1996 to $7.5 million in 1997.
Total costs and operating expenses increased $36.4 million or 42.1% from $86.5
million in 1996 to $122.9 million in 1997, but declined as a percentage of total
revenue from 89.2% in 1996 to 84.6% in 1997. VOI cost of sales, as a percentage
of VOI sales, decreased from 24.3% in 1996 to 22.7% in 1997, as a result of
current period sales at Vistana Resort of phases with relatively lower per unit
costs and at Hampton Vacation Resort--Oak Plantation of units having a lower
product cost. Sales and marketing expenses increased 63.4% from $27.9 million in
1996 to $45.6 million in 1997, principally due to the 68% increase in related
VOI sales. As a percentage of VOI sales, selling and marketing expenses
decreased from 46.4% in 1996 to 45.2% in the period primarily as a result of
lower sales and marketing costs at Vistana Resort due primarily to increased
operating efficiencies. VOI cost of sales and sales and marketing costs are both
expected to increase as a percentage of VOI sales during future periods as the
lower product costs (primarily land purchased at lower prices during earlier
years) and higher sales efficiencies (primarily resulting from the larger resort
size and mature sales and marketing operations) at Vistana Resort in Orlando
form a smaller mix of the Company's total VOI sales. Compared to Vistana Resort,
the Company's newly developed resorts are expected to have a higher cost of
sales (primarily due to higher land and construction costs) and higher sales and
marketing expenses (primarily due to start-up costs and sales inefficiencies
currently anticipated for at least the first 12 to 18 months of operations), as
a percentage of VOI sales.
The Company is currently developing or planning five new resorts and is
evaluating other resort opportunities. Many of these resorts are located in
areas where the Company has not previously conducted business. As these new
resorts move into sales and constitute a greater proportion of the Company's
total revenues and expenses, they will have an increasing impact on the
Company's results of operations. If the Company is unable to achieve the
revenues, cost of sales, and sales and marketing expenses targeted for these new
resorts, the resulting differences could have a material adverse effect on the
Company's results of operations.
Loan portfolio expenses consist of interest expense-treasury and the provision
for doubtful accounts. Interest expense-treasury increased to $7.2 million in
1997 from $6.9 million in 1996 primarily as a result of increased borrowing
levels in the second half of 1997. Interest expense-treasury increased at a
lower rate than the increase in customer mortgages receivable, net, primarily
due to the repayment of debt during 1997 with proceeds from the Initial Offering
and Secondary Offering. Provision for doubtful accounts decreased to 6.9% of VOI
sales in 1997 compared to 7.1% in 1996 due primarily to the impact of Success
and Points which had a lower provision and loss rate than the Company's
historical levels. The Company periodically monitors its provision for doubtful
accounts to provide for future losses associated with any defaults on customer
mortgages receivable and provides for additions to the allowance for loss on
receivables through its provision for doubtful accounts on an annual basis.
Management believes that
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS VISTANA, INC. AND SUBSIDIARIES
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
the provision is adequate for such future losses. Because substantially all of
the Company's indebtedness bears interest at variable rates and the Company's
customer mortgages receivable earn interest at fixed rates, increases in short-
term interest rates could have an adverse effect on the net interest margin
earned by the Company on its customer mortgages receivable.
Resort and telecommunication expenses increased at a rate commensurate with that
of related revenues. General and administrative expenses increased $4.1 million
or 51.9% from $7.9 million for 1996 to $12.0 million for 1997, increasing as a
percent of total revenues from 8.1% in 1996 to 8.2% in 1997. The increase in
general and administrative expenses was primarily the result of (i) increased
revenue levels and commensurate business activities; (ii) the addition of a
number of senior managers and executives to build the management and
organizational infrastructure necessary to efficiently manage the Company's
future growth; (iii) the Company's expenses as a public company, including the
filing of periodic public reports; and (iv) added salary, travel and office
expenses attributable to the current and planned growth in the size of the
Company. Depreciation and amortization decreased to 2.4% of total revenues in
1997 compared to 2.6% in 1996, reflecting the added costs of depreciation from
capital additions being spread over a larger revenue base. Interest expense-
other decreased as a percentage of total revenue from 4.3% in 1996 to 1.2% in
1997 due to early extinguishment of debt from funds provided by the Initial
Offering and the Secondary Offering.
Operating income increased $12.0 million or 114.3% to $22.5 million, or 15.4% of
total revenues, during 1997 from $10.5 million, or 10.8% of total revenues,
during 1996.
As the result of the Formation Transactions and in connection with the Initial
Offering, the Company became subject to federal, state and foreign income taxes
during 1997 and was required to record a nonrecurring deferred tax liability of
$13.2 million for cumulative temporary differences between financial reporting
and tax reporting. In 1997, the Company also recorded an income tax expense
provision of $8.1 million, excluding the $.8 million benefit relating to the
extraordinary item which was recorded net of tax. The deferred tax assets,
deferred tax liabilities and the current tax provision were estimated based on
management's most recent information as of December 31, 1997. The provision for
income taxes reflects the income tax expense from the date of the Initial
Offering through December 31, 1997.
The Company reports most of its sales of VOI's on the installment method for
federal income tax purposes. As a result, the Company does not recognize taxable
income on these sales until the installment payments have been received from the
Company's customers. In the quarter ended June 30, 1997, the Company became
subject to the federal alternative minimum tax ("AMT") as a result of the
deferred income, which results from the installment sales method. The Company
also began paying State of Florida AMT during that period. The Company currently
anticipates that it will continue to be subject to the federal AMT and will
continue to pay Florida AMT during future periods.
Under Section 453(l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer
receivables for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
any of this interest since it is not currently subject to tax. However, in the
future it may become so. The Company continues to monitor its tax provision and
may adjust it to provide for this interest in the future.
During 1997, in connection with the Initial Offering and Secondary Offering, the
Company repaid approximately $81.2 million of debt. As a result of the early
extinguishment of debt, the Company recorded an extraordinary charge relating to
the write-off of previously capitalized fees and incurrence of prepayment
penalties totaling $1.4 million, net of related tax benefits of $0.8 million.
Comparison of the Year Ended December 31, 1996 to the
Year Ended December 31, 1995
During 1996, the Company recognized total revenues of $96.9 million compared to
$81.1 million for the year ended December 31, 1995, an increase of $15.8
million, or 19.5%. This increase was primarily the result of a $9.9 million or
19.7% increase in sales of VOI's from $50.2 million during 1995 to $60.1 million
during 1996. Sales of VOI's increased primarily as a result of (i) a 7.3%
increase in the average sales price of VOI's, and (ii) an 11.6% increase in the
number of VOI's sold from 5,190 in 1995 to 5,794 in 1996. The increase in VOI's
sold was the result of the Company's marketing activities in central Florida and
a 110.4% increase in the sales generated by the Company's international
marketing efforts which grew from $4.7 million in 1995 to $9.9 million in 1996.
Interest income increased $2.6 million or 20.2% from $12.9 million during 1995
to $15.5 million during 1996, primarily as a result of a 24.5% increase in the
principal amount of net customer mortgages receivable from $80.5 million to
$100.2 million, and an increased weighted average yield on the Company's
customer mortgages receivable portfolio from 13.9% to 14.4%. Also included in
interest income was the discount amortization recognized on customer mortgages
receivable which increased 33.3% from $2.1 million in 1995 to $2.8 million in
1996 reflecting the recognition of discount amortization for the full period in
1996, as compared to a portion of the period in 1995. As of December 31, 1996,
$5.5 million of the unamortized discount remained and is expected to be
amortized over the next four years.
Resort revenues increased 7.9%, from $12.6 million in 1995 to $13.6 million in
1996, as a result of increased room rentals and retail
16
<PAGE>
operations at Vistana Resort in Orlando. Telecommunications revenues (guest
telephone charges relating to the existing resorts and revenues from contracting
services provided to third parties) increased 47.9%, from $4.8 million in 1995
to $7.1 million in 1996, due to increased telephone usage by resort guests and
an increase in contracting revenues from $3.5 million to $5.7 million.
Operating costs and expenses increased 14.6% during 1996 from $75.5 million in
1995 to $86.5 million, although, as a percentage of total revenues, operating
costs and expenses decreased from 93.1% in 1995 to 89.2% in 1996. Product costs,
telecommunications expenses and resort expenses increased at a rate commensurate
with or in excess of that of related revenues. Loan portfolio costs, general and
administrative expenses, and depreciation increased at rates less than the rate
by which revenues increased. Provision for doubtful accounts remained relatively
constant at 7.1% of revenues in 1996 from 7.0% in 1995. The Company periodically
monitors its provision for doubtful accounts to provide for future losses
associated with any defaults on customer mortgages receivable and provides for
additions to the allowance for loss on receivables through its provision for
doubtful accounts on an annual basis. Management believes that the provision is
adequate for such future losses. Interest expense-treasury increased due to
increased borrowings secured by customer mortgages receivable. Depreciation and
amortization increased at a rate lower than that of total revenues reflecting
the leveraging of these costs and assets over a larger revenue base. In
addition, operating costs and expenses decreased by $2.3 million as a result of
a decrease in the amount of deferred executive incentive compensation.
Costs of sales as a percentage of VOI sales increased from 24.0% in 1995 to
24.3% in 1996 reflecting a larger percentage of VOI's sold in 1996 compared to
1995 from a phase at Vistana Resort in Orlando, with a relatively greater per
unit cost for land and amenities than prior phases. The Company completed sales
from this higher-cost phase in mid-1997 and in future periods the Company
expects later phases at Vistana Resort in Orlando to have relatively lower costs
for land and amenities.
Sales and marketing expenses increased 25.1% from $22.3 million in 1995 to $27.9
million in 1996. As a percentage of VOI sales, these expenses increased from
44.5% to 46.4%. This increase is attributable to higher overall sales levels as
well as opening expenses associated with expanded international sales facilities
and the commencement of sales activities at the Hampton Vacation Resort--Oak
Plantation during the fourth quarter of 1996.
General and administrative expenses increased 12.9% in 1996 from $7.0 million in
1995 to $7.9 million in 1996. However, as a percentage of total revenues, these
costs decreased from 8.6% to 8.1%. Resort expenses as a percentage of resort
revenues decreased from 83.9% to 81.6% due to growth in management fee income
while telecommunications expenses as a percentage of telecommunications revenues
increased from 76.1% to 79.6% due to a higher mix of revenues from contracting
which carries a higher cost of sales.
Interest expense-treasury (consisting of interest paid on borrowings secured by
customer mortgages receivable) increased 6.2% from $6.5 million to $6.9 million.
This increase reflects higher borrowings secured by customer mortgages
receivable to fund growth in the Company's operations and the relatively higher
interest income described above. However, as a percentage of interest income,
interest expense-treasury decreased from 50.6% to 44.2%. Interest expense-other
increased $1.0 million, or 31.3%, to $4.2 million in 1996 as a result of the
impact for the full twelve months of the debt associated with the Executive
Repurchase and Option Redemption.
During 1995, the Company amended certain senior executives' employment
agreements originally entered into in 1991 to modify certain retention
incentives which increased long term deferred executive incentive compensation,
on a cumulative basis, from 1991 through 1995. In 1996, the expense recognized
for deferred executive incentive compensation decreased by 68.6% to $1.1 million
from $3.5 million in 1995. The Company entered into new employment agreements
with its senior executives effective upon completion of the Initial Offering
and, as a result, there will be no equivalent expense after 1996.
Operating income increased 87.5% in 1996 from $5.6 million in 1995 or 6.9% of
total revenue to $10.5 million or 10.8% of total revenue.
Liquidity and Capital Resources
The Company generates cash from operations from the sales and financing of
VOI's, resort operations, management activities and telecommunication services.
With respect to the sale of VOI's, the Company generates cash for operations
from (i) customer down payments and (ii) third party financing of customer
mortgages receivable in amounts typically equal to 90% of the related customer
mortgage receivable. The Company generates additional cash from the financing of
VOI's equal to the difference between the interest charged on the customer
mortgages receivable (which averaged 14.2% at December 31, 1997) and the
interest paid on the notes payable secured by the Company's pledge of such
customer mortgages receivable (which averaged 9.5% at December 31, 1997). Net
cash provided by operations decreased to $9.5 million for the twelve months
ended December 31, 1997 from $10.1 million for the prior year due largely to
increased construction activities relative to resort development. The impact of
construction activities was principally offset by certain non-cash items
including the tax effects related to the conversion of the Company to a C
corporation, including a non-recurring charge for recognizing cumulative
deferred taxes relative to the predecessor entities. Additional offsets included
increased levels of customer deposits and the provision for doubtful accounts
which both reflect the growing rev-
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS VISTANA, INC. AND SUBSIDIARIES
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
enue base and customer mortgages receivable portfolio. Construction activities
are expected to require increased amounts of cash during future periods.
Net cash used in investing activities for the twelve months ended December 31,
1997 and 1996 was $75.0 million and $20.8 million, respectively, principally due
to the cash consideration paid in the acquisition of Success and Points (net of
cash acquired) and the increase in customer mortgages receivable resulting from
increased sales of VOI's, including sales at Success and Points.
Net cash provided by financing activities increased to $69.3 million during 1997
from $9.3 million in 1996, primarily as a result of the Initial Offering and the
Secondary Offering. In the Initial Offering, which was completed in the first
quarter 1997, the Company issued 4,625,000 shares of Common Stock at a price of
$12 per share, resulting in approximately $49.5 million of net proceeds. Of the
net proceeds of the Initial Offering, $39.7 million were used to repay
outstanding debt and related interest and prepayment penalties and the remaining
$9.8 million were used to fund expansion and to provide the Company with working
capital. In the Secondary Offering, which was completed in the fourth quarter of
1997, the Company issued 2,000,000 shares of Common Stock at a price of $22 per
share, resulting in approximately $41.5 million of net proceeds. The net
proceeds of the Secondary Offering were used to repay outstanding debt and
related interest and prepayment penalties. The proceeds from the issuance of
Common Stock were principally offset by the debt repayment, including amounts
noted in connection with the offerings, net of the proceeds received from
existing facilities and additional credit capacity obtained during 1997.
The Company's current credit facilities (the "Credit Facilities") provide for
term loans, of which $28.1 million were outstanding as of December 31, 1997, and
revolving lines of credit, of which $81.4 million were outstanding as of
December 31, 1997 against total available capacity under the revolving lines of
credit (assuming the availability of sufficient receivables) at that date of
$291.0 million. As of December 31, 1997, the Company's term loans accrued
interest at various rates between 8.2% and 11.3% per annum. The Company's
revolving lines of credit accrued interest at certain reference rates which
ranged between 8.4% and 10.5% per annum as of December 31, 1997. Approximately
$102.9 million of the Company's indebtedness bears interest at variable rates
based on fixed spreads over a specified reference rate. The Company's
indebtedness under the Credit Facilities is secured primarily by pledges of the
Company's receivables (primarily its customer mortgages receivable), and by
mortgages on certain of the Company's unsold inventory of VOI's and other owned
real and personal property. The terms of certain of the Credit Facilities impose
operating and financial restrictions upon the Company, including, without
limitation, (i) maintenance of a minimum tangible net worth by certain of the
Company's operating subsidiaries; (ii) maintenance of certain financial ratios,
including the ratio of selling expenses to net VOI sales; and (iii) limitations
on cash distributions by certain of the Company's operating subsidiaries to the
amount of the subsidiary's net income or net cash flow (subject to certain
exceptions for tax and other permitted distributions).
The Company requires funds, which it currently obtains from its Credit
Facilities, to finance the acquisition and development of vacation ownership
resorts and related inventory, and to finance customer purchases of VOI's.
Historically, these funds have been provided by indebtedness secured by a
portion of the Company's inventory of unsold VOI's, customer mortgages
receivable and other assets. Of the amounts outstanding under the Credit
Facilities, as of December 31, 1997, the Company had $27.5 million outstanding
under its notes payable secured by its land and VOI inventory, $79.2 million
outstanding under its notes payable secured by customer mortgages receivable and
$2.8 million of other secured and unsecured notes payable. As of December 31,
1997, the Company's scheduled principal payments on its long-term indebtedness
through 2001 (excluding payments on Credit Facilities secured primarily by
customer mortgages receivable and VOI inventory) were $10.2 million in 1998,
$9.2 million in 1999, $3.8 million in 2000, $5.4 million in 2001, and $2.2
million in 2002 and thereafter.
During the year ended December 31, 1997, the Company entered into (i) three
customer mortgage receivable-based revolving credit facilities aggregating $65
million; and (ii) a $12.7 million loan facility for the construction of the
Embassy Vacation Resort at Myrtle Beach and related amenities. As of December
31, 1997, these loans accrued interest at LIBOR plus 2.5% and 3.25%,
respectively. In November 1997, the Company also entered into credit facilities
providing for a $20 million unsecured revolving line of credit and a one-year
renewable $70 million pre-securitization warehouse facility secured by VOI
receivables. The warehouse facility and the revolving line of credit provide for
LIBOR-based interest rates. Under the terms of the warehouse agreement,
dependent upon the level of utilization of the facility, the Company intends to
engage an affiliate of the lender to provide investment banking services in
leading the securitization of certain of the receivables securing the warehouse
facility. As of December 31, 1997, the Company had not drawn on either credit
facility.
The Company intends to pursue a growth-oriented strategy. Accordingly, the
Company may from time to time acquire, among other things, additional vacation
ownership resorts, additional land upon which vacation ownership resorts may be
expanded or developed and companies operating resorts or having vacation
ownership assets, management, or sales or marketing expertise commensurate with
the Company's operations in the vacation ownership industry. The Company is
currently considering the acquisition of several additional land parcels for the
expansion of an existing resort and for the development of additional resorts.
The Company is also evaluating additional asset and operating company
acquisitions.
18
<PAGE>
In the future, the Company may negotiate additional credit facilities, issue
debt, or enter into customer mortgages receivable securitizations. Any debt
incurred or issued by the Company may be secured or unsecured, bear interest at
fixed or variable rates, and be subject to terms and conditions approved by
management. The Company has historically enjoyed good credit relationships and
has been successful in establishing new relationships and expanding existing
credit facilities as its growth and opportunities have necessitated. Management
believes the Company will continue to be able to borrow in this manner.
The Company believes that the cash generated from operations and future
borrowings will be sufficient to meet its working capital and capital
expenditure needs for its current operations for the next 12 months. However,
depending upon the Company's growth opportunities, conditions in the capital and
other financial markets and other factors, the Company may from time to time
consider the issuance of debt, equity or other securities, the proceeds of which
may be used to finance acquisitions, to refinance debt or for general corporate
purposes.
During future periods, continued access to external funding will be necessary
for the Company to acquire, develop, and sell additional VOI inventory and to
finance customer purchases of its VOI's. If the Company were unable to obtain
credit facilities or debt or equity financing in amounts, and on terms and
conditions, satisfactory for such purposes, such event would have a material
adverse effect on the Company's business and results of operations.
Inflation
Inflation and changing prices have not had a material impact on the Company's
revenues, operating income and net income during any of the Company's three most
recent fiscal years. Due to the current economic climate, the Company does not
expect that inflation and changing prices will have a material impact on the
Company's revenues, operating income or net income. To the extent inflationary
trends affect short-term interest rates, a portion of the Company's debt service
costs may be affected as well as the rates the Company charges on its customer
mortgages.
Seasonality
The Company's revenues are moderately seasonal. Owner and guest activity at the
Company's resorts in the eastern United States are currently the greatest from
February through April and June through August. Owner and guest activity at the
Company's resorts in the western United States are currently the greatest from
June 15 to Labor Day and Christmas to Easter. As a result of this seasonality,
the Company currently anticipates its weakest operating results during the first
quarter, and its strongest operating results during the third quarter, of each
calendar year. However, as the Company opens new resorts and expands into new
markets and geographic locations it may experience increased or different
seasonality dynamics creating fluctuations in operating results that are
different from those experienced in the past.
Year 2000
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
risk. The Company has continued to assess this risk as it relates to the
availability and integrity of financial systems and the reliability of
operational systems. The Company has established processes for evaluating and
managing the risks and costs associated with this issue. The computing portfolio
was previously identified and an initial assessment has been completed. The
remaining cost of achieving year 2000 compliance is estimated to be
approximately $.3 million over the cost of normal software upgrades and
replacements and will be incurred through fiscal 1999.
19
<PAGE>
REPORT OF MANAGEMENT VISTANA, INC. AND SUBSIDIARIES
The consolidated financial statements of Vistana, Inc. and subsidiaries have
been prepared by management and have been audited by independent accountants.
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and other
sections of this report. Management believes that the consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of the events and transactions that should be included.
In preparing the consolidated financial statements, management necessarily made
informed estimates and judgments based on currently available information of the
effects of certain events and transactions.
In meeting its responsibility for the reliability of the consolidated financial
statements, management depends on the Company's internal control structure. This
internal control structure is designed to provide reasonable assurance that
assets are safeguarded and transactions are executed in accordance with
management's authorization and are properly recorded. In designing control
procedures, management recognizes that errors or irregularities may occur and
that estimates and judgments are required to assess and balance the relative
costs and expected benefits of the controls. Management believes that the
Company's internal control structure provides reasonable assurance that errors
or irregularities that could be material to the consolidated financial
statements are prevented or would be detected within a timely period by
employees in the normal course of performing their assigned functions.
The Board of Directors fulfills its oversight role for the accompanying
consolidated financial statements through its Audit Committee, which is composed
solely of directors who are not officers or employees of the Company. The
Committee meets with management and the independent accountants to review the
work of each, and to monitor the discharge by each of its responsibilities.
Management is responsible for the conduct of the Company's business in an
ethical, moral manner. Our commitment to ethics and integrity is a fundamental
part of the vision and values that are stressed at all levels of the Company.
/s/ Raymond L. Gellein, Jr. /s/ Jeffrey A. Adler /s/ Charles E. Harris
Raymond L. Gellein, Jr. Jeffrey A. Adler Charles E. Harris
Chairman of the Board and President and Vice Chairman and
Co-Chief Executive Officer Co-Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Vistana, Inc. and Subsidiaries:
We have audited the consolidated balance sheets of Vistana, Inc. and
subsidiaries (the "Company") as of December 31, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vistana, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
February 6, 1998
20
<PAGE>
CONSOLIDATED BALANCE SHEETS VISTANA, INC. AND SUBSIDIARIES
As of December 31, 1997 and 1996
<TABLE>
<CAPTION>
(in thousands except share amounts) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ 9,878 $ 6,134
Restricted cash.................................................... 9,196 3,847
Customer mortgages receivable, net................................. 155,048 100,166
Other receivables, net............................................. 4,953 5,002
Inventory of Vacation Ownership Interests.......................... 27,271 16,540
Construction in progress........................................... 17,026 8,670
------------------
Total Vacation Ownership Interests............................ 44,297 25,210
------------------
Prepaid expenses and other assets.................................. 15,021 11,892
Land held for development.......................................... 13,840 8,080
Intangible assets, net............................................. 17,275 1,196
Property and equipment, net........................................ 17,701 12,395
------------------
Total Assets.................................................. $287,209 $173,922
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities........................... $ 9,276 $ 3,828
Income taxes payable............................................... 1,927 --
Accrued compensation and benefits.................................. 9,847 9,291
Customer deposits.................................................. 9,423 4,995
Deferred income taxes.............................................. 17,535 --
Other liabilities.................................................. 6,265 6,151
Notes and mortgages payable........................................ 109,547 118,557
------------------
Total Liabilities............................................. 163,820 142,822
Minority interest.................................................. 3,984 4,452
Shareholders' Equity
Common stock, $.01 par value: Authorized 100,000,000 shares
Issued and outstanding 21,007,630 shares at December 31, 1997.. 210 --
Additional paid-in capital......................................... 107,341 --
Equity of predecessor entities..................................... -- 26,648
Retained earnings.................................................. 11,854 --
------------------
Total Shareholders' Equity.................................... 119,405 26,648
------------------
Total Liabilities and Shareholders' Equity.................... $287,209 $173,922
==================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME VISTANA, INC. AND SUBSIDIARIES
For the Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(in thousands except per share data
and share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Vacation Ownership Interest sales......... $100,887 $60,063 $50,156
Interest.................................. 19,296 15,546 12,886
Resort.................................... 16,921 13,587 12,613
Telecommunications........................ 7,499 7,054 4,802
Other..................................... 749 686 652
----------------------------------
Total revenues.......................... 145,352 96,936 81,109
----------------------------------
Costs and operating expenses:
Vacation Ownership Interest cost of sales. 22,898 14,595 12,053
Sales and marketing....................... 45,616 27,877 22,318
Interest expense--treasury................ 7,240 6,865 6,516
Provision for doubtful accounts........... 6,971 4,271 3,522
Resort.................................... 13,913 11,089 10,585
Telecommunications........................ 6,111 5,613 3,654
General and administrative................ 11,988 7,873 6,979
Depreciation and amortization............. 3,455 2,553 2,215
Interest expense--other................... 1,705 4,154 3,168
Other..................................... 3,009 443 1,020
Deferred executive incentive compensation. -- 1,114 3,448
----------------------------------
Total costs and operating expenses...... 122,906 86,447 75,478
----------------------------------
Operating income............................ 22,446 10,489 5,631
Excess value recognized..................... 111 105 219
Minority interest........................... 468 -- --
----------------------------------
Income before income taxes and extraordinary
item....................................... 23,025 10,594 5,850
Provision for income taxes.................. 8,101 -- --
Non-recurring charge associated with the
change of tax status....................... 13,201 -- --
----------------------------------
Income before extraordinary item............ 1,723 10,594 5,850
Extraordinary item--early extinguishment of
debt, net of tax........................... (1,425) -- --
----------------------------------
Net Income.............................. $ 298 $10,594 $ 5,850
==================================
Per share data:
Basic
Income per share before extraordinary
item.................................. $ 0.09 -- --
Extraordinary item...................... (0.07) -- --
----------------------------------
Income per share........................ $ 0.02 -- --
----------------------------------
Weighted average number of shares
outstanding............................ 18,344,545 -- --
==================================
Diluted
Income per share before extraordinary
item................................... $ 0.09 -- --
Extraordinary item...................... (0.07) -- --
----------------------------------
Income per share........................ $ 0.02 -- --
----------------------------------
Weighted average number of shares
outstanding............................ 18,649,180 -- --
==================================
Pro-forma share data (unaudited):
Income before income taxes.................. $ 23,025 $10,594 $ 5,850
Provision for income taxes.................. 8,726 4,026 2,223
----------------------------------
Pro-forma net income........................ $ 12,874 $ 6,568 $ 3,627
==================================
Pro-forma net income per share--basic....... $ 0.70 $ 0.46 $ 0.26
==================================
Pro-forma weighted average number of shares
outstanding--basic......................... 18,344,545 14,175,000 14,175,000
==================================
Pro-forma net income per share--diluted..... $ 0.69 $ 0.46 $ 0.26
==================================
Pro-forma weighted average number of shares
outstanding--diluted....................... 18,649,180 14,175,000 14,175,000
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS VISTANA, INC. AND SUBSIDIARIES
OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Equity of Total
Common Stock Paid-In Retained Predecessor Shareholders'
(in thousands except share amounts) Shares Amount Capital Earnings Entities Equity
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............. - $ - $ - $ - $ 33,658 $ 33,658
Distributions/Redemptions.............. - - - - (21,604) (21,604)
Net Income............................. - - - - 5,850 5,850
------------------------------------------------------------------
Balance at December 31, 1995........... - - - - 17,904 17,904
Distributions.......................... - - - - (1,850) (1,850)
Net income............................. - - - - 10,594 10,594
------------------------------------------------------------------
Balance at December 31, 1996........... - - - - 26,648 26,648
Distributions.......................... - - - - (2,245) (2,245)
Net income from January 1, 1997
through the Formation Transactions.... - - - - 1,645 1,645
Deferred taxes recorded in connection
with Formation Transactions........... - - - - $(13,201) (13,201)
Exchange of predecessor equity for
stock in connection with Formation
Transactions........................... 14,175 142 12,705 - 12,847 -
Proceeds from Initial Offering
(net of offering costs)............... 4,625 46 49,419 - - 49,465
Acquisition of Success Companies and
Points of Colorado.................... 207 2 3,772 - - 3,774
Proceeds from sale of common stock in
Secondary Offering (net of offering
costs)................................ 2,000 20 41,445 - - 41,465
Net income Subsequent to
Formation Transactions................ - - - 11,854 - 11,854
--------------------------------------------------------------------
Balance at December 31, 1997........... 21,007 $210 $107,341 $11,854 $ - $119,405
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW VISTANA, INC. AND SUBSIDIARIES
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net Income.......................................................................... $ 298 $ 10,594 $ 5,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense............................................. 3,455 2,553 2,215
Amortization of discount on customer mortgages receivable......................... (3,061) (2,757) (2,062)
Provision for doubtful accounts................................................... 6,971 4,271 3,522
Minority interest................................................................. (468) -- --
Deferred income taxes............................................................. 16,072 -- --
Changes in operating assets and liabilities, net of effect of acquisitions
Other receivables, net........................................................... 971 (1,306) (268)
Construction in progress......................................................... (20,725) (359) (1,082)
Prepaid expenses and other assets................................................ (3,174) (7,508) (3,760)
Accounts payable and accrued liabilities......................................... 4,805 (1,077) (69)
Income taxes payable............................................................. 1,927 -- --
Accrued compensation and benefits................................................ (30) 738 4,751
Customer deposits................................................................ 4,331 2,645 682
Repurchase obligation............................................................ -- (1,408) (1,604)
Other liabilities................................................................ (1,861) 3,729 225
-------------------------------
Net cash provided by operating activities...................................... 9,511 10,115 8,400
-------------------------------
Investing activities:
Expenditures for property and equipment............................................. (6,517) (2,513) (2,044)
Business acquisition, net of cash acquired.......................................... (25,383) -- --
Customer mortgages receivable, net.................................................. (38,405) (16,550) (13,871)
Repurchase of customer mortgages receivable......................................... -- (1,171) (1,692)
Additions to restricted cash........................................................ (4,731) (603) (921)
-------------------------------
Net cash used in investing activities.......................................... (75,036) (20,837) (18,528)
-------------------------------
Financing activities:
Proceeds from notes and mortgages payable........................................... 116,601 53,628 79,345
Principal payments on notes and mortgages payable................................... (136,017) (46,908) (42,611)
Net proceeds from public offerings.................................................. 90,930 -- --
Equity distributions/redemption..................................................... (2,245) (1,850) (21,603)
Minority interest................................................................... -- 4,443 --
-------------------------------
Net cash provided by financing activities...................................... 69,269 9,313 15,131
-------------------------------
Net increase in cash and cash equivalents...................................... 3,744 (1,409) 5,003
Cash and cash equivalents, beginning of period...................................... 6,134 7,543 2,540
-------------------------------
Cash and cash equivalents, end of period............................................ $ 9,878 $ 6,134 $ 7,543
===============================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................................ $ 9,446 $ 10,732 $ 9,729
===============================
Cash paid during the period for taxes............................................... $ 3,526 $ -- $ --
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
December 31, 1997 and 1996
(1) Nature of Business
Vistana, Inc. and its consolidated subsidiaries (the "Company") generate
revenues from the sale and financing of Vacation Ownership Interests ("VOI's")
in its resort properties which typically entitle the buyer to ownership of a
fully-furnished unit for a one week period on an annual or an alternate-year
basis. The Company's principal operations consist of (1) constructing,
furnishing, marketing and selling and, financing the sale of VOI's, and (2)
managing the operations of its resorts and related amenities. The Company sells
VOI's to both domestic and foreign purchasers. All contracts relating to the
sale of VOI's are denominated in U.S. dollars.
(2) Capital Transactions and Basis of Presentation
The Company became the parent for all of the operations of its predecessors in
connection with its initial public offering (the "Initial Offering") completed
on February 28, 1997. At the time of the Initial Offering each of the owners of
the predecessor entities (the "Principal Shareholders") transferred to the
Company all of the existing common stock and partnership interests owned by them
in exchange for 14.2 million shares (20 shares of the Common Stock of Vistana,
Inc. were outstanding at the time of the Initial Offering) of the Company (the
"Formation Transactions"). A total of 5.6 million shares of the Common Stock of
the Company were offered (4.6 million shares by the Company and .9 million
shares by the Principal Shareholders). In addition, in connection with the
Initial Offering and the Formation Transactions, former equity holders of the
Company's predecessor corporations and limited partnerships received a
distribution of approximately $2.6 million, $.3 million of which represented the
balance of such holders' federal and state income tax liability attributable to
their ownership of such entities through the date of the Initial Offering, and
$2.3 million of which represented the retained earnings of the Company's
predecessor corporations and limited partnerships for which such holders had
previously paid income tax. The Formation Transactions were accounted for as a
reorganization of entities under common control in a manner similar to a pooling
of interests. Accordingly, the net assets of the predecessor corporations and
limited partnerships were recorded at the predecessor entities' basis.
The majority of the consolidated subsidiaries were formed in 1991 by the
principal shareholders to acquire and own, either directly or indirectly, the
assets and certain liabilities of the predecessor operating entities from the
previous owner (the "Seller"). The consolidated financial statements shown
herein for the Company and its consolidated subsidiaries for each respective
period include the operations of its predecessors in interest.
Pro forma (unaudited) financial data presented on the face of the consolidated
statement of income for the year ended December 31, 1997 reflects the
elimination of the non-recurring charge for deferred taxes pertaining to the
predecessor entities relative to all years prior to 1997. Pro forma (unaudited)
financial data presented on the face of the consolidated statements of income
reflect results of the years ended 1996 and 1995 as if the conversion of tax
status to a C corporation had occurred at the beginning of each respective
period.
(3) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
certain wholly owned subsidiaries (both corporations and limited partnerships)
under common control. The consolidated financial statements also include the
accounts of two partnerships between one or more subsidiary companies and
unaffiliated third party partners wherein the Company exercises operational and
financial control over such partnerships. Interests of unaffiliated third
parties are reflected as minority interests.
(b) Revenue Recognition
Greater than 90% of VOI's sold by the Company generate installment receivables
secured by a mortgage on the related VOI. These customer mortgages receivable
are payable in monthly installments, including interest, with maturities up to
ten years. Sales are included in revenues when minimum down payment requirements
(at least 10%) have been met. A provision is recorded for those contracts
expected to rescind in the allowed statutory rescission period.
Product costs and direct selling expenses related to a VOI sale are recognized
at the time the sale is recognized. Product costs include the cost of land,
professional fees, improvements to the property and, for certain projects, the
cost of amenities owned by the VOI owners. Product costs are allocated to each
VOI based on the total number and type of VOI's in the particular phase.
In 1997, the Company began pre-construction sales at its Embassy Vacation Resort
at Myrtle Beach, South Carolina. There were no pre-construction VOI sales or any
VOI sales recognized under the percentage of completion method in either the
first or second quarter of 1997. During the quarter ended September 30, 1997,
construction commenced and the Company began recognizing revenue related to VOI
sales at this resort using the percentage of completion method. Under this
method, the portion of revenues related to applicable costs (including
construction and sales and marketing costs) incurred, as compared to the total
estimate of such costs, is recognized as revenue in the period of sale. The
remaining revenue is deferred and recognized as the remaining costs are
incurred.
Resort revenues are recognized on an accrual basis. Telecommunications revenues
are recognized when earned.
(c) Allowance for Losses on Customer Mortgages Receivable
The Company provides for estimated future losses to be incurred related to
uncollectible customer mortgages receivable. The Company evaluates such
receivables collectively for impairment due
25
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
to their relative balances and homogenous nature. The allowance is based on the
collection history of the receivables and is net of anticipated cost recoveries
of the underlying VOI's. Management believes that all such allowances are
adequate.
(d) Inventory of VOI's and Land Held for Development
Inventory of VOI's and related construction in progress are carried at cost,
which is lower than fair value less cost to sell. The recoverability of
inventory is determined on an individual project basis, which is based on each
resort location. Land held for development is carried at the lower of cost or
fair value less cost to sell.
(e) Customer Deposits
Until a VOI contract qualifies as a sale, all payments received are accounted
for as deposits. If a contract is canceled after the applicable statutory
period, deposits forfeited are credited to income.
(f) Intangible Assets
The Company reevaluates the recoverability of intangible assets as well as the
amortization periods to determine whether an adjustment to carrying value or a
revision to estimated useful lives is appropriate. The primary indicators of
recoverability are a significant event or change in the environment in which the
business operates, and current and forecasted undiscounted operating cash flows.
(g) Fair Market Value of Financial Instruments
The carrying amount reported in the consolidated balance sheets for cash and
cash equivalents, restricted cash, other receivables, accounts payable and
accrued liabilities approximates fair market value due to the immediate or
short-term maturity of these financial instruments. The approximate fair value
of customer mortgages receivable exceeds book value by the amount of the
unamortized discount on customer mortgages receivable purchased. The carrying
amount of notes and mortgages payable approximates fair market value as the
interest rates on the underlying instruments reprice frequently.
(h) 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 statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax-credit carry forwards. 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.
(i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a number of estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates and assumptions.
(j) Cash and Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less. Cash and cash equivalents
consist of cash and money market funds.
Restricted cash consists of: (1) deposits received on sales of VOI that are held
in escrow until the applicable statutory rescission period has expired and the
related customer mortgage has been recorded, and (2) worker's compensation
funds.
(k) Interest Rate Swap Agreements
The Company only uses derivative financial instruments on a limited basis and
does not use them for trading purposes. Derivative financial instruments are
used to manage well-defined interest rate risks. The differential to be paid or
received under the terms of the interest rate swap agreements is accrued as
interest rates change and is recognized over the life of the applicable interest
rate swap agreements. The Company does not engage in speculative or profit
motivated hedging activities. As of December 31, 1997, the Company had no
derivative financial instruments outstanding.
(l) Reclassifications
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
(m) Effect of New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share" which simplifies the calculation of earnings per share. Basic earnings
per share ("EPS") excludes dilution and is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue Common Stock were
exercised and shared in the earnings of the Company. The Company adopted this
Standard in December 1997. For the year ended December 31, 1997, approximately
.3 million net shares relative to options granted were considered dilutive after
giving effect for taxes and the application of the treasury stock method and
were included in the diluted EPS calculation. An additional .08 million shares
were considered anti-dilutive and therefore excluded from the diluted EPS
calculation.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that
26
<PAGE>
is displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997. This
statement will not have a material impact on the Company.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information" which establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements. This Statement requires reporting of selected
information about operating segments in interim financial reports. This
statement is effective for fiscal years beginning after December 15, 1997. This
statement will not have a material impact on the Company.
(n) Concentrations of risk
Any adverse change 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 have a material adverse effect on the Company's
business. Such conditions or increases may also adversely affect the future
availability and cost of financing for the Company or its customers and result
in a material adverse effect on the Company's business. In addition, changes in
general economic conditions may adversely affect the Company's ability to
collect on its customer mortgages receivable outstanding from the buyers of
VOI's.
(4) Customer Mortgages Receivable, Net
As of December 31, customer mortgages receivable, net consisted of:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Customer mortgages receivable, gross......... $170,147 $115,970
Less:
Unamortized discount on customer
mortgages receivable purchased........... (2,478) (5,539)
Unamortized excess value over
consideration............................ (27) (74)
Allowance for loss on receivables.......... (12,594) (10,191)
---------------------
Customer mortgages receivable, net......... $155,048 $100,166
=====================
</TABLE>
As of December 31, 1997 and 1996, customer mortgages receivable, gross, from
foreign buyers aggregated approximately $34.5 million and $28.0 million,
respectively, with buyers within no individual foreign country aggregating more
than 5% of gross outstanding customer mortgages receivable.
Stated interest rates on customer mortgages receivable outstanding at December
31, 1997 range from 00.0% to 17.9% per annum (averaging approximately 14.2% per
annum). Interest is not imputed on customer mortgages receivable with less than
a market interest rate because such amounts are immaterial.
The activity in the customer mortgages receivable allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year............... $10,191 $ 9,009 $10,144
Provision for doubtful accounts.......... 6,971 4,271 3,522
Allowance relating to customer
mortgages receivable purchased........ - 588 628
Allowance relating to customer
mortgages receivable for
businesses acquired................... 1,076 - -
Customer mortgages receivable
charged off........................... (5,644) (3,677) (5,285)
---------------------------
Balance, end of year..................... $12,594 $10,191 $ 9,009
===========================
</TABLE>
During 1996 and 1995, under the clean-up call provisions of the related
transactions, the Company repurchased the remaining amount of customer mortgages
receivable previously sold and effectively liquidated the entities. The Company
repurchased gross customer mortgages receivable of $10.5 million and $9.8
million and recorded a discount, which amounted to $4.6 million and $5.8 million
for December 31, 1996 and 1995, respectively. This discount is being amortized
over the estimated remaining collection period of the purchased customer
mortgages receivable. Amortization of the discount during 1997, 1996, and 1995
was $3.1 million, $2.8 million, and $2.1 million, respectively, and is included
in interest income.
(5) Property and Equipment, Net
As of December 31, property and equipment, net consisted of:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Land and land improvements.................... $ 2,753 $ 2,483
Buildings and building improvements........... 11,595 7,760
Furniture, fixtures and equipment............. 9,510 7,234
--------------------
Subtotal................................... 23,858 17,477
Less accumulated depreciation................. (7,508) (5,181)
--------------------
Subtotal................................... 16,350 12,296
Construction in progress...................... 1,351 99
--------------------
Property and equipment, net................... $17,701 $12,395
====================
</TABLE>
Property and equipment are recorded at cost. Depreciation of property and
equipment is computed over the applicable estimated useful lives (between 3 and
30 years) of the assets using the straight-line method.
27
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
(6) Prepaid Expenses and Other Assets
As of December 31, prepaid expenses and other assets consisted of:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Prepaid licensing fee............................. $5,075 $5,075
Prepaid financing fees............................ 1,981 2,947
Other prepaid expenses............................ 4,067 2,048
Prepaid business registration costs............... 1,453 263
Ticket inventory and sales and marketing
materials....................................... 2,445 1,559
------------------
Total prepaid expenses and other assets........... $15,021 $11,892
==================
</TABLE>
The licensing fee pertains to the partnership involving Vistana WGV, Ltd. and
will be amortized over ten years beginning in 1998 with the commencement of
sales activities for Vistana Resort at World Golf Village. Prepaid financing
fees related to notes and mortgages payable are capitalized and amortized over
the lives of the respective debt on a straight-line basis. Amortization expense
related to prepaid financing fees was $1.0 million, $.7 million and $.7 million
in 1997, 1996, and 1995, respectively, and is included in amortization and
depreciation expense in the consolidated statements of income.
(7) Joint Ventures and Other Agreements
Vistana WGV, Ltd. ("WGV")
In June of 1996, the Company entered into a partnership agreement providing for
the Company to serve as general partner with operating and financial control
over the partnership as well as own a 37.5% interest therein. WGV is developing
the first phase of a 408 unit resort near St. Augustine, Florida. WGV has
entered into various licensing, servicing fee and royalty arrangements based
upon stipulated percentages of sales of VOI or gross rental revenue from
operations of unoccupied units at the resort. A $5.1 million licensing fee was
paid by WGV to an unaffiliated partner for the use of names and logos. This fee
has been capitalized and will be amortized over the projected sales period
currently estimated at ten years. WGV is contingently liable, along with other
developers at the project, for annual debt service shortfalls, up to a specified
amount, related to bond funding for a related convention center development.
Under certain defined circumstances, the Company has the right to acquire the
interest of the other unaffiliated partners as well as such unaffiliated
partners having the right to require the Company to purchase their ownership
interests. WGV has been included in the consolidated financial statements.
Oak Plantation Joint Venture ("OPJV")
In June 1996, the Company acquired a 66.7% ownership interest and became
managing joint venturer for OPJV. Subsequently, OPJV converted a 242 unit multi-
family property in Kissimmee, Florida into a VOI resort. The Company acquired
its ownership interest in OPJV without payment of cash in a purchase
transaction. The fair value of the assets acquired and the liabilities assumed
each aggregated approximately $12.2 million, which included a liability of $1.9
million which was paid in January 1997 to an unaffiliated partner for the early
termination of a consulting service arrangement. Under certain defined
circumstances, the Company has the right to acquire the interest of the other
unaffiliated partners as well as such unaffiliated partners having the right to
require the Company to purchase their ownership interests. OPJV has been
included in the consolidated financial statements.
Promus Agreement
In December 1996, the Company and Promus Hotels, Inc. entered into an exclusive
five-year agreement (the "Promus Agreement") to jointly acquire, develop,
market and operate vacation ownership resorts in North America under Promus'
Embassy Vacation Resort, Hampton Vacation Resort and Homewood Vacation Resort
brands. Under the Promus Agreement, the Company is Promus' exclusive joint
venture partner for the acquisition, development and operation of vacation
ownership resorts in North America and also has the option of operating vacation
ownership resorts on a franchise basis. The Promus Agreement precludes the
Company from acquiring or developing vacation ownership resorts with any other
multi-hotel brand, but preserves its ability to develop vacation ownership
resorts in combination with non-hotel brands, to acquire or develop vacation
ownership resorts under the Vistana name (other than in certain selected markets
agreed to by the parties), and to develop vacation ownership resorts with
unique, non-multi-hotel brand hotel properties. As of December 31, 1997, the
Company and Promus had not entered into any development or project for which the
joint venture component of the Promus Agreement would be initiated. As of
December 31, 1997, the Company was operating the OPJV resort, and developing the
Myrtle Beach property, as franchised resorts pursuant to the Promus Agreement.
In September 1997, the Company acquired land for the development of a 150 unit
Embassy Vacation Resort in Scottsdale, Arizona. The resort is expected to be
developed as a franchise under the Promus Agreement.
Proposed Sun International Joint Venture
In November 1997, the Company entered into an agreement to form a 50/50 joint
venture with a subsidiary of Sun International Hotels, Limited to design,
develop, sell and manage a vacation ownership resort adjacent to the Atlantis
Resort and Casino on Paradise Island in The Bahamas. In connection with the
proposed joint venture, the Company would be required to make an initial cash
equity investment of approximately $7 million for the initial phase of the
project. As of December 31, 1997, no activity has occurred for which amounts
have been included in the consolidated financial statements.
(8) Acquisition Transactions
On September 16, 1997, the Company completed the acquisition of entities
comprising The Success Companies, Success Developments,
28
<PAGE>
L.L.C. and Points of Colorado, Inc. ("Success and Points"). The Company acquired
the entire equity interest in the acquisition for a purchase price of
approximately $24.0 million in cash, .2 million shares of Company common stock
and contingent consideration of .4 million shares of Company common stock. The
net assets acquired totaled $11.6 million. Delivery of the contingent shares is
dependent upon Success and Points achieving certain operating results for
calendar years 1998 through 2000. Management of the Company has determined that
the contingent consideration is an additional cost of the acquisition. The
purchase method of accounting was followed in accounting for this transaction.
The goodwill associated with the acquisition, incurred to date, is being
amortized on a straight-line basis over 20 years. Operations of Success and
Points from September 16, 1997 through year end 1997 are included in the
accompanying consolidated statements of income.
The following unaudited pro forma summary presents the combined results of
operations of the Company and Success and Points, as if the acquisition had
occurred at the beginning of 1997 and 1996, respectively. The pro forma amounts
also give effect to certain adjustments which reflect: (1) the Company's Initial
Offering and the conversion of tax status as if each event had occurred at the
beginning of each period and, (2) in 1997 the exclusion of non-recurring charges
related to deferred taxes pertaining to the predecessor entities and
extraordinary items pertaining to extinguishments of debt. This pro forma
summary does not necessarily reflect the results of operations as they would
have been if the businesses had constituted a single entity during such periods
and is not necessarily indicative of results which may be obtained in the
future. The pro forma presentation of the Success and Points acquisition without
effect for the aforementioned adjustments would reflect net income of $1.4
million and $6.9 million or $0.07 and $0.48 per share for the years ended
December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
(Pro forma unaudited)
Years ended
December 31,
------------
(in thousands except per share amounts) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
VOI sales................................ $117,420 $ 74,125
Interest income.......................... 21,144 16,629
Total revenue............................ 164,655 112,885
Cost of VOI sales........................ 27,213 17,946
Sales and marketing...................... 52,727 33,844
Provision for doubtful accounts.......... 7,249 4,456
Interest expense--treasury............... 9,032 8,066
Operating income......................... 24,866 16,019
Net income............................... 15,776 9,997
Earnings per share--diluted.............. $ 0.81 $ 0.53
</TABLE>
On November 3, 1997, the Company entered into and completed an agreement to
purchase the assets of two related guest service and marketing companies (the
"Acquired Companies") for $1.8 million in cash and approximately $3.2 million in
contingent cash payments. Payment of the contingent consideration is conditioned
on the Acquired Companies achieving certain operating results in each of the
calendar years 1998 through 2000. Management of the Company has determined that
the contingent consideration is an additional cost of the acquisition. The
purchase method of accounting was followed in accounting for this transaction.
The goodwill associated with the acquisition is being amortized on a straight-
line basis over 10 years. Operations of the Acquired Companies from November 3,
1997 through year end 1997 are included in the accompanying consolidated
statements of income.
(9) Intangibles
Intangible assets consist of goodwill and a covenant not to compete, totaling
$17.3 million as of December 31, 1997 and only the covenant not to compete which
totalled $1.2 million as of December 31, 1996. In connection with the Success
and Points acquisition and the acquisition of the Acquired Companies completed
during 1997, consideration paid exceeded the estimated value of the assets
acquired (including estimated liabilities assumed as part of the transaction) by
approximately $16.7 million. As of December 31, 1997, no additional goodwill had
been recorded relative to the contingent consideration discussed in Note 8
above. The excess of investment over net asset values at acquisition is being
amortized over periods of 20 and 10 years, respectively, on a straight-line
basis. The amount of excess consideration paid over net asset value amortized
was $0.2 million in 1997. The covenant not to compete with a former
shareholder/executive of the Company is being amortized over the five-year term
of the agreement. Amortization expense related to the covenant not to compete
was $.4 million, $.4 million, and $.3 million, in 1997, 1996, and 1995,
respectively.
In connection with the acquisition by the Company in 1991 from the Seller, the
estimated value of the assets acquired exceeded the consideration paid
(including the estimated liabilities assumed as part of the transaction) by $3.4
million. Accordingly, the excess value over consideration paid has been
allocated on a pro-rata basis to reduce the recorded value of long-term assets
originally acquired from the Seller, principally customer mortgages receivable.
This excess value over consideration paid is being amortized into income over
the life of those assets. The amount of excess value over consideration paid
amortized into income was $.1 million in both 1997 and 1996, and $.2 million in
1995, with a remaining unamortized balance as of December 31, 1997 and 1996 of
$.7 million and $.8 million, respectively.
29
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
(10) Repurchase Obligations
Changes in repurchase obligations during the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Balances, beginning of year.................... $ 3,003 $ 6,910
Loss on customer mortgages receivable
repurchased under recourse provisions........ (1,408) (1,603)
Remaining balance of estimated losses on
repurchase obligations relating to customer
mortgages receivable repurchased............. (1,595) (2,304)
------------------------
Balances, end of year.......................... -- $ 3,003
========================
</TABLE>
As of December 31, 1997, there were no outstanding customer mortgages receivable
sold for which the Company had a recourse obligation.
(11) Notes and Mortgages Payable
As of December 31, notes and mortgages payable consisted of:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes Payable Secured by Customer Mortgages Receivable
Notes payable bearing interest at prime plus 2.0% per annum (10.5% at December 31, 1997). Remaining
availability under these lines of credit was $75.2 million at December 31, 1997.......................... $ 34,791 $ 62,099
Notes payable bearing interest at LIBOR plus 2.5% (8.38% at December 31, 1997). Remaining availability
under these lines of credit was $35.1 million at December 31, 1997....................................... 39,942 --
Note payable bearing fixed interest at 11.34% per annum. Final payment is expected by December 1998........ 4,191 8,752
Note payable bearing interest at prime plus 1.5% (10.0% per annum at December 31, 1997). Remaining
availability under this revolving line of credit was $4.7 million at December 31, 1997 and the
remaining commitment term for new borrowings expires on September 30, 1998............................... 278 1,278
Note payable bearing interest at prime plus 2.0% per annum................................................. -- 1,120
-------------------
Subtotal of notes secured by customer mortgages receivable................................................. $ 79,202 $ 73,249
===================
Notes payable and mortgage obligations secured by real estate
Term note payable bearing interest at prime plus 2.0% and maturing on June 25, 2001.
Remaining availability at December 31, 1997 was $1.1 million............................................. $ 17,167 $ 12,701
Construction mortgage note payable bearing interest at prime plus 2.0%. Remaining
availability at December 31, 1997 was $12.0 million. Matures on July 24, 2001............................ 6,591 2,500
Notes payable bearing interest at LIBOR plus 3.25% (9.13% per annum at December 31, 1997). Remaining
availability at December 31, 1997 was $10.8 million...................................................... 1,930 --
Mortgage loan bearing fixed interest at 8.2% per annum at December 31, 1997................................ 1,839 --
Mortgage obligations due in 1997 and 2004, bearing fixed interest at 10.1%................................. -- 5,893
-------------------
Subtotal of notes and mortgages secured by real estate..................................................... $ 27,527 $ 21,094
===================
Other notes and mortgage loans payable
Mortgage loan with an available line of $1.1 million. The loan bears interest at prime plus 1%............. -- 985
Acquisition note payable under which a total of $3 million may be borrowed................................. -- 385
Various notes payable with monthly payments of principal and interest, ranging from 8.25% to 11.03% per annum -- 106
Unsecured note payable (working capital loan) bearing interest at prime plus 2%.
Matures on June 25, 2001. Remaining availability at December 31, 1997 was $.3 million.................... 2,228 943
Various notes payable bearing interest at variable rates (applicable Eurodollar Rate plus a range of 4% to
6% which had been swapped)............................................................................... -- 14,495
Subordinated unsecured notes payable bearing interest at prime plus 2.0%................................... -- 7,300
Capital lease obligations.................................................................................. 590 --
-------------------
Total notes and mortgages payable............................................................................ $109,547 $118,557
===================
</TABLE>
30
<PAGE>
During the quarter ended September 30, 1997, the Company entered into a $12.7
million loan facility for the construction of the Embassy Vacation Resort at
Myrtle Beach, South Carolina and related amenities, as well as a related $10.0
million receivables based revolving credit facility. During the third quarter,
the Company also entered into a $30.0 million receivables based revolving credit
facility secured by receivables generated primarily at Vistana Resort in
Orlando, Florida, a $10.0 million and a $15.0 million receivables based
revolving credit facility secured by the Success and Points receivables,
respectively. All of these receivables facilities are priced at LIBOR plus
2.50%. The construction loan facility is priced at LIBOR plus 3.25%.
In November 1997, the Company entered into credit facilities including a $20
million unsecured revolving line of credit, priced at LIBOR plus 2.25% and a
one-year renewable $70 million pre-securitization warehouse facility secured by
VOI receivables priced at LIBOR plus 1.0%. The warehouse facility may only be
used for receivables generated by resorts that are wholly-owned by the Company.
Under the terms of the warehouse agreement, dependent upon the level of
utilization of the facility, the Company intends to engage an affiliate of the
Lender to provide investment banking services in leading the securitization of
certain of the receivables securing the warehouse facility. As of December 31,
1997, the Company had not drawn on either credit facility.
In addition, relative to facilities with outstanding balances as of December 31,
1997 secured by customer mortgages receivable, the Company has remaining
available loan facilities under which it may borrow up to $115 million. These
various facilities bear interest at rates which include prime plus 2% and 1.5%,
as well as LIBOR plus 2.5% and fixed interest of 11.34% which will be secured by
customer mortgages receivable. In addition, as noted in the preceding paragraph,
the Company has an available loan facility in the amount of $70 million at LIBOR
plus 1.0% per annum.
As part of financing the development of units for WGV and OPJV, the joint
venturers have agreed to pay its lenders, upon fulfillment of its obligations,
incentive fees. The incentive fees will be recognized over the term of the debt
as an adjustment to interest expense using the effective interest method. The
debt associated with the incentive fees have outstanding balances of $6.6
million, $17.2 million, and $2.2 million at December 31, 1997. In addition, upon
formation, WGV entered into an agreement with one of the limited partners
whereby WGV could borrow up to $1.6 million. No amounts were outstanding under
this agreement as of December 31, 1997.
Scheduled principal payments on notes and mortgages where there are agreed upon
scheduled repayments subsequent to December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31:
- --------------------------------------------------------------------------------
<S> <C>
1998.................................................................. $10,247
1999.................................................................. 9,171
2000.................................................................. 3,758
2001.................................................................. 5,402
2002 and thereafter................................................... $ 2,228
</TABLE>
Repayment terms on the notes payable secured by customer mortgages receivable
are such that all collections of principal and interest on the receivables
serving as collateral are paid to the lender on a monthly basis, and are
excluded from the above schedule. Payments are first applied to outstanding
interest and then to principal. As principal repayments on notes payable are
made by collections of the related secured customer mortgages receivable, there
are no fixed amortization dates for these notes. The total amount of customer
mortgages receivable pledged was $125.1 million and $86.9 million at December
31, 1997 and 1996, respectively.
(12) Extraordinary Items
During the first and fourth quarters of 1997, in connection with the Initial
Offering and Secondary Offering, the Company repaid certain indebtedness early
and, as a result, recognized extraordinary after-tax charges of $0.8 million and
$0.6 million, respectively, or $0.05 per share and $0.03 per share,
respectively. The interest rates on the indebtedness extinguished ranged between
10.3% and 11.9% per annum, and 8.2% and 11.0% per annum, respectively. The
extraordinary charges consisted of the following amounts:
<TABLE>
<CAPTION>
(in thousands) 1997
- --------------------------------------------------------------------------------
First Fourth
Quarter Quarter
------- -------
<S> <C> <C>
Write-off of related unamortized
financing costs............................................ $ 863 $696
Prepayment penalties......................................... 455 272
---------------
Extraordinary charge before tax benefit...................... 1,318 968
Income tax benefit........................................... 493 368
---------------
Net extraordinary charge..................................... $ 825 $600
===============
</TABLE>
(13) Income Taxes
Upon completion of the Initial Offering, the Company became subject to federal
and state income taxes from the effective date of the sale of the Common Stock.
In addition, the Company was required to provide a deferred tax liability for
cumulative temporary differences between financial reporting and tax reporting
in its consolidated statements of income for the period following the effective
date of the Initial Offering. Such deferred taxes are based on the cumulative
tem-
31
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
porary differences at the date of the Initial Offering and totalled $13.2
million. For the year ended December 31, 1997, the Company recorded
approximately $4.0 million of current income tax expense and approximately $4.1
million of deferred income tax expense.
Prior to February 28, 1997, the predecessor entities were taxed either as a C
corporation at the corporate level, as an S corporation taxable at the
shareholder level, or as a partnership taxable at the partner level.
Accordingly, the table below summarizes the unaudited pro forma provision for
income taxes that would have been reported had the Company been treated as a C
corporation rather than as individual partnerships and limited liability
companies for federal income tax purposes for the years ended December 31, 1996
and 1995. The Company's actual income tax provision is presented for the period
subsequent to February 28, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------
[Pro forma
Current: (unaudited)]
<S> <C> <C> <C>
Federal................................ $3,426 $2,500 $(1,200)
State.................................. 584 220 --
-----------------------
4,010 2,720 (1,200)
-----------------------
Deferred:
Federal................................ 3,495 1,071 3,054
State.................................. 596 235 369
-----------------------
4,091 1,306 3,423
-----------------------
Provision for income taxes............... $8,101 $4,026 $ 2,223
=======================
</TABLE>
A reconciliation between the statutory provision for income taxes and the
provision for income taxes is shown as follows for the year ended December 31:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------
[Pro forma
Current: (unaudited)]
<S> <C> <C> <C>
Income tax at federal statutory rate..... $7,456 $3,905 $2,086
State tax, net of federal benefit........ 762 300 244
Amortization of excess value recognized.. (38) (36) (75)
Other.................................... (79) (143) (32)
------------------------
Provision for income taxes............... $8,101 $4,026 $2,223
========================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the net deferred tax liabilities were as follows for the year
ended December 31:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(in thousands) 1997 1996
- ----------------------------------------------------------------
Deferred tax assets: [Pro forma
(unaudited)]
<S> <C> <C>
Allowance for doubtful accounts....... $ 5,211 $ 5,346
Purchase discounts.................... 1,217 2,286
Alternative minimum tax credit........ 5,453 --
Fixed assets and intangibles.......... 967 1,603
Net operating loss carry forward...... 5,093 --
Accrued compensation and benefits..... 1,666 2,373
Other accruals........................ 1,714 1,594
Other................................. 826 77
---------------------
Total deferred tax assets........... $ 22,147 $ 13,279
Deferred tax liabilities:
Deferred revenue (installment sales).. $ 38,764 $ 23,792
VOI and other inventory............... 338 257
Other................................. 580 --
---------------------
Total deferred tax liabilities...... 39,682 24,049
---------------------
Net deferred tax liabilities........ $(17,535) $(10,770)
=====================
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $13.3 million for federal tax purposes, which expire between 2008
and 2012. In addition, the Company had approximately $5.4 million in alternative
minimum tax credit carryforwards.
Under Section 453 (l) of the Internal Revenue Code, interest may be imposed on
the amount of tax attributable to the installment payments on customer mortgages
receivable for the period beginning on the date of sale and ending on the date
the related tax is paid. If the Company is otherwise not subject to pay tax in a
particular year, no interest is imposed since the interest is based on the
amount of tax paid in that year. The Company has not included a provision for
this interest, as it is not currently subject to the tax, however, in the future
it may become so. The Company continues to monitor its tax provision and may
adjust it to provide for this interest in the future.
(14) Shareholders' Equity
The Company is authorized to issue 100 million shares of Common Stock, par value
of $.01 per share. At the time of the Initial Offering the Company issued a
total of 5.55 million shares of Common Stock at a price of $12 per share. The
majority of the approximately $49.5 million net proceeds from the Initial
Offering were used to repay approximately $39.7 million of certain outstanding
indebtedness, including $.6 million of accrued interest and prepayment
penalties.
32
<PAGE>
On December 4, 1997, the Company completed a Secondary Offering of 2.0 million
shares of Common Stock at a price of $22 per share. The Company used all of the
$41.5 million net proceeds to repay outstanding indebtedness, including $0.3
million of accrued interest and prepayment penalties.
The Company is authorized to issue 5.0 million shares of preferred stock, par
value $.01 per share. As of December 31, 1997 and 1996, none of the authorized
shares had been issued.
During 1995, the Company made distributions to one of its shareholders
sufficient to redeem all of that individual's interests in the Company. As part
of this transaction, the former shareholder/executive and the Company entered
into a five-year covenant not to compete and a consulting and management
agreement. Costs associated with the five-year covenant not to compete have been
included in intangible assets in the accompanying consolidated balance sheets.
In connection with the sale of customer mortgages receivable concurrent with the
acquisition by the Company from the Seller in 1991, unaffiliated third parties
received options to purchase limited partnership interests totaling 15% of
certain of the consolidated affiliates of the Company. During 1995, the Company
repurchased these options from the unaffiliated third parties. These
transactions have been reflected and included as equity redemptions in the
amount of $20.2 million in the accompanying consolidated statements of equity
for the year ended December 31, 1995.
(15) Stock Option and Employee Stock Purchase Plans
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" in
1997 by accounting for employee stock-based compensation under APB Opinion No.
25 and providing pro forma equivalent information in a footnote disclosure.
Stock Option Plan
The Vistana, Inc. Stock Plan (the "Stock Plan") was adopted by the Company's
shareholders in December 1996, prior to the Initial Offering. The Stock Plan
covers up to 1.9 million shares of Common Stock and permits the Company to grant
to employees, directors, officers, and consultants of the Company and its
subsidiaries and affiliates: (i) incentive stock options ("ISOs"); (ii) non-
qualified stock options ("NSOs"); (iii) stock appreciation rights; (iv) phantom
stock awards; and (v) restricted stock. The Board of Directors has approved an
amendment increasing the number of shares covered by the Stock Plan to 2.5
million, subject to shareholder approval at the 1998 Annual Meeting of
Shareholders. The Stock Plan is administered by the Compensation Committee of
the Board of Directors, which also selects the individuals who receive grants
under the plan. As of December 31, 1997, the only grants that had been made
under the Stock Plan were NSOs.
The exercise price, term, and vesting schedule for options granted under the
Stock Plan are set by the Compensation Committee, subject to certain
limitations. Under the Stock Plan, the exercise price of an ISO may not be less
than the fair market value of the shares of Common Stock at the date of grant
(110% if the ISO is granted to a greater than 10% shareholder), and the term of
an option may not exceed 10 years (5 years if an ISO is granted to a greater
than 10% shareholder). Unless otherwise specified by the Compensation Committee
(which from time to time has approved vesting schedules ranging from 24 to 48
months), options become 25% vested after 12 months from the date of grant and
thereafter vest pro rata in arrears over 36 months. Vesting is accelerated in
the event of a change in control of the Company. Options generally terminate at,
or shortly after, the termination of the option holder's employment. Each of the
Company's non-employee directors received NSOs under the Stock Plan upon joining
the Board of Directors. The Stock Plan provides for the automatic grant of 5,000
additional NSOs per year to certain non-employee directors after the options
previously granted to the director have vested.
33
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
The following table summarizes the status of the Company's Stock Plan:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Fixed Option Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding options beginning of year........................... 535,000 $11.00 -- --
Granted:........................................................ 1,654,000 $14.94 535,000 $11.00
Exercised:...................................................... -- -- -- --
Forfeited:...................................................... 108,250 $12.00 -- --
Outstanding at year end:........................................ 2,080,750 $14.08 535,000 $11.00
Exercisable at year end:........................................ 178,750 $11.25 -- --
Weighted average fair value of options granted during the year.. $ 6.44 $ 5.02
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the status of the Stock Plan for options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------
Weighted
Average
Outstanding at Remaining Weighted Weighted
Range of December 31, Contractual Average Options Exercisable Average
Exercise Prices 1997 Life Exercise Price at December 31, 1997 Exercise Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.00 535,000 9 $11.00 133,750 $11.00
$11.88 - $12.00 956,750 10 12.00 45,000 12.00
$16.75 - $17.75 354,000 10 17.55 -- --
$23.50 - $24.63 235,000 10 24.35 -- --
--------- -------
Total 2,080,750 $14.08 178,750 $11.25
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Therefore, no compensation expense has been recognized for the Stock Plan. Had
compensation cost for the Stock Plan been accounted for based on the fair value
at the grant date, consistent with provisions of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
below:
<TABLE>
<CAPTION>
December 31,
------------------
(in thousands except per share amounts) 1997 1996
- ---------------------------------------------------------------
(Proforma)
<S> <C> <C>
Net income--as reported.................. $ 298 $6,871
Net income--pro forma.................... $ (983) $6,866
Net income per share--as reported........ $ 0.02 $ 0.48
Net income per share--pro forma.......... $(0.05) $ 0.48
</TABLE>
The effects of applying SFAS No. 123 for the presentation of pro forma
disclosures are not necessarily indicative of the effects on reported net income
for future years. Disclosures of pro forma information for 1996 reflect the pro
forma adjustments described in Note 2 relative to the conversion of tax status.
The fair value of options granted in both 1997 and 1996 were estimated using the
Black-Scholes option pricing models as of the date of grant with the following
assumptions: expected lives of 6 years; expected volatility of 35%; expected
dividend yield of 0%. A range of risk-free interest rate between 5.81% and 6.88%
was used for options granted in 1997 and 1996, respectively.
In connection with the Initial Offering, the Principal Shareholders granted
certain executive officers and other employees of and a consultant to the
Company (i) immediately exercisable options to purchase an aggregate of 1.4
million shares of Common Stock at an exercise price equal to $12 per share, (ii)
an option, which vests on February 10, 2001, to purchase an aggregate of .04
million shares of Common Stock at an exercise price equal to $12 per share,
(iii) an option, which vests over a period of four years, to purchase .4 million
shares of Common Stock at an exercise price equal to $24.62 per share, and (iv)
an option, which vests over a period of four years, to purchase an aggregate of
.04 million shares of Common Stock at an exercise price equal to $24.25 per
share. These options will terminate ten years after the date of grant, subject
to certain exceptions. The shares covered by these options were outstanding as
of December 31, 1997.
Employee Stock Purchase Plan
Effective October 1, 1997, the Company adopted the Vistana, Inc. Employee Stock
Purchase Plan (the "Purchase Plan") to assist employees in acquiring a stock
ownership interest in the Company and to encourage employees to remain in the
employ of the Company. The Purchase Plan meets the requirements of an "employee
stock purchase plan" pursuant to section 423 of the Internal Revenue Code. A
maxi-
34
<PAGE>
mum of 1 million shares of Common Stock is reserved for issuance under the
Purchase Plan. The first purchase period under the Purchase Plan will occur
subsequent to December 31, 1997.
(16) 401(k) Plan
The Company has established a qualified retirement plan, with a salary deferral
feature designed to qualify under Section 401 of the Code (the "401(k) Plan").
Employees of the Company are eligible to participate in the 401(k) Plan if they
meet certain requirements concerning minimum age and period of credited service.
The 401(k) Plan allows participants to defer up to 15% of their compensation on
a pre-tax basis subject to certain maximum amounts. The 401(k) Plan allows the
Company discretionary matching contributions up to a maximum of 6% of the
participant's compensation per year. The Company has historically matched
participant contributions in an amount equal to 25 cents for each dollar of
participant contributions and expects to continue to do so. The expense
recognized in 1997, 1996 and 1995 was $.2 million.
(17) Stay-On Agreements
In 1992, the Company entered into stay-on agreements (which were amended and
expanded in 1995) with certain senior management executives who were not owners
of the Company. In order to receive payment under the agreements the executives
were required to remain in the employ of the Company through December 31, 1996.
The agreements provided that these executives would be entitled to receive, on a
deferred basis, an aggregate of 3% (amended in 1995 to 10%) of the cumulative
pretax income of the Company during the period of employment, before
determination of the deferred executive incentive compensation amounts.
The expense associated with these agreements was recognized in amounts totaling
$1.1 million and $3.5 million for the years ended December 31, 1996 and 1995,
respectively. No expense was recognized in 1997. Amounts payable under these
agreements totalled $3.1 million and $4.9 million as of December 31, 1997 and
1996, respectively, and are included in accrued compensation and benefits in the
accompanying consolidated balance sheets. Payment of this obligation is being
made in annual installments over a three-year period beginning in 1997. In 1997,
approximately $1.8 million of installment payments were made. As the senior
executives subject to the stay-on agreements entered into employment agreements
with the Company in 1997, no future expense amounts will be incurred in
connection with the stay-on provisions.
(18) Commitments and Contingencies
The Company is, from time to time, party to certain litigation which relates to
matters arising in the ordinary course of business. Management believes that
such litigation is not expected to have a material impact on the financial
position or results of operations of the Company.
(19) Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for the years ended December 31, 1997
and 1996 is presented below (in thousands except share amounts):
<TABLE>
<CAPTION>
Three months ended in 1997
-----------------------------------------
March 31 June 30 Septem- Decem-
ber 30 ber 31
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
VOI sales.................. $ 18,246 $21,837 $28,632 $32,172
Interest income............ 4,445 4,480 4,617 5,754
Total revenue.............. 28,302 32,193 39,712 45,143
VOI cost of sales.......... 4,217 5,060 6,326 7,295
Sales and marketing........ 8,581 9,705 12,229 15,100
Interest expense-treasury.. 1,774 1,355 1,729 2,382
Provision for doubtful
accounts................. 1,282 1,526 1,909 2,254
------------------------------------------
Net income (loss) before
extraordinary item....... (10,405) 3,431 4,543 4,154
Extraordinary item,
net of tax............... (825) -- -- (600)
------------------------------------------
Net income (loss).......... $(11,230) $ 3,430 $ 4,543 $ 3,554
==========================================
Per share data:
Income (loss) before
extraordinary item....... $ (0.66) $ 0.18 $ 0.23 $ 0.20
==========================================
Extraordinary item,
net of tax............... (0.05) -- -- (.03)
==========================================
Net (loss) income.......... (0.71) 0.18 0.23 0.17
==========================================
Weighted average shares
outstanding-diluted...... 15,819 18,800 19,592 20,418
==========================================
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED VISTANA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
Three months ended in 1996
--------------------------
March June September December
31 30 30 31
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VOI Sales........................................ $13,529 $15,092 $17,539 $13,902
Interest income.................................. 3,563 3,585 3,579 4,819
Total revenue.................................... 22,159 24,182 26,761 23,834
VOI cost of sales................................ 3,502 3,692 4,134 3,266
Sales and marketing.............................. 6,031 6,538 7,525 7,783
Interest expense-treasury........................ 1,660 1,665 1,702 1,839
Provision for doubtful
accounts....................................... 970 1,064 1,238 999
----------------------------------------
Pro forma net income before
extraordinary item............................. 1,593 1,828 2,105 1,042
Extraordinary item, net of tax................... -- -- -- --
Net income....................................... 1,593 1,828 2,105 1,042
========================================
Per share data:
Pro forma income before
extraordinary item............................. $ 0.11 $ 0.13 $ 0.15 $ 0.07
========================================
Extraordinary item, net of tax................... -- -- -- --
========================================
Pro forma net income............................. $ 0.11 $ 0.13 $ 0.15 $ 0.07
Pro forma weighted
average shares
outstanding--diluted........................... 14,175 14,175 14,175 14,175
========================================
</TABLE>
Net income for the first quarter of 1997 included a non-recurring charge of
$13.2 million related to the recognition of deferred taxes in connection with
the Company's change in tax status. In addition, financial results in 1997
include the results of Success and Points from the September 16, 1997
acquisition date.
Pro forma (unaudited) quarterly financial information for 1996 reflects results
for the period as if the conversion of tax status to C corporation had occurred
at the beginning of the period.
(20) Interest Rate Swap Agreements
The Company entered into interest rate swap agreements to reduce the impact of
changes in interest rates on certain of its floating rate term debt. At December
31, 1996, the Company had two outstanding interest rate swap agreements with a
commercial bank, having a total notional principal amount of $14.5 million.
These interest rate swap agreements effectively fix the Company's interest rates
on its $9.8 million floating rate note due June 30, 2000 and on its $4.7 million
floating rate note due December 29, 2000, to 9.69% per annum and 11.69% per
annum, respectively. In 1997, in connection with the Initial Offering, the
remaining swap agreements were terminated.
(21) Supplemental Disclosures of Non-cash Operating and Investing Activities
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental schedule of non-cash operating activities:
Transfers from construction in
progress to inventory of VOI's................. $14,512 $9,397 $ 12,554
=========================
Transfers from land held for
development to inventory of VOI's.............. $ 866 $ 986 $ 1,330
=========================
Interest capitalized........................... $ 1,874 $ 434 $ --
=========================
Transfers from construction in
progress to fixed assets....................... $ 1,701 $ 53 $ 1,875
=========================
</TABLE>
During 1996 and 1995, pursuant to clean-up call provisions, the Company
purchased certain customer mortgages receivables previously sold. A summary of
the impact of these transactions on non-cash investing activities is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Contractual balance of customer mortgages
receivable acquired............................ $ 9,804 $10,473
Allowance for doubtful accounts assigned to
customer mortgages receivable acquired......... (588) (628)
Remaining balance of estimated losses on
repurchase obligations relating to customer
mortgages receivable repurchased............... 1,595 2,303
Investment in limited partnership................ (5,059) (4,680)
Cash paid upon repurchase........................ (1,170) (1,692)
-------------------
Discount on purchase of customer mortgages
receivable..................................... $ 4,582 $ 5,776
===================
</TABLE>
36
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF VISTANA, INC.
Wholly-owned corporate Subsidiaries:
- ------------------------------------
Vistana Development, Inc.
Vistana Management, Inc.
VCH Communications, Inc.
VCH Trademark, Inc.
Vistana WGV Holdings, Inc.
Vistana International, Inc.
VCH Sales, Inc.
VCH Oaks, Inc.
VCM Oaks, Inc.
VCH Portfolio Services, Inc.
Vistana Administration, Inc.
VCH Systems, Inc.
Vistana Acceptance Corp.
VCH Consulting, Inc.
VCH Contracting, Inc.
Vistana MB, Inc.
Vistana WGV Investment, Inc.
Vistana OP Investment, Inc.
Vistana West, Inc.
Vistana Scottsdale, Inc.
The Success Companies, Inc.
Data Marketing Associates, Inc.
Success West Communications, Inc.
Points of Colorado, Inc.
Vistana NJ Marketing, Inc.
Vistana NJ Services, Inc.
Vistana NJ, Inc.
Vacation Marketing Services, Inc.
Vistana East, Inc.
Vistana MB Management, Inc.
Vistana PSL, Inc.
vacationWorks, Inc.
Vistana Cave Creek, Inc.
Vistana Scottsdale Management, Inc.
VTM Corp.
Vistana WGV Management, Inc.
Overseas Promotions, Inc.
<PAGE>
Indirectly-owned corporate Subsidiaries:
- ---------------------------------------
P-O-C Realty, Inc.
- Points of Colorado, Inc. (80% stockholder)
Vistana Timeshare Mortgage Corp.
- VTM Corp. (100% stockholder)
Vistana Scottsdale Development, Inc.
- Vistana Scottsdale, Inc. (100% stockholder)
Overseas Promotions (Puerto Rico), S.A.
- Overseas Promotions, Inc. (98% stockholder)
Partnership Subsidiaries
- ------------------------
Vistana International Chile, Limitada
- Vistana International, Inc. (99% partner)
- Vistana Consulting, Inc. (1% partner)
Vistana WGV, Ltd.
- Vistana WGV Holdings, Inc. (1% general partner)
- Vistana WGV Investment, Ltd. (36.5% limited partner)
Vistana WGV Management, Ltd.
- Vistana WGV Management, Inc. (1% general partner)
- Vistana WGV Investment, Inc. (36.5% limited partner)
VCH Oaks, Ltd.
- Vistana OP Investment, Inc. (66% limited partner)
- VCH Oaks, Inc. (1% general partner)
Oak Plantation Joint Venture
- VCH Oaks, Ltd. (99% general partner)
2
<PAGE>
Limited Liability Company Subsidiaries
- --------------------------------------
Success Developments, L.L.C.
- Points of Colorado, Inc. (50% member and manager)
- Vistana West, Inc. (50% member)
Fiesta Vacations, L.L.C.
- Vistana West, Inc. (99% member & manager)
- Vistana, Inc. (1% member)
Success of Arizona, L.L.C.
- Vistana West, Inc. (99% member & manager)
- Vistana, Inc. (1% member)
Success of Colorado, L.L.C.
- Vistana West, Inc. (99% member & manager)
- Vistana, Inc. (1% member)
Success of Colorado Realty, L.L.C.
- Success of Colorado, L.L.C. (80% member)
3
<PAGE>
Accountants' Consent
--------------------
The Board of Directors
Vistana, Inc. and Subsidiaries:
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Nos. 333-35823 and 333-43067) of Vistana, Inc. of our report dated
February 6, 1998, relating to the consolidated balance sheets of Vistana, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997, which report is incorporated
by reference in the December 31, 1997 annual report on Form 10-K of Vistana,
Inc.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet, Consolidated Statement of Operations and
Consolidated Statement of Cash Flows included in the Company's Form 10-K for the
period ending December 31, 1997, 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-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,074
<SECURITIES> 0
<RECEIVABLES> 170,147
<ALLOWANCES> (12,594)
<INVENTORY> 44,297
<CURRENT-ASSETS> 0
<PP&E> 23,858
<DEPRECIATION> (7,508)
<TOTAL-ASSETS> 287,209
<CURRENT-LIABILITIES> 0
<BONDS> 109,547
0
0
<COMMON> 210
<OTHER-SE> 119,195
<TOTAL-LIABILITY-AND-EQUITY> 287,209
<SALES> 100,887
<TOTAL-REVENUES> 145,352
<CGS> 22,898
<TOTAL-COSTS> 65,640
<OTHER-EXPENSES> 18,452
<LOSS-PROVISION> 6,971
<INTEREST-EXPENSE> 8,945
<INCOME-PRETAX> 23,025
<INCOME-TAX> 1,723
<INCOME-CONTINUING> 579
<DISCONTINUED> 0
<EXTRAORDINARY> (1,425)
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
