As filed with the Securities and Exchange Commission on April 13, 1998
Registration No. 333-33019
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ROYAL ALOHA DEVELOPMENT COMPANY
(Exact name of small business issuer in its charter)
Nevada 6552 86-0858827
(State or other (Primary Standard (I.R.S. Employer
--------------- ----------------- ----------------
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
ROYAL ALOHA DEVELOPMENT COMPANY
1505 Dillingham Blvd., Suite 212
Honolulu, Hawaii 96817
(808) 848-0322
(888) 847-8801
(Address and telephone number of principal executive offices)
360 East Desert Inn Road
Las Vegas, Nevada 89109
(Address of principal place of business or intended
principal place of business.)
JACK R. CORTEWAY, PRESIDENT AND CEO
ROYAL ALOHA DEVELOPMENT COMPANY
1505 Dillingham Blvd. Suite 212
Honolulu, Hawaii 96817
(808) 847-8050
(800) 367-5212
(Name, address and telephone number of agent for service)
Copies of communications to:
HARRY E. McCOY II, ESQ.
C. PARKINSON LLOYD, ESQ.
Ballard Spahr Andrews & Ingersoll
201 South Main Street, Suite 1200
Salt Lake City, UT 84111
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of Proposed
Each Class Dollar Maximum Proposed
of Securities Amount Offering Maximum Amount of
to be to be Price Per Aggregate Registration
Registered Registered Note (1) Offering Price Fee(1)
- ---------- ---------- -------- -------------- ------------
13% Eight $9,200,000 100% $9,200,000 $2,714
Year Deferred
Interest
Subordinated
Notes
(1) The Company already paid $2,576 with the orginal filing, based on the
proposed offering amount of $8,500,000. In light of the increase to
$9,200,000, the Company has wire transferred the remaining $138.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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SUBJECT TO COMPLETION, DATED APRIL 13, 1998
PROSPECTUS
$9,200,000
ROYAL ALOHA DEVELOPMENT COMPANY
13% Eight Year Deferred Interest Subordinated Notes
Royal Aloha Development Company, a Nevada corporation (the "Company"), is
hereby offering (the "Offering") for sale its 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes") up to an aggregate of $9,200,000 in a minimum
principal amount of $1,000. The proceeds from the Notes will be used to fund in
part the construction and development of a time-share resort in Las Vegas,
Nevada (the "Resort") located on property formerly owned by Royal Aloha Vacation
Club, a Hawaii not-for-profit corporation ("RAVC") and the parent of the
Company. The initial Offering period will remain open for 90 days, which period
may be extended by the Board of Directors for up to two additional successive
90-day periods.
Interest on the Notes will accrue from the Issuance Date, as defined
herein, and will be compounded semi-annually. After repayment of the borrowings
under a Construction Loan Agreement (together with any take-out loan, the
"Construction Loan") which the Company will obtain from a construction lender
(the "Construction Lender"), interest which accrues during each semi-annual
period at the rate of 13% per annum will be paid semi-annually. The Company
estimates, assuming the complete offering is sold, construction begins as
planned and up to 3,880 vacation ownership interests ("VOIs") in the Resort are
sold within the first three years after the commencement of construction, that
it will begin paying interest accrued on the Notes within three years after the
commencement of construction. There can be no assurance that interest payments
will commence at that time and the Company may make no interest payments prior
to maturity.
The Notes may be redeemed, at the option of the Company, in whole or in
part, at any time on or after the third anniversary of the Issuance Date at 103%
of their principal amount, plus accrued interest, and declining to 100% of such
principal amount, plus accrued interest, on the sixth anniversary of the
Issuance Date and thereafter. Mandatory annual sinking fund payments of 25% of
the original amount of Notes issued commencing on the sixth anniversary of the
issuance of the Notes are calculated to retire 50% of the issue prior to
maturity.
The Notes are unsecured and subordinated to all existing and future Senior
Indebtedness of the Company, including the Construction Loan. See "Description
of Securities."
THESE ARE SPECULATIVE SECURITIES.
AN INVESTMENT IN THESE SECURITIES MAY RESULT IN A LOSS OF THE ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------
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================================================================================
Price to Proceeds to
Public(1) Commission Company (3)
- --------------------------------------------------------------------------------
Per Note............ 100% (2) 100%
- --------------------------------------------------------------------------------
Total Offering $ 9,200,000 (2) $ 9,200,000
Amount(4)
================================================================================
(1) The Notes will be sold on a "best efforts" basis. See "Plan of
Distribution."
(2) The Notes will be sold directly by the Company through officers and
employees of the Company or its parent who will receive no commission or other
remuneration therefor, except that the Company will use brokers, dealers,
placement agents, or finders in Arizona and Texas. The Company may also offer
the Notes through brokers and dealers in other states. The Company will pay a
commission to any broker or dealer of up to six percent (6%) of the principal
amount of the Notes sold.
(3) Before deducting expenses of the Offering payable by the Company estimated
at $380,000.
(4) All proceeds received under this Offering will be mailed within three
business days following receipt to U.S. Bank Trust National Association,
(formerly First Trust of California N.A.), until $9,200,000 has been deposited
therein. In the event that less than $9,200,000 in gross proceeds is deposited
within 90 days from the date hereof, or such later date as shall be determined
by the Board of Directors, or if the Construction Loan as hereinafter defined is
not obtained within 120 days after the end of the Offering period, all proceeds
received will be returned to the investor, with interest accrued at a rate
established by the escrow agent. Investors will have no right to withdraw funds
deposited in the escrow account.
---------------------------
The date of this Prospectus is ____________, 1998.
---------------------------
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (which term shall include
all amendments, exhibits, and schedules thereto) under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Notes. This
prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Statements
made in this prospectus as to the contents of any contract, agreement, or other
document referred to are not necessarily complete. With respect to each such
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including exhibits and
schedules filed therewith, and the reports, proxy statements, and other
information filed by the Company with the Commission may be inspected without
charge at the public reference facilities maintained by the Commission at its
principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in Chicago, Illinois, and New York, New York, at
prescribed rates. The Commission also maintains a Web site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission. The Commission's Web site
address is http://www.sec.gov. The Company has electronically filed the
Registration Statement, including exhibits and schedules filed therewith, with
the Commission, and such information is available at the Commission's Web site.
As a result of the filing of the Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file reports and other information with
the Commission. The Company's obligation to file periodic reports with the
Commission will be suspended if the Notes are held of record by fewer than 300
holders at the beginning of any fiscal year of the Company other than the fiscal
year in which the Registration Statement becomes effective. Accordingly, if
there are fewer than 300 holders of the Notes as of the beginning of any such
fiscal year, the Company may cease to file reports with the Commission in
respect of such fiscal year. However, the Company would nevertheless be required
to continue to file reports with the Commission if the Notes are listed on a
national securities exchange. There is no current intent to seek a listing of
the Notes on an exchange.
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ARIZONA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF ARIZONA AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR, AND A NET WORTH OF $150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 20% OF THE NET WORTH OF
SUCH PERSON; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
THE NET WORTH OF SUCH PERSON.
IF YOU ARE A RESIDENT OF THE STATE OF ARIZONA AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $100,000 IN GROSS INCOME DURING THE PRIOR YEAR
AND A REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE
CURRENT YEAR; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION THAT SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT
YEAR, AND A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 15% OF THE NET WORTH OF
SUCH PERSON; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $350,000 EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 7.5% OF
THE NET WORTH OF SUCH PERSON.
CALIFORNIA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF CALIFORNIA, YOU MUST MEET CERTAIN
REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE NOTES OFFERED IN THIS OFFERING.
SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE FOLLOWING CATEGORIES:
(i) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE
SECURITIES ACT OF 1993; OR
(ii) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INVESTMENT
COMPANIES, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES
WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET
WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY
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AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING; OR
(iii) ANY PERSONS (OTHER THAN A PERSON FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE NOTES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST A $1,000,000
AGGREGATE AMOUNT OF THE NOTES OFFERED HEREBY; OR
(iv) ANY PERSON WHO (A) HAS AN INCOME OF $50,000 AND A NET WORTH OF
$75,000, OR (B) HAS A NET WORTH OF $150,000 (IN EACH CASE, EXCLUDING HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES).
MASSACHUSETTS INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF MASSACHUSETTS AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR,
WITH THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S ANNUAL GROSS INCOME; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF MASSACHUSETTS AND NOT A MEMBER OF
ROYAL ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING.
OREGON INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF OREGON AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
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(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF OREGON AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
PENNSYLVANIA INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF PENNSYLVANIA AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR,
WITH THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S ANNUAL GROSS INCOME; OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF PENNSYLVANIA AND NOT A MEMBER OF
ROYAL ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING.
TEXAS INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF TEXAS AND A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN ONE OF THE
FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
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IF YOU ARE A RESIDENT OF THE STATE OF TEXAS AND NOT A MEMBER OF ROYAL ALOHA
VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
WASHINGTON INVESTOR QUALIFICATIONS
IF YOU ARE A RESIDENT OF THE STATE OF WASHINGTON AND A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST MEET CERTAIN REQUIREMENTS TO BE ELIGIBLE TO
PURCHASE THE NOTES OFFERED IN THIS OFFERING. SPECIFICALLY, YOU MUST COME WITHIN
ONE OF THE FOLLOWING CATEGORIES:
(i) ANY PERSON WHO HAS $75,000 IN GROSS INCOME DURING THE PRIOR YEAR AND
A REASONABLE EXPECTATION SUCH PERSON WILL HAVE SUCH INCOME IN THE CURRENT YEAR;
OR
(ii) ANY PERSON WHO HAS $50,000 IN GROSS INCOME DURING THE PRIOR YEAR AND A
REASONABLE EXPECTATION OF SUCH INCOME IN THE CURRENT YEAR, AND A NET WORTH OF
$150,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), WITH
THE INVESTMENT NOT EXCEEDING 10% OF SUCH PERSON'S NET WORTH; OR
(iii) ANY PERSON WHO HAS A NET WORTH OF $250,000 (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES), WITH THE INVESTMENT NOT EXCEEDING 10% OF
SUCH PERSON'S NET WORTH.
IF YOU ARE A RESIDENT OF THE STATE OF WASHINGTON AND NOT A MEMBER OF ROYAL
ALOHA VACATION CLUB, YOU MUST BE AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933 TO BE ELIGIBLE TO PURCHASE THE
NOTES OFFERED IN THIS OFFERING.
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements and related notes appearing elsewhere in this
prospectus. See "Risk Factors" for a discussion of certain factors to be
considered in evaluating the Company and its business.
The Company
The Company was incorporated on February 27, 1997, by Royal Aloha Vacation
Club ("RAVC"), a Hawaii not-for-profit corporation, to develop timeshare
resorts. The Company will develop and construct a resort in Las Vegas, Nevada
(the "Resort"), located on property formerly owned by RAVC. The Resort will
consist of 119 units built upon .86 acres of land (the "Property") located
approximately one-quarter mile from Las Vegas Boulevard, also known as the
"Strip." The Company is seeking to acquire a contiguous parcel of land upon
which the Company could build an additional 40 units; however, there can be no
assurance such parcel can be purchased. Until the Notes are repaid, the Company
will restrict its activities to the development, construction, operation and
sale of the Resort and any additions thereto.
The Las Vegas Resort
The Property is currently improved with a timeshare project consisting of
20 units. The current project is below the standard the Company believes is
necessary for a timeshare resort in Las Vegas. This project will be razed and
replaced with upgraded facilities. RAVC contributed the Property and cash to the
Company in exchange for 100% of the outstanding capital stock of the Company.
The Resort will consist of 119 units, and will include such amenities as a
lobby, an owner's lounge, a fitness room, a swimming pool, a sun area, various
meeting rooms, a "kids room," offices, a delicatessen/convenience store and
covered and open parking. The residential floors will include one and two
bedroom units on three different floor plans in addition to units designed to
accommodate the physically challenged.
The Company will oversee construction of the Resort and sale of the VOIs in
the Resort through a third party marketing company. RAVC will provide total
resort management through a management agreement between RAVC and the
association of owners of VOIs in the Resort. See "Business--The Las Vegas
Resort" and "Certain Relationships and Related Transactions--Resort Management."
RAVC
RAVC was founded in 1977 in Hawaii as a timesharing organization with one
property in Waikiki. RAVC now owns, directly or through subsidiaries, and
manages seven additional properties in Kona and Maui, Hawaii; Las Vegas and Lake
Tahoe, Nevada; Chandler, Arizona; Acapulco, Mexico; and Marbella, Spain.
Currently, RAVC has approximately 8,500 members residing in all 50 states as
well as approximately 23 foreign countries.
The Offering
Securities Offered:
Offering Amount................. $9,200,000 principal amount of 13% Eight Year
Deferred Interest Subordinated Notes.
Interest Payment Dates.......... Interest will accrue from the Issuance Date
and will compound semi-annually (on the sixth
month and annual anniversary of the Issuance
Date). On each semi-annual interest payment
date that occurs after the repayment of the
Construction Loan, interest which has accrued
during the semi-annual period will be paid.
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Interest that has accrued from the Issuance
Date until six months prior to the initial
interest payment date (the "Development Period
Interest") will be paid as the Company's cash
flow allows, but in any event no later than the
maturity date of the Notes.
The Company estimates, assuming construction
begins as planned and up to 3,880 VOIs in the
Resort are sold within the first three years
after the commencement of construction, that
currently accruing interest will begin to be
paid on the Notes within three years after the
commencement of construction. There can be no
assurance that interest payments will commence
at that time.
Optional Redemption............. The Notes will be redeemable at the option of
the Company, at any time on or after the third
anniversary after the Issuance Date, at 103% of
their principal amount and declining to 100% of
such principal amount, plus accrued interest,
on the sixth anniversary after the Issuance
Date and thereafter.
Mandatory Redemption............ Annual payments of 25% of the aggregate
principal amount of the Notes originally
issued, commencing on the sixth anniversary of
the Issuance Date, are calculated to retire 50%
of the issue prior to maturity.
Subordination................... The Notes will be subordinated to all existing
and future Senior Indebtedness (as defined
herein) of the Company, including the
Construction Loan (which is estimated to be
approximately $17 million). The Notes will not
restrict the incurrence of any Senior
Indebtedness or other indebtedness ranking pari
passu (equally) with or subordinate to the
Notes. The Notes are unsecured obligations of
the Company and are not guaranteed by RAVC.
Certain Restrictions............ The Company is restricted from incurring Senior
Indebtedness (other than the Construction Loan
and Senior Indebtedness not to exceed 20% of
the principal amount of Notes issued under the
Indenture) and from paying cash dividends or
purchasing, redeeming or retiring for value any
of its common stock while the Notes are
outstanding.
Use of Proceeds................. The net proceeds from the sale of the Notes
will be used to partially fund the construction
and development of the Resort.
Use of Brokers and Dealers...... The Offering may be made directly by the
Company or through one or more brokers and
dealers. The Company has agreed to pay a
commission to any broker or dealer of up to six
percent (6%) of the principal amount of the
Notes sold.
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RISK FACTORS
In addition to the other information contained in this prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing the Notes offered hereby. The Company
cautions the reader that this list of risk factors may not be exhaustive.
Subordination; Unsecured Nature of Notes
The Notes are subordinate to the Construction Loan and all other future
indebtedness incurred by the Company designated as senior debt ("Senior
Indebtedness"). No payments can be made on the Notes until the Construction Loan
has been paid. Payment also cannot be made if any other Senior Indebtedness is
in default, or if payment is restricted by the terms of the Senior Indebtedness.
No sinking fund is provided for the Notes and the Notes are not guaranteed by
RAVC. There can be no assurance that the Company will generate sufficient
revenue to pay the Construction Loan, other future Senior Indebtedness, and the
Notes. If sufficient funds are not available, the Construction Loan and other
Senior Indebtedness will be repaid first. Remaining funds, if any, will be used
to repay the Notes on a pro rata basis. Noteholders cannot look to RAVC for
repayment of their Notes.
In addition, the Construction Loan will be secured by the Resort and
Property and other collateral. The Company intends to pledge receivables from
the sale of vacation ownership interests (together with the Resort and Property,
the "Collateral") as security for additional Senior Indebtedness from the
Construction Lender or another lender. Future indebtedness may also be secured,
whether or not it is senior to the Notes. Therefore, if the Company fails to
repay the Construction Loan or other indebtedness and the Notes, the
Construction Lender and other creditors would be able to benefit from the sale
of the Collateral and be paid in full before the holders of the Notes.
Indenture Covenants
The Notes are governed by the terms of the Indenture. See "Description
of Securities." The Indenture sets forth, among other things, the conditions
under which the Notes may be accelerated upon a default by the Company and the
rights of the Trustee to enforce the Notes against the Company. While the
Indenture imposes certain restrictions on the Company's ability to take actions
which may be detrimental to its ability to make payments on the Notes, the terms
of the Notes and the Indenture were established by the Company without arms
length negotiation. Due to the terms of the Indenture and the subordinated
nature of the Notes, the holders of the Notes will have fewer legal safeguards
against defaults than would typically be available to holders of long term debt
securities.
Risks of Obtaining Construction Loan and Customer Financing
The Construction Loan has not yet been obtained by the Company.
However, the Company has received letters from several Construction Lenders
regarding their interest, subject to certain conditions, including the
completion of this Offering, to enter into a Construction Loan. There can be no
assurance that all conditions will be met and the Construction Loan will be
provided by the prospective Construction Lenders or from other lenders. There
can be no assurance that the interest rate on the Construction Loan or other
terms and conditions will be satisfactory to the Company. The proceeds from the
Offering will be placed in escrow pending the closing of the Construction Loan.
If the Construction Loan is not obtained with the Construction Lender or other
lender and on terms acceptable to the Company, all funds will be returned to the
purchasers and the Notes will not be issued.
With respect to sales of VOIs at the Resort, the Company will offer
financing to the buyers who make a down payment generally of at least 10% of the
purchase price. This financing will be evidenced by a note that generally will
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bear interest at fixed rates and will be collateralized by a first deed of trust
on the underlying VOI. The Company intends to enter into an agreement with a
lender (who may be the Construction Lender) for the financing of these customer
receivables. The Company expects this agreement to provide an aggregate of up to
approximately $65 million of available financing to the Company (based on the
construction of 119 units) bearing interest at variable rates tied to either the
prime rate or the London Interbank Offer Rate ("LIBOR"). Under these
arrangements, the Company will pledge the promissory notes and deeds of trust as
security to the lender, who typically will lend the Company 75% to 90% of the
principal amount of such notes. Payments under these promissory notes will be
made by the purchaser borrowers directly to a payment processing center and such
payments will be credited against the Company's outstanding balance with the
lender. Although RAVC has such financing arrangements, the Company presently
does not have a binding agreement for this financing, and there can be no
assurance that arrangements can be made on terms that are satisfactory to the
Company. However, if the Company obtains the Construction Loan, it expects to be
able to obtain receivables financing arrangements. Sales of VOIs will be
substantially limited if the Company is unable to provide financing to buyers of
VOIs.
No Firm Underwriting
No one has guaranteed the purchase or sale of any of the Notes offered
hereby. There is no assurance that all or any of the Notes will be sold or that
any proceeds will be available to accomplish the Company's proposed activities.
Thus, the Company cannot obtain the Construction Loan or begin construction of
the Resort prior to completion of this Offering. See "Plan of Distribution."
No Independent Underwriting
Underwriters of public offerings generally conduct a due diligence
review of the terms of the offering and the disclosure given to the investors.
Initially, the Offering will be made by officers of the Company, except for the
limited use of brokers and dealers in Arizona and Texas. However, because there
is no managing underwriter, there will be no such independent review of this
Offering. Potential investors should therefore recognize that it is their duty
to make their own determination of the fairness and suitability of the Offering,
including the consideration to be paid for the Notes.
Lack of Liquidity; Absence of Market Maker
There is no existing trading market for the Notes and there can be no
assurance regarding the future development of a market for the Notes, or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the successful completion of the Resort, the rate and amount of VOIs sold and
the market for similar securities. The Company does not intend to apply for
listing or quotation of the Notes on any securities exchange or stock market and
there is no market maker for the Notes. The liquidity of the Notes will also be
affected by several factors, including the fact that the Noteholders will not
receive interest on their Notes for several years, and the Notes are unsecured.
Risks of Development and Construction Activities
The Company's success depends upon the development and construction of
the Resort. There can be no assurance that the Company will complete development
and construction of the Resort. The Company will restrict its activities to the
development of the Resort and any additions thereto until repayment of Notes.
Risks associated with the Company's development and construction activities may
include the risks that construction costs of the Resort may exceed original
estimates, possibly making the Resort uneconomical or unprofitable; sales of
VOIs at the Resort may not be sufficient to make the Resort profitable;
financing may not be available on favorable terms for development of, or the
continued sales of VOIs at, the Property; and construction may not be completed
on schedule, resulting in decreased revenues and increased interest expense. In
addition, third party contractors will perform the Company's construction
activities, the timing, quality, and completion of which cannot be controlled by
the Company. Even though construction work is done by third party contractors,
construction claims may be asserted against the Company for construction
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defects, and such claims may give rise to liabilities. New development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Management is only available on a part-time, as-needed basis. Management will
retain architects, construction supervisors and other professionals to provide
substantial services in connection with the construction of the Resort. The
Company will be dependent on these third parties to complete the Resort at the
agreed upon cost. The cost of constructing the Resort depends on many factors,
including cost of material and labor, performance of subcontractors, labor
relations and weather, all of which are beyond control of the Company.
Substantial cost overruns could delay or impair construction of the Resort.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy, and other required governmental permits and authorizations, and the
ability of the Company to coordinate construction activities with the process of
obtaining such permits and authorizations.
Limited Operating History
The Company was recently formed by RAVC in order to develop the Resort
and to conduct the Offering. RAVC will not guarantee or have any responsibility
for payment on the Notes. Although RAVC and management of the Company have
experience managing and operating timeshare resorts, the Company and its
management have no operating history as developers of resorts. There can be no
assurance that the Company will be able to complete the Resort.
RAVC, the Company's parent, was improperly managed by its original
developer and by a former director of RAVC. RAVC submitted itself to a "solvent
corporation receivership" in 1989. It has been reorganized since that time and
returned to a solvent position. In 1990, the board of directors was restructured
to include members of RAVC and outside professionals, and a new president and
chief executive officer was appointed. See "Business of the Company--RAVC
Operations." There can be no assurance that RAVC may not have financial
difficulties sometime in the future. Such difficulties may have a negative
impact on the Company.
Lack of Appraisals; No Assurance as to Value
Although management has discussed valuations with various industry
consultants, no independent valuations or appraisals were obtained in connection
with the anticipated pricing of the VOIs in the Resort. Accordingly, there can
be no assurance that the Company will be able to generate sufficient revenue
from the sale of VOIs to repay the Notes.
General Economic Conditions
Any downturn in economic conditions or any price increases (e.g.,
airfares) related to the travel and tourism industry could depress discretionary
consumer spending and have a material adverse effect on the Company's ability to
sell the VOIs and repay the Notes. Any such economic conditions, including
recession, may also adversely affect the future availability of attractive
financing rates for the Company or its customers and may materially adversely
affect the Company's ability to sell the VOIs and repay the Notes. Additionally,
the projected purchase price for the Company's VOIs will be slightly higher than
the current average price of a VOI in the Las Vegas, Nevada, area. Furthermore,
adverse changes in general economic conditions may adversely affect the
collectibility of the Company's loans to VOI buyers, described above under
"--Risks of Obtaining Construction Loan and Customer Financing."
Limitation of Activities to Timeshare Industry
As a result of certain activities by some participants in the timeshare
industry, including marketing problems, the timeshare industry has in the past
experienced negative public perceptions. In the past, the timeshare industry was
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<PAGE>
not as closely regulated as it is today, and various marketing activities were
employed by some in the industry, such as using high-pressure sales tactics and
overselling VOIs. States have since instituted extensive regulations of the
timeshare industry to prevent such abuses. Although the image of the timeshare
industry may have improved, some reputation problems continue. Because the
Company's operations are conducted solely within the timeshare industry, any
adverse changes affecting the timeshare industry such as an oversupply of
timeshare units, a reduction in demand for timeshare units, changes in travel
and vacation patterns, changes in governmental regulations of the timeshare
industry, and increases in construction costs or taxes, as well as negative
publicity for the timeshare industry, could have a material adverse effect on
the Company's ability to sell the VOIs and repay the Notes.
Risks of Hedging Activities
To manage risks associated with the Company's borrowings bearing
interest at variable rates, the Company may from time to time purchase interest
rate caps, interest rate swaps, or similar instruments. The nature and quantity
of the hedging transactions for the variable rate debt will be determined by the
management of the Company based on various factors, including market conditions,
and there have been no limitations placed on management's use of certain
instruments in such hedging transactions. The Company will place no more than 5%
of its assets into hedge funds. No assurance can be given that any such hedging
transactions will offset the risks of changes in interest rates, or that the
costs associated with hedging activities will not increase the Company's
operating costs.
Risks Associated With Customer Default
The Company bears the risk of defaults by buyers who financed the
purchase of their VOIs. If a buyer of a VOI defaults on the loan made by the
Company, the Company generally must either pay in cash the net value of the
promissory note and deed of trust or replace it with a performing note and deed
of trust. To offset Company losses in connection with such defaulting loans, the
Company will take back any such VOI and attempt to resell it. However, the
associated marketing costs may not have been recovered by the Company and must
be incurred again after their VOI has been returned to the Company's inventory
for resale. Commissions paid in connection with the sale of VOIs may be
recoverable from the Company's sales personnel and from independent contractors
upon default in accordance with contractual arrangements with the Company,
depending upon the amount of time that has elapsed between the sale and the
default (not to exceed one year) and the number of payments made prior to such
default. Private mortgage insurance or its equivalent is generally not available
to cover VOIs, and the Company has never purchased such insurance. In addition,
although the Company will have recourse against VOI buyers for the purchase
price paid, the practice of the industry is not to proceed against defaulting
purchasers but rather to take back the VOI. Consequently, no assurance can be
given that the VOI purchase price or any commissions will be fully or partially
recovered in the event of buyer defaults under such financing arrangements. See
"Business--Customer Financing."
Competition
Las Vegas has a timeshare history dating back to the mid 1970s. Of the
12 existing timeshare resorts in Las Vegas (including the current RAVC
property), five are still actively selling VOIs and one is inactive. The
remaining six are sold out or no longer selling VOIs. Four of the five active
projects, Hilton Grand Vacations Club at the Flamingo, Polo Towers, Jockey Club
(each of which is located on the Strip), and the Grand Flamingo Club are the
primary competitors of the Resort. Hilton Grand Vacations Company ("Hilton"),
which developed the Hilton Grand Vacations Club at the Flamingo, has plans to
build and develop a second timeshare project to be located on the existing Las
Vegas Hilton property. The Company believes that although none of these resorts
has units superior to those planned for the Resort, Hilton, Polo Towers, Jockey
Club, and Grand Flamingo Club, which is owned by Mego Financial Corp. (aka
Ramada Vacation Suites) ("Ramada"), have experienced marketing and management
teams and may have other competitive advantages. Mirage and Circus-Circus have
tentative plans to build timeshare projects that would be in direct competition
with the Company.
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Additionally, Consolidated Resorts, Inc., has plans to build an 86-unit
resort which the Company believes will not be directly competitive with the
resort, and Silverleaf Resorts, Inc., has purchased property in Las Vegas but
any timeshare-related project is still in the planning phases. Marriott
International Inc., which owns Marriott Vacation Club International
("Marriott"), announced in 1997 that it will be managing a 1,500 room Marriott
Marquis Hotel and a 500 room Ritz Carlton Hotel to be built in Las Vegas.
Marriott projects in Las Vegas may include a timeshare component. The Marriott
Marquis Hotel is projected to be complet
ed by the fall of 1998 and work on the
Ritz Carlton is planned to commence by the year 2000. A 500-room project by
Hyatt Hotel, which owns Hyatt Vacation Ownerships, Inc. ("Hyatt"), at Lake Las
Vegas is also in the planning stage and could contain a timeshare component.
Other timeshare resorts are also in the planning stage in Las Vegas, and if any
of these are developed, they would compete with the Resort. Moreover, if any of
the existing Las Vegas resorts currently not selling VOIs expands to develop a
timeshare component, such developments would compete with the Resort.
Major companies that now operate or are developing or planning to
develop VOI resorts in the United States such as Disney Vacation Development,
Inc. ("Disney"), Four Seasons Hotels & Resorts ("Four Seasons"),
Inter-Continental Hotels and Resorts ("Inter-Continental"), Westin Hotels &
Resorts ("Westin"), and Promus Hotel Corporation (aka Embassy Suites) ("Promus")
have not yet entered the Las Vegas market but may do so in the future. These
entities possess significantly greater financial, marketing, personnel, and
other resources than those of the Company and may be able to grow at a more
rapid rate or more profitability as a result. Moreover, Las Vegas, Nevada has
many hotel resort destinations with a large number of low cost rooms. These
hotel resorts, although not timeshares, will compete with the Resort. See
"Business--Competition."
Recent studies indicate that the Company's projections call for annual
sales of approximately 20% of the current market sales volume for VOIs in Las
Vegas. There can be no assurance that the Company will be able to capture such a
substantial portion of the Las Vegas market.
VOI Exchange Networks
The attractiveness of interval ownership is enhanced significantly by
the availability of exchange networks allowing owners to exchange in a
particular year the occupancy rights in their VOIs for an occupancy right in
another participating network resort. Several companies, including Interval
International, Inc. ("Interval"), provide broad-based VOI exchange networks, and
the Company plans to qualify the Resort for participation in the Interval
network. Although the Company has received preliminary approval from Interval
stating that based on a review of the plans for the proposed Resort, the Resort
would qualify for participation in Interval with a five star rating, no
assurance can be given that the Company will be able to qualify the Resort for
participation in the Interval network or any other exchange network or that it
will be able to obtain such rating. Moreover, if such exchange networks cease to
function effectively, or if the Resort is not accepted as an exchange for other
desirable resorts, sales of VOIs in the Resort could be materially adversely
affected.
The parent companies of the two major exchanges, Resort Condominiums
International, Inc. ("RCI") and Interval, merged in 1997. In response to
concerns raised by the Federal Trade Commission (the "FTC") regarding the impact
of the merger on the timeshare industry, and in relation to a consent decree
entered into between the FTC and the merging parties, Interval was purchased by
Willis Stein & Partners, L.C. ("Willis Stein"), a Chicago-based investment
partnership. Although Interval's management group remained the same through the
acquisition by Willis Stein, and Interval continues to offer exchange network
services to its approximately 1,600 resorts and 858,500 members, there can be no
assurance that either Interval or RCI will continue to remain competitive in the
VOI exchange market. If only one major exchange network were to exist and the
Resort did not qualify for membership, the ability of the Company to sell the
VOIs in the Resort would be significantly affected.
In addition, RAVC intends to allow purchasers of VOIs in the Resort,
for a minimal fee, the opportunity to exchange their occupancy rights in a given
year for an occupancy right in another RAVC Resort. Such rights may be
discontinued by RAVC at any time. See "Business--Participation in VOI Exchange
Networks."
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Dependence on Key Personnel
The Company has no full-time personnel. The Company's success depends
to a large extent upon the experience and abilities of the key management. RAVC
pays the salary of the Company's management, who are also paid officers of RAVC.
Accordingly, the Company's management spends a significant portion of its time
working for RAVC. Conflicts of interest may arise between RAVC and the Company.
In the event of a conflict of interest, management may have an obligation to
resign from the Company. The loss of the services of any one of these
individuals could have a material adverse effect on the Company, its operations
and its business prospects.
Regulation of Marketing and Sales of VOIs; Other Laws
The Company's marketing and sales of VOIs and other operations are
subject to extensive regulation by the federal government, the State of Nevada,
and the states in which VOIs are marketed and sold, which are expected to be
Arizona, California, Hawaii, Nevada and Utah. On a federal level, the Federal
Trade Commission has taken the most active regulatory role through the Federal
Trade Commission Act, which prohibits unfair or deceptive acts of competition in
interstate commerce. Other federal legislation to which the Company is or may be
subject appears in the Truth-in-Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Interstate Land Sales Full Disclosure Act,
the Real Estate Standards Practices Act, the Telephone Consumer Protection Act,
the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing
Act, and the Civil Rights Acts of 1964 and 1968. In addition, many states have
adopted specific laws and regulations regarding the sale of interval ownership
programs. The laws of most states require the Company to file with a designated
state authority for its approval a detailed offering statement describing the
Company and all material aspects of the project and sale of VOIs. Certain
states, including California, have extensive regulatory requirements which may
delay the sale of VOIs in such states. Sales in California will be unable to
commence until construction is completed. In other states, application may be
made to sell VOIs once construction has commenced. The Company is required to
deliver an offering statement or public report to all prospective purchasers of
a VOI, together with certain additional information concerning the terms of the
purchase. Laws in each state where the Company plans to sell VOIs generally
grant the purchaser of a VOI the right to cancel a contract of purchase at any
time within a period ranging from three to fifteen calendar days following the
earlier of the date the contract was signed or the date the purchaser has
received the last of the documents required to be provided by the Company. Most
states have other laws that regulate the Company's activities, such as real
estate licensure, sellers of travel licensure, anti-fraud laws, telemarketing
laws, price, gift and sweepstakes laws, and labor laws. The Company believes
that it is in material compliance with all federal, state, local, and foreign
laws and regulations to which it is currently subject. However, no assurance can
be given that the cost of qualifying under VOI ownership regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant or that the Company is in fact in compliance with all applicable
federal, state, local, and foreign laws and regulations. In addition, the
Company may experience delays in registration. Any failure to comply with
applicable laws or regulations or delays in registration could have a material
adverse effect on the Company and its ability to sell VOIs in sufficient
quantifies to enable it to repay the Notes. See "Business--Governmental
Regulation."
Year 2000 Computer Problem
The Company will enter into a management agreement with RAVC that
includes reservation, accounting, member records and other functions that are
computerized. The use of certain computer programs and automated equipment that
rely on two-digit date programs may cause such systems or equipment to
malfunction in the Year 2000. Although RAVC modified its custom computer
programs in 1996 to address this problem, the Year 2000 problem is pervasive and
complex and there can be no assurance that the 1996 modifications correct every
instance of the potential problem. In addition, there can be no assurance that
the systems or equipment of other companies upon which RAVC's systems rely also
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will be converted correctly and in a timely manner. The failure of RAVC's and
other companies' systems or equipment to address the problem correctly and in a
timely manner would have an adverse effect on the Company's operations and its
ability to repay the Notes. Additionally, if Year 2000 problems are experienced
in the hospitality or travel industries generally, the cumulative effect of such
problems could have a material adverse effect on the Company's operations and
its ablility to repay the Notes. See "Certain Relationships and Related
Transactions--Year 2000 Computer Problem."
Possible Environmental Liabilities
Under various federal, state, and local laws, ordinances, and
regulations, the owner of real property generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damages. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or lease a property or to borrow using such real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property.
An environmental report commissioned by the Company has disclosed the
existence of some asbestos in the current structure on the Resort property which
will require proper removal during demolition. The Company is not aware of any
other environmental liability that would have a material adverse effect on the
Company's business, assets, or results of operations. No assurance, however, can
be given that current reports reveal all environmental liabilities or that a
prior owner has not created any material environmental condition not known to
the Company.
The Company believes that it is in compliance in all material respects
with all federal, state, and local ordinances and regulations regarding
hazardous or toxic substances and, except as described above, the Company has
not been notified by any governmental authority or third party of any
non-compliance, liability, or other claim in connection with the Resort.
Limited Resale Market for VOIs
The Company will sell the VOIs to buyers for leisure and not investment
purposes. The market for resale of VOIs by the buyers is presently limited, and
any resales of VOIs are typically at prices substantially less than the original
purchase price. These factors may make ownership of VOIs less attractive to
prospective buyers, and attempts by buyers to resell their VOIs will compete
with sales of VOIs by the Company. In addition, the market price of VOIs sold by
the Company at the Resort or by its competitors in Las Vegas could be depressed
by a substantial number of VOIs offered for resale.
Forward-looking Statements
Statements regarding the Company's expectations as to demand for the
VOIs in the Resort, its ability to pay its obligations under the Notes, and
certain other information presented in this Registration Statement constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which are subject to a number of uncertainties.
The Company cautions readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made. The Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of this Registration Statement. "See Plan of
Operation--Forward-looking Statements."
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USE OF PROCEEDS
The Notes will be sold on a "best efforts" basis. See "Plan of
Distribution." Unless the total $9,200,000 principal amount of Notes are sold
within 90 days of the date hereof, or such later date as shall be determined by
the Board of Directors, and the Construction Loan is obtained within 120 days
after the end of the Offering period, all proceeds received will be returned to
the purchaser, with interest accrued at a rate established by the escrow agent,
and no Notes will be sold.
The table below sets forth the estimated application of the proceeds
from the sale of the Notes to construct the Resort. Pending use of such funds,
such proceeds will be invested in short-term, investment-grade securities or
money market accounts.
Sources of Funds
Capital Contribution by RAVC $ 250,000
Gross Proceeds from Note Offering 9,200,000
Less Cost of Offering (380,000)
Construction Loan 17,000,000
Total Proceeds $ 26,070,000
Uses of Funds
Design & Professional Fees $ 1,160,000
Building Construction Cost 17,700,000
Furniture, Fixtures & Equipment Package 2,560,000
Site Work 1,800,000
Member Lounge & Public FF&E(1) 980,000
Pre-sale Legal & Accounting 380,000
Construction Loan Points 260,000
Project Acquisition Cost 600,000
Marketing Setup/Miscellaneous 630,000
------------
Total Uses $ 26,070,000
============
- -----------------------------
(1) Furnishings, Fixtures, and Equipment.
See "Business of the Company--The Las Vegas Resort" for a description
of the proposed Resort improvements.
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SELECTED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with the financial statements and related notes thereto. The
selected financial data set forth below as of November 30, 1997, and February
28, 1998, and from inception of the Company, February 27, 1997, to November 30,
1997, and for the three months ended February 28, 1998 have been derived from
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. Operations of the Company reflect ownership and
operations of its assets only for the period from June 24, 1997, and in
management's opinion are not representative of future operations.
From Inception,
February 27, 1997, to Fiscal Quarter Ended
Statement of Operations Data November 30, 1997 February 28, 1998
- ---------------------------- ----------------- -----------------
Rental income $ 56,392 $ 35,300
Expenses 136,272 53,328
Net (loss) (79,880) (18,802)
Balance Sheet Data: November 30, 1997 February 28, 1998
- ------------------ ----------------- -----------------
Cash $ 28,500 $ 35,613
Property and equipment 797,971 790,179
Total assets 1,097,692 1,108,548
Total liabilities 84,087 57,981
Total shareholder's equity 1,013,605 1,050,567
PLAN OF OPERATION
The Company was established on February 27, 1997, as a wholly owned
subsidiary of RAVC for the purpose of developing timeshare resorts. The Company
will develop and construct the Resort on the Las Vegas Property and market VOIs
in the Resort. Until the Notes are repaid, the Company will restrict its
activities to the Resort and any additions thereto. The Company will sell new
VOIs in the Resort that will not be memberships in RAVC. See "Business--The Las
Vegas Resort."
RAVC has transferred the Property and the current 20-unit timeshare
project and $250,000 to the Company as of February 28, 1998. Transactions
between RAVC and the Company are determined using the cost incurred by RAVC. The
values assigned to the assets transferred to the Company were the historical
cost of RAVC, less accumulated depreciation in the case of depreciable property.
See "Selected Financial Data." As of February 28, 1998, the book value of the
Property and the 20-unit timeshare project is $683,794. The most recent
appraisal, dated May 14, 1997 (a copy of the report relating thereto is filed as
an exhibit to the Registration Statement of which this Prospectus is part),
values the land at $2,800,000. Copies of the appraisal can be obtained from the
Company without charge, upon request, by each person to whom a copy of this
Prospectus has been delivered. No income statement with respect to the Property
for the two years ended February 28, 1998, has been provided because the
improvements on the Property will be razed upon commencement of construction of
the new resort, and in management's opinion such information would not be
meaningful.
The cash contributed to the Company by RAVC plus the proceeds of the
sale of the Notes will allow the Company to borrow sufficient construction and
takeout funds to undertake the development of the Resort on the Property. See
"Use of Proceeds." Once the funds are raised and the Construction Loan obtained,
the Company will contract with an architectural firm, a structural engineering
firm, an environmental consulting and geo-technical consulting firm, a
mechanical and electrical engineering firm, and a construction company who will
be the contractors of the building. There are no current contracts in place for
such services.
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The Company will contract with a third party marketing company to
undertake the sales and marketing of the new memberships. See "Business--Sales
and Marketing." It is expected that sales and marketing will begin at the time
construction begins or within 6 months thereafter.
During the first 24 months of operation of the Company, the Company
will market the Notes, secure the Construction Loan, takeout loan and
receivables loan commitments, and contract for all of the vendors listed above
who, as soon as the Construction Loan is obtained, will begin to undertake their
various assignments. It is expected that all of the architectural and
engineering work will take six to nine months prior to the beginning of
construction. Depending on the length of time to market the Notes, it is
expected that construction may begin in the spring of 1999.
During the first 24 months of operation, the Company will be run by the
officers and employees of RAVC. It is not anticipated that any employees will be
transferred to the Company until construction is undertaken. The Company plans
to hire a construction manager to oversee the project prior to undertaking
construction. Once construction is underway and marketing begins, additional
employees will be hired by the Company as needed, and some employees of RAVC may
be transferred to the Company.
The Company is also seeking to acquire a contiguous parcel of land
from a third party upon which the Company could build an additional 40 units.
Additional funds have been budgeted to acquire and develop the property as part
of the Resort. There can be no assurance that this parcel will be acquired by
the Company. See "Business--The Las Vegas Resort."
The Company does not have any present business plans other than the
construction and the marketing of the Resort but may undertake the development
of other resorts in the future after the Notes have been repaid.
Forward-looking Statements
Statements regarding the Company's expectations as to demand for the
VOIs in the Resort, its ability to pay its obligations under the Notes, and
certain other information presented in this Registration Statement constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following: (i) the Company's ability to procure financing for the
construction of the resort; (ii) the timely development and construction of the
resort; (iii) the growing concentration and competition in the timeshare
industry; (iv) the Company's provision of customer financing and risks of
customer default; (v) the existence of and ongoing relationships with exchange
networks; and (vi) regulation by governmental authorities. The Company cautions
readers not to place undue reliance on any forward-looking statements, which
speak only as of the date made. The Company does not undertake, and specifically
disclaims any obligation, to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date of this
Prospectus.
BUSINESS OF THE COMPANY
Overview
The Company was incorporated by RAVC in 1997 in order to develop
timeshare resorts. The Company will initially develop and construct the Resort
and market VOIs in the Resort. Until the Notes are repaid, the Company will
restrict its activities to the Resort and any additions thereto.
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The Timeshare Industry
The Market. The resort component of the leisure industry for overnight
facilities consists of (i) commercial lodging establishments and (ii) timeshare
or vacation ownership resorts. Commercial lodging establishments consist of
hotels and motels where a room is rented on a nightly, weekly, or monthly basis,
in addition to privately owned condominiums and homes that are rented. The rooms
at hotels and motels typically are relatively small and usually do not have
kitchen facilities. Condominiums and homes available for short term rentals tend
to be more costly than hotels. For many vacationers, especially those with
families, a lengthy stay at a quality commercial lodging establishment can be
expensive. Room rates and availability are also subject to change periodically
by commercial establishments. Timeshare resorts provide vacationers with an
alternative to commercial lodging establishments providing such amenities as
larger suites, kitchen facilities, and predictable availability.
Ownership of accommodations is available through a variety of different
products, including ownership of an entire home or condominium, interval
ownership plans, which include fractional ownership of weekly or other periodic
intervals, condominium hotels, campgrounds, and ranch acreage land. Unlike
renting a room in a commercial lodging establishment, the vacationer purchasing
one of the foregoing products acquires an ownership interest in the underlying
property or in the entity that owns the property.
According to the American Resort Development Association ("ARDA"),
approximately 218,000 VOIs were sold in 1996 in the United States with a sales
volume of $2.18 billion, a 65% increase over 1992, when approximately 170,000
VOIs were sold with a sales volume of $1.32 billion. First introduced in the
United States in the early 1970s, ownership of VOIs has been a fast growing
segment of the hospitality industry over the past two decades. According to
ARDA, the worldwide timeshare industry has expanded significantly during the
last 15 years both in VOI sales volume and number of VOIs sold. ARDA estimates
that, from 1980 to 1994, the most recent year for which worldwide information is
available, sales of VOIs increased from $.49 billion to $4.76 billion and the
number of VOIs sold increased from 100,000 to 560,000 per year during the same
period.
The Company believes that the following factors have contributed to the
increased acceptance of the timeshare concept among the general public and the
growth of the timeshare industry over the past 15 years:
* Increased consumer confidence resulting from extensive
consumer protection regulation of the timeshare industry;
* The addition of brand name national lodging companies and
their increasingly flexible use programs to the industry;
* Increased flexibility of time share ownership as a result of
the growth of exchange organizations such as Interval and RCI;
* Improvement in the quality of both the timeshare facilities
and the management of timeshare resorts;
* Increased consumer awareness of the value and benefits of
timeshare ownership, including the cost savings relative to
other lodging alternatives; and
* Improved availability of financing for purchasers of VOIs.
The timeshare industry traditionally 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. The
Company believes that one of the most significant factors contributing to the
current success of the timeshare industry is the entry into the market of some
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of the world's major lodging, hospitality, and entertainment companies. Major
companies that now operate or are developing timeshare resorts include Marriott,
Disney, Hilton, Hyatt, Four Seasons, Inter-Continental, Promus, and Westin.
The Consumer. According to information compiled by ARDA for 1996, the
median age of a VOI buyer in the United States at the time of purchase is 50.
The median annual household income of current VOI owners in the United States is
approximately $71,000. The Company expects the timeshare industry to continue to
grow as more members of the baby boom generation enter the 45-54 year age
bracket, the age group that historically purchased the most VOIs, according to
the 1997 ARDA study.
According to the 1995 ARDA study, the three primary reasons cited by
consumers in the United States for purchasing a VOI are (i) the ability to
exchange the VOI for accommodations at other resorts through exchange networks
such as Interval and RCI (cited by 82% of VOI purchasers), (ii) the money
savings over traditional resort vacations (cited by 65% of purchasers), and
(iii) the quality and appeal of the resort at which they purchased a VOI (cited
by 49% of purchasers).
Despite the growth in the timeshare industry, as of December 31, 1996,
vacation interval ownership has achieved only an approximate 2.0% market
penetration among United States consumers. In light of the quality of the Resort
and the Company's planned qualification of the Resort for participation in the
Interval network, the Company believes it will be positioned to take advantage
of these trends in demographics. The Company has received preliminary approval
from Interval stating that based on a review of the plans for proposed Resort,
the Resort would qualify for participation in Interval with a five star rating.
See "Business of the Company--Participation in VOI Exchange Networks."
The Las Vegas Resort
The proceeds from this Offering and the Construction Loan will be used
to develop and construct the Resort. The Resort will consist of 119 units (the
"Units") built upon .86 acres of land (the "Property") located approximately
one-quarter mile from Las Vegas Boulevard, also known as the "Strip." The
Property is located at 360 East Desert Inn Road, close to several major casinos
and the Las Vegas Convention Center. The Company is seeking to acquire a
contiguous parcel of land from a third party upon which the Company could build
an additional 40 Units. The Company does not have any agreement to purchase this
parcel. Because no assurance can be given that this parcel will be acquired, the
prospectus, unless otherwise stated, assumes that 119 Units will be constructed.
The main floor of the Resort will primarily be devoted to common areas
and will include such amenities as a lobby, an owner's lounge, a fitness room,
various meeting rooms, a "kids room," offices and a delicatessen/convenience
store. Some residential units designed to accommodate the physically challenged
will also be included on the main floor. The upper four to ten floors, depending
on the number of units built, will house the Units, of which there are three
floor plans: (i) a one bedroom with 904 square feet; (ii) a two bedroom with
1,318 square feet; and (iii) a two bedroom with 1,370 square feet. The Resort
will also have amenities such as a pool and sun area. Underground and surface
level parking will be provided.
Various aspects of the development, sale, and ultimate operation of the
Resort will be undertaken by three companies -- RAVC, the Company, and the
homeowners association of VOI owners (the "Owners Association"). RAVC, which
owns all of the issued and outstanding stock of the Company, has transferred the
Property to the Company. The Property is currently improved with a timeshare
project consisting of 20 units. The existing improvements will be razed and
replaced by the Resort. RAVC contributed the Property to the Company in exchange
for 100% of the outstanding capital stock of the Company.
The Company is a newly formed corporation that was organized for the
purpose of developing and constructing the Resort. The Company will oversee
construction and, through a third party marketing company, sale of the VOIs. See
"Business of the Company--Sales and Marketing." As a timeshare Resort, each of
the 119 condominium Units has 51 VOIs which results in a total of 6,069 VOIs
available for sale. The Company, as developer, owns the Resort and will enter
into an agreement with a third-party marketing company for the sale of the VOIs.
The Company indends that the net proceeds from the sale of the VOIs will be used
first to pay the Construction Loan and then to pay principal and interest on the
Notes.
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The Company will initially own all of the condominium Units in the
Resort. As Units are divided into VOIs, the Company will continue to own the
undivided condominium Units and unsold VOIs. Members who purchase VOIs in the
Resort will receive an undivided fee simple interest as tenants in common to a
condominium Unit in the Resort. They will also become members of the Owners
Association, to be formed in connection with the development of the Resort. The
Owners Association will have the primary responsibility to operate the Resort
and the use program associated with the Resort, and will contract with RAVC for
the actual day-to-day operational responsibility for the Resort. See "Certain
Relationships and Related Transactions--Resort Management." At the later to
occur of the retirement of all of the indebtedness secured by the Resort or the
sale of 80% of the VOIs in the Resort, the operation of the Resort will be
turned over to the Owners Association. Personal property needed for the
operation of the Resort and not previously transferred to the VOI owners as
tenants in common will be transferred to the Owners Association. The Company
will retain all unsold VOIs and continue to offer them for sale to the public.
The states in which VOIs are sold will require the Company to agree to subsidize
the Owners Association during the period that the Company is in control of the
Project for any shortfall in its operating costs (including reserves) and the
budgeted maintenance fees received from unaffiliated owners. This subsidy may be
more or less than the maintenance fees the Company would otherwise be paying on
the unsold VOIs. The Company will also be required to bond or otherwise
collateralize its obligation to subsidize the Owners Association.
RAVC Operations
RAVC was founded in 1977 in Hawaii as a "floating-time, floating-space"
timesharing organization with condominium apartments located in Waikiki, Hawaii.
RAVC now manages eight resorts in Waikiki, Kona, and Maui, Hawaii; Las Vegas and
Lake Tahoe, Nevada; Chandler, Arizona; Acapulco, Mexico; and Marbella, Spain.
The members of RAVC do not own a real estate interest in any properties owned by
RAVC but have a right in perpetuity to use the properties based on their
memberships. Currently, RAVC has approximately 8,500 members representing over
10,500 membership weeks (a member may own and have the right to use more than
one week). RAVC members reside in all 50 states as well as 23 foreign countries.
All of RAVC's resorts have an affiliation with Interval and RCI, allowing RAVC's
members who are members of such exchange networks to exchange their RAVC VOI for
time in other resorts in the exchange network.
In 1989, RAVC submitted itself to a "solvent corporation receivership"
under the First Circuit Court of the State of Hawaii. This resulted from past
improper management by the original developer of the RAVC resorts which was
discovered in 1983 and resulted in over $6 million in unpaid mortgage debt, and
from a questionable investment scheme by a former director of RAVC which
resulted in a loss of $1.4 million in 1989. The president and entire board of
directors resigned in 1989 at the time of the receivership. In 1990, RAVC's
business plan for reorganization was approved by the court that enabled RAVC to
repay past mortgage debts, redecorate all vacation units, and return to positive
cash flow. A new board of directors was appointed by the Court, consisting of
five RAVC members and two outside professionals, and Mr. Corteway was appointed
as President and Chief Executive Officer of RAVC.
Sales and Marketing
The Company intends to enter into a marketing and selling agreement
with an independent marketing agent that will be compensated based on sales of
VOIs in the Las Vegas Resort. The marketing agent's intended activities are
described below:
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On-Site/In-House Programs. On-site resort programs at RAVC's existing
resorts in the United States will solicit existing RAVC members. RAVC members
will also be requested to provide referrals. All exchange guests and rental
guests will also be solicited through a concierge, activities desk, and parties.
Las Vegas Off-Premise Contacts. The marketing agent will institute
off-premise contact ("OPC") programs. OPC locations include area events,
shopping centers, strip retail locations, casino hotels, and attractions such as
water parks and theme restaurants.
Las Vegas Locals. The marketing agent will utilize telemarketing
capabilities to contact prospects in the Las Vegas area with an offer to tour
the Las Vegas Resort.
Travel Alliances. The marketing agent will use strategic alliances
with Las Vegas travel wholesalers to arrange access to visitors.
Registration and Multi-State Marketing. The Company intends to register
the project in Arizona, California, Hawaii, Nevada, and Utah and possibly other
western states. The marketing agent may contact prospects with a mini-vacation
offer in Las Vegas that includes promotion of the Resort.
The Company believes that this diversified mix of marketing programs
will maximize potential sales without relying too heavily on any one program.
Customer Financing
The Company will offer financing to the purchasers of VOIs in the
Resort who make a down payment generally of at least 10% of the purchase price.
This financing generally will bear interest at fixed rates and will be
collateralized by a first deed of trust on the underlying VOI. A portion of the
proceeds of such financing will be used to obtain releases of the VOI from any
underlying debt. The Company intends to enter into an agreement with a
receivables lender (which may be the Construction Lender) for the financing of
customer receivables. The Company expects this agreement will provide an
aggregate of up to approximately $65 million of available financing to the
Company (based on the construction of 119 Units) bearing interest at variable
rates tied to either the prime rate or LIBOR. Under these arrangements, the
Company will pledge as security qualified purchaser promissory notes to the
lender, who typically will lend the Company 75% to 90% of the principal amount
of such notes. Payments under these promissory notes will be made by the
purchaser borrowers directly to a payment processing center and such payments
will be credited against the Company's outstanding balance with the lender. The
Company does not presently have a binding agreement for this financing, and
there can be no assurance that arrangements can be made on terms that are
satisfactory to the Company. However, if the Company obtains the Construction
Loan, it expects to obtain receivables financing arrangements. Sales of VOIs
will be substantially limited if the Company is unable to provide financing to
purchasers of VOIs.
Because the Company's borrowings will bear interest at variable rates
and the Company's loans to purchasers of VOIs will bear interest at fixed rates,
the Company bears the risk of increases in interest rates with respect to the
loans it will have from lenders. The Company intends to engage in interest rate
hedging activities from time to time in order to reduce the risk and impact of
increases in interest rates with respect to such loans, but there can be no
assurance that any such hedging activity will be adequate at any time to fully
protect the Company from any adverse changes in interest rates. The Company will
place no more than 5% of its assets in hedge funds. See "Risk Factors--Risk of
Hedging Activities."
The Company will also bear the risk of purchaser default. The Company
will continue to accrue interest on its loans to purchasers of VOIs until such
loans are deemed to be uncollectible, at which point it will expense the
interest accrued on such loan, commence foreclosure proceedings and, upon
obtaining title, return the VOI to the Company's inventory for resale. The
Company will monitor its loan accounts and determine whether to foreclose on a
case-by-case basis. See "Risk Factors--Risks of Obtaining Construction Loan and
Customer Financing" and "--Risks Associated with Customer Default."
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Participation in VOI Exchange Networks
The Company has applied for membership in Interval. The Company has
received preliminary approval but cannot receive final approval from Interval
until, among other things, construction on the Resort has commenced. The Company
believes that sales of its VOIs are made more attractive by the Company's
planned participation in an exchange program operated by Interval, a leading
exchange network. In the 1995 ARDA study, the exchange opportunity was cited by
purchasers as one of the most significant factors in determining whether to
purchase a VOI. Membership in Interval allows the members to exchange in a
particular year their occupancy right in the unit in which they own a VOI for an
occupancy right at the same time or a different time in another participating
resort, based upon availability and the payment of an exchange fee described
below. A member may exchange his VOI for an occupancy right in another
participating resort by listing his VOI as available with the exchange
organization and by requesting occupancy at another participating resort,
indicating the particular resort or geographic area to which the member desires
to travel, the size of the unit, the quality of the resort and the period during
which the VOI is available. The exchange organization attempts to satisfy the
exchange request by providing an occupancy right in another VOI with a similar
rating. If Interval is unable to meet the member's initial request, it suggests
alternative resorts based on availability.
Founded in mid 1970s, Interval has a total of more than 1,100
participating resort facilities and approximately 750,000 member owners
worldwide. During 1996, Interval processed approximately 400,000 exchanges. The
current cost of the annual membership fee in Interval, which typically is at the
option and expense of the owner of the VOI, is $68 per year. In addition,
members pay an additional fee that is currently $98 for properties in the United
States and $119 for those outside the United States when a reservation is made
in another project in the Interval exchange program.
Competition
Las Vegas has a timeshare history dating back to the mid 1970s. Of the
12 existing timeshare resorts in Las Vegas (including the current RAVC
property), five are still actively selling VOIs and one is inactive. The
remaining six are sold out or no longer selling. Four of these five, Hilton
Grand Vacations Club at the Flamingo, Polo Towers, the Jockey Club (each of
which is located on the Strip), and the Grand Flamingo Club are the primary
competitors of the Resort. Hilton Grand Vacations Company ("Hilton"), which
developed the Hilton Grand Vacations Club at the Flamingo, has plans to build
and develop a second timeshare project to be located on the existing Las Vegas
Hilton property. The Company believes that although none of these resorts has
units superior to those planned at the Resort, Hilton, Polo Towers, Jockey Club,
and Grand Flamingo Club have experienced marketing and management teams and may
have other competitive advantages. Mirage and Circus-Circus have tentative plans
to build timeshare projects that would be in direct competition with the
Company. Marriott recently announced that it will be managing a 1,500-room
Marriott Marquis Hotel and a 500-room Ritz Carlton Hotel to be built in Las
Vegas. Marriott projects in Las Vegas may include a timeshare component. The
Marriott Marquis Hotel is projected to be completed by the fall of 1998 and work
on the Ritz Carlton is planned to commence by 2000. A project by Hyatt at Lake
Las Vegas is also in the planning stage and could contain a timeshare component.
Consolidated Resorts, Inc., has plans to build an 86-unit resort which the
Company believes will not be directly competitive with the resort, and
Silverleaf Resorts, Inc., has purchased property in Las Vegas, but any
timeshare-related project is still in the planning stages. Other timeshare
resorts are also in the planning stage in Las Vegas and, if developed, would
compete with the Resort. Other major companies operating and developing
timeshare resorts in the United States, such as Disney, Four Seasons,
Inter-Continental, Promus, and Westin have not yet entered the Las Vegas market
but may do so in the future.
In Las Vegas, the Resort will also compete with approximately 270
existing hotels and motels with approximately 100,000 rooms. Some of such hotels
and resorts provide a large number of rooms at low nightly rates Sunday through
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Thursday and constitute strong competition for the Resort. According to the Las
Vegas Convention and Visitors Authority, the 1996 occupancy rate during midweek
was 88.7% and on weekends was 94.4%.
Governmental Regulation
General. The Company's marketing and sales are subject to extensive
regulation by the federal government, the State of Nevada, and the states in
which the VOIs are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
Interstate commerce. Other federal legislation to which the Company is or may be
subject includes the Truth in Lending Act and Regulation Z, the Equal Credit
Opportunity Act and Regulation B, the Interstate Land Sales Full Disclosure Act,
the Real Estate Standards Practices Act, the Telephone Consumer Protection Act,
the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing
Act, and the Civil Rights Acts of 1964 and 1968. In addition, many states have
adopted specific laws and regulations regarding the sale of interval ownerships
programs. The Company currently plans to register the Resort in Arizona,
California, Hawaii, Nevada, and Utah, and possibly other western states. The
laws of these states require the Company to file with a designated state
authority for its approval a detailed offering statement describing the Company
and all material aspects of the project and sale of VOIs before it can promote
or sell VOIs in that state. These laws require the Company to file numerous
documents and supporting information with the agency responsible for the
regulation of VOIs. When the agency determines that a project has complied with
state law, it will issue a public report for the project. The Company is
required to deliver an offering statement or public report to all prospective
purchasers of a VOI, together with certain additional information concerning the
terms of the purchase. Laws in each state where the Company plans to sell VOIs
generally grant the purchaser of a VOI the right to cancel a contract of
purchase at any time within a period ranging from three to fifteen calendar days
following the earlier of the date the contract was signed or the date the
purchaser has received the last of the documents required to be provided by the
Company. Most states have other laws that regulate the Company's activities such
as real estate licensure, sellers of travel licensure, anti-fraud laws,
telemarketing laws, price gift and sweepstakes laws, and labor laws. The Company
believes that it is in material compliance with all federal, state, local, and
foreign laws and regulations to which it is currently or may be subject.
However, no assurance can be given that the cost of qualifying under interval
ownership regulations in all jurisdictions in which the Company desires to
conduct sales will not be significant. In addition, the Company may experience
delays in registration. Any failure to comply with applicable laws or
regulations or delays in registration could have a material adverse effect on
the Company. See "Risk Factors--Regulation of Marketing and Sales of VOIs; Other
Laws."
A number of state and federal laws, including the Fair Housing Act and
the Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons on a variety of public accommodations and
facilities. The architectural plans for the Resort will comply with these laws
as currently in effect.
Environmental Matters. Certain Federal, state, and local laws,
regulations, and ordinances govern the removal, encapsulation, or disturbance of
asbestos-containing materials ("ACMs") when such materials are in poor condition
or in the event of construction, remodeling, renovation, or demolition of a
building. Nevada and the local governments have certain laws, rules and
regulations concerning the emission of airborne asbestos fibers, air pollution,
airborne substances and contamination of land, surface and subsurface hazardous
substances. The Company has sought and is continuing to seek advice on the
methods to properly follow such environmental laws, rules, regulations and
ordinances. Such laws may impose liability for release of ACMs and may provide
for third parties to seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with demolition of the
previous resort in Las Vegas, the Company may be potentially liable for such
costs.
A Phase I assessment has been conducted at the Resort in order to
identify potential environmental concerns. The Phase I assessment was carried
out in accordance with accepted industry practices and consisted of non-invasive
investigations of environmental conditions at the property, including a
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preliminary investigation of the site and identification of publicly known
conditions concerning properties in the vicinity of the site, a physical site
inspection, 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 site, a visual inspection of suspect friable and non-friable ACMs,
collection and laboratory analysis of ACMs, and the preparation and issuance of
written reports. Recommendations have been made regarding the abatement of ACMs.
Except for the presence of asbestos described more fully above, the Company's
assessments of the property have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Resort, nor is
the Company aware of any such material environmental liability. Nevertheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. The Company does not believe that compliance with applicable
environmental laws or regulations will have a material adverse effect on the
Resort.
The Company believes that the Property is 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 the Property.
Employees
As of March 31, 1998, the Company employed no full-time employees. RAVC
pays the salary of the Company's management and such management works on a
part-time, as-needed basis for the Company.
Legal Proceedings
As of the date of this prospectus, the Company is not aware of any
pending legal proceedings involving the Company or the Property.
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DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
The following table sets forth the names and ages of the members of the
Company's Board of Directors and its executive officers, and sets forth the
position with the Company held by each:
Name Age Position
---- --- --------
Jack R. Corteway 63 Director, Chief Executive Officer,
President and Treasurer
Bernard J. McKenna 64 Director
Theodore A. Rohde 68 Director
Stephen C. W. Lin 42 Vice President, Controller and
Secretary
Directors of the corporation hold office for one year or until their
successors are elected and qualified. The current directors were elected on May
9, 1997.
Jack R. Corteway. Mr. Corteway has been a director of the Company and its
President since its incorporation in 1997. He has been Treasurer of the Company
since May 9, 1997. From February 27, 1997, until May 9, 1997, he also served as
Secretary of the Company and has served as Chief Executive Officer since July
15, 1997. Mr. Corteway has been President and Chief Executive Officer of RAVC
since 1990. Mr. Corteway formerly served as President, Chief Executive Officer,
and Director of Bank of Honolulu for 14 years. Prior to coming to Hawaii, he
held various positions in corporate finance and banking.
Bernard J. McKenna. Mr. McKenna has been a director of the Company since its
incorporation in 1997. Mr. McKenna has also been a director of RAVC since 1990.
Mr. McKenna has been self employed since 1993 and has served as a director of
Sanwa Business Credit Corp. ("Sanwa"), a finance company, since 1985. From 1980
until his retirement in 1993, Mr. McKenna was President and Chief Executive
Officer of Sanwa.
A bankruptcy petition was filed on February 28, 1997 by McKenna
Inc. under Chapter 11 of the United States Bankruptcy Code. Bernard J. McKenna
is a 90% stockholder and the uncompensated President, Secretary, and Treasurer
of McKenna Inc., a retail party supply store. Reorganization of McKenna, Inc.,
is pending. McKenna, Inc., has no relationship with the Company, and its
reorganization will have no effect on the Company or its operations.
Theodore A. Rohde. Mr. Rohde has been a director of the Company since its
incorporation in 1997. Mr. Rohde has been a director of RAVC since 1994. For the
past 10 years, Mr. Rohde has been a consultant for troubled companies. Since
1995, Mr. Rohde has been president and a director of Tar Enterprises, Inc., a
consulting business for troubled companies, which is owned by Mr. Rohde. From
1979 to 1981, Mr. Rohde was vice president of finance and operations, and from
1981 to 1986 he was president, of Armstrong Containers Inc. Prior to his
association with Armstrong Containers, Inc., Mr. Rohde was employed as a vice
president of Wilbert, Inc. and a consultant to C. J. Wood Company, and was
employed by Wheelabrator-Frye Group and Arthur Andersen & Company.
Stephen C. W. Lin. Mr. Lin has been Vice President, Controller and
Secretary of the Company since May 9, 1997. Mr. Lin has been employed by RAVC
since 1981. He was a Vice President of RAVC between August 1990 and January 1995
and has been a Senior Vice President since January 1995. Mr. Lin has been
Treasurer of RAVC since August 1990 and Secretary since October 1994. Prior to
his employment by RAVC, Mr. Lin was employed by Ernst & Whinney and other
accounting firms. Mr. Lin is a Certified Public Accountant.
EXECUTIVE COMPENSATION
Mr. Corteway and Mr. Lin receive no compensation from the Company for
services rendered to the Company. Any and all compensation earned by them is
paid by RAVC. However, the portion of their compensation related to the time
they devoted to the affairs of the Company has been included in the paid-in
capital contributed by RAVC and recorded as expense in the Company's financial
statements. Members of the Company's Board of Directors who are not employees of
the Company receive directors' fees of $500 per diem, along with travel
expenses. Members of the Board of Directors who are employees of RAVC or may be
employees of the Company do not receive directors' fees.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company, consisting of one
share of common stock, is owned by RAVC.
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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Resort Management
Upon completion of the Resort, and upon formation of the Owners
Association, it is intended that RAVC will enter into a management agreement
(the "Management Agreement") with the Owners Association to provide for
management and maintenance of the Resort. Pursuant to the Management Agreement,
it is anticipated that RAVC will be paid a monthly management fee equal to 7% of
the total expenses incurred by the Owners Association, excluding expenses
incurred for capital repair and replacements, based on the annual budget of the
Owners Association. Additionally, pursuant to the Management Agreement, it is
anticipated that RAVC will have sole responsibility and exclusive authority for
all activities necessary for the day-to-day operation of the Resort, including
administrative services; procurement of inventories and supplies; maintaining
the units, the furnishings, and the common areas; contracting for furnishing
cleaning, maintenance, laundry, housekeeping, and other services; making or
contracting for all repairs, decorations, renewals, replacements, and
improvements; obtaining all required licenses and permits; and promotion and
publicity. RAVC also will obtain comprehensive and general public liability
insurance, all-risk property insurance, business interruption insurance, and
such other insurance as is customarily obtained for similar properties. RAVC
also will provide all managerial and other employees necessary for the Resort,
including review of the operation and maintenance of the Resort; preparation of
reports, budgets, and projections; collection of assessments; and employee
training.
Potential Distributions and Use of VOIs
The Notes and the Indenture restrict the Company's ability to pay
dividends and make other distributions to RAVC. In addition, Nevada corporate
law prohibits the Company from making any distribution to its stockholder that
would render it insolvent at the time the distribution is made, but
circumstances could render the Company insolvent subsequent to the time that a
distribution allowable by Nevada law was made. RAVC has informed its members of
its intent to obtain up to 1020 VOIs in Las Vegas to replace the 20 condominium
Units RAVC previously owned on the Company's property. The Company currently
intends to distribute such VOIs to RAVC, if available, after the Notes have been
paid. The Company's current intent is to refrain from selling such VOIs to third
parties in order to keep them available for distribution, but the Company may
attempt to sell the VOIs if necessary to meet its cash flow requirements. The
Company may allow RAVC to utilize unsold VOIs in consideration of the related
maintenance fees, which may be less than the fair market rental value of the
VOIs. The Company does not have a current intent to make other distributions to
RAVC.
Operating Agreement; Tax Sharing Agreement
Pursuant to an Operating Agreement dated June 24, 1997, RAVC is
entitled to utilize the existing 20 condominium units on the Property until such
time as the Company has obtained the Construction Loan and demolition of the
existing structure is scheduled to begin. RAVC will pay the Company the costs of
operating and maintaining these units, which may be less than the fair rental
value of the units. Pursuant to a Tax Sharing Agreement dated June 24, 1997,
RAVC and the Company have agreed that, although the two companies will file
consolidated federal income tax returns, the Company will reimburse RAVC for
federal income taxes which would have been payable if the Company were a
separate company and will share the cost of preparing the consolidated returns
with RAVC.
Year 2000 Computer Problem
The widespread use of computer programs and automated equipment that
rely on two-digit date programs to manage and manipulate may cause computer
systems or embedded controls to malfunction in the Year 2000. The Year 2000
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problem is pervasive and complex because virtually every computer operation or
automated function will be affected in some way by the rollover of the two digit
year value to 00. Computer systems and embedded controls may not recognize this
date as 2000 but as 1900 or not at all. Systems and embedded controls that do
not recognize such information could generate erroneous data or fail.
The Company will be dependent on RAVC to supply reservation,
accounting, member records, and other functions that are computerized. The
ability of RAVC to address the Year 2000 problem will have a direct impact on
the Company and its operations. In addition, there can be no assurance that the
systems and automated equipment of other companies upon which RAVC's systems
rely, or throughout the hospitality or travel industries in general, will also
be converted in a timely manner, and the resulting problems could have an
adverse effect on the Company's operations.
Future Transactions
Except as disclosed, no further related transactions are currently
contemplated. However, such transactions could arise in the future. The Company
will not enter into any transaction with a related person unless it has
determined that such transaction is on terms that are no less favorable to the
Company than those that might be obtained at the time of such transaction for an
unrelated person. The Company may not have the terms of any such transaction
independently reviewed.
DESCRIPTION OF SECURITIES
The Notes will be issued under an Indenture (the "Indenture"), between
the Company and First Trust of New York, N.A., trustee under the Indenture
("Trustee"). A form of the Indenture is being filed as an exhibit to the
Registration Statement of which this prospectus is a part. The Indenture is not
subject to and governed by the Trust Indenture Act of 1939, as amended. The
following summary of the material provisions of the Indenture does not purport
to be complete, and where reference is made to particular provisions of the
Indenture, such summary or terms, including definitions of certain terms, are
incorporated by reference as part of such summaries or terms, which are
qualified in their entirety by such reference.
General
The Notes will be unsecured subordinated obligations of the Company
limited to $9,200,000 principal amount, and will be junior in right of payment
to the Construction Loan and other Senior Indebtedness. The Notes will not be
guaranteed by RAVC. Principal of (and premium, if any) and interest on the Notes
will be payable, and the Notes will be exchangeable and transferable, at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially is the corporate trust office of the Trustee in the
City of New York maintained at 100 Wall Street, New York, New York 10005);
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the person entitled thereto as shown on the security
register. The Notes will be issued only in fully registered form without coupons
and in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any registration of transfer or exchange of Notes,
except for any tax or other governmental charge that may be imposed in
connection therewith.
Interest on the Notes will accrue from the Issuance Date (defined
below) but will not be paid until the Construction Loan has been repaid. The
Company estimates, assuming construction begins as planned, the complete
offering is sold and 3,880 VOIs in the Resort are sold within the first three
years after the commencement of construction, that accrued interest will begin
to be paid on the Notes within three years after the commencement of
construction. There can be no assurance that interest payments will commence at
that time. In the event there are insufficient sales of VOIs, payment of
principal and interest on the Notes may be delayed or the Company may be unable
to repay the Notes.
All funds invested will be held in escrow until the complete amount of
$9,200,000 contemplated by this Offering is raised and the Construction Loan has
been obtained. Funds held in escrow will be invested in short-term,
investment-grade securities or money market accounts. In the event the Company
does not raise the complete Offering amount, all funds will be returned, with
interest accrued at a rate established by the escrow agent. The Notes will be
unsecured obligations of the Company.
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Payment on the Notes
The Notes will become due and payable eight years from the date of
issuance (the "Issuance Date") of the Notes. The Issuance Date will be the date
on which the Company obtains a binding commitment for the Construction Loan and
the proceeds from the sale of the Notes are released from the escrow. The
Company presently anticipates that the Issuance Date will be no later than
October 31, 1998, unless the offering period is extended.
Interest at 13% per annum will be compounded semi-annually on the sixth
month after the Issuance Date and on the anniversary of the Issuance Date (a
"semi-annual interest payment date"). As set forth above, interest will not be
paid until the Construction Loan is paid. Interest at the prescribed rate shall
accrue from the Issuance Date. On the first semi-annual interest payment date
that occurs after repayment of the Construction Loan, and on each semi-annual
interest payment date thereafter, the Company will pay interest that has accrued
since the preceding semi-annual interest payment date. Such payments will be
made to holders of record at the close of business 15 days before such interest
payment date. Development Period Interest which accrues prior to repayment of
the Construction Loan will be paid on semi-annual interest payment dates as the
Company's cash flow permits. If it has not previously been paid, the Development
Period Interest will be paid on maturity or redemption of the Notes.
Optional Redemption
The Notes are subject to redemption at the option of the Company, in
whole or in part, at any time on or after the third anniversary of the Issuance
Date upon not less than 30 nor more than 60 days' notice to each holder of the
Notes, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period beginning on the
anniversary of the Issuance Date of the years indicated below, in each case
together with accrued interest thereon to the redemption date:
Year Percentage
- ---- ----------
Year 3.................................................... 103.00%
Year 4.................................................... 102.00
Year 5.................................................... 101.00
Year 6 and thereafter..................................... 100.00
Mandatory Redemption
The Indenture will require the Company to provide for the retirement,
by redemption of 25% of the principal amount of Notes originally issued, on the
sixth and seventh anniversary of the Issuance Date, at a redemption price of
100% of principal amount plus accrued interest to the redemption date. Such
redemptions are calculated to retire 50% of the issue prior to maturity. The
Company may, at its option, receive credit against sinking fund payments for the
principal amount of Notes acquired by the Company and surrendered for
cancellation or redeemed otherwise than through operation of the sinking fund.
Subordination
The indebtedness represented by the Notes and the payment of the
principal of (and premium, if any) and interest on, and any other amounts
payable with respect to, such Notes are subordinated in right of payment to the
prior payment in full of the Construction Loan and any refinancing thereof and
any other Senior Indebtedness in cash or cash equivalents.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company, as such, or to its assets, or any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or other marshalling of assets or
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liabilities of the Company, the holders of the Construction Loan and Senior
Indebtedness will be entitled to receive payment in full of all amounts due on
or in respect of the Construction Loan and Senior Indebtedness in cash of cash
equivalents, or provision must be made for such payment in cash or cash
equivalents, before the holders of the Notes are entitled to receive any payment
or distribution of any assets of the Company of any kind or character on account
of principal of (or premium, if any) or interest on, or other amounts payable
with respect to, the Notes. In the event that, notwithstanding the foregoing,
the Company or any holder of such Notes receives any payment or distribution of
assets of the Company of any kind or character before the Construction Loan or
Senior Indebtedness is paid or provided for in full in cash or cash equivalents,
then such payment or distribution will be received and held in trust for the
holders of the Construction Loan or Senior Indebtedness and paid over or
delivered to the trustee, receiver, custodian, assignee, agent or other person
making payment or distribution of assets of the Company, in trust for the
holders of, and for application to the payment of, the Construction Loan and
Senior Indebtedness remaining unpaid, to the extent necessary to pay the
Construction Loan and Senior Indebtedness in full. By reason of such
subordination, in the event of liquidation or insolvency, creditors of the
Company who are holders of the Construction Loan and Senior Indebtedness may
recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets of the Company of any kind or
character shall be made by the Company on account of the principal of (or
premium, if any) or interest on, or any other amounts payable with respect to,
the Notes, or on account of the purchase, redemption or other acquisition of the
Notes, upon the occurrence of an event of default on Senior Indebtedness and
receipt by the Company of written notice thereof, until such event of default
shall have been cured or waived.
"Senior Indebtedness" with respect to the Notes means the principal of,
premium, if any, and interest on, and any fees, costs, expenses, and any other
amounts (including indemnity payments) related to the following, whether
outstanding on the date of the Indenture or thereafter incurred or created: (i)
indebtedness, matured or unmatured, whether or not contingent, of the Company
for money borrowed evidenced by notes or other written obligations, including
the Construction Loan, (ii) any interest rate contract, interest rate swap
agreement, or other similar agreement or arrangement designed to protect the
Company or any of its subsidiaries against fluctuations in interest rates, (iii)
indebtedness, matured or unmatured, whether or not contingent, of the Company
evidenced by notes, debentures, bonds, or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iv) obligations of the
Company as lessee under capitalized leases and under leases of property made as
part of any sale and leaseback transactions, (v) indebtedness of others of any
of the kinds described in the preceding clauses (i) through (iv) assumed or
guaranteed by the Company and (vi) renewals, extensions, modifications,
amendments, and refundings of, and indebtedness and obligations of a successor
person issued in exchange for or in replacement of, indebtedness obligations of
the kinds described in the preceding clauses (i) through (iv), unless the
agreement pursuant to which any such indebtedness described in clauses (ii)
through (vi) is created, issued, assumed or guaranteed expressly provides that
such indebtedness is not senior or superior in right of payment to the Notes;
provided, however, that the following shall not constitute Senior Indebtedness;
(i) any indebtedness or obligation of the Company in respect of the Notes; (ii)
any indebtedness of the Company to any of its subsidiaries or other affiliates;
(iii) any indebtedness that is subordinated or junior in any respect to any
other indebtedness of the Company other than Senior Indebtedness; (iv) any
indebtedness incurred for the purchase of goods or materials in the ordinary
course of business; and (v) any liability for federal, state, local or other
taxes owed or owing by the Company.
In the event that the Trustee (or paying agent if other than the
Trustee) or any Noteholder receives any payment of principal, or interest with
respect to the Notes at a time when such payment is prohibited under the
Indenture, such payment shall be held in trust for the benefit of, and
immediately shall be paid over and delivered to, the holders of Senior
Indebtedness or their representative as their respective interests may appear.
After all Senior Indebtedness is paid in full and until the Notes are paid in
full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
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Events of Default and Remedies
An "Event of Default," as defined in the Notes, is (i) the failure of
the Company to pay principal of or premium on the Notes when due; (ii) the
failure of the Company to pay interest on the Notes for a period of 30 days when
due; (iii) default by the Company for 90 days after notice in the observance or
performance of any other covenants in the Indenture; (iv) an event of default
occurs under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any of its subsidiaries (or the payment of which is
guaranteed by the Company or any of its subsidiaries), whether such indebtedness
or guarantee now exists or shall be created after the date hereof, which default
(a) is caused by a failure to pay principal or interest on such indebtedness
prior to the expiration of the grace period provided in such indebtedness (a
"Payment Default") or (b) results in the acceleration of such indebtedness prior
to its expressed maturity and, in each case, the principal amount of such
indebtedness, together with the principal amount of such indebtedness, together
with the principal amount of any other such indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $1 million, or (v) certain events involving bankruptcy, insolvency,
or reorganization of the Company. The Indenture provides that the Trustee may
withhold notice to the holders of Notes of any default (except in payment of
principal, premium, if any, or interest with respect to the Notes) if the
Trustee, in good faith, considers it in the interest of the Noteholders of the
Notes to do so.
The Indenture provides that if an Event of Default (other than an Event
of Default with respect to certain events, including bankruptcy, insolvency, or
reorganization of the Company) shall have occurred and be continuing, the
Trustee or the holders of not less than 25% in principal amount of the Notes
then outstanding may declare the principal of and premium, if any, on the Notes
to be due and payable immediately, but if the Company shall pay or deposit with
the Trustee a sum sufficient to pay all matured installments of interest on all
Notes and the principal and premiums, if any, on all Notes that have become due
other than by acceleration and certain expenses and fees of the Trustee, and if
all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) shall have
been cured or waived and certain other conditions are met, such declaration may
be canceled and past defaults may be waived by the holders of a majority in
principal amount of the Notes then outstanding.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture. The Indenture provides that,
subject to the duty of the Trustee following an Event of Default to act with the
required standard of care, the Trustee will not be under an obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders, unless the Trustee receives satisfactory
indemnity against any associated costs, liability, or expense.
Certain Covenants
The Indenture contains, among others, the following covenants:
Restricted Payments. The Company will not, directly or indirectly, as
long as any Notes are outstanding, (i) declare or pay any dividends or make any
distributions (other than dividends or distributions payable solely in shares of
common stock of the Company) on or in respect of any shares of common stock of
the Company or (ii) purchase, redeem or otherwise acquire or retire for value
(other than solely with shares of common stock of the Company) any of the common
stock of the Company or warrants, rights or options to acquire common stock of
the Stock.
Limitation on Additional Senior Indebtedness. The Company will not,
directly or indirectly, create, incur, issue, assume, guarantee, suffer to exist
or otherwise become directly or indirectly liable with respect to any Senior
Indebtedness (collectively, an "incurrence"), other than the following:
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(i) Senior Indebtedness incurred pursuant to the
Construction Loan;
(ii) Senior Indebtedness of the Company not to exceed an
amount equal to 20% of the principal amount of indebtedness evidenced
by the Notes issued under the Indenture; and
(iii) Senior Indebtedness issued in exchange for, or the
proceeds of which are used to repay or refund or refinance or discharge
or otherwise retire for value, Senior Indebtedness of the Company
permitted under this provision ("Refinancing Indebtedness") in a
principal amount not to exceed the principal amount of the Senior
Indebtedness so refinanced, plus customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness.
Successor Corporation
The Notes provide that the Company may not consolidate or merge with or
into or transfer all or substantially all of its assets to any other person
unless the corporation or entity formed by or surviving such consolidation or
merger (if other than the Company), or to which such sale or conveyance shall
have been made, expressly assumes all the obligations of the Notes and
immediately after giving effect to such transaction no Event of Default shall
occur or be continuing.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of Notes,
as expressly provided for in the Indenture) as to all outstanding Notes issued
under the Indenture when either (i) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid) have been delivered to the Trustee for cancellation and the Company has
paid all sums payable by it under the Indenture or (ii) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable, or will become due and payable or are to be called for redemption
within one year, the Company has irrevocably deposited or caused to be deposited
with the Trustee money or U.S. government obligations, or a combination thereof,
in such amounts as will be sufficient to pay the entire indebtedness on such
Notes and the Company has paid all sums payable by it under the Indenture. In
addition, the Company must deliver an opinion of counsel stating that all
conditions precedent to satisfaction and discharge have been complied.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Notes issued under the
Indenture; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby, (i)
change the stated maturity of the principal of, or any installment of interest
on, any Note, (ii) reduce the principal amount of, or the premium or interest
on, the Notes (iii) change the coin or currency in which any Notes or any
premium or the interest thereon is payable, (iv) impair the right to institute
suit for the enforcement of any payment on or with respect to the Notes, (v)
reduce the percentage in principal amount of outstanding Notes necessary to
waive compliance with certain provisions of the Indenture or to waive certain
defaults, (vi) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults,
except to increase the percentage of outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be modified
or waived without the consent of the holder of each Note affected thereby, or
(vii) modify any of the provisions of the Indenture relating to the
subordination of the Notes in a manner adverse to the holders.
The Company and the Trustee may amend or supplement the Indenture
without notice to or consent of any Noteholder, in certain events, such as to
correct or supplement any inconsistent or deficient provision in the Indenture,
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to comply with the provisions of the Trust Indenture Act of 1939 if the
Indenture becomes qualified under such Act, or to appoint a successor Trustee.
Trustee and Escrow Agent
First Trust of New York, N.A. of New York, New York, will serve as
Trustee under the Indenture and U.S. Bank Trust National Association, formerly
First Trust of California, N.A., will act as Escrow Agent for the funds.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax
consequences applicable to purchasers of Notes in the offering. The tax
consequences to certain purchasers, such as dealers in securities, foreign
persons, mutual funds, insurance companies and tax-exempt entities, that are
subject to special treatment under the Internal Revenue Code of 1986, as amended
(the "Code") or under the laws of other jurisdictions may differ materially from
those outlined below. The following discussion is also not intended to describe
the tax consequences to persons subject to alternative minimum tax or to persons
acquiring the Notes subsequent to the Offering, which are affected by other
statutory provisions. All prospective investors are accordingly urged to consult
their own tax advisors as to the specific consequences to them of acquisition of
the Notes, including the applicability and effect of federal, state, local,
foreign and other tax laws.
For federal income tax purposes, all holders of the Notes will be
required to include accrued interest in their taxable income under the "original
issue discount" ("OID") rules of the Code, regardless of whether such interest
has been paid or whether such holders generally employ a cash or accrual method
of accounting. The amount of any OID included in income for each year would be
calculated under a constant yield to maturity formula that would result in the
allocation of less taxable income to the early years of the term of the Notes
and more taxable income to the later years. Holders will increase their tax
basis for the Notes by the amount of accrued OID and decrease such tax basis by
the amount of principal and interest actually paid.
Upon a sale or exchange of the Notes, holders will recognize gain or
loss measured by the difference between the amount realized from the sale or
exchange and their adjusted tax basis for the Notes at the time of such
transaction. Provided that the Notes are held as capital assets as of the date
of their disposition, any gain or loss recognized by a holder will be capital
gain or loss and will be long-term capital gain or loss if the Notes have been
held for more than one year. A long-term capital gain will be taxable at maximum
rate of 20% if the Notes have been held for more than 18 months and otherwise
will be taxable at a maximum rate of 28%. A short-term capital gain is taxable
at the same rates applicable to ordinary income. A short-term or long-term
capital loss is only allowable as a current deduction to the extent of capital
gains plus, in the case only of a non-corporate taxpayer, $3,000 of ordinary
income ($1,500 in the case of a married individual filing a separate return).
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS
Under Section 78.751 of the Nevada Revised Statutes and the Company's
Articles of Incorporation and Bylaws, the Company's directors and officers may
be indemnified against certain liabilities which they may incur in their
capacities as such.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, it is the position of
the Commission that such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
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submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
TRANSFER RESTRICTIONS FOR TEXAS RESIDENTS
The Securities Commissioner of Texas has required, as a condition of
registration of the Notes with the Securities Commissioner for sale to Texas
residents, that the Company and the investors who are Texas residents agree that
the Notes will not be sold or transferred (i) except by gift, devise, or
descent, or (ii) unless sold or transferred in reliance upon an exemption from
the registration provisions of the Texas Securities Act, Tex. Rev. Civ. Stat.
Ann. article 581 (the "Texas Act"), provided in Sections 5.A., 5.B., or 5.H. of
the Texas Act, or (iii) to transferees who meet the suitability standards
contained in subparagraphs d. and e. below. The Company will refuse to transfer
the Notes purchased pursuant to this Agreement unless the proposed transferee
furnished proof of compliance with the terms of this Agreement, including, at
the request of the Company, an opinion of counsel acceptable to the Company that
such proposed transfer complies with the terms of this Agreement.
a. Section 5.A. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale or transfer at any
judicial, executor's, administrator's, guardian's, or conservator's
sale, or any sale by a receiver or trustee in insolvency or bankruptcy.
b. Section 5.B. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale by or for the
account of a pledge holder or mortgagee, selling or offering for sale
or delivery in the ordinary course of business to liquidate a bona fide
debt, of a security pledged in good faith as security for such debt.
c. Section 5.H. of the Texas Act and Texas Securities Board Rule 109.3
provide an exemption for sales to any bank, trust company, building and
loan association, insurance company, savings institution, investment
company as defined in the Investment Company Act of 1940, small
business investment company as defined in the Small Business Investment
Company Act of 1958, or to any registered securities dealer actually
engaged in buying and selling securities.
d. Investors who are residents of the State of Texas and who are
members of Royal Aloha Vacation Club must meet the following investor
suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the investor must come
within one of the following categories: (i) any person who has $75,000
in gross income during the prior year and a reasonable expectation such
person will have such income in the current year; or (ii) any person
who has $50,000 in gross income during the prior year and a reasonable
expectation of such income in the current year, and a net worth of
$150,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with
the investment not exceeding 10% of such person's net worth.
e. Investors who are residents of the State of Texas and who are not
members of Royal Aloha Vacation Club must be an "Accredited Investor"
within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
PLAN OF DISTRIBUTION
The Notes offered hereby are being offered to the public by the Company
on a "best efforts" basis. There can be no assurance that any of the Notes will
be sold. Unless $9,200,000 principal amount of Notes are sold within 90 days of
the date hereof, or such later date as shall be determined by the Board of
Directors (but not to exceed two extension periods of 90 days each), all
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proceeds received will be returned to the investor, with interest accrued at the
rate established by the escrow agent, and no sale of Notes will be made. All
payments will be mailed within three business days following receipt to an
escrow account maintained by U.S. Bank Trust National Association (formerly
First Trust of California N.A.), as escrow agent, and held pending the sale of
such minimum principal amount of Notes within the specified period and
satisfaction of other closing conditions. Such payments will only be withdrawn
from the escrow account for the purpose of (i) paying the Company for the Notes
hereunder if the full $9,200,000 principal amount of Notes are sold within the
Offering period, as extended, and the Construction Loan is received within 120
days following the end of the Offering period, or (ii) returning payments to
purchasers. If the Offering amount is sold within the Offering period and the
other closing conditions are satisfied, subscribers will receive, in addition to
their Notes, the interest earned on their deposit in the escrow account if such
interest is more than $5.00 per subscriber.
U.S. Bank Trust National Association (formerly First Trust of
California), is acting only as an escrow agent in connection with the offering
of the Notes described herein, and has not endorsed; recommended or guaranteed
the purchase, value or repayment of such Notes.
Initially, the Company plans to employ brokers, dealers, placement
agents, or finders in connection with the Offering only in the states of Arizona
and Texas, due to state statutory restrictions. The Company has contracted with
First Financial Equity Corporation ("First Financial") to act as its agent in
offering the Notes in Arizona and Texas. First Financial will receive a
commission or fees of up to 6% of the amount sold by First Financial. In states
other than Arizona and Texas, certain employees of the Company or RAVC may
solicit responses to the Offering, but such employees will not receive any
commissions or compensation for such services other than their normal employment
compensation. However, the Company may offer the Notes in other states through
brokers or dealers who may receive a commission or fees of up to 6% of the
amount sold by such person. No such fees shall be paid in states that prohibit
such fees.
The validity of the Notes offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, LLP, Salt Lake City, Utah.
EXPERTS
The financial statements of Royal Aloha Development Company at November
30, 1997, and February 28, 1998, and from inception of the Company, February 27,
1997, to November 30, 1997, and for the three months ended February 28, 1998,
appearing in this prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, and the information under caption
"Selected Financial Data" at November 30, 1997, and February 28, 1998, and from
inception of the Company, February 27, 1997, to November 30, 1997, and for the
three months ended February 28, 1998, appearing in this Prospectus and
Registration Statement, have been derived from financial statements audited by
Ernst & Young LLP, as set forth in their report appearing elsewhere herein. Such
financial statements and selected financial data are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The references to Donald R. Beach, Appraiser-Consultant, and the
appraisal given by him in the Prospectus and the appraisal made by him and filed
as an exhibit to the Registration Statement have been included in reliance upon
his authority as an expert with respect to the matters contained therein. In the
opinion of Donald R. Beach, the appraisal was prepared in accordance with the
standards and reporting requirements of the Uniform Standards of Professional
Appraisal Practice as outlined in Chapter 645C of the Nevada Administrative
Code.
35
<PAGE>
Financial Statements
Royal Aloha Development Company
For the three months ended February 28, 1998 and from inception,
February 27,1997 to November 30, 1997
with Report of Independent Auditors
<PAGE>
Royal Aloha Development Company
Financial Statements
For the three months ended February 28, 1998 and from inception
February 27, 1997 to November 30, 1997
Contents
Report of Independent Auditors ..................................... F-3
Balance Sheets ..................................................... F-4
Statements of Operations and Accumulated Deficit ................... F-5
Statements of Cash Flows ........................................... F-6
Notes to Financial Statements ...................................... F-7
<PAGE>
[LETTERHEAD]
ERNST & YOUNG LLP 2400 Pauahi Tower Phone: 808 531 2037
1001 Bishop Street
Honolulu, Hawaii 96813-3429
Report of Independent Auditors
Board of Directors
Royal Aloha Development Company
We have audited the accompanying balance sheets of Royal Aloha Development
Company as of February 28, 1998 and November 30, 1997, and the related
statements of operations and accumulated deficit, and cash flows for the three
months ended February 28, 1998 and from inception, February 27, 1997 to November
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion,
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Royal Aloha Development Company
at February 28, 1998 and November 30, 1997, and the results of its operations
and its cash flows for the three months ended February 28, 1998 and from
inception, February 27, 1997, to November 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
April 6, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-3
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Balance Sheets
February 28, 1998 and November 30, 1997
February 28, November 30,
1998 1997
--------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 35,613 $ 28,500
--------------------------------------
Total current assets 35,613 28,500
Property and equipment:
Land $ 304,762 $ 304,762
Improvements and fixtures 965,459 965,459
Project development costs (Note 3 and 6) 106,385 106,395
--------------------------------------
1,376,606 1,376,606
Less accumulated depreciation 586,427 578,635
--------------------------------------
790,179 797,971
Deferred financing costs (Note 4) 282,756 271,221
--------------------------------------
Total assets $ 1,108,548 $ 1,097,692
======================================
Liabilities and shareholder's equity Current liabilities:
Accounts payable $ 57,981 $ 84,087
--------------------------------------
Total current liabilities 57,981 84,087
Shareholder's equity (Note 6):
Common stock, non-par value; authorized 2,500
shares, issued and outstanding 1 share 1 1
Additional paid-in capital 1,148,474 1,093,484
Accumulated deficit (97,908) (79,880)
--------------------------------------
Total shareholder's equity 1,050,567 1,013,605
--------------------------------------
Total liabilities and shareholder's equity $ 1,108,548 $ 1,097,692
======================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Statements of Operations and Accumulated Deficit
From inception,
For the three February 27,
months ended 1997 to
February 28, November 30,
1998 1997
--------------------------------------
<S> <C> <C>
Rental income (Note 2) $ 35,300 $ 56,392
Expenses
Maintenance and operating expenses (Note 2) 35,300 56,392
Depreciation 7,792 13,593
Salaries and wages 4,540 13,612
Directors fees and expenses 3,000 24,154
Legal fees and expenses 1,525 11,022
Other 721 730
Supplies 450 8,645
Travel - 4,472
Postage and freight - 3,652
--------------------------------------
53,328 136,272
--------------------------------------
Net loss before income taxes (18,028) (79,880)
Income taxes - -
--------------------------------------
Net loss (18,028) (79,880)
Accumulated deficit, beginning (79,880) -
--------------------------------------
Accumulated deficit, ending $ (97,908) $ (79,880)
======================================
</TABLE>
See accompanying notes
F-5
<PAGE>
<TABLE>
<CAPTION>
Royal Aloha Development Company
Statements of Cash Flows
From inception,
For the three February 27,
months ended 1997 to
February 28, November 30,
1998 1997
--------------------------------------
Operating activities
<S> <C> <C>
Net loss $ (18,028) $ (79,880)
Adjustments to reconcile excess of expenses over income to net cash provided by
operating activities:
Depreciation 7,792 13,593
Expenses paid by parent 4,990 61,035
Deferred financing costs (11,535) (242,835)
Accounts payable (26,106) 84,087
--------------------------------------
Net cash provided by operating activities (42,887) (164,000)
Financing activities
Sale of common stock - 1
Additional cash contribution by shareholder 50,000 192,499
--------------------------------------
Net cash provided by investing activities 50,000 192,500
Increase in cash 7,113 28,500
Cash at beginning of period 28,500 -
--------------------------------------
Cash at ending of period $ 35,613 $ 28,500
======================================
Supplemental disclosure of non-cash activity
Capital contribution - property and equipment $ - $ 811,564
Capital contribution - project costs - 106,385
Capital contribution - deferred financing costs - 28,386
Capital contribution - general and administrative
expenses 4,990 61,035
</TABLE>
See accompanying notes.
F-6
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements
February 28, 1998
1. Formation and Purpose of the Company
Royal Aloha Development Company (the Company), is a wholly-owned subsidiary of
Royal Aloha Vacation Club (RAVC). It was incorporated, in Nevada, on February
27, 1997 and commenced operations on June 24, 1997 upon the transfer of cash and
land and improvements in Las Vegas, Nevada comprising a 20 unit timeshare
resort. Such assets are recorded at RAVC's historical cost basis on the date of
the transfer.
The Company intends to construct a new timeshare resort of up to 119 Units on
the property resulting in the creation of 6,069 vacation ownership interests
(VOI). Currently, it is the intent of the Company to retain up to 1,020 VOIs for
use by RAVC members who have been previously informed by RAVC to this effect.
However, the ultimate number of VOIs retained will depend on the success of the
project, market conditions at the time of completion of the project, and other
factors.
2. Operations
The Company's existing timeshare units are leased to RAVC for an amount equal to
the cost of operating and maintaining them. Thus, the Company will not realize
any cash flow from the operations thereof Administrative expenses incurred by
RAVC on behalf of the Company have been to allocated the Company.
3. Accounting Policies
Property and Equipment
Property and equipment are recorded at the historical cost incurred by RAVC.
Depreciation is recorded for the improvements and fixtures using the
straight-line method over the estimated useful lives of 30 to 40 years.
The carrying value of improvements and fixtures at the time the existing
property is razed and construction of the new resort commences will be written
off; the cost of the land will be assigned to the new resort.
F-7
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements (continued)
3. Accounting Policies (continued)
Construction Costs of New Resort
All costs incurred in connection with planning, design, and construction of the
planned resort are capitalized as project development costs.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Income Taxes
The Company is included in the consolidated federal income tax return of RAVC.
Federal income taxes are allocated to the Company on a separate company basis
pursuant to an intercompany federal income tax sharing agreement At February 28,
1998, the Company has a net operating loss carryforward of approximately $97,000
for income tax purposes that will expire in 2012. For financial reporting
purposes, a deferred tax asset of approximately $18,000 has been fully offset by
a valuation allowance because of the uncertainty of its realization.
4. Deferred Financing Costs
Costs incurred through February 28, 1998 consist principally of legal fees
related to the Company's planned public offering of subordinated notes. Such
costs, together with all other costs incurred in connection with registering and
selling the notes will be deferred and amortized over the life of the notes
using the interest method.
5. Related Party Transactions
As sole shareholder, RAVC controls the Company and provides administrative and
operating support to it. Two of the three directors of the Company are also
directors of RAVC, and the other one is an officer of RAVC. The officers; of the
Company are also officers of RAVC.
F-8
<PAGE>
Royal Aloha Development Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
As discussed in Note 6, RAVC incurred and paid $195,806 in costs and expenses on
behalf of the Company through November 30, 1997. An additional $4,990 was
incurred and paid during the three months ended February 28, 1998.
6. Changes in Shareholder's Equity
On June 24, 1997 the Company issued one share of its non-par common stock to
RAVC in exchange for cash, property and equipment with a carrying value of
$897,679. $1 was recorded as common stock and $897,678 was recorded as
additional paid-in capital. RAVC subsequently contributed an additional $200,796
to paid-in capital of the Company, which consists of costs to organize the
Company and for preliminary planning and design of the new resort, allocated
officers expenses and deferred financing costs. In January 1998, RADC received a
$50,000 cash contribution from RAVC which was recorded as additional paid in
capital.
F-9
<PAGE>
ROYAL ALOHA DEVELOPMENT COMPANY
13% EIGHT YEAR DEFERRED INTEREST SUBORDINATED NOTES
SUBSCRIPTION AGREEMENT
1. The undersigned hereby tenders this Subscription Agreement
("Subscription") to Royal Aloha Development Company, a Nevada corporation (the
"Company"), to purchase the Company's 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes") in the principal amount indicated on the
signature page hereof. The undersigned acknowledges that this Subscription shall
not become effective until it has been properly executed by the undersigned and
accepted by the Company. The Company may reject Subscriptions, in whole or in
part, for any reason.
2. The undersigned acknowledges receipt of a Prospectus dated
_____________, 1998, (the "Prospectus"), describing the Company and the terms of
the Company's offer to sell the Notes. The Notes are unsecured, subordinated
obligations of the Company, no payments will be made on the Notes until the
Company has fully paid the Construction Loan, and there is no guaranty that the
Company will be able to pay the Notes when due.
3. There are various substantial risks attendant to the Company's
business and an investment in the Notes, including the loss of the entire amount
of such investment.
4. No market is expected to develop in the Notes. Therefore, the
undersigned does not expect to be able to transfer his Notes.
5. The undersigned is not entitled to cancel, terminate, or revoke this
Subscription or any agreements of the undersigned hereunder, and such
Subscription shall survive the death or disability of the undersigned. As
described in the Prospectus, the original ninety (90) day Offering period may be
extended for up to two additional ninety (90) day periods, and subscription
funds may remain in escrow for up to one hundred twenty (120) days following the
Offering period while the Construction Loan is being obtained.
6. If this Subscription is executed and delivered on behalf of a
partnership, corporation, trust or estate, or retirement plan: (i) such
partnership, corporation, trust or estate or retirement plan has been duly
authorized and is duly qualified (a) to execute and deliver this Subscription
and all other instruments executed and delivered on behalf of such partnership,
corporation, trust or estate or retirement plan in connection with the purchase
of the Notes, and (b) to purchase and hold such Note; and (ii) the signature of
the party signing on behalf of such partnership, corporation, trust or estate or
retirement plan is binding upon such partnership, corporation, trust or estate
or retirement plan.
7. If the undersigned is a resident of the State of Arizona and is a
member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation that such person will have
such income in the current year; or (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation that such person will
have such income in the current year, and a net worth of $150,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 20% of the net worth of such person; or (iii) any person who has a net
worth of $250,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of the net worth of such
person.
If the undersigned is a resident of the State of Arizona and is not a
member of Royal Aloha Vacation Club, the undersigned must meet certain
requirements to be eligible to purchase the Notes offered in this Offering.
Specifically, the undersigned must come within one of the following categories:
(i) any person who has $100,000 in gross income during the prior year and a
reasonable expectation that such person will have such income in the current
year; or (ii) any person who has $50,000 in gross income during the prior year
<PAGE>
and a reasonable expectation that such person will have such income in the
current year, and a net worth of $250,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 15% of the net
worth of such person; or (iii) any person who has a net worth of $350,000
exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 7.5% of the net worth of such person.
By signing below, the undersigned, if a resident of the State of
Arizona, is representing and warranting to the Company that he or she meets all
of the investor suitability standards outlined in this paragraph.
8. If the undersigned is a resident of the State of California, the
undersigned must meet the following investor suitability standards to be
eligible to purchase the Notes pursuant to the offer made by the Prospectus.
Specifically, the undersigned must come within one of the following categories:
(i) "Accredited Investors" within the meaning of Regulation D under the
Securities Act of 1993; or (ii) banks, savings and loan associations, trust
companies, investment companies, pension and profit-sharing trusts, corporations
or other entities which, together with the corporation's or other entity's
affiliates, have a net worth on a consolidated basis according to their most
recent regularly prepared financial statements (which shall have been reviewed,
but not necessarily audited, by outside accountants) of not less than
$14,000,000 and subsidiaries of the foregoing; or (iii) any persons (other than
a person formed for the sole purpose of purchasing the Notes being offered
hereby) who purchases at least a $1,000,000 aggregate amount of the Notes
offered hereby; or (iv) any person who (A) has an income of $50,000 and a net
worth of $75,000, or (B) has a net worth of $150,000 (in each case, excluding
home, home furnishings and personal automobiles).
By signing below, the undersigned, if a resident of the State of
California, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
9. If the undersigned is a resident of the State of Massachusetts and
is a member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the Notes
pursuant to the offer made by the Prospectus. Specifically, the undersigned must
come within one of the following categories: (i) any person who has $75,000 in
gross income during the prior year and a reasonable expectation such person will
have such income in the current year, with the investment not exceeding 10% of
such person's annual gross income; (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation of such income in the
current year, and a net worth of $150,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 10% of such
person's net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Massachusetts and is
not a member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 to be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Massachusetts, is representing and warranting to the Company that he or she
meets all of the investor suitability standards outlined in this paragraph.
10. If the undersigned is a resident of the State of Oregon and is a
member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation such person will have such
income in the current year; or (ii) any person who has $50,000 in gross income
during the prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings and
personal automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Oregon and is not a
member of Royal Aloha Vacation Club, the undersigned must be an "Accredited
Investor" within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
S-2
<PAGE>
By signing below, the undersigned, if a resident of the State of
Oregon, is representing and warranting to the Company that he or she meets all
of the investor suitability standards outlined in this paragraph.
11. If the undersigned is a resident of the State of Pennsylvania and
is a member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the Notes
pursuant to the offer made by the Prospectus. Specifically, the undersigned must
come within one of the following categories: (i) any person who has $75,000 in
gross income during the prior year and a reasonable expectation such person will
have such income in the current year, with the investment not exceeding 10% of
such person's annual gross income; (ii) any person who has $50,000 in gross
income during the prior year and a reasonable expectation of such income in the
current year, and a net worth of $150,000 (exclusive of home, home furnishings
and personal automobiles), with the investment not exceeding 10% of such
person's net worth; or (iii) any person who has a net worth of $250,000
(exclusive of home, home furnishings and personal automobiles), with the
investment not exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Pennsylvania and is
not a member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 to be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Pennsylvania, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
12. FOR TEXAS RESIDENTS ONLY: The Securities Commissioner of Texas has
required, as a condition of registration of the Notes with the Securities
Commissioner for sale to Texas residents, that the Company and the undersigned
Texas resident(s) agree that the Notes will not be sold or transferred (i)
except by gift, devise, or descent, or (ii) unless sold or transferred in
reliance upon an exemption from the registration provisions of the Texas
Securities Act, Tex. Rev. Civ. Stat. Ann. article 581 (the "Texas Act"),
provided in Sections 5.A., 5.B., or 5.H. of the Texas Act, or (iii) to
transferees who meet the suitability standards contained in subparagraphs d. and
e. below. The Company will refuse to transfer the Notes purchased pursuant to
this Agreement unless the proposed transferee furnished proof of compliance with
the terms of this Agreement, including, at the request of the Company, an
opinion of counsel acceptable to the Company that such proposed transfer
complies with the terms of this Agreement.
a. Section 5.A. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale or transfer at any
judicial, executor's, administrator's, guardian's, or conservator's
sale, or any sale by a receiver or trustee in insolvency or bankruptcy.
b. Section 5.B. of the Texas Act provides an exemption from the
registration provisions of the Texas Act for a sale by or for the
account of a pledge holder or mortgagee, selling or offering for sale
or delivery in the ordinary course of business to liquidate a bona fide
debt, of a security pledged in good faith as security for such debt.
c. Section 5.H. of the Texas Act and Texas Securities Board Rule 109.3
provide an exemption for sales to any bank, trust company, building and
loan association, insurance company, savings institution, investment
company as defined in the Investment Company Act of 1940, small
business investment company as defined in the Small Business Investment
Company Act of 1958, or to any registered securities dealer actually
engaged in buying and selling securities.
d. If the undersigned is a resident of the State of Texas and is a
member of Royal Aloha Vacation Club, the undersigned must meet the
following investor suitability standards to be eligible to purchase the
Notes pursuant to the offer made by the Prospectus. Specifically, the
undersigned must come within one of the following categories: (i) any
person who has $75,000 in gross income during the prior year and a
reasonable expectation such person will have such income in the current
year; or (ii) any person who has $50,000 in gross income during the
prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings
S-3
<PAGE>
and personal automobiles), with the investment not exceeding 10% of
such person's net worth; or (iii) any person who has a net worth of
$250,000 (exclusive of home, home furnishings and personal
automobiles), with the investment not exceeding 10% of such person's
net worth.
e. If the undersigned is a resident of the State of Texas and is not a
member of Royal Aloha Vacation Club, the undersigned must be an
"Accredited Investor" within the meaning of Regulation D under the
Securities Act of 1933 to be eligible to purchase the Notes offered in
this Offering.
By signing below, the undersigned, if a resident of the State of Texas,
is representing and warranting to the Company that he or she meets all of the
investor suitability standards outlined in this paragraph.
13. If the undersigned is a resident of the State of Washington and is
a member of Royal Aloha Vacation Club, the undersigned must meet the following
investor suitability standards to be eligible to purchase the Notes pursuant to
the offer made by the Prospectus. Specifically, the undersigned must come within
one of the following categories: (i) any person who has $75,000 in gross income
during the prior year and a reasonable expectation such person will have such
income in the current year; or (ii) any person who has $50,000 in gross income
during the prior year and a reasonable expectation of such income in the current
year, and a net worth of $150,000 (exclusive of home, home furnishings and
personal automobiles), with the investment not exceeding 10% of such person's
net worth; or (iii) any person who has a net worth of $250,000 (exclusive of
home, home furnishings and personal automobiles), with the investment not
exceeding 10% of such person's net worth.
If the undersigned is a resident of the State of Washington and is not
a member of Royal Aloha Vacation Club, the undersigned must be an "Accredited
Investor" within the meaning of Regulation D under the Securities Act of 1933 to
be eligible to purchase the Notes offered in this Offering.
By signing below, the undersigned, if a resident of the State of
Washington, is representing and warranting to the Company that he or she meets
all of the investor suitability standards outlined in this paragraph.
14. The undersigned acknowledges that U.S. Bank Trust National
Association (formerly First Trust of California) is acting only as an escrow
agent in connection with the offering of the Notes described herein, and has not
endorsed, recommended or guaranteed the purchase, value or repayment of such
Notes.
15. The undersigned has completed and signed the attached Substitute
Form W-9 or a Form W-8, as applicable.
Principal amount of Notes subscribed for: $________________.
(minimum $1,000)
DATED this ___ day of __________, 199__.
------------------------------------------------
(Signature)
------------------------------------------------
(Name - Please Print)
------------------------------------------------
(Signature of Spouse if Natural Persons Purchasing
Jointly or if Community Property State)
------------------------------------------------
(Name of Spouse if Natural Persons Purchasing
Jointly or if Community Property State)
S-4
<PAGE>
------------------------------------------------
(Primary Place of Residence)
------------------------------------------------
(City, State and ZIP Code)
------------------------------------------------
(Telephone Number - Business)
------------------------------------------------
(Social Security or Taxpayer I.D. No.)
ACCEPTED this ___ day of __________, 199___.
ROYAL ALOHA DEVELOPMENT COMPANY
By: __________________________________________
Print Name:
Title:
S-5
<PAGE>
INSTRUCTIONS
The instructions below should be followed in purchasing the Notes
described in the Subscription Agreement.
1. Your Subscription Agreement, your completed Substitute Form W-9, and
a check for the principal amount of Note purchased, in a minimum amount of
$1,000, made payable to U.S. Bank Trust National Association as Escrow Agent for
Royal Aloha Development Company (collectively, the "Subscription Documents"),
must be properly filled in, signed, dated, and sent or delivered to the Company
at the address shown in the Prospectus. If you are not a United States citizen
or resident, you should file a Form W-8 instead of a Substitute Form W-9. Please
contact the Company for a copy of Form W-8.
2. Substitute Form W-9. Under the Federal Income Tax Law, a non-exempt
Subscriber is required to provide the Company with a correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9, which is provided
under "Important Tax Information" below. Failure to provide the information on
the Substitute Form W-9 may subject the Subscriber to 31% Federal income tax
backup withholding on the payment of any interest on the Notes. The box in Part
2 of Substitute Form W-9 may be checked if the Subscriber has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. If the box in Part 2 is checked and the Escrow Agent or the Trustee is
not provided with a TIN by the time of payment, the Escrow Agent or Trustee will
withhold 31% on all payments to such Subscriber of any interest accrued on the
Subscriber's Note. Please review the section "Important Tax Information" for
additional details on what TIN to give the Company.
IMPORTANT TAX INFORMATION
Under Federal income tax law, a Subscriber who purchases Notes from the
Company is required to provide the Company with such Subscriber's correct TIN on
Substitute Form W-9 below. If such Subscriber is an individual, the TIN is his
or her social security number. For businesses and other entities, the TIN is the
employer identification number. If the Company is not provided with the correct
TIN, the Subscriber may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, payments that are made to such Subscriber with
respect to interest on the Notes may be subject to backup withholding.
If Federal income tax backup withholding applies, the Company is
required to withhold 31% of any payments made to the Subscriber. Backup
withholding is not an additional tax. Rather, the Federal income tax liability
of persons subject to backup withholding will be reduced by the amount of the
tax withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
Purpose of Substitute Form W-9
To avoid backup withholding on payments that are made to a Subscriber
with respect to Notes purchased, the Subscriber is required to notify the
Company of his or her correct TIN by completing the Substitute Form W-9 attached
hereto certifying that the TIN provided on Substitute Form W-9 is correct and
that (a) the Subscriber has not been notified by the Internal Revenue Service
that he or she is subject to Federal income tax backup withholding as a result
of failure to report all interest or dividends or (b) the Internal Revenue
Service has notified the Subscriber that he or she is no longer subject to
Federal income tax backup withholding.
S-6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <S>
Part 1--PLEASE PROVIDE YOUR TIN IN THE Social security number OR
BOX AT RIGHT AND CERTIFY BY SIGNING AND Employee Identification Number
DATING BELOW:
SUBSTITUTE TIN
--------------------------------------------------------------------------------------------------
Form W-9 Name (Please Print) Part 2
Department of the Address Awaiting TIN [ ]
Tresury --------------------------------------------------------------
Internal Revenue Service
City State Zip Code
Payer's Request for ------------------------ ------------ -------------
Taxpayer --------------------------------------------------------------------------------------------------
Identification Number Part 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
(TIN) and CERTIFY THAT:
Certification (1) The number shown on this form is my correct taxpayer identification number
(or a TIN has not been issued to me but I have mailed or delivered an
application to receive a TIN or intend to do so in the near future).
(2) I am not subject to backup withholding either
because I have not been notified by the
Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends or
the IRS has notified me that I am no longer
subject to backup withholding.
(3) All other information provided on this form is
true, correct and complete.
--------------------------------------------------------------------------------------------------
SIGNATURE: DATE:
----------------------------------------------------- ---------------------------
You must cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because of
underreporting interest or dividends on your tax
return.
- -----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS OF INTEREST
ACCRUED ON YOUR INVESTMENT. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9.
- ----------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments of the purchase price of the Shares made to me will be withheld until I
provide a number.
SIGNATURE:_____________________________________
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
S-7
<PAGE>
============================ ============================
NO PERSON IS AUTHORIZED TO GIVE ANY
OFFERING INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON ROYAL ALOHA DEVELOPMENT COMPANY
AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE NOTES
OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY NOTES IN ANY CIRCUMSTANCES IN $9,200,000
WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS 13% EIGHT YEAR DEFERRED INTEREST
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE SUBORDINATED NOTES
ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. -------------------
PROSPECTUS
------------------- -------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION............... 2 , 1998
PROSPECTUS SUMMARY.................. 7
RISK FACTORS........................ 9
USE OF PROCEEDS..................... 16
SELECTED FINANCIAL DATA............. 17
PLAN OF OPERATION................... 17
BUSINESS OF THE COMPANY............. 18
DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY................... 25
EXECUTIVE COMPENSATION.............. 26
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.. 26
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.............. 27
DESCRIPTION OF SECURITIES........... 28
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................... 33
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR
SECURITIES ACT VIOLATIONS......... 34
TRANSFER RESTRICTIONS FOR TEXAS
RESIDENTS......................... 34
PLAN OF DISTRIBUTION................ 35
LEGAL MATTERS....................... 35
EXPERTS ........................... 35
FINANCIAL STATEMENTS.............. F-1
SUBSCRIPTION AGREEMENT............. S-1
========================= ========================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
Section 78.751 of the Nevada Revised Statutes provides that a
corporation may indemnify its officers, directors, employees, and agents (or
persons who have served, at the corporation's request, as officers, directors,
employees, or agents of another corporation) against certain expenses, including
attorneys' fees, actually and reasonably incurred by them in connection with the
defense of any action by reason of being or having been directors, officers,
employees or agents.
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify its officers and directors to the fullest extent
permitted by the Nevada Law.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 25. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this Offering are set forth
below:
Securities and Exchange Commission filing fee...............$3,000
Blue Sky fees and expenses..................................50,000
Accounting fees and expenses................................30,000
Legal fees and expenses....................................150,000
Trustee and Escrow Agent Fees...............................40,000
Printing and electronic transmission expenses...............50,000
Postage ....................................................20,000
Travel and General Administrative......................... 37,000
------------
Total........................................$ 380,000
============
ITEM 26. Recent Sales of Unregistered Securities
On or about June 24, 1997, the Company issued all of its currently
issued and outstanding common stock to its parent corporation RAVC in exchange
for the Property and cash. No commissions or similar remuneration were paid with
respect to such issuance. The issuance was a limited offering to a single entity
which completely controlled the issuer before and after the issuance. The
offering is believed exempt from registration pursuant to Section 4(2) of the
Securities Act.
II-1
<PAGE>
ITEM 27(a). Index of Exhibits
Exhibit Number
1 Underwriting Agreement between Royal Aloha Development Company and
First Financial Equity Corporation, dated March 20, 1998.
3.1 Articles of Incorporation of Royal Aloha Development Company, filed
February 27, 1997.*
3.2 Bylaws of Royal Aloha Development Company adopted by the Board of
Directors on March 5, 1997.*
4 Form of Indenture, dated __________, between Royal Aloha Development
Company and First Trust of New York, N.A., as Trustee, including Form
of Note.
5 Opinion of Ballard Spahr Andrews & Ingersoll.
10.1 Escrow Agreement, dated _________, 1997 between Royal Aloha Development
Company and U.S. Bank Trust National Association, as Escrow Agent.
10.4 Operating Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.5 Tax Sharing Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.6 Interval International, Inc. Preliminary Qualification letter dated
July 30, 1997.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5).
23.3 Consent of Donald R. Beach.*
24 Power of Attorney (included on signature pages to this Registration
Statement).*
27 Financial Data Schedule.
99 Appraisal of Property by Donald R. Beach, C.A.E.S.P.A.*
- ------------------
* Previously filed.
ITEM 28. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers, and
controlling persons of the registrant pursuant to its Certificate of
Incorporation, as amended, its Bylaws, as amended or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
amendment to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Honolulu, State of
Hawaii, on ____________________, 1998.
ROYAL ALOHA DEVELOPMENT COMPANY
By:
-------------------------------------
Jack R. Corteway
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of
1933, this amendment to the registration statement has been signed by the
following persons in the capacities and on the date stated.
Signature Title Date
- --------- ----- ----
- --------------------------- President, Chief Executive __________, 1998
Jack R. Corteway Officer, Treasurer and
Director (Principal
Executive Officer)
*
- --------------------------- Vice President, Controller __________, 1998
Stephen C. W. Lin and Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
*
- --------------------------- Director ___________, 1998
Bernard J. McKenna
*
- --------------------------- Director ___________, 1998
Theodore A. Rohde
*By:
-----------------------
Jack R. Corteway
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
Exhibit Number
1 Underwriting Agreement between Royal Aloha Development Company and
First Financial Equity Corporation, dated March 20, 1998.
3.1 Articles of Incorporation of Royal Aloha Development Company, filed
February 27, 1997.*
3.2 Bylaws of Royal Aloha Development Company adopted by the Board of
Directors on March 5, 1997.*
4 Form of Indenture, dated __________, 1998, between Royal Aloha
Development Company and First Trust of New York, N.A., as Trustee,
including Form of Note.
5 Opinion of Ballard Spahr Andrews & Ingersoll.
10.1 Escrow Agreement, dated ________, 1998, between Royal Aloha Development
Company and U.S. Bank Trust National Association, as Escrow Agent.
10.4 Operating Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.5 Tax Sharing Agreement between Royal Aloha Vacation Club and Royal Aloha
Development Company.*
10.6 Interval International, Inc. Preliminary Qualification letter dated
July 30, 1997.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5).
23.3 Consent of Donald R. Beach.*
24 Power of Attorney (included on signature pages to this Registration
Statement).*
27 Financial Data Schedule.*
99 Appraisal of Property by Donald R. Beach, C.A.E.S.P.A.*
- ------------------
* Previously filed.
PLACEMENT AGREEMENT
between
ROYAL ALOHA DEVELOPMENT COMPANY
and
FIRST FINANCIAL EQUITY CORPORATION
Dated as of
March 20, 1998
<PAGE>
ROYAL ALOHA DEVELOPMENT COMPANY
$9,200,000
Subordinated Notes
PLACEMENT AGREEMENT
March 20, 1998
First Financial Equity Corporation
3101 North Central, Suite 1030
Phoenix, Arizona 85012
Attn: James Barron
Dear Mr. Barron:
Pursuant to this Placement Agreement ("Agreement"), Royal
Aloha Development Company (the "Company") confirms its agreement with you
("Placement Agent") to act as the Company's agent to offer for sale for the
Company's account (the "Offering") up to $9,200,000 of Subordinated Notes of-the
Company (the "Notes") in Arizona and Texas as follows:
1. The Prospectus. On or before the Commencement Date (as
defined below), the Company will deliver to you a final Prospectus for use in
the sale of the Notes (the "Prospectus") prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act'% the Securities Exchange Act of 1934 (the "Exchange Act"), the securities
laws of each state in which the Notes will be offered and sold, and the rules
and regulations promulgated thereunder (collectively, the "Securities Laws").
2. Purchase, Delivery and Sales of the Notes.
2.1 Subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained, the Company employs Placement Agent to sell the Notes in
Arizona and Texas for the Company's account during the period commencing on the
date (the "Commencement Date") upon which the Company's registration statement
on Form SB-2 is declared effective by the Securities and Exchange Commission
("SEC") and ending at the close of business on the 90th day after the
Commencement Date, (except that this period may be extended for up to two
additional successive 90-day periods by the Company) (the "Offering Period")
upon the terms to be determined and set forth in the Prospectus. The Company
<PAGE>
will also file the Form SB-2, together with this Agreement, with the NASD (as
defined in Section 3.1). Placement Agent agrees to use its best efforts as agent
of the Company to sell the Notes promptly after the commencement of the
Offering, but Placement Agent shall not have any obligation or commitment to
engage in any particular selling activities except to use best efforts to
identify prospective purchasers of the Notes. This is a "best efforts" and not a
"firm commitment" placement and Placement Agent has no obligation or commitment
to purchase or sell any of the offered Notes.
2.2 The Company agrees to pay Placement Agent a
sales commission of 4.2% of the gross proceeds from the sale of Notes to Royal
Aloha Vacation Club members and a commission of 6.0% of the gross proceeds from
the sale of Notes to all other investors.
2.3 All funds collected by Placement Agent from
prospective purchasers of the Notes must be deposited in an escrow account
maintained by First Trust of California, N. A., as escrow agent. The commission
payable by the Company to Placement Agent will be paid out of the escrow account
immediately after Closing. If Closing does not occur by the end of the Offering
Period, amounts deposited in the escrow account will be returned to investors,
and the Company will pay to Placement Agent a fixed fee of $2,500 from its own
funds. Payment of the commission and delivery of and payment for the Notes shall
take place at the office of Lewis and Roca, Phoenix, Arizona, (or at any other
place designated by agreement between Placement Agent and the Company) at such
time and date as Placement Agent and the Company may agree upon in writing. Such
time and date of payment and delivery (the "Closing Date") shall be not later
than 270 days after the Commencement Date.
2.4 The Company will make any certificates
representing the Notes to be purchased hereunder available to Placement Agent
for checking at least two full business days prior to the Closing Date. Any such
certificates shall be in such names and denominations as Placement Agent
requests at least four full business days prior to the Closing Date.
3. Offering of Notes and Use of Prospectus.
3.1 Placement Agent shall offer the Notes only to
residents of Arizona and Texas, in a manner so as to comply with the Securities
Laws upon the terms set forth in this Agreement. Such solicitation activities
shall be conducted in accordance with this Agreement, the Securities Laws and
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. ("NASD").
3.2 The Company authorizes Placement Agent to use
the Prospectus, as amended or supplemented from time to time, in connection with
the sale of the Notes and in accordance with the provisions of the Securities
Laws.
2
<PAGE>
3.3 Placement Agent will provide the Company with
adequate assurances that all subscribers of the Notes will satisfy the
suitability requirements set forth in the Prospectus and imposed as a condition
of registration of the Notes under the securities laws of the State of Arizona
and the State of Texas (the "Suitability Requirements") set forth under the
headings, "Arizona Investor Qualifications" and "Texas Investor Qualifications"
in the Prospectus.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Placement Agent as follows:
4.1 (a) At all times during the Offering Period the
Prospectus and any amendments or supplements thereto will contain all statements
which are required to be stated therein by the Securities Laws and will in all
material respects comply with the requirements of the Securities Laws; and (b)
neither the Prospectus nor any amendments or supplements thereto, will include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that no representations, warranties or agreements
made hereunder will be applicable to information contained in or omitted from
the Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of Placement Agent specifically for use
in the preparation thereof.
4.2 The Company has been duly formed under the laws
of the State of Nevada, with power and authority to conduct such business as
permitted by applicable Nevada law.
4.3 This Agreement has been duly and validly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement, enforceable against the Company in accordance with its terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally or by general equitable principles and except as
the enforcement of indemnification provisions may be limited by Securities Laws.
4.4 The Company is not in violation of its articles
of incorporation or other similar governing instruments, or in default in the
performance or observance of any obligation, agreement, or condition contained
in any bond, debenture, note or other evidence of indebtedness or in any
material contract, indenture, mortgage, loan agreement, lease, joint venture,
partnership or other agreement or instrument to which it is a party or by which
it or any material portion of its properties may be bound or in violation of any
law, ordinance, government rule or regulation, or court decree to which it is
subject except to the extent any such defaults or violations, alone or in the
aggregate, would not materially affect the Company or its business.
4.5 The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein and in the Prospectus
3
<PAGE>
and compliance with the terms of this Agreement will not conflict with, or
result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, or result in the imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company pursuant to any
agreement, indenture or other instrument to which the Company is a party or by
which the Company or any material portion of its properties or assets may be
bound, nor will such action result in the material violation by the Company of
any of the provisions of its articles of incorporation or other similar
governing instruments, or any violation of any law, rule, administrative
regulation, or decree of any governmental instrumentality or court having
Jurisdiction over the Company.
4.6 No consent, approval, authorization or order of
any court or governmental agency or body is required for the consummation by the
Company of the transactions on its part herein contemplated.
4.7 Upon acceptance of subscriptions therefor
effective at Closing, the Notes will be validly issued and outstanding.
4.8 There is not now pending or, to the knowledge of
the Company, threatened, any action, suit or proceeding to which the Company is
a party before or by any court or governmental agency or body, which might
result in any material adverse change in the condition (financial or otherwise),
business or prospects of the Company or might materially and adversely affect
the properties or assets of the Company.
4.9 The Company has obtained all licenses, permits
and other governmental authorizations to its knowledge currently required for
the conduct of its business as now being conducted or as proposed to be
conducted and the Company has in all material respects complied therewith.
5. Covenants of the Company. The Company covenants and agrees
with Placement Agent that:
5.1 The Company will not at any time amend the
Prospectus without advising Placement Agent and furnishing Placement Agent with
a copy of its proposed amended Prospectus or in a manner which is not in
compliance with the Securities Laws.
5.2 As soon as the Company is advised thereof, the
Company will advise Placement Agent of the receipt of any request made by any
governmental authority for additional information with respect to the Prospectus
or the issuance of any order or of the entry of any judgment, order, injunction,
or decree enjoining, restraining, barring or limiting the distribution or the
use of the Prospectus, or of the institution of any proceedings for any of the
foregoing purposes, and will use reasonable efforts to prevent the issuance of
any such order and, if issued, to obtain as soon as possible the lifting or
dismissal thereof.
4
<PAGE>
5.3 The Company authorizes Placement Agent to use
the Prospectus in connection with the offering and sale of the Notes for such
period as in the reasonable opinion of Placement Agent's counsel is required to
comply with the applicable provisions of the Securities Laws. The Company will
prepare promptly upon Placement Agent's request, any such amendments or
supplements to the Prospectus and take any other action as, in the opinion of
Placement Agent's counsel, may be necessary or advisable in connection with the
offering and sale of the Notes.
5.4 In case of the happening of any event of which
the Company has knowledge and which materially affects the Company or its
securities, or which should be set forth in an amendment of or a supplement to
the Prospectus in order to make the statements therein not misleading in light
of the circumstances then existing, or in case it shall be necessary to amend or
supplement the Prospectus to comply with the Securities Laws or any other law,
the Company will forthwith prepare and furnish to Placement Agent copies of an
amended Prospectus or of a supplement to be attached to the Prospectus, in such
quantities as Placement Agent may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements in the Prospectus, in the light of circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Prospectus shall be without expense to Placement Agent.
5.5 The Company will to the best of its ability
comply with the Securities Laws so as to permit the continuance of sales of the
Notes.
5.6 Subject to the limitation contained in Section
11, the Company will deliver to Placement Agent as many copies of the
Prospectus, in final form, and as thereafter amended or supplemented, as
Placement Agent may from time to time reasonably request.
6. Representations, Warranties and Covenants of
Placement Agent.
6.1 Best Efforts. Placement Agent shall use its best
efforts to find purchasers for the Notes who satisfy the Suitability
Requirements.
6.2 Manner of the Offering. Placement Agent shall
offer the Notes and, as to any Notes which may be sold, shall sell such Notes,
on behalf of the Company in accordance with the Securities Laws.
6.3 Authorization. This Agreement has been duly
authorized, executed and delivered by Placement Agent and constitutes the valid,
legal and binding agreement of Placement Agent, enforceable in accordance with
its terms except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
5
<PAGE>
affecting the rights of creditors generally or by general equitable principles
and except as the enforcement of indemnification provisions may be limited by
Securities Laws.
6.4 Breach of Other Agreements Affecting Placement
Agreement. The execution and delivery of this Agreement, and fulfillment of the
terms set forth herein, and the consummation of the transactions contemplated
hereby, will not violate or result in a breach of, or constitute a default
under, or conflict with or cause any acceleration of any obligation with respect
to (a) any note, indenture. agreement or other instrument by which Placement
Agent is bound, (b) the governing instruments of Placement Agent or (c) any law,
rule, regulation or order of any court or other governmental agency or body
having jurisdiction over Placement Agent.
6.5 Registration as Broker-Dealer. Placement Agent
is a member in good standing of NASD, is registered as a broker-dealer under the
Securities Exchange Act of 1934, is registered under the securities or blue sky
laws of Arizona, has filed all documents necessary to become registered under
the securities or blue sky laws of Texas and will be so registered prior to
offering the Notes for sale in Texas. There are no pending or threatened actions
or proceedings against Placement Agent and no pending disciplinary actions
brought against Placement Agent by the SEC, NASD or any agency of any state.
6.6 Materials. Placement Agent will use no written
material in connection with Placement Agent's activities hereunder other than
the Prospectus and such other material as the Company may approve in writing,
and Placement Agent will make no representations in offering the Notes for sale
other than those contained in the Prospectus and such other material as the
Company may approve in writing.
6.7 Reasonable Beliefs. Immediately prior to
submitting any subscription for Notes for acceptance, Placement Agent will
reasonably believe, based upon its review of the purchaser questionnaire with
each prospective investor, that the subscriber meets the Suitability
Requirements.
6.8 General Solicitation. Placement Agent will not
make any offer of Notes by any, form of solicitation or advertising in violation
of the Securities Laws.
6.9 Actions. Placement Agent will take such action
or refrain from taking such action as the Company may reasonably request in
order to comply with all applicable Securities Laws, including Placement Agent's
using its best efforts to cause offerees and subscribers to execute and deliver
such additional documents and instruments as the Company may reasonably require.
6.10 Access to Information. Placement Agent will:
(a) maintain all Subscription Documents and other materials used by Placement
Agent to ascertain the satisfaction of the criteria enumerated herein for
6
<PAGE>
offerees and subscribers, for a period of at least five years from the close of
escrow; and (b) make such material available to the Company upon request.
6.11 Amendments and Supplements. Placement Agent
shall promptly deliver each amendment or supplement to the Prospectus furnished
to Placement Agent (a) to all offerees who are then being or are thereafter
solicited by Placement Agent and (b) to each person who has subscribed for Notes
(through the efforts of Placement Agent) prior to his or her receipt of such
amendment or supplement, obtaining from such person, if deemed necessary by
Placement Agent's counsel or counsel to the Company, a confirmation of his or
her subscription as a condition to acceptance thereof by the Company.
7. Conditions of the Placement Agent's Obligations. The
obligations of Placement Agent are subject to the accuracy (as of the date
hereof, and as of the Closing Date) of and compliance with the representations
and warranties of the Company, the performance by the Company of its agreements
and obligations hereunder and the following additional conditions:
7.1 The Prospectus shall have been delivered to
Placement Agent by the Company for use in offering the Notes and no order
enjoining, restraining, barring, or limiting the distribution or use of the
Prospectus shall have been issued by any governmental authority having
jurisdiction and no proceeding for that or any similar purpose shall have been
instituted or shall be pending.
7.2 On the Closing Date Placement Agent shall have
received a certificate, signed by the Principal of the Company and dated as of
the Closing Date, to the effect, to the best knowledge of the Company, that with
regard to the Company each of the conditions set forth in Section 7.4 has been
satisfied.
7.3 All proceedings and other legal matters relating
to this Agreement, and other related matters shall be satisfactory to or
approved by Placement Agent's counsel.
7.4 At the Closing Date, (a) the representations
and warranties of the Company contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date and the
Company shall have performed all of its obligations hereunder; (b) neither the
Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in light of the circumstances under which they were
made to make the statements therein not misleading; (c) there shall have been
since the respective dates as of which information is given no event materially
and adversely affecting the Company, except changes which the Prospectus
indicates might occur after the date of the Prospectus; (d) the Company shall
not have incurred any material liabilities or material obligations, direct or
contingent, or entered into any material transaction, contract or agreement not
in the ordinary course of business other than as referred to in the Prospectus;
7
<PAGE>
and (e) no action, suit or proceeding at law or in equity shall be pending or
threatened against the Company which would be required to be set forth in the
Prospectus, and no proceedings shall be pending or threatened against the
Company before or by any commission, board or administrative agency, wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, condition (financial or otherwise), results of operations or
general affairs or prospects of the Company or would adversely affect
transactions contemplated by this Agreement.
If any of the conditions provided for in this
Section 7 shall not have been fulfilled as of the date indicated, all
obligations of Placement Agent under this Agreement may be canceled by notifying
the Company of such cancellation in writing or by telecopy at or prior to the
Closing Date.
8. Conditions of the Company's Obligations. The obligations
of the Company to sell and deliver the Notes are subject to the accuracy (as of
the date hereof and the Closing Date) of and compliance with the representations
and warranties of Placement Agent, to the performance by Placement Agent of its
agreements and obligations hereunder and to the following additional conditions:
8.1 Funding shall have been approved by lender(s) for
an interim construction loan for the Resort (as defined in the Prospectus) in
the principal amount of at least $15,250,000.
8.2 The Company shall be satisfied in its sole
discretion with market conditions for the Project.
8.3 At the Closing Date, no order affecting the
registration of the Notes shall have been issued or any proceedings therefor
initiated or threatened by any governmental authority having jurisdiction.
8.4 Payments for the Notes shall have been deposited
into the escrow account and all conditions to the release of the funds (less
commissions agreed upon) to the Company as set forth in the escrow agreement, if
any, shall have been satisfied.
9. Indemnification.
9.1 The Company agrees to indemnify and hold
harmless Placement Agent and each person, if any, who controls, within the
meaning of the Securities Act of 1993, Placement Agent, against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which Placement Agent or such
employees or controlling persons may become subject, under the Securities Laws
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) (i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (a) the Prospectus,
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<PAGE>
as from time to time amended or supplemented; or (b) any application or other
document (in this Section 9 collectively called "Application") executed by the
Company or based on written information furnished by or on behalf of the Company
specifically for use in the preparation thereof filed in any jurisdiction in
order to register or qualify or exempt the Notes under the Securities Laws
thereof, or any amendment or supplement thereto; or (ii) arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Prospectus or any Application, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by Placement Agent specifically for use in the
preparation thereof, and provided further that the indemnity agreement contained
in this section 9.1 shall not inure to the benefit of Placement Agent or any
controlling person from whom the person asserting any such loss, claim, damage
or liability purchased the Notes which are the subject thereof with respect to
the Prospectus if the Prospectus was not delivered to the purchaser in question
and, had the Prospectus been so delivered to him, there would have been no
liability to him by virtue of such untrue statements, alleged untrue statements,
omissions, or alleged omissions. This indemnity will be in addition to any
liability which the Company may otherwise have.
9.2 Placement Agent agrees to indemnify and hold
harmless the Company against any losses, claims, damages or liabilities (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees) to which the Company
may become subject under the Securities Laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Prospectus, any Application, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Prospectus, any
Application, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by Placement Agent
specifically for use in the preparation thereof; (ii) any oral solicitations of
Placement Agent; or (iii) any violation by Placement Agent of any applicable
state or federal law or any rule, regulation or instruction thereunder, provided
that such violation is not based upon any violation by the Company of such law,
rule, regulation or instruction. This indemnity will be in addition to any
liability which Placement Agent may otherwise have.
9.3 Promptly after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action (including any
governmental investigations), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 9,
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notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than as to the particular item for
which indemnification is being sought under this Section 9. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, reasonably assume the defense
thereof, subject to the provisions herein stated, with counsel satisfactory to
the indemnifying party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action, provided that if the indemnified party is a member of the selling
group or a person who controls any member of the selling group within the
meaning of the Securities Act of 1933, the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (a) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(b) the named parties to any such action (including any impleaded parties)
include both such member of the selling group or such controlling person and the
indemnifying party and such member of the selling group or such controlling
person shall have been advised by such counsel that there are one or more legal
defenses available to the indemnifying party in conflict with any legal defenses
which may be available to such member of the selling group or controlling person
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such member of the selling group or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for Placement Agent and
controlling persons, which firm shall be designated in writing by Placement
Agent). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party.
10. Contribution. In order to provide for just and equitable
contribution under the Securities Laws in any case in which (a) Placement Agent
makes any claim for indemnification pursuant to Section 9 hereof but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9 provide for
10
<PAGE>
indemnification in such case, or (b) contribution under the Securities Laws may
be required on the part of Placement Agent, then the Company and Placement Agent
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) in either such case (after contribution from others) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and Placement Agent on the other from the Offering. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required in Section 9, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and Placement Agent on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and Placement Agent the other shall be deemed to be in
the same proportion as the total net proceeds from the Offering (before
deducting expenses) received by the Company for the Notes bear to the total
underwriting commissions received by Placement Agent. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or Placement Agent on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 10. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
Section 10 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 10,
Placement Agent shall not be required to contribute any amount in excess of the
amount by which the total price at which the Notes were offered exceeds the
amount of any damages which Placement Agent has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any person having liability under Section 10 of
the Securities Act of 1933, other than the Company and Placement Agent. As used
in this Section 10, the term "Placement Agent" includes any person who controls
Placement Agent within the meaning of Section 14 of the Securities Act of 1933.
If the full amount of the contribution specified in this Section is not
permitted by law, then Placement Agent and each person who controls Placement
Agent shall be entitled to such contribution from the Company and its
controlling persons to the full extent permitted by law.
11
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11. Costs, Expenses and Fees. The Company will pay all costs
and expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company;
the costs and expenses incident to the preparation, printing and distribution of
the Prospectus and all filing and other fees and expenses, and Company will
reimburse Placement Agent for postage expenses in connection with marketing
activities, filing and other fees and expenses not to exceed $2,500. The Company
shall pay any and all transfer taxes on sales hereunder, but shall not be
required to pay any of Placement Agent's expenses other than as herein set
forth.
12. Effective Date. This Agreement shall become effective
March 20, 1998, and all references to the date of its effectiveness or execution
shall be deemed to refer to such date.
13. Termination.
13.1 This Agreement, except for Sections 9, 10, 11
and 14 hereof, may be terminated at any time prior to the Closing Date by
Placement Agent if in its Judgment it is impracticable to offer the Notes for
sale by reason of (a) the Company having sustained a loss material to the
Company whether or not insured, by reason of fire, earthquake, flood, accident
or other calamity, or from any labor dispute or court or government action,
order or decree, (b) material governmental restrictions having been imposed on
trading securities generally (not in force and effect on the date hereof), (c) a
banking moratorium having been declared by federal, Arizona or Texas
authorities, (d) an outbreak of major international hostilities or other
national or international calamity having occurred, (e) the passage by the
Congress of the United States or by any state legislative body of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is likely to have a material adverse impact on the business,
financial condition, prospects or financial statements of the Company or the
market for the securities offered hereby, or (f) any material adverse change
having occurred, since the respective dates as of which information is given in
the Prospectus, in the condition of the Company (financial or otherwise), or in
the earnings, affairs or business prospects of the Company whether or not
arising in the ordinary course of business, which would make the offering or
delivery of the Notes impracticable.
13.2 If Placement Agent elects to terminate this
Agreement as provided in this Section 13, the Company shall be promptly notified
by Placement Agent, by telephone or telecopy, confirmed by letter.
13.3 This Agreement, except for Sections 9, 10, 11
and 14 hereof, may be terminated at any time prior to the Closing Date by the
Company if any material adverse change has occurred, since the respective dates
as of which information is given in the Prospectus, in the condition of the
Company (financial or otherwise), or in the earnings, affairs or business
12
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prospects of the Company whether or not arising in the ordinary course of
business, which would, in the reasonable judgment of the Company and its
counsel, make the offering or delivery of the Notes a violation of applicable
Securities Laws.
14. Representations, Warranties and Agreements to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Placement Agent, set forth in or
made pursuant to this Agreement, will remain in full force and effect,
regardless of any investigation made by or on behalf of the Placement Agent or
the Company or any controlling person, and will survive delivery of and payment
for the Notes.
15. Notices. All communications hereunder will be in writing
and, except as otherwise expressly provided herein, if sent to the Placement
Agent, will be mailed, delivered or telephoned and confirmed to Placement Agent
at 3101 North Central, Suite 1030, Phoenix, Arizona 85012, Attn: James Barrons,
with a copy to Gary Zwillinger, Morrison & Hecker, 2800 North Central, 16th
Floor, Phoenix, Arizona 85004-1047, or if to the Company at Royal Aloha Vacation
Club, Suite 212, 1505 Dillingham Boulevard, Honolulu Hawaii 96817, Attn: Jack
Corteway, with copies to Scott DeWald, Lewis and Roca LLP, 40 North Central
Avenue, Phoenix, Arizona 85004 and C. Parkson Lloyd, Ballard Spahr Andrews &
Ingersoll, One Utah Center, Suite 1200, 201 South Main Street, Salt Lake City,
Utah 84111.
16. Parties in Interest. This Agreement is made solely for
the benefit of the Company and Placement Agent, their controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
17. Headings. The Section headings in this Agreement have
been inserted as a matter of convenience of reference and are not a part of this
Agreement.
18. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona.
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19. Counterparts. This Agreement may be signed in
counterparts by the respective parties.
Very truly yours,
ROYAL ALOHA DEVELOPMENT COMPANY
/s/ Jack R. Corteway
----------------------------------
Jack Corteway, President
Accepted as of the date first above written:
FIRST FINANCIAL EQUITY CORPORATION
BY: /s/ James R. Barrons
-----------------------
Its Principal
14
ROYAL ALOHA DEVELOPMENT COMPANY
Issuer
AND
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
Trustee
INDENTURE
Dated as of ________ __, 1998
13% Eight Year Deferred Interest Subordinated Notes
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
PAGE
Section 1.1 Definitions................................................ 2
Section 1.2 Incorporation by Reference of Trust Indenture Act.......... 5
Section 1.3 Rules of Construction...................................... 6
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes..................... 6
Section 2.2 Form of Notes.............................................. 7
Section 2.3 Date and Denomination of Notes; Payments of Interest....... 7
Section 2.4 Execution of Notes......................................... 8
Section 2.5 Exchange and Registration of Transfer of Notes............. 9
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes................. 10
Section 2.7 Temporary Notes............................................ 11
Section 2.8 Cancellation of Notes Paid, Etc............................ 11
Section 2.9 CUSIP Numbers.............................................. 11
ARTICLE III
REDEMPTION AND REPURCHASE OF NOTES
Section 3.1 Optional Redemption Prices................................. 12
Section 3.2 Mandatory Redemption....................................... 12
Section 3.3 Notice of Redemption; Selection of Notes................... 12
Section 3.4 Payment of Notes Called for Redemption..................... 14
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1 Payment of Principal, Premium and Interest................. 14
Section 4.2 Maintenance of Office or Agency............................ 15
Section 4.3 Appointments to Fill Vacancies in Trustee's Office......... 15
Section 4.4 Provisions as to Paying Agent.............................. 15
Section 4.5 Corporate Existence........................................ 16
Section 4.6 Stay, Extension and Usury Laws............................. 17
Section 4.7 Compliance Statement; Notice of Defaults .................. 17
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PAGE
Section 4.8 Taxes...................................................... 17
Section 4.9 Insurance.................................................. 17
Section 4.10 Restricted Payments........................................ 18
Section 4.11 Limitation on Additional Senior Indebtedness............... 18
ARTICLE V
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY
Section 5.1 Noteholders' Lists......................................... 18
Section 5.2 Reports by Company......................................... 18
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.......................................... 19
Section 6.2 Payments of Notes on Default; Suit Therefor................ 21
Section 6.3 Application of Monies Collected by Trustee................. 23
Section 6.4 Proceedings by Noteholder.................................. 23
Section 6.5 Proceedings by Trustee..................................... 24
Section 6.6 Remedies Cumulative and Continuing......................... 24
Section 6.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders.................................. 25
Section 6.8 Notice of Defaults......................................... 25
Section 6.9 Undertaking to Pay Costs................................... 25
ARTICLE VII
CONCERNING THE TRUSTEE
Section 7.1 Duties and Responsibilities of Trustee..................... 26
Section 7.2 Reliance on Documents, Opinions, Etc....................... 27
Section 7.3 No Responsibility for Recitals, Etc........................ 28
Section 7.4 Trustee, Paying Agents or Registrar May Own Notes.......... 28
Section 7.5 Monies to Be Held in Trust................................. 28
Section 7.6 Compensation and Expenses of Trustee....................... 28
Section 7.7 Officers' Certificate as Evidence.......................... 29
Section 7.8 Resignation or Removal of Trustee.......................... 29
Section 7.9 Acceptance by Successor Trustee............................ 30
Section 7.10 Successor, by Merger, Etc.................................. 30
ARTICLE VIII
iii
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PAGE
CONCERNING THE NOTEHOLDERS
Section 8.1 Action by Noteholders...................................... 31
Section 8.2 Proof of Execution by Noteholders.......................... 31
Section 8.3 Who Are Deemed Absolute Owners............................. 31
Section 8.4 Company-Owned Notes Disregarded............................ 32
Section 8.5 Revocation of Consents, Future Holders Bound............... 32
ARTICLE IX
NOTEHOLDERS' MEETINGS
Section 9.1 Purposes for Which Meetings May be Called.................. 33
Section 9.2 Manner of Calling Meetings; Record Date.................... 33
Section 9.3 Call of Meeting by Company or Noteholders.................. 33
Section 9.4 Who May Attend and Vote at Meetings........................ 34
Section 9.5 Manner of Voting at Meetings and Record to be Kept......... 34
Section 9.6 Exercise of Rights of Trustee and Noteholders Not To
Be Hindered or Delayed................................... 34
ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 Supplemental Indentures Without Consent of
Noteholders................................................ 35
Section 10.2 Supplemental Indentures With Consent of Noteholders........ 36
Section 10.3 Effect of Supplemental Indentures.......................... 36
Section 10.4 Notation on Notes.......................................... 37
Section 10.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished to the Trustee................................... 37
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE,
TRANSFER AND LEASE
Section 11.1 Company May Consolidate, Etc. on Certain Terms............. 37
Section 11.2 Successor Company To Be Substituted........................ 38
Section 11.3 Opinion of Counsel To Be Given to Trustee.................. 38
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
iv
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PAGE
Section 12.1 Termination of Obligations upon Cancellation of the
Notes.................................................... 38
Section 12.2 Survival of Certain Obligations............................ 39
Section 12.3 Acknowledgment of Discharge by Trustee..................... 39
Section 12.4 Application of Trust Assets................................ 39
Section 12.5 Repayment to the Company; Unclaimed Money.................. 39
Section 12.6 Reinstatement.............................................. 40
ARTICLE XIII
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 Indenture and Notes Solely Corporate Obligations........... 40
ARTICLE XIV
SUBORDINATION
Section 14.1 Agreement to Subordinate................................... 40
Section 14.2 Certain Definitions........................................ 40
Section 14.3 Liquidation; Dissolution; Bankruptcy....................... 42
Section 14.4 Default on Senior Indebtedness............................. 42
Section 14.5 When Distribution Must Be Paid Over........................ 42
Section 14.6 Notice by Company.......................................... 43
Section 14.7 Subrogation................................................ 43
Section 14.8 Relative Rights............................................ 43
Section 14.9 Subordination May Not Be Impaired by Company............... 44
Section 14.10 Distribution or Notice to Representative................... 44
Section 14.11 Rights of Trustee and Paying Agent......................... 44
Section 14.12 Authorization to Effect Subordination...................... 45
Section 14.13 Amendments................................................. 45
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1 Provisions Binding on Company's Successors................. 45
Section 15.2 Official Acts by Successor Company......................... 46
Section 15.3 Addresses for Notices, Etc................................. 46
Section 15.4 Communications by Holders with Other Holders............... 46
Section 15.5 Governing Law.............................................. 47
Section 15.6 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee.................................. 47
Section 15.7 Legal Holidays............................................. 48
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PAGE
Section 15.8 No Security Interest Created............................... 48
Section 15.9 Benefits of Indenture...................................... 48
Section 15.10 Table of Contents, Headings Etc............................ 48
Section 15.11 Authenticating Agent....................................... 48
Section 15.12 Execution in Counterparts.................................. 49
vi
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INDENTURE, dated as of _________ __, 1998, by and between
ROYAL ALOHA DEVELOPMENT COMPANY, a Nevada corporation (the "Company"), and FIRST
TRUST OF NEW YORK, NATIONAL ASSOCIATION, a national banking corporation (the
"Trustee").
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the issuance of its 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes"), in an aggregate principal amount not to exceed
$9,200,000 and to provide the terms and conditions upon which the Notes are to
be authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be
borne by the Notes, a form of assignment and a certificate of transfer to be
borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issuance hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Notes are, and are to be, authenticated, issued and delivered, and in
consideration of the premises and of the purchase and acceptance of the Notes by
the holders thereof, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective holders from time to time of
the Notes (except as otherwise provided below) as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture that are defined in the Trust Indenture Act
(as hereinafter defined) or that are by reference defined in the Securities Act
(as hereinafter defined), except as herein otherwise expressly provided for or
unless the context otherwise requires, shall have the meanings assigned to such
terms in said Trust Indenture Act and in said Securities Act as in force on the
date of this Indenture. The words "herein," "hereof," "hereunder" and words of
similar import refer to this Indenture as a whole and not to any particular
Article or Section.
Board of Directors: The term "Board of Directors" shall mean
the Board of Directors of the Company or a committee of such Board of Directors
duly authorized to act for it.
Board Resolution: The term "Board Resolution" shall mean a
copy of a resolution certified by the Secretary or an Assistant Secretary of the
Company to have been duly adopted by the Board of Directors and to be in full
force and effect on the date of such certification.
Business Day: The term "Business Day" shall mean a day, other
than a Saturday, a Sunday or a day on which the banking institutions in the
State and City of New York are authorized or obligated by law or executive order
to close or a day that is declared a national or New York state holiday.
Commission: The term "Commission" shall mean the Securities
and Exchange Commission, as from time to time constituted, created under the
Exchange Act or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, the body performing such duties at such time.
Company: The term "Company" shall mean Royal Aloha Development
Company, a Nevada corporation, and subject to the provisions of Article XI,
shall include its successors and assigns.
Construction Loan: The term "Construction Loan" shall mean the
Construction Loan Agreement, dated ____________, 1998, between the Company and
__________________, and any amendment thereto or refinancing thereof or
successor agreement.
2
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Corporate Trust Office of the Trustee: The term "Corporate
Trust Office of the Trustee," or other similar term, shall mean the office of
the Trustee at which at any particular time its corporate trust business shall
be principally administered, which office is, at the date as of which this
Indenture is dated, located at 100 Wall Street, New York, New York, 10005,
Attention: Corporate Trust Administration.
default: The term "default" shall mean any event that is, or
after notice or passage of time, or both, would be, an Event of Default.
Development Period Interest: The term "Development Period
Interest" shall have the meaning specified in Section 2.3.
Event of Default: The term "Event of Default" shall mean any
event specified in Section 6.1(a) through (d).
Exchange Act: The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Indenture: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
Interest Payment Date: The term "Interest Payment Date" shall
mean each ______ and __________, beginning ______, 199_.
Nonpayment Default: The term "Nonpayment Default" shall have
the meaning specified in Section 14.4(b).
Note or Notes: The terms "Note" or "Notes" shall mean any one
or more, as the case may be, of the 13% Eight Year Deferred Interest
Subordinated Notes authenticated and delivered under this Indenture.
Noteholder; holder: The terms "Noteholder" or "holder" as
applied to any Note, or other similar terms (but excluding the term "beneficial
holder"), shall mean any person in whose name at the time a particular Note is
registered on the Note registrar's books.
Note register: The term "Note register" shall have the meaning
specified in Section 2.5.
Note registrar: The term "Note registrar" shall have the
meaning specified in Section 2.5.
Officers' Certificate: The term "Officers' Certificate," when
used with respect to the Company, shall mean a certificate signed by two
authorized officers which shall include (a) any of the President, the Chief
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Executive Officer, or the Chief Financial Officer and (b) any Treasurer or
Assistant Treasurer or Secretary or any Assistant Secretary of the Company, that
is delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 15.6 if and to the extent required by the provisions of
such Section.
Opinion of Counsel: The term "Opinion of Counsel" shall mean
an opinion in writing signed by legal counsel, who may be an employee of or
counsel to the Company or other counsel acceptable to the Trustee, that is
delivered to the Trustee. Each such opinion shall include the statements
provided for in Section 15.6 if and to the extent required by the provisions of
such Section.
outstanding: The term "outstanding" with reference to Notes as
of any particular time shall mean, subject to the provisions of Section 8.4, all
Notes authenticated and delivered by the Trustee under this Indenture, except
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for which monies in the
necessary amount shall have been deposited in trust with the Trustee
for payment, redemption or repurchase; provided that if such Notes are
to be redeemed prior to the maturity thereof, notice of such redemption
shall have been given pursuant to Article III or provision satisfactory
to the Trustee shall have been made for giving such notice;
(c) Notes paid pursuant to Section 2.6 hereof or Notes in lieu
of or in substitution for which other Notes shall have been
authenticated and delivered pursuant to the terms of Section 2.6 unless
proof satisfactory to the Trustee is presented that any such Notes are
held by bona fide holders in due course; and
(d) Notes not deemed outstanding pursuant to Section 3.2.
Payment Default: The term "Payment Default" shall have the
meaning specified in Section 14.4(a).
person: The term "person" shall mean a corporation, an
association, a partnership, an individual, a joint venture, a joint stock
company, a trust, an unincorporated organization or a government or an agency or
a political subdivision thereof.
Predecessor Note: The term "Predecessor Note" of any
particular Note shall mean every previous Note evidencing all or a portion of
the same debt as that evidenced by such particular Note; and, for the purposes
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of this definition, any Note authenticated and delivered under Section 2.6 in
lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the lost, destroyed or stolen Note.
record date: The term "record date" with respect to any
Interest Payment Date shall have the meaning set forth in Section 2.3 hereof.
Responsible Officer: The term "Responsible Officer" with
respect to the Trustee, shall mean an officer of the Trustee assigned and duly
authorized by the Trustee to administer its corporate trust matters.
Securities Act: The term "Securities Act" shall mean the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
Senior Indebtedness: The term "Senior Indebtedness" shall have
the meaning specified in Section.
Subsidiary: The term "Subsidiary" of any specified person
shall mean (i) a corporation a majority of whose capital stock with voting power
under ordinary circumstances to elect directors is at the time directly or
indirectly owned by such person or (ii) any other person (other than a
corporation) in which such person or such person and a Subsidiary or
Subsidiaries of such person or a Subsidiary or Subsidiaries of such person
directly or indirectly, at the date of determination thereof, has at least
majority ownership.
Successor Company: The term "Successor Company" shall have the
meaning specified in Section 11.1.
Trust Indenture Act: The term "Trust Indenture Act" shall mean
the Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Section 10.3; provided that
in the event said Trust Indenture Act of 1939 is amended after the date hereof,
the term "Trust Indenture Act" shall mean, to the extent required by such
amendment, said Trust Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" shall mean First Trust of New
York, National Association, its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as successor trustee
hereunder.
Section 1.2 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture.
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The following Trust Indenture Act terms used in this Indenture
have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a holder of Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company and any other obligor
on the Notes.
All other terms used in this Indenture that are defined by the
Trust Indenture Act, defined by Trust Indenture Act reference to another statute
or defined by Commission rule under the Trust Indenture Act have the meanings so
assigned to them.
Section 1.3 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and
transactions.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes. The Notes
shall be designated as "13% Eight Year Deferred Interest Subordinated Notes."
Notes not to exceed the aggregate principal amount of $9,200,000 upon the
execution of this Indenture, or from time to time thereafter, may be executed by
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the Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and make available for delivery said Notes upon the
written order of the Company, signed by its (a) Chief Executive Officer,
President, or Chief Financial Officer, and (b) any Treasurer or Assistant
Treasurer or Secretary or any Assistant Secretary, without any further action by
the Company hereunder.
Section 2.2 Form of Notes. The Notes will be issued in
definitive form in substantially the form of Exhibit A hereto, and registered in
the name of the holders thereof, and shall be duly executed by the Company and
authenticated by the Trustee or the authenticating agent as provided herein.
Any of the Notes may have such letters, numbers or other marks
of identification and such notations, legends and endorsements as the Company
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Notes may be listed, or to conform to usage.
The terms and provisions contained in the form of Note
attached as Exhibit A hereto shall constitute, and are hereby expressly made, a
part of this Indenture and to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of
Interest. The Notes shall be issuable in registered form only without coupons in
denominations of $1,000 principal amount and integral multiples thereof. Every
Note shall be dated the date of its authentication, shall bear interest from
___________, 199_, which interest shall be payable semiannually on each ______,
and __________, commencing on the first Interest Payment Date occurring after
the principal of and interest on the Construction Loan is paid in full, as
specified on the face of the form of Note.
That interest which accrues from the original date of issuance
of the Notes through the Interest Payment Date preceding the first Interest
Payment Date occurring after the principal of and interest on the Construction
Loan is paid in full is hereinafter referred to as "Development Period
Interest."
The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
Interest Payment Date shall be entitled to receive the interest payable on such
Interest Payment Date notwithstanding the cancellation of such Note upon any
transfer or exchange subsequent to the record date and prior to such Interest
Payment Date. Interest may be paid by check mailed to the address of such person
as it appears on the Note register. The term "record date" with respect to any
Interest Payment Date shall mean the ______ or ___________ preceding said ______
or __________.
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Interest on the Notes shall be computed on the basis of a
360-day year composed of twelve 30-day months.
Development Period Interest that is not paid on the first
Interest Payment Date occurring after the principal of and interest on the
Construction Loan is paid in full shall forthwith cease to be payable to the
Noteholder on the relevant record date by virtue of his having been such
Noteholder. The Company may elect to make payment of any or all Development
Period Interest to the persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special record
date for the payment of such Development Period Interest, which shall be fixed
in the following manner. The Company shall notify the Trustee in writing of the
amount of Development Period Interest to be paid on each Note and the date of
the payment (which shall be not less than 25 days after the receipt by the
Trustee of such notice, unless the Trustee shall consent to an earlier date for
its convenience), and at the same time, the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount to be paid in respect
of such Development Period Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the persons entitled
to such Development Period Interest as in this clause provided. Thereupon, the
Trustee shall fix a special record date for the payment of such Development
Period Interest, which shall be not more than 15 days and not less than 10 days
prior to the date of the payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such special record date and, in the name and at the
expense of the Company, shall cause notice of the payment of such Development
Period Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Noteholder at his address as it appears in the Note
register, not less than 10 days prior to such special record date. Notice of the
proposed payment of such Development Period Interest and the special record date
therefor having been so mailed, such Development Period Interest shall be paid
to the persons in whose names the Notes (or their respective Predecessor Notes)
were registered at the close of business on such special record date.
Section 2.4 Execution of Notes. The Notes shall be signed in
the name and on behalf of the Company by the signature of its Chief Executive
Officer, President, or Chief Financial Officer and attested by the signature of
its Treasurer, Assistant Treasurer, Secretary or any of its Assistant
Secretaries (any of which signatures may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
form of Note attached as Exhibit A manually executed by the Trustee (or an
authenticating agent appointed by the Trustee as provided by Section 15.12),
shall be entitled to the benefits of this Indenture or be valid or obligatory
for any purpose. Such certificate by the Trustee (or such an authenticating
agent) upon any Note executed by the Company shall be conclusive evidence that
the Note so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture.
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In case any officer of the Company who shall have signed any
of the Notes shall cease to be such officer before the Notes so signed shall
have been authenticated and delivered by the Trustee, or disposed of by the
Company, such Notes nevertheless may be authenticated and delivered or disposed
of as though the person who signed such Notes had not ceased to be such officer
of the Company; and any Note may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Note, shall be the
proper officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee
a register (the register maintained in such office and in any other office or
agency of the Company designated pursuant to Section 4.2 being herein sometimes
collectively referred to as the "Note register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. Such Note register shall be in
written form or in any form capable of being converted into written form within
a reasonable period of time. The Trustee is hereby appointed "Note registrar"
for the purpose of registering Notes and transfers of Notes as herein provided.
The Company may appoint one or more co-registrars.
Upon surrender for registration of transfer of any Note to the
Note registrar or any co-registrar and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount.
Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Notes to be exchanged at any such office or agency. Whenever any Notes are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Notes that the Noteholder
making the exchange is entitled to receive bearing certificate numbers not
contemporaneously outstanding.
All Notes presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee, the
Note registrar or any co-registrar) be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the Company, executed by
the Noteholder thereof or his attorney duly authorized in writing.
No service charge shall be charged to the Noteholder for any
exchange or registration of transfer of Notes, but the Company may require
payment of a sum sufficient to cover any tax, assessments or other governmental
charges that may be imposed in connection therewith.
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None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of (a) any
Notes for a period of 15 days next preceding the mailing of a notice of
redemption, (b) any Notes called for redemption or, if a portion of any Note is
selected or called for redemption, such portion thereof selected or called for
redemption.
All Notes issued upon any transfer or exchange of Notes shall
be the valid obligations of the Company, evidencing the same debt and entitled
to the same benefits under this Indenture as the Notes surrendered upon such
registration of transfer or exchange. All Notes, the transfer, exchange and/or
registration of which is effectuated by the Trustee pursuant to this Section
2.5, shall be accompanied by an Officers' Certificate of the Company, executed
by a Responsible Officer thereof, certifying that such transfer, exchange and/or
registration is authorized by the Company and permitted hereunder.
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In
case any Note shall become mutilated or be destroyed, lost or stolen, the
Company in its discretion may execute, and upon its request, the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and make
available for delivery a new Note bearing a number not contemporaneously
outstanding in exchange and substitution for the mutilated Note or in lieu of
and in substitution for the Note so destroyed, lost or stolen. The Company may
charge such applicant for the expenses of the Company in replacing a Note. In
every case the applicant for a substituted Note shall furnish to the Company, to
the Trustee and, if applicable, to such authenticating agent such security or
indemnity as may be required by them to save each of them harmless from any
loss, liability, cost or expense caused by or connected with such substitution,
and in every case of destruction, loss or theft, the applicant shall also
furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent evidence to their satisfaction of the destruction, loss or
theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any
such substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note that has matured or is about to mature or has been
called for redemption shall become mutilated or be destroyed, lost or stolen,
the Company may, instead of issuing a substitute Note, pay or authorize the
payment of the same (without surrender thereof, except in the case of a
mutilated Note), as the case may be, if the applicant for such payment shall
furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent such security or indemnity as may be required by them to
save each of them harmless from any loss, liability, cost or expense caused by
or connected with such substitution, and in case of destruction, loss or theft,
evidence satisfactory to the Company, the Trustee and, if applicable, any paying
agent, of the destruction, loss or theft of such Note and of the ownership
thereof.
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Every substitute Note issued pursuant to the provisions of
this Section 2.6 in lieu of any Note that is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be enforceable by anyone, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes and shall preclude any and all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
Section 2.7 Temporary Notes. Pending the preparation of
definitive Notes, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon written request of the Company,
authenticate and make available for delivery temporary Notes (printed or
lithographed). Temporary Notes shall be issuable in any authorized denomination
and shall be substantially in the form of the definitive Notes but with such
omissions, insertions and variations as may be appropriate for temporary Notes,
all as may be determined by the Company. Every such temporary Note shall be
executed by the Company and authenticated by the Trustee or such authenticating
agent upon the same conditions and in substantially the same manner, and with
the same effect, as the definitive Notes. Without unreasonable delay the Company
shall execute and deliver to the Trustee or such authenticating agent definitive
Notes and thereupon any or all temporary Notes may be surrendered in exchange
therefor, at each office or agency maintained by the Company pursuant to Section
4.2 and the Trustee or such authenticating agent shall authenticate and make
available for delivery in exchange for such temporary Notes an equal aggregate
principal amount of definitive Notes. Such exchange shall be made by the Company
at its own expense and without any charge therefor. Until so exchanged, the
temporary Notes shall in all respects be entitled to the same benefits and
subject to the same limitations under this Indenture as definitive Notes
authenticated and delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes
surrendered for the purpose of payment, redemption, exchange or registration of
transfer shall, if surrendered to the Company or any paying agent or any Note
registrar, be surrendered to the Trustee and promptly canceled by it or, if
surrendered to the Trustee, shall be promptly canceled by it and no Notes shall
be issued in lieu thereof except as expressly permitted by any of the provisions
of this Indenture. If required by the Company, the Trustee shall return canceled
Notes to the Company. If the Company shall acquire any of the Notes, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Notes unless and until the same are delivered
to the Trustee for cancellation.
Section 2.9 CUSIP Numbers. The Company in issuing the Notes
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use CUSIP numbers in notices of redemption as a convenience to holders;
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provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III
REDEMPTION AND REPURCHASE OF NOTES
Section 3.1 Optional Redemption Prices. The Notes are not
redeemable at the option of the Company prior to __________, 200_. At any time
on or after that date, the Notes may be redeemed at the Company's option, upon
notice as set forth in Section 3.2, in whole at any time or in part from time to
time, at the declining redemption prices set forth below (expressed in
percentages of the principal amount) plus accrued and unpaid interest (including
any unpaid Development Period Interest) thereon to the applicable redemption
date if redeemed during the twelve-month period beginning:
Redemption
Date Price
[Year 3] .....................103%
[Year 4] .....................102
[Year 5] .....................101
[Year 6] and thereafter...............100
Section 3.2 Mandatory Redemption. The Company will redeem 25%
of the principal amount of Notes originally issued, on the sixth and seventh
anniversary of the Issuance Date, at a redemption price of 100% of principal
amount thereof, plus accrued interest to the redemption date. Such redemptions
are calculated to retire 50% of the issue prior to maturity.
The Company may, from time to time, reduce the principal amount of
Notes to be redeemed pursuant to this Section by subtracting 100% of the
principal amount of any Notes that the Company has delivered to the Trustee for
cancellation or redeemed other than pursuant to this Section. The Company may so
subtract the same Note only once.
Section 3.3 Notice of Redemption; Selection of Notes. In case
the Company shall desire to exercise the right to redeem all or, as the case may
be, any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and, in the case of any redemption pursuant to Section 3.1, it or, at
its written request accompanied by the proposed form of notice of redemption
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(which must be received by the Trustee at least 10 days prior to the date the
Trustee is requested to give notice as described below, unless a shorter period
is agreed to by the Trustee for its convenience), the Trustee in the name of and
at the expense of the Company, shall mail or cause to be mailed a notice of such
redemption at least 30 and not more than 60 days prior to the date fixed for
redemption to the holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register, provided that
subject to the approval of the form of notice by the Trustee if the Company
shall give such notice, it shall also give such notice, and notice of the Notes
to be redeemed, to the Trustee. Such mailing shall be by first class mail. The
notice, if mailed in the manner herein provided, shall be conclusively presumed
to have been duly given, whether or not the holder receives such notice. In any
case, failure to give such notice by mail or any defect in the notice to the
holder of any Note designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Note.
Each such notice of redemption shall identify the Notes to be
redeemed (including CUSIP numbers), specify the aggregate principal amount of
Notes to be redeemed, the date fixed for redemption, the redemption price at
which Notes are to be redeemed, the place or places of payment, that payment
shall be made upon presentation and surrender of such Notes, that interest
accrued to the date fixed for redemption shall be paid as specified in said
notice and that on and after said date, interest thereon or on the portion
thereof to be redeemed shall cease to accrue. If fewer than all the Notes are to
be redeemed, the notice of redemption shall identify the Notes to be redeemed.
In case any Note is to be redeemed in part only, the notice of redemption shall
state the portion of the principal amount thereof to be redeemed and shall state
that on and after the date fixed for redemption, upon surrender of such Note, a
new Note or Notes in principal amount equal to the unredeemed portion thereof
shall be issued.
On or prior to the Business Day prior to the redemption date
specified in the notice of redemption given as provided in this Section 3.2, the
Company shall deposit with the Trustee or with one or more paying agents (or, if
the Company is acting as its own paying agent, set aside, segregate and hold in
trust as provided in Section 4.4) an amount of money sufficient to redeem on the
redemption date all the Notes so called for redemption at the appropriate
redemption price, together with accrued interest to the date fixed for
redemption. If fewer than all the Notes are to be redeemed, the Company shall
give the Trustee written notice in the form of an Officers' Certificate not
fewer than 45 days (or such shorter period of time as may be acceptable to the
Trustee) prior to the redemption date as to the aggregate principal amount of
Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee
shall select the Notes or portions thereof to be redeemed (in principal amounts
of $1,000 or integral multiples thereof), by lot or, in its discretion, on a pro
rata basis. The Notes (or portions thereof) so selected shall be deemed duly
selected for redemption for all purposes hereof.
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Section 3.4 Payment of Notes Called for Redemption. If notice
of redemption has been given as above provided, the Notes or portion of Notes
with respect to which such notice has been given shall become due and payable on
the date and at the place or places stated in such notice at the applicable
redemption price, together with interest thereon accrued to the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Notes at the redemption price, together with interest thereon
accrued to said date), interest on the Notes or portion of Notes so called for
redemption shall cease to accrue, and such Notes shall cease except as provided
in Sections 7.5 and 12.3 to be entitled to any benefit or security under this
Indenture, and the holders thereof shall have no right in respect of such Notes
except the right to receive the redemption price thereof and unpaid interest
thereon to the date fixed for redemption. On presentation and surrender of such
Notes at a place of payment in said notice specified, the said Notes or the
specified portions thereof shall be paid and redeemed by the Company at the
applicable redemption price, together with interest accrued thereon to the date
fixed for redemption; provided that any semi-annual payment of interest becoming
due on the date fixed for redemption shall be payable to the holders of such
Notes registered as such on the relevant record date subject to the terms and
provisions of Section 2.3 hereof.
Upon presentation of any Note redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Note or
Notes, of authorized denominations, in principal amount equal to the unredeemed
portion of the Notes so presented.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid or duly provided for, bear interest from the date fixed for
redemption at the rate borne by the Note.
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1 Payment of Principal, Premium and Interest. The
Company covenants and agrees that it shall duly and punctually pay or cause to
be paid the principal of and premium, if any, and interest on each of the Notes
at the places, at the respective times and in the manner provided herein and in
the Notes. Each installment of interest on the Notes due on any semi-annual
Interest Payment Date may be paid by mailing checks for the interest payable to
or upon the written order of the holders of Notes entitled thereto as they shall
appear on the Note register. An installment of principal or interest shall be
considered paid on the date due if the Trustee or paying agent (other than the
Company, a Subsidiary of the Company or any Affiliate of any of them) holds on
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that date money designated for and sufficient to pay the installment of
principal or interest and is not prohibited from paying such money to the
holders of the Notes pursuant to the terms of this Indenture.
Section 4.2 Maintenance of Office or Agency. The Company shall
maintain an office or agency where the Notes may be surrendered for registration
of transfer or exchange or for presentation for payment or for redemption and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying
agent, Note registrar and the office of Corporate Trust Administration of the
Trustee located in New York, New York, as the office or agency of the Company
for the purposes set forth in the first paragraph of this Section 4.2.
So long as the Trustee is the Note registrar, the Trustee
agrees to mail, or cause to be mailed, the notices set forth in Section 7.8(a).
Section 4.3 Appointments to Fill Vacancies in Trustee's
Office. The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, shall appoint, in the manner provided in Section 7.8, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, the Company or the
Trustee, as the case may be, shall cause such paying agent to execute and
deliver to the Trustee an instrument in which such agent shall agree with the
Trustee, subject to the provisions of this Section 4.4:
(1) that it shall hold all sums held by it as such agent for
the payment of the principal of, premium, if any, or interest on the
Notes (whether such sums have been paid to it by the Company or by any
other obligor on the Notes) in trust for the benefit of the holders of
the Notes;
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(2) that it shall give the Trustee written notice of any
failure by the Company (or by any other obligor on the Notes) to make
any payment of the principal of, premium, if any, or interest on the
Notes when the same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it shall forthwith pay to the
Trustee all sums so held in trust.
The Company shall, before each due date of the principal of,
premium, if any, or interest on the Notes, deposit with the paying agent a sum
sufficient to pay such principal, premium, if any, or interest, and (unless such
paying agent is the Trustee) the Company shall promptly notify the Trustee of
any failure to take such action.
(b) If the Company shall act as its own paying agent, it
shall, on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the benefit of
the holders of the Notes a sum sufficient to pay such principal, premium, if
any, or interest so becoming due and shall notify the Trustee of any failure to
take such action and of any failure by the Company (or any other obligor under
the Notes) to make any payment of the principal of, premium, if any, or interest
on the Notes when the same shall become due and payable.
(c) Anything in this Section 4.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 4.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such sums.
(d) Anything in this Section 4.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
4.4 is subject to Sections 12.2 and 12.3.
Section 4.5 Corporate Existence. Subject to Article XI, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of any Subsidiary of the Company, in accordance
with the respective organizational documents (as the same may be amended from
time to time) of the Company or any such Subsidiary and (ii) the rights (charter
and statutory), licenses and franchises of the Company and its Subsidiaries;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Subsidiaries if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not materially
adverse to the holders of the Notes.
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Section 4.6 Stay, Extension and Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law that would prohibit
or forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or that may affect the covenants or the performance of
this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.7 Compliance Statement; Notice of Defaults
(a) The Company shall deliver to the Trustee within 120 days
after the end of each fiscal year of the Company an Officers' Certificate
stating whether or not to the best knowledge of the signers thereof the Company
is in compliance (without regard to periods of grace or notice requirements)
with all conditions and covenants under this Indenture, and if the Company shall
not be in compliance, specifying such non-compliance and the nature and status
thereof of which such signer may have knowledge.
(b) The Company shall file with the Trustee written notice of
the occurrence of any default or Event of Default within 10 days of its becoming
aware of any such default or Event of Default.
Section 4.8 Taxes. The Company shall pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or its Subsidiaries or upon the income, profits or property of the Company or
any such Subsidiary and (ii) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which disputed amounts adequate reserves have
been made.
Section 4.9 Insurance. The Company shall provide, or cause to
be provided, for itself and its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, public liability insurance, with reputable insurers or with the
government of the United States of America or an agency or instrumentality
thereof, in such amounts with such deductibles and by such methods as shall be
determined in good faith by the Board of Directors to be appropriate.
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Section 4.10 Restricted Payments. The Company will not,
directly or indirectly, as long as any Notes are outstanding, (i) declare or pay
any dividends or make any distributions (other than dividends or distributions
payable solely in shares of common stock of the Company) on or in respect of any
shares of common stock of the Company or (ii) purchase, redeem or otherwise
acquired or retire for value (other than solely with shares of common stock of
the Company) any of the common stock of the Company or warrants, rights or
options to acquire common stock of the Stock.
Section 4.11 Limitation on Additional Senior Indebtedness. The
Company will not, directly or indirectly, create, incur, issue, assume,
guarantee, suffer to exist or otherwise become directly or indirectly liable
with respect to any Senior Indebtedness (collectively, an "incurrence"), other
than the following:
(i) Senior Indebtedness incurred pursuant to the
Construction Loan;
(ii) Senior Indebtedness of the Company not to exceed an
amount equal to 20% of the principal amount of indebtedness evidenced
by the Notes issued under the Indenture; and
(iii) Senior Indebtedness issued in exchange for, or the
proceeds of which are used to repay or refund or refinance or discharge
or otherwise retire for value, Senior Indebtedness of the Company
permitted under this Section 4.11 ("Refinancing Indebtedness") in a
principal amount not to exceed the principal amount of the Senior
Indebtedness so refinanced, plus customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness.
ARTICLE V
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY
Section 5.1 Noteholders' Lists. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of holders of Notes. If the Trustee is not the
Note registrar, the Company shall furnish to the Trustee on or before at least
seven Business Days preceding each Interest Payment Date and at such other times
as the Trustee may request in writing a list in such form and as of such date as
the Trustee reasonably may require of the names and addresses of holders of
Notes.
Section 5.2 Reports by Company. The Company shall deliver to
the Trustee within 15 days after it files the same with the Commission, copies
of all reports and information (or copies of such portions of any of the
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foregoing as the Commission may by its rules and regulations prescribe), if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(a) default in the payment of the principal of or premium, if
any, on the Notes when due at maturity, upon redemption or otherwise;
or
(b) except for Development Period Interest, default in the
payment of any installment of interest on the Notes as and when the
same shall become due and payable (whether or not such payment shall be
prohibited by Article XIV of this Indenture), and continuance of such
default for a period of 30 days; or
(c) a failure on the part of the Company to duly observe or
perform any other covenants or agreements on the part of the Company in
this Indenture (other than a default in the performance or breach of a
covenant or agreement that is specifically dealt with elsewhere in this
Section 6.1) that continues for a period of 90 days after the date on
which written notice of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the Trustee, or to
the Company and a Responsible Officer of the Trustee, by the holders of
at least 25% in aggregate principal amount of the Notes at the time
outstanding determined in accordance with Section 8.4; or
(d) an event of default occurs under any mortgage, indenture
or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company
or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries), whether such indebtedness or
guarantee now exists or shall be created after the date hereof, which
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default (i) is caused by a failure to pay principal or interest on such
indebtedness prior to the expiration of the grace period provided in
such indebtedness (a "Payment Default") or (ii) results in the
acceleration of such indebtedness prior to its expressed maturity and,
in each case, the principal amount of such indebtedness, together with
the principal amount of any other such indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $1 million or more; or
(e) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall fail generally to pay its debts as
they become due; or
(f) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a
period of 60 consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 6.1(e) or (f)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding hereunder
determined in accordance with Section 8.4, by notice in writing to the Company
(and to the Trustee if given by Noteholders), may declare the principal of,
premium, if any, on the Notes and the interest accrued thereon to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, anything in this Indenture or in the Notes
contained to the contrary notwithstanding. If an Event of Default specified in
Section 6.1(e) or (f) occurs and is continuing, the principal of all the Notes
and the interest accrued thereon shall be immediately due and payable. The
foregoing provision is subject to the conditions that if, at any time after the
principal of the Notes shall have been so declared due and payable, and before
any judgment or decree for the payment of the monies due shall have been
obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all Notes and the principal of and premium, if any, on any and all
Notes that shall have become due otherwise than by acceleration (with interest
on overdue installments of interest (to the extent that payment of such interest
is enforceable under applicable law) and on such principal and premium, if any,
at the rate borne by the Notes, to the date of such payment or deposit) and
amounts due to the Trustee pursuant to Section 7.6, and if any and all defaults
under this Indenture, other than the nonpayment of principal of, premium, if
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any, and accrued interest on Notes that shall have become due by acceleration,
shall have been cured or waived pursuant to Section 6.7, then and in every such
case the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults or Events of Default and rescind and annul such declaration and its
consequences; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or Event of Default, or shall impair any
right consequent thereto. The Company shall notify a Responsible Officer of the
Trustee, promptly upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such waiver or rescission and annulment or for any other
reason or shall have been determined adversely to the Trustee, then and in every
such case the Company, the holders of Notes and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes and the Trustee shall
continue as though no such proceeding had been taken.
Section 6.2 Payments of Notes on Default; Suit Therefor. The
Company covenants that (a) in case a default shall be made in the payment of any
installment of interest upon any of the Notes as and when the same shall have
become due and payable and such default shall have continued for a period of 30
days, or (b) in case a default shall be made in the payment of the principal of
or premium, if any, on any of the Notes as and when the same shall have become
due and payable, whether at maturity of the Notes or in connection with any
redemption, then, upon demand of the Trustee, the Company shall pay to the
Trustee, for the benefit of the holders of the Notes, the whole amount that then
shall have become due and payable on all such Notes for principal of, premium,
if any, or interest, or both, as the case may be, with interest upon the overdue
principal, premium, if any, and (to the extent that payment of such interest is
enforceable under applicable law) upon the overdue installments of interest at
the rate borne by the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
any expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith. Until such demand by the Trustee, the Company may
pay the principal of and premium, if any, and interest on the Notes to the
registered holders, whether or not the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any actions or proceedings
at law or in equity for the collection of the sums so due and unpaid and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or any other
obligor on the Notes and collect in the manner provided by law out of the
property of the Company or any other obligor on the Notes wherever situated the
monies adjudged or decreed to be payable.
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In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 6.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal, premium, if
any, and interest owing and unpaid in respect of the Notes and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
of the Noteholders allowed in such judicial proceedings relative to the Company
or any other obligor on the Notes, its or their creditors, or its or their
property and to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same after the deduction of
any amounts due the Trustee under Section 7.6; and any receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, custodian or similar
official is hereby authorized by each of the Noteholders to make such payments
to the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Noteholders, to pay to the Trustee any amount due
it for reasonable compensation, expenses, advances and disbursements, including
counsel fees incurred by it up to the date of such distribution. To the extent
that such payment of reasonable compensation, expenses, advances and
disbursements out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, monies, securities and other property
that the holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or adopt on behalf of any Noteholder any plan
of reorganization or arrangement affecting the Notes or the rights of any
Noteholder, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes or the production thereof on any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
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In any proceedings brought by the Trustee pursuant to this
Indenture or any supplement hereto (and in any proceedings involving the
interpretation of any provision of this Indenture to which the Trustee shall be
a party), the Trustee shall be held to represent all the holders of the Notes,
and it shall not be necessary to make any holders of the Notes parties to any
such proceedings.
Section 6.3 Application of Monies Collected by Trustee. Any
monies collected by the Trustee pursuant to this Article VI shall be applied in
the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes and stamping
thereon the payment, if only partially paid, and upon surrender thereof, if
fully paid:
First: To the payment of all amounts due the Trustee under
Section 7.6;
Second: Subject to the provisions of Article XIV, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on the Notes in default in the order
of the maturity of the installments of such interest, with interest (to
the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the rate borne by the Notes,
such payments to be made ratably to the persons entitled thereto; and
Third: Subject to the provisions of Article XIV, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then owing and unpaid upon the Notes for principal, premium, if
any, and interest, with interest on the overdue principal and premium,
if any, and (to the extent that such interest has been collected by the
Trustee) upon overdue installments of interest at the rate borne by the
Notes; and in case such monies shall be insufficient to pay in full the
whole amounts so due and unpaid upon the Notes, then to the payment of
such principal, premium, if any, and interest without preference or
priority of principal and premium, if any, over interest, or of
interest over principal and premium, if any, or of any installment of
interest over any other installment of interest, or of any Note over
any other Note, ratably to the aggregate of such principal and premium,
if any, and accrued and unpaid interest.
Section 6.4 Proceedings by Noteholder. No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
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indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding, and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 6.7; it being understood and intended, and being expressly covenanted by
the taker and holder of every Note with every other taker and holder and the
Trustee, that no one or more holders of Notes shall have any right in any manner
whatever by virtue of or by availing of any provision of this Indenture to
affect, disturb or prejudice the rights of any other holder of Notes, to obtain
or seek to obtain priority over or preference to any other such holder or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all holders of Notes (except as
otherwise provided herein). For the protection and enforcement of this Section
6.4, each and every Noteholder and the Trustee shall be entitled to such relief
as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment of
the principal of, premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder
except as otherwise set forth herein.
Section 6.5 Proceedings by Trustee. In case of an Event of
Default and subject to the provisions of Section 7.6 hereof, the Trustee may in
its discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either by suit in
equity or by action at law or by proceeding in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this Indenture or to
enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 6.6 Remedies Cumulative and Continuing. Except as
provided in Section 2.6, all powers and remedies given by this Article VI to the
Trustee or to the Noteholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of such powers and remedies or of any other powers
and remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 6.4, every power and remedy given by this Article VI or by
law to the Trustee or to the Noteholders may be exercised from time to time, and
as often as shall be deemed expedient, by the Trustee or by the Noteholders.
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Section 6.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders. The holders of a majority in aggregate principal amount
of the Notes at the time outstanding (determined in accordance with Section 8.4)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that (a) such direction shall not be in
conflict with any rule of law or with this Indenture and (b) the Trustee may
take any other action deemed proper by the Trustee that is not inconsistent with
such direction. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding (determined in accordance with Section 8.4) may on
behalf of the holders of all of the Notes waive any past default or Event of
Default hereunder and its consequences except (i) a default in the payment of
interest or premium, if any, on, or the principal of, the Notes or (ii) a
default in respect of a covenant or provisions hereof that under Article X
cannot be modified or amended without the consent of the holders of all Notes
then outstanding. Whenever any default or Event of Default hereunder shall have
been waived as permitted by this Section 6.7, said default or Event of Default
shall for all purposes of the Notes and this Indenture be deemed to have been
cured and to be not continuing and the Company, the Trustee and the holders of
the Notes shall as reasonably possible be restored to their former positions and
rights hereunder; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
Section 6.8 Notice of Defaults. The Trustee shall, within 90
days after the occurrence of a default, mail to all Noteholders, as the names
and addresses of such holders appear upon the Note register, notice of all
defaults of which a Responsible Officer has actual knowledge, unless such
defaults shall have been cured or waived before the giving of such notice;
provided that, except in the case of default in the payment of the principal of,
premium, if any, or interest on any of the Notes, the Trustee shall be protected
in withholding such notice if and so long as a Responsible Officer of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Noteholders.
Section 6.9 Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; provided that the provisions of this
Section 6.9 shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Noteholder or group of Noteholders holding in the aggregate
more than 10% in principal amount of the Notes at the time outstanding
determined in accordance with Section 8.4 or to any suit instituted by any
Noteholder for the enforcement of the payment of the principal of, premium, if
any, or interest on any Note on or after the due date expressed in such Note.
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ARTICLE VII
CONCERNING THE TRUSTEE
Section 7.1 Duties and Responsibilities of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise as
a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others;
and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
provided that in the case of any such certificates or opinions
that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph (c) does not limit the effect of
paragraph (b) of this Section 7.1;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Trustee unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts reasonably available to the
Trustee; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.7.
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(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this
Section 7.1.
(e) The Trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any
financial liability unless it receives indemnity satisfactory to it
against any loss, liability or expense.
Section 7.2 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 7.1:
(a) The Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, coupon or other paper
or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate; and any resolution of the Board of Directors may be
evidenced to the Trustee by a copy thereof certified by the Secretary
or an Assistant Secretary of the Company;
(c) The Trustee may consult with counsel of its selection and
any advice or opinion of counsel shall be full and complete
authorization and protection in respect of any action taken or omitted
by it hereunder in good faith and in accordance with such advice or
opinion of counsel;
(d) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder; no paying agent who is not the
Trustee shall be deemed an agent of the Trustee, and the Trustee (in
its capacity as Trustee) shall not be responsible for any act or
omission by any such paying agent;
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by the Indenture at the request or
direction of any of the holders pursuant to this Indenture unless such
holders have offered the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that would be incurred by
it in compliance with such request or direction.
(f) Subject to the provisions of Section 7.1(c), the Trustee
shall not be liable for any action it takes or omits to take in good
faith that it believes to be authorized or within its rights or powers;
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(g) The Trustee shall not be deemed to have knowledge of any
Event of Default or other fact or event upon the occurrence of which it
may be required to take action hereunder unless one of its Responsible
Officers has actual knowledge thereof obtained by a written statement.
Section 7.3 No Responsibility for Recitals, Etc. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 7.4 Trustee, Paying Agents or Registrar May Own Notes.
The Trustee, any paying agent or any Note registrar, in its individual or any
other capacity, may become the owner or pledgee of Notes with the same rights it
would have if it were not Trustee, paying agent or Note registrar.
Section 7.5 Monies to Be Held in Trust. Subject to the
provisions of Section 12.4, all monies received by the Trustee shall, until used
or applied as herein provided, be held in trust for the purposes for which they
were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed to in writing from time to time by the Company and the
Trustee.
Section 7.6 Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, such compensation as the Company and the Trustee shall
from time to time agree in writing, for all services rendered by it hereunder in
any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), and the Company shall pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Company also covenants to indemnify
each of the Trustee or any predecessor Trustee in any capacity under this
Indenture and its agents and any authenticating agent for, and to hold them
harmless against, any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based on the income of the Trustee) incurred
without negligence or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the costs and expenses of defending themselves against any
claim of liability in the premises. The obligations of the Company under this
Section 7.6 to compensate or indemnify the Trustee and to pay or reimburse the
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Trustee for expenses, disbursements and advances shall be secured by a lien
prior to that of the Notes upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Notes. The obligation of the Company under this Section shall survive
the satisfaction and discharge of this Indenture.
Section 7.7 Officers' Certificate as Evidence. Except as
otherwise provided in Section 7.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such Officers' Certificate,
in the absence of negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.
Section 7.8 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company; and the Company shall mail,
or cause to be mailed, notice thereof to the holders of Notes at their
addresses as they shall appear on the Note register. Upon receiving
such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor
trustee.
(b) In case the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then, in any
such case, the Company may remove the Trustee and appoint a successor
trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to
the Trustee so removed and one copy to the successor trustee, or any
Noteholder who has been a bona fide holder of a Note or Notes for at
least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee
and nominate a successor trustee, which shall be deemed appointed as
successor trustee unless within ten days after notice to the Company of
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such nomination the Company objects thereto, in which case the Trustee
so removed or any Noteholder, upon the terms and conditions and
otherwise as provided in the next paragraph, may petition any court of
competent jurisdiction for an appointment of a successor trustee.
If no successor trustee shall have been so appointed and have
accepted appointment within 60 days after removal or the mailing of such notice
of resignation to the Noteholders, the Trustee resigning or being removed may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or, in the case of either resignation or removal, any Noteholder who
has been a bona fide holder of a Note or Notes for at least six months may, on
behalf of himself and all others similarly situated, petition any such court for
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this
Section 7.8 shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 7.9.
Section 7.9 Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 7.8 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon, the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but on the written request of the Company
or of the successor trustee, the Trustee ceasing to act shall, upon payment of
any amounts then due it pursuant to the provisions of Section 7.6, execute and
deliver an instrument transferring to such successor trustee all the rights and
powers of the Trustee so ceasing to act. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien
upon all property and funds held or collected by such trustee as such, except
for funds held in trust for the benefit of holders of particular Notes, to
secure any amounts then due it pursuant to the provisions of Section 7.6.
Upon acceptance of appointment by a successor trustee as
provided in this Section 7.9, the Company shall mail or cause to be mailed
notice of the succession of such Trustee hereunder to the holders of Notes at
their addresses as they shall appear on the Note register. If the Company fails
to mail such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Company.
Section 7.10 Successor, by Merger, Etc. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
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Trustee, shall be the successor to the Trustee hereunder without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided that such successor trustee shall have combined capital and
surplus immediately following such succession which is not significantly less
than that of the Trustee immediately prior to such succession.
ARTICLE VIII
CONCERNING THE NOTEHOLDERS
Section 8.1 Action by Noteholders. Whenever in this Indenture
it is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article IX or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than 15 days
prior to the date of commencement of solicitation of such action.
Section 8.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 7.1 and 9.5, proof of the execution of any instrument by
a Noteholder or by agent or proxy shall be sufficient if made in accordance with
Section 7.2 hereof. The holding of Notes shall be proved by the Note register or
by a certificate of the Note registrar.
The record of any Noteholders' meeting shall be proved in the
manner provided in Section 9.5.
Section 8.3 Who Are Deemed Absolute Owners. The Company, the
Trustee, any paying agent and any Note registrar may deem the person in whose
name such Note shall be registered upon the books of the Company to be, and may
treat such person as, the absolute owner of such Note (whether or not such Note
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of, premium, if any, and interest on such Note and for all other purposes; and
neither the Company nor the Trustee nor any paying agent nor any Note registrar
shall be affected by any notice to the contrary. All such payments so made to
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any holder for the time being, or upon order of such holder, shall be valid and,
to the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.
Section 8.4 Company-Owned Notes Disregarded. In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes that are owned by the Company or any other obligor on the Notes
or by any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Notes shall be disregarded and deemed not to be outstanding for the purpose of
any such determination; provided that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, consent, waiver
or other action, only Notes that a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. Notes so owned that have been
pledged in good faith may be regarded as outstanding for the purposes of this
Section 8.4 if the pledgee shall establish to the satisfaction of the Trustee
the pledger's right to vote such Notes and that the pledgee is not the Company,
any other obligor on the Notes or a person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
such other obligor. In the case of a dispute as to such right, any decision by
the Trustee taken upon the advice of counsel shall be full protection to the
Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee
promptly an Officers' Certificate listing and identifying all Notes, if any,
known by the Company to be owned or held by or for the account of any of the
above described persons; and subject to Section 7.1, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Notes not listed therein are
outstanding for the purpose of any such determination.
Section 8.5 Revocation of Consents, Future Holders Bound. At
any time prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note that is shown by the evidence
to be included in the Notes the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as provided in Section 8.2, revoke such action so far as
concerns such Note. Except as aforesaid, any such action taken by the holder of
any Note shall be conclusive and binding upon such holder and upon all future
holders and owners of such Note and of any Notes issued in exchange or
substitution therefor, irrespective of whether any notation in regard thereto is
made upon such Note or any Note issued in exchange or substitution therefor.
ARTICLE IX
NOTEHOLDERS' MEETINGS
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Section 9.1 Purposes for Which Meetings May be Called. A
meeting of Noteholders may be called at any time and from time to time pursuant
to the provisions of this Article IX for any of the following purposes:
(i) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Noteholders pursuant to any of the provisions
of Article VI;
(ii) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article VII;
(iii) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section
10.2; or
(iv) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provisions of this Indenture or under
applicable law.
Section 9.2 Manner of Calling Meetings; Record Date. The
Trustee may at any time call a meeting of Noteholders to take any action
specified in Section 9.1, to be held at such time and at such place in the City
of New York, State of New York, as the Trustee shall determine. Notice of every
meeting of the Noteholders, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
mailed not less than 30 nor more than 60 days prior to the date fixed for the
meeting to such Noteholders at their addresses as such addresses appear in the
Note register. For the purpose of determining Noteholders entitled to notice of
any meeting of Noteholders, the Company, upon written notice to the Trustee,
shall fix in advance a date as the record date for such determination, such date
to be a business day not more than 10 days prior to the date of the mailing of
such notice as hereinabove provided. Only persons in whose name any Note shall
be registered in the Note register at the close of business on a record date
fixed by the Trustee as aforesaid, or by the Company or the Noteholders as
provided in Section 9.3, shall be entitled to notice of the meeting of
Noteholders with respect to which such record date was so fixed.
Section 9.3 Call of Meeting by Company or Noteholders. In case
at any time the Company, pursuant to a resolution of its Board of Directors or
the holders of at least 10% in aggregate principal amount of the Notes then
outstanding shall have requested the Trustee to call a meeting of Noteholders to
take any action authorized in Section 9.1 by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed notice of such meeting within 20 days after
receipt of such request, then the Company or the holders of Notes in the amount
above specified, as the case may be, may fix the record date with respect to,
and determine the time and the place for, such meeting and may call such meeting
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to take any action authorized in Section 9.1, by mailing notice thereof as
provided in Section 9.2. The record date fixed as provided in the preceding
sentence shall be set forth in a written notice to the Trustee and shall be a
business day not less than 15 nor more than 20 days after the date on which the
original request is sent to the Trustee.
Section 9.4 Who May Attend and Vote at Meetings. Only persons
entitled to receive notice of a meeting of Noteholders and their respective
proxies duly appointed by an instrument in writing shall be entitled to vote at
such meeting. The only persons who shall be entitled to be present or to speak
at any meeting of Noteholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel. When a determination of
Noteholders entitled to vote at any meeting of Noteholders has been made as
provided in this Section, such determination shall apply to any adjournments
thereof.
Section 9.5 Manner of Voting at Meetings and Record to be
Kept. The vote upon any resolution submitted to any meeting of Noteholders shall
be by written ballots on each of which shall be subscribed the signature of the
Noteholder or proxy casting such ballot and the identifying number or numbers of
the Notes held or represented in respect of which such ballot is cast. The
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 9.2. The record shall show the identifying numbers of the Notes voting
in favor of or against any resolution. Each counterpart of such record shall be
signed and verified by the affidavits of the chairman and secretary of the
meeting and one of the counterparts shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee.
Any counterpart record so signed and verified shall be
conclusive evidence of the matters therein stated and shall be the record
referred to in clause (b) of Section 8.1.
Section 9.6 Exercise of Rights of Trustee and Noteholders Not
To Be Hindered or Delayed. Nothing in this Article IX contained shall be deemed
or construed to authorize or permit, by reason of any call of a meeting of
Noteholders or any rights expressly or impliedly conferred hereunder to make
such call, any hinderance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Noteholders under any of the
provisions of this Indenture or of the Notes.
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ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 Supplemental Indentures Without Consent of
Noteholders. The Company, when authorized by a Board Resolution, and the Trustee
may from time to time and at any time enter into an indenture or indentures
supplemental hereto for one or more of the following purposes:
(a) subject to Article XIV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(b) to evidence the succession of another person to the
Company, or successive successions, and the assumption by the Successor
Company of the covenants, agreements and obligations of the Company
pursuant to Article XI;
(c) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be for the benefit of the holders of Notes
and to make the occurrence, or the occurrence and continuance, of a
default in any such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any
of the several remedies provided in this Indenture as herein set forth;
provided that in respect of any such additional covenant, restriction
or condition, such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture that may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture that shall
not adversely affect the interests of the holders of the Notes as
evidenced by an Officers' Certificate or opinion of counsel to such
effect;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(f) to modify, eliminate or add to the provisions of this
Indenture to such extent necessary to effect the qualification of this
Indenture under the Trust Indenture Act (if applicable), or under any
similar federal statute hereafter enacted (if applicable).
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The Trustee is hereby authorized to join with the Company in
the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations that may be therein contained and to
accept the conveyance, transfer and assignment of any property thereunder, but
the Trustee shall not be obligated to, but may in its discretion, enter into any
supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section 10.1 may be executed by the Company and the Trustee without the
consent of the holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 10.2.
Section 10.2 Supplemental Indentures With Consent of
Noteholders. With the consent (evidenced as provided in Article VIII) of the
holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding, the Company, when authorized by a Board Resolution and
the Trustee, may from time to time and at any time enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
any supplemental indenture or of modifying in any manner the rights of the
holders of the Notes; provided that no such supplemental indenture shall (i)
without the consent of the holders of each Note so affected, extend the fixed
maturity of any Note, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof or premium, if any,
thereon or reduce any amount payable on redemption thereof, or impair or affect
the right of any Noteholder to institute suit for the payment thereof or make
the principal thereof or interest or premium, if any, thereon payable in any
coin or currency other than that provided in the Notes, modify the subordination
provisions in a manner adverse to the holders of the Notes, or (ii) without the
consent of the holders of all the Notes then outstanding, reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture.
Upon the request of the Company, accompanied by a copy of a
Board Resolution certified by its Secretary or Assistant Secretary authorizing
the execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee
shall join with the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Noteholders
under this Section 10.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
Section 10.3 Effect of Supplemental Indentures. Any
supplemental indenture executed pursuant to the provisions of this Article X
shall comply with the Trust Indenture Act, as then in effect, if such
supplemental indenture is then required to so comply. Upon the execution of any
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supplemental indenture pursuant to the provisions of this Article X, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 10.4 Notation on Notes. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article X may bear a notation in form approved by the Company
as to any matter provided for in such supplemental indenture, but they need not
do so. After notice to the Trustee, if the Company shall determine to add such a
notation, new Notes so modified as to conform, in the opinion of the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company's expense, be prepared and executed
by the Company, authenticated by the Trustee (or an authenticating agent duly
appointed by the Trustee pursuant to Section 15.11) and delivered in exchange
for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 10.5 Evidence of Compliance of Supplemental Indenture
to Be Furnished to the Trustee. The Trustee shall be furnished with and, subject
to the provisions of Section 7.1, may rely conclusively upon an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article X.
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE,
TRANSFER AND LEASE
Section 11.1 Company May Consolidate, Etc. on Certain Terms.
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets (determined on a
consolidated basis) to any person unless: (i) either the Company is the
resulting, surviving or transferee person (the "Successor Company") or the
Successor Company is a person organized and existing under the laws of the
United States or any State thereof or the District of Columbia, and the
Successor Company (if not the Company) expressly assumes by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under this Indenture and the Notes,
(ii) immediately after giving effect to such transaction, no Event of Default
has happened and is continuing and (iii) the Company delivers to the Trustee an
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Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Section 11.2 Successor Company To Be Substituted. In case of
any such consolidation, merger, sale, conveyance, transfer or lease and upon the
assumption by the Successor Company, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due and
punctual payment of the principal of, premium, if any, and interest on all of
the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such Successor
Company shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party hereto. When a Successor
Company duly assumes all the obligations of the Company pursuant to this
Indenture and the Notes, the predecessor shall be released from all such
obligations.
Section 11.3 Opinion of Counsel To Be Given to Trustee. The
Trustee, subject to Section 7.1, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or lease and any such assumption complies with the
provisions of this Article XI.
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
Section 12.1 Termination of Obligations upon Cancellation of
the Notes. The Company may terminate all of its obligations under this Indenture
(subject to Section 12.2) when:
(a) (i) all Notes theretofore authenticated and delivered
(other than Notes that have been destroyed, lost or stolen and that
have been replaced or paid as provided in Section 2.6) have been
delivered to the Trustee for cancellation; and
(ii) the Company has paid or caused to be paid all other
sums payable hereunder and under the Notes by the Company; or
(b) (i) the Notes not previously delivered to the Trustee for
cancellation shall have become due and payable or are by their terms to
become due and payable within one year or are to be called for
redemption under arrangements satisfactory to the Trustee upon delivery
of notice, (ii) the Company shall have irrevocably deposited with the
Trustee, as trust funds, cash in an amount sufficient to pay principal
of, premium, if any, and interest on the outstanding Notes, to maturity
or redemption, as the case may be, (iii) such deposit shall not result
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in a breach or violation of, or constitute a default under, any
agreement or instrument pursuant to which the Company is a party or by
which it or its property is bound and (iv) the Company has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel in form
and substance reasonably satisfactory to the Trustee, each stating that
all conditions related to such defeasance have been complied with.
Section 12.2 Survival of Certain Obligations. Notwithstanding
the satisfaction and discharge of this Indenture and of the Notes referred to in
Section 12.1, the respective obligations of the Company and the Trustee under
Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.5, 7.8, 12.4, 12.5,
12.6, and Article XIV shall survive until the Notes are no longer outstanding,
and thereafter, the obligations of the Company and the Trustee under Sections
6.9, 7.5, 12.4, 12.5 and 12.6 shall survive. Nothing contained in this Article
XII shall abrogate any of the rights, obligations or duties of the Trustee under
this Indenture.
Section 12.3 Acknowledgment of Discharge by Trustee. Subject
to Section 12.6, after (i) the conditions of Section 12.1 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon written
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified in Section
12.2.
Section 12.4 Application of Trust Assets. The Trustee shall
hold any cash deposited with it in the irrevocable trust established pursuant to
Section 12.1. The Trustee shall apply the deposited cash in accordance with this
Indenture and the terms of the irrevocable trust agreement established pursuant
to Section 12.1 to the payment of principal of, premium, if any, and interest on
the Notes. The cash so held in trust and deposited with the Trustee in
compliance with Section 12.1 shall not be part of the trust estate under this
Indenture, but shall constitute a separate trust fund for the benefit of all
holders entitled thereto. Except as specifically provided herein, the Trustee
shall not be requested to invest any amounts held by it for the benefit of the
holders or pay interest on uninvested amounts to any holder.
Section 12.5 Repayment to the Company; Unclaimed Money.
Subject to applicable laws governing escheat of such property, and upon
termination of the trust established pursuant to Section 12.1 hereof, the
Trustee shall promptly pay to the Company upon written request any excess cash
held by the Trustee. Additionally, if amounts for the payment of principal,
premium, if any, or interest remains unclaimed for two years, the Trustee shall,
upon written request, pay such amounts back to the Company forthwith.
Thereafter, all liability of the Trustee with respect to such amounts shall
cease. After payment to the Company, holders entitled to such payment must look
to the Company for such payment as general creditors unless an applicable
abandoned property law designates another person.
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Section 12.6 Reinstatement. If the Trustee is unable to apply
any cash in accordance with Section 12.1 by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 12.1 until such time as
the Trustee is permitted to apply all such cash in accordance with Section 12.1;
provided that if the Company makes any payment of principal of, premium, if any,
or interest on any Notes following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Notes to
receive such payment from the amounts held by the Trustee.
ARTICLE XIII
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 Indenture and Notes Solely Corporate Obligations.
No recourse for the payment of the principal of, or premium, if any, or interest
on any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor entity, either directly or through
the Company or any successor entity, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of the Notes.
ARTICLE XIV
SUBORDINATION
Section 14.1 Agreement to Subordinate. The Company agrees, and
each Noteholder by accepting a Note agrees, that the indebtedness evidenced by
the Notes is subordinated in right of payment, to the extent and in the manner
provided in this Article XIV, to the prior payment in full of all Senior
Indebtedness and that the subordination is for the benefit of the holders of
Senior Indebtedness.
Section 14.2 Certain Definitions. For purposes of this Article
XIV, the following terms shall have the meaning indicated:
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(1) "Representative" shall mean a duly authorized indenture
trustee or other trustee, agent or representative for any Senior
Indebtedness.
(2) "Senior Indebtedness" with respect to the Notes means the
principal of, premium, if any, and interest on, and any fees, costs,
expenses and any other amounts (including indemnity payments) related
to the following, whether outstanding on the date hereof or hereafter
incurred or created: (a) indebtedness, matured or unmatured, whether or
not contingent, of the Company for money borrowed evidenced by notes or
other written obligations, (b) any interest rate contract, interest
rate swap agreement or other similar agreement or arrangement designed
to protect the Company or any of its Subsidiaries against fluctuations
in interest rates, (c) indebtedness, matured or unmatured, whether or
not contingent, of the Company evidenced by notes, debentures, bonds or
similar instruments or letters of credit (or reimbursement agreements
in respect thereof), (d) obligations of the Company as lessee under
capitalized leases and under leases of property made as part of any
sale and leaseback transactions, (e) indebtedness of others of any of
the kinds described in the preceding clauses (a) through (d) assumed or
guaranteed by the Company and (f) renewals, extensions, modifications,
amendments, and refundings of, and indebtedness and obligations of a
successor person issued in exchange for or in replacement of,
indebtedness or obligations of the kinds described in the preceding
clauses (a) through (e), unless the agreement pursuant to which any
such indebtedness described in clauses (a) through (f) is created,
issued, assumed or guaranteed expressly provides that such indebtedness
is not senior or superior in right of payment to the Notes; provided
that the following shall not constitute Senior Indebtedness: (i) any
indebtedness or obligation of the Company in respect of the Notes; (ii)
any indebtedness of the Company to any of its Subsidiaries or other
Affiliates; (iii) any indebtedness that is subordinated or junior in
any respect to any other indebtedness of the Company other than Senior
Indebtedness; (iv) any indebtedness incurred for the purchase of goods
or materials in the ordinary course of business; and (v) any liability
for federal, state, local or other taxes owed or owing by the Company.
For the purposes of this Indenture, Senior Indebtedness shall
not be deemed to have been paid in full until the holders of the Senior
Indebtedness shall have indefeasibly received payment in full in cash of all
Senior Indebtedness; provided that if any holder of Senior Indebtedness agrees
to accept payment in full of such Senior Indebtedness for consideration other
than cash, such holder shall be deemed to have indefeasibly received payment in
full of such Senior Indebtedness. The provisions of this Article XIV shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or
organization of the Company or otherwise, all as though such payment had not
been made.
A distribution may consist of cash, securities or other
property, by set-off or otherwise.
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Section 14.3 Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, in an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
(a) holders of all Senior Indebtedness shall first be entitled to receive
payment in full of all amounts due or to become due thereon before Noteholders
shall be entitled to receive any payment with respect to the principal of,
premium, if any, or interest on the Notes (except that Noteholders may receive
securities that are subordinated to at least the same extent as the Notes to
Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness) and (b) until all Senior Indebtedness (as provided in clause (a)
above) is paid in full, any distribution to which Noteholders would be entitled
but for this Article shall be made to holders of Senior Indebtedness (except
that Noteholders may receive securities that are subordinated to at least the
same extent as the Notes to (x) Senior Indebtedness and (y) any securities
issued in exchange for Senior Indebtedness), as their interests may appear.
Section 14.4 Default on Senior Indebtedness. The Company may
not make any payment upon or in respect of the Notes (except in such
subordinated securities) and may not acquire from the Trustee or any Noteholder
any Note for cash or property (other than securities that are subordinated to at
least the same extent as the Note to (i) Senior Indebtedness and (ii) any
securities issued in exchange for Senior Indebtedness) until all Senior
Indebtedness has been paid in full if:
(a) a default in the payment of the principal of, premium, if
any, or interest on Senior Indebtedness occurs and is continuing beyond
any applicable period of grace (a "Payment Default"); or
(b) a default, other than a Payment Default, on Senior
Indebtedness occurs and is continuing that permits holders of the
Senior Indebtedness as to which such default relates to accelerate its
maturity (a "Nonpayment Default") and the Trustee receives a notice of
the default from the Representative or Representatives of holders of at
least a majority in principal amount of Senior Indebtedness then
outstanding.
The Company may and shall resume payments on and distributions
in respect of the Notes and may acquire them upon the date on which the default
is cured or waived if this Article XIV otherwise permits the payment,
distribution or acquisition at the time of such payment or acquisition.
Section 14.5 When Distribution Must Be Paid Over. In the event
that the Trustee (or paying agent if other than the Trustee) or any Noteholder
receives any payment of principal or interest with respect to the Notes at a
time when such payment is prohibited by Section 14.3 or 14.4 hereof, such
payment shall be held by the Trustee (or paying agent if other than the Trustee)
or such Noteholder, in trust for the benefit of, and immediately shall be paid
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over and delivered, upon written request, to, the holders of Senior Indebtedness
as their interests may appear or their Representative under the indenture or
other agreement (if any) pursuant to which Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of all Senior Indebtedness remaining unpaid to the extent necessary to pay all
Senior Indebtedness in full in accordance with its terms, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article XIV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and shall not be liable
to any such holders if the Trustee shall pay over or distribute to or on behalf
of Noteholders or the Company or any other person money or assets to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article XIV,
except if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
Section 14.6 Notice by Company. The Company shall promptly
notify the Trustee and the paying agent in writing of any facts known to the
Company that would cause a payment of any principal or interest with respect to
the Notes to violate this Article XIV, but failure to give such notice shall not
affect the subordination of the Notes to the Senior Indebtedness as provided in
this Article XIV.
Section 14.7 Subrogation. Until all Senior Indebtedness is
paid in full and until the Notes are paid in full, Noteholders shall be
subrogated (equally and ratably with all other indebtedness pari passu with the
Notes) to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Noteholders have been applied to the payment of Senior
Indebtedness. A distribution made under this Article XIV to holders of Senior
Indebtedness that otherwise would have been made to Noteholders is not, as
between the Company and Noteholders, a payment by the Company on the Notes.
Section 14.8 Relative Rights. This Article XIV defines the
relative rights of Noteholders and holders of Senior Indebtedness. Nothing in
this Indenture shall:
(a) impair, as between the Company and the Noteholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of, premium, if any, and interest on the Notes in accordance
with their terms;
(b) affect the relative rights of Noteholders and creditors of
the Company other than their rights in relation to holders of Senior
Indebtedness; or
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(c) prevent the Trustee or any Noteholder from exercising its
available remedies upon a default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Noteholders.
If the Company fails because of this Article XIV to pay
principal of, premium, if any, or interest on a Note on the due date, the
failure is still a default or Event of Default.
Section 14.9 Subordination May Not Be Impaired by Company. No
right of any holder of Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any holder of Notes or by the failure of the Company or
any holder of Notes to comply with this Indenture.
Section 14.10 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article XIV, the Trustee and the Noteholders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the Noteholders for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XIV.
Section 14.11 Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article XIV or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment or distribution by
the Trustee, and the Trustee and the paying agent may continue to make payments
on the Notes, unless the Trustee shall have received at its Corporate Trust
Office at least three Business Days prior to the date of such payment written
notice of facts that would cause the payment of any principal, premium, if any,
and interest with respect to the Notes to violate this Article XIV. Only the
Company or a Representative may give the notice. Nothing in this Article XIV
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.5 hereof.
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The Trustee shall be entitled to rely on the delivery to it of
a written notice by a person representing such person to be a holder of Senior
Indebtedness (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee or
agent on behalf of any such holder). In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XIV, the Trustee may request such person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article XIV, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such person pursuant to the terms of this
Indenture pending judicial determination as to the rights of such person to
receive such payment.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any paying agent, any authenticating agent, any Note registrar and their
successors may do the same with like rights.
Section 14.12 Authorization to Effect Subordination. Each
holder of a Note by the holder's acceptance thereof authorizes and directs the
Trustee on the holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article XIV and
appoints the Trustee to act as the holder's attorney-in-fact for any and all
such purposes. Without limiting the foregoing, each Representative is hereby
irrevocably authorized and empowered (in its own name or in the name of the
Noteholders or the Trustee or otherwise), but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution referred to
in Section 14.3 above and give acquittance therefor and to file claims and
proofs of claim and take such other action as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the holders
or owners of the Senior Indebtedness hereunder; provided that for purposes of
this Section 14.12 holders or owners of Senior Indebtedness may act only through
such Representative.
Section 14.13 Amendments. The provisions of this Article XIV
shall not be amended or modified without the written consent of the holders of
Senior Indebtedness.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1 Provisions Binding on Company's Successors. All
the covenants, stipulations, promises and agreements in this Indenture made by
the Company shall bind its successors and assigns whether so expressed or not.
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Section 15.2 Official Acts by Successor Company. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board (including the Board of Directors), committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
Section 15.3 Addresses for Notices, Etc. Any notice or demand
that by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be deemed
to have been sufficiently given or made, for all purposes if given or served by
being sent by prepaid overnight delivery or being deposited postage prepaid by
registered or certified mail in a post office letter box addressed (until
another address is filed by the Company with the Trustee) to Royal Aloha
Development Company, 360 East Desert Inn Road, Las Vegas, Nevada 89119,
Attention: Jack R. Corteway with copies to (i) Jack R. Corteway, Royal Aloha
Development Company, 1505 Dillingham Blvd., Suite 212, Honolulu, Hawaii 96817,
and (ii) Harry E. McCoy II, Ballard Spahr Andrews & Ingersoll, LLP, 201 South
Main Street, Suite 1200, Salt Lake City, Utah 84111. Any notice, direction,
request or demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being sent
by prepaid overnight delivery or being deposited postage prepaid by registered
or certified mail in a post office letter box addressed to the Corporate Trust
Office of the Trustee, which office is, at the date as of which this Indenture
is dated, located at 100 Wall Street, Suite 1600, New York, New York, 10005,
Attention: Corporate Trust Administration.
The Trustee, by notice to the Company, may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be
mailed to him by first class mail, postage prepaid, at the address of such
Noteholder as it appears on the Note register and shall be sufficiently given to
such Noteholder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 15.4 Communications by Holders with Other Holders.
(a) Within five business days after the receipt by the Trustee
of a written application by any three or more Noteholders stating that
the applicants desire to communicate with other Noteholders with
respect to their rights under this Indenture or under the Notes, and
accompanied by a copy of the form of proxy or other communication which
such applicants propose to transmit, and by reasonable proof that each
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such applicant has owned a Note for a period of at least six months
preceding the date of such application, such Trustee shall, at its
election, either
(i) afford to such applicants access to all
information so furnished to or received by such Trustee; or
(ii) inform such applicants as to the approximate
number of Noteholders according to the most recent information
so furnished to or received by such Trustee, and as to the
approximate cost of mailing to such Noteholders the form of
proxy or other communication, if any, specified in such
application.
If the Trustee shall elect not to afford to such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to all such Noteholders copies of the form of proxy or
other communication which is specified in such request, with reasonable
promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable
expenses of such mailing, unless within five days after such tender,
such Trustee shall mail to such applicants a written statement to the
effect that, in the opinion of such Trustee, such mailing would be
contrary to the best interests of the Noteholders or would be in
violation of applicable law.
(b) The disclosure of any such information as to the names and
addresses of the Noteholders in accordance with the provisions of this
Section 15.4, regardless of the source from which such information was
derived, shall not be deemed to be a violation of any existing law, or
of any law hereafter enacted, nor shall the Trustee be held accountable
by reason of mailing any material pursuant to a request made under
subsection (a) of this Section.
Section 15.5 Governing Law. This Indenture shall be deemed to
be a contract made under the substantive laws of Nevada and for all purposes
shall be construed in accordance with the substantive laws of Nevada without
regard to conflicts of laws principles thereof; provided however that the
rights, duties, privileges and indemnities of the Trustee shall be governed by
the laws of the State of New York.
Section 15.6 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include: (1) a statement that the person
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making such certificate or opinion has read such covenant or condition, (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based, (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 15.7 Legal Holidays. In any case where any Interest
Payment Date, date fixed for redemption or stated maturity of any Note shall not
be a Business Day, then (notwithstanding any other provision of this Indenture
or of the Notes) payment of interest on or principal (and premium, if any) of
the Notes need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, date fixed for redemption, or at the stated maturity, provided that no
interest shall accrue for the period from and after such Interest Payment Date,
date fixed for redemption or stated maturity, as the case may be.
Section 15.8 No Security Interest Created. Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction
where property of the Company or its Subsidiaries is located.
Section 15.9 Benefits of Indenture. Nothing in this Indenture
or in the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder and the holders of Notes, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 15.10 Table of Contents, Headings Etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 15.11 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and
purposes as though the authenticating agent had been expressly authorized by
this Indenture and those Sections to authenticate and deliver Notes. For all
purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication.
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Any corporation into which any authenticating agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, consolidation or conversion to which any
authenticating agent shall be a party, or any corporation succeeding to the
corporate trust business of any authenticating agent, shall be the successor of
the authenticating agent hereunder, if such successor company is otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the parties hereto or the authenticating agent or
such successor company.
Any authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee may
at any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time any authenticating agent shall cease to be eligible under this Section,
the Trustee shall promptly appoint a successor authenticating agent (which may
be the Trustee), shall give written notice of such appointment to the Company
and shall mail notice of such appointment to all holders of Notes as the names
and addresses of such holders appear on the Note register.
The Company agrees to pay to the authenticating agent from
time to time reasonable compensation for its services.
The provisions of Sections 7.2, 7.3, 7.4, 7.6, 8.3 and this
Section 15.11 shall be applicable to any authenticating agent.
Section 15.12 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
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First Trust of New York, National Association, hereby accepts
the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly signed and attested, all as of the date first written
above.
ROYAL ALOHA DEVELOPMENT COMPANY
By:______________________________
Name:
Title:
Attest:
- -------------------------------
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Trustee
By:_______________________________
Name:
Title:
Attest:
- -------------------------------
<PAGE>
EXHIBIT A - FORM OF DEFINITIVE NOTE
[FORM OF FACE OF NOTE]
No. A-
$
CUSIP 780048 AA 2
ROYAL ALOHA DEVELOPMENT COMPANY
13% Eight Year Deferred Interest Subordinated Notes
ROYAL ALOHA DEVELOPMENT COMPANY, a corporation duly organized
and validly existing under the laws of the State of Nevada (the "Company"),
which term includes any Successor Company under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to
___________________________, or registered assigns, the principal sum of
______________________________________ Dollars on [_________________], 200_ at
the office or agency of the Company maintained for that purpose in
[______________________________], or at the option of the holder of this Note,
at the Corporate Trust Office of the Trustee, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest commencing on the first
Interest Payment Date (as hereinafter defined) after the payment of the entire
principal amount and interest on the Construction Loan, semi-annually on
[___________] and [_____________] of each year (each an "Interest Payment
Date"), on said principal sum at said office or agency, in like coin or
currency, at the rate per annum specified in the title of this Note. Interest
accruing from the original date of issuance of the Notes under the Indenture
through the Interest Payment Date preceding the first Interest Payment Date
occurring after the principal of and interest on the Construction Loan is paid
is hereinafter referred to as "Development Period Interest." The interest
payable on the first Interest Payment Date after the payment of the entire
principal interest on the Construction Loan shall be that accrued from the next
preceding Interest Payment Date and, thereafter, interest shall be payable on
any Interest Payment Date from the most recent Interest Payment Date, as the
case may be, next preceding the date of this Note to which interest has been
paid or duly provided for, unless the date hereof is a date to which interest
has been paid or duly provided for, in which case from the date of this Note,
until payment of said principal sum has been made or duly provided for. Any
Development Period Interest not paid on the first Interest Payment Date after
the payment of the entire principal of and interest on the Construction Loan
shall forthwith cease to be payable to the Noteholder on the relevant record
date by virtue of his having been such Noteholder; and such Development Period
Interest shall be paid in whole or in part by the Company, at its election in
each case, either (i) by notifying the Trustee of a special record date, the
amount of interest to be paid on such special record date and the date of
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payment (not more than 25 days after receipt by the Trustee of such interest,
unless the Trustee shall consent to an earlier date) and depositing with the
Trustee an amount of money equal to the aggregate amount to be paid in respect
of such Development Period Interest on making arrangements satisfactory to the
Trustee for such deposit or (ii) in any lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed and
upon notice requested by such exchange, if, after notice to the Trustee, the
Trustee deems such manner of payment to be practicable. The interest so payable
on any [_______________] or [_______________] will be paid to the person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on the record date, which shall be the [_______________]
[_______________] (whether or not a Business Day) next preceding such
[_______________] or [_______________], respectively; provided that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest shall be paid by check mailed to the registered
holder at the registered address of such person unless other arrangements are
made in accordance with the provisions of the Indenture.
Reference is made to the further provisions of this Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee, or a duly authorized authenticating agent under the
Indenture.
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed under its corporate seal.
ROYAL ALOHA DEVELOPMENT COMPANY
By:_____________________________
Name:
Title:
Attest:
- ----------------------------
Secretary
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[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Notes described in the within-named
Indenture.
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Trustee
By: ________________________________
Authorized Signatory
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[FORM OF REVERSE OF NOTE]
ROYAL ALOHA DEVELOPMENT COMPANY
13% Eight Year Deferred Interest Subordinated Notes
This Note is one of a duly authorized issue of Notes of the
Company, designated as its 13% Eight Year Deferred Interest Subordinated Notes
(herein called the "Notes"), limited to the aggregate principal amount of
$9,200,000 all issued or to be issued under and pursuant to an Indenture dated
as of [_______________] (the "Indenture"), between the Company and First Trust
of New York, National Association, as trustee (the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
complete description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Company and the holders of the
Notes. Each Note is subject to, and qualified by, all such terms as set forth in
the Indenture certain of which are summarized hereon and each holder of a Note
is referred to the corresponding provisions of the Indenture for a complete
statement of such terms. To the extent that there is any inconsistency between
the summary provisions set forth in the Notes and the Indenture, the provisions
of the Indenture shall govern. Capitalized terms used but not defined in this
Note shall have the meanings ascribed to them in the Indenture.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of, premium, if any, and
accrued interest on all Notes may be declared, and upon said declaration shall
become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Indenture.
The payment of principal of, premium, if any, and interest on
the Notes will, to the extent set forth in the Indenture, be subordinated in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture). Upon any distribution to creditors of the Company in
a liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding related to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities, the holders of all Senior Indebtedness
will first be entitled to receive payment in full of all amounts due or to
become due thereon before the holders of the Notes will be entitled to receive
any payment in respect of the principal of, premium, if any, or interest on the
Notes (except that holders of Notes may receive securities that are subordinated
at least to the same extent as the Notes to Senior Indebtedness and any
securities issued in exchange for Senior Indebtedness).
The Company also may not make any payment upon or in respect
of the Notes (except in such subordinated securities) and may not acquire from
the Trustee or the holder of any Note for cash or property (other than
securities subordinated to at least the same extent as the Note to (i) all
Senior Indebtedness and (ii) any securities issued in exchange for Senior
Indebtedness) until all Senior Indebtedness has been paid in full if a default
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in the payment of the principal of, premium, if any, or interest on Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
any other default occurs and is continuing with respect to Senior Indebtedness
that permits holders of the Senior Indebtedness as to which such default relates
to accelerate its maturity. Payments on the Notes may and shall be resumed upon
the date on which such default is cured or waived.
In the event that the Trustee (or paying agent if other than
the Trustee) or any holder of the Notes receives any payment of principal or
interest with respect to the Notes at a time when such payment is prohibited
under the Indenture, such payment shall be held in trust for the benefit of, and
immediately shall be paid over and delivered to, the holders of Senior
Indebtedness or their representative as their respective interests may appear.
After all Senior Indebtedness is paid in full and until the Notes are paid in
full, the holders of the Notes shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holders of the Notes have
been applied to the payment of Senior Indebtedness.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the holders of the Notes; provided that no such supplemental indenture shall
(i) extend the fixed maturity of any Note, or reduce the rate or extend the time
of payment of interest thereon, or reduce the principal amount thereof or
premium, if any, thereon, or reduce any amount payable on redemption thereof, or
impair or affect the right of any Noteholder to institute suit for the payment
thereof, or make the principal thereof or interest or premium, if any, thereon
payable in any coin or currency other than that provided in the Notes, modify
the subordination provisions in a manner adverse to the holders of the Notes,
without the consent of the holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all Notes
then outstanding. The Company and the Trustee may amend or supplement the
Indenture without notice to or consent of any holder of Notes in certain events
specified in the Indenture. It is also provided in the Indenture that, prior to
any declaration accelerating the maturity of the Notes, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the payment
of interest or any premium on or the principal of any of the Notes, unless
otherwise excused pursuant to the terms of the Indenture, or a default in
respect of a covenant or provision of the Indenture that under Article X thereof
cannot be modified or amended without the consent of the holders of all Notes
then outstanding. Any such consent or waiver by the holder of this Note (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
holder and upon all future holders and owners of this Note and any Notes that
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may be issued in exchange or substitution hereof, irrespective of whether or not
any notation thereof is made upon this Note or such other Notes.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a
360-day year composed of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. At the
office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without payment
of any service charge but with payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration or exchange of Notes, Notes may be exchanged for a like aggregate
principal amount of Notes of other authorized denominations.
The Notes are not redeemable at the option of the Company
prior to 200_. At any time on or after that date, the Notes may be redeemed at
the Company's option, upon notice as set forth in the Indenture, in whole at any
time or in part from time to time, at the following prices (expressed in
percentages of the principal amount), together with accrued interest (including
Development Period Interest) to the date fixed for redemption if redeemed during
the 12-month period beginning:
Date Redemption Price
[Year 3] 103%
[Year 4] 102
[Year 5] 101
and 100% on or after [Year 6]; provided that if the date fixed for redemption is
a date on or after the record date and on or before the next following Interest
Payment Date, then the interest payable on such date shall be paid to the holder
of record on the next preceding [_______________] or [_______________],
respectively.
The Company will redeem 25% of the principal amount of Notes
originally issued, on the sixth and seventh anniversary of the Issuance Date, at
a redemption price of 100% of principal amount thereof, plus accrued interest to
the redemption date. Such redemptions are calculated to retire 50% of the issue
prior to maturity.
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The Company may, from time to time, reduce the principal
amount of Notes to be redeemed pursuant to this Section by subtracting 100% of
the principal amount of any Notes that the Company has delivered to the Trustee
for cancellation or redeemed other than pursuant to this Section. The Company
may so subtract the same Note only once.
Upon due presentment for registration of transfer of this Note
at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized
denominations for an equal aggregate principal amount will be issued to the
transferee in exchange thereof, subject to the conditions and limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying
agent, and any Note registrar may deem and treat the registered holder hereof as
the absolute owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or any Note registrar), for the purpose of receiving
payment hereof, or on account hereof, and for all other purposes, and neither
the Company nor the Trustee nor any other authenticating agent nor any paying
agent nor any Note registrar shall be affected by any notice to the contrary.
All payments made to or upon the order of such registered holder shall, to the
extent of the sum or sums paid, satisfy and discharge liability for monies
payable on this Note.
No recourse for the payment of the principal of or any premium
or interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or of any Successor Company, either
directly or through the Company or any Successor Company, whether by virtue of
any constitution, statute or rule of law or by the enforcement of any assessment
or penalty or otherwise, all such liability being, by the acceptance hereof and
as part of the consideration for the issue hereof, expressly waived and
released.
RESTRICTIONS ON TRANSFER BY
NOTE HOLDERS WHO ARE TEXAS RESIDENTS
THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS AGAINST TRANSFER UNDER THE TERMS OF
THE SUBSCRIPTION AGREEMENT BETWEEN THE NOTE HOLDER AND THE CORPORATION, A COPY
OF WHICH IS ON FILE AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE. PURSUANT TO THE TERMS OF THE SUBSCRIPTION AGREEMENT, THE NOTE
HOLDER, IF A TEXAS RESIDENT, AND THE CORPORATION HAVE AGREED THAT THIS NOTE MAY
NOT BE SOLD OR TRANSFERRED EXCEPT BY GIFT, DEVISE, OR DESCENT, OR UNLESS SOLD OR
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TRANSFERRED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF
THE TEXAS SECURITIES ACT, TEX. REV. CIV. STAT. ANN. ARTICLE 581 (THE "TEXAS
ACT"), PROVIDED IN SECTIONS 5.A., 5.B., OR 5.H. OF THE TEXAS ACT OR TO
TRANSFEREES WHO FURNISH PROOF OF COMPLIANCE WITH THE TERMS OF THE AGREEMENT AND
THE SUITABILITY STANDARDS APPLICABLE TO TEXAS RESIDENTS. THE CORPORATION WILL
REFUSE TO TRANSFER THE NOTES PURCHASED PURSUANT TO THE SUBSCRIPTION AGREEMENT
UNLESS THE PROPOSED TRANSFEREE FURNISHES PROOF OF COMPLIANCE WITH THE TERMS OF
THE AGREEMENT, INCLUDING, AT THE REQUEST OF THE CORPORATION, AN OPINION OF
COUNSEL, ACCEPTABLE TO THE CORPORATION, THAT SUCH PROPOSED TRANSFER COMPLIES
WITH THE TERMS OF THE AGREEMENT. A COPY OF SUCH SUBSCRIPTION AGREEMENT WILL BE
FURNISHED TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
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ABBREVIATIONS
The following abbreviations, when used in the inscription of
the face of this Note, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common GIFT MIN ACT TEN ENT - as tenants by the
entireties ____________________ Custodian JT TEN - as joint tenants with right
of (Cust)
survivorship and not as tenants ____________________ under
in common (Minor)
Uniform Gifts to
Minors Act ________________
(State)
Additional abbreviations may also be used though not in the above list.
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[FORM OF ASSIGNMENT]
For value received _____________________________ hereby
sell(s), assign(s) and transfer(s) unto _________________________ (Please insert
social security or other identifying number of assignee) the within Note, and
hereby irrevocably constitutes and appoints ________________________________
attorney to transfer the said Note on the books of the Company, with full power
of substitution in the premises.
Dated:_____________________
===========================
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions).
- ---------------------------------
Signature Guarantee
NOTICE: The signature on the assignment must correspond with the name
as written upon the face of the Note in every particular without
alteration or enlargement or any change whatever.
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BALLARD SPAHR ANDREWS & INGERSOLL, LLP
201 South Main Street, Suite 1200
Salt Lake City, UT 84111
Telephone: (801) 531-3000
Fax: (801) 531-3001
April 8, 1998
Royal Aloha Development Company
1505 Dillingham Boulevard, Suite 212
Honolulu, HI 96817
Re: Registration Statement on Form SB-2
Dear Sirs;
Royal Aloha Development Company, a Nevada corporation (the "Company"),
has filed with the Securities and Exchanges commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), a Registration
Statement on Form SB-2 (the "Registration Statement"), relating to the proposed
issuance and sale by the Company of its 13% Eight Year Deferred Interest
Subordinated Notes (the "Notes"). The aggregate principal amount of the Notes
will not exceed $9,200,000.
The Notes will be issued under and pursuant to an Indenture (the
"Indenture") between the Company and First Trust of New York, National
Association, as Trustee (the "Trustee").
We have acted as counsel to the Company in connection with the issuance and sale
of the Notes. In such capacity, we are familiar with the transactions that are
the subject matter of the Registration Statement. We have examined such
corporate records of the Company and such other instruments, documents,
certificates, and agreements and made such further investigation as we have
deemed necessary as a basis for this opinion.
For the purpose of this opinion, we have assumed that (1) the proposed
transactions are carried out on the basis set forth in the Registration
Statement; (2) the Commission shall have issued an order declaring effective the
Registration Statement under the Securities Act; (3) requisite authorizations,
approvals, consents, or exemptions under the securities laws of the various
States and other jurisdictions of the United States [and Canada] shall have been
obtained; and (4) the Indenture under which the Notes shall be issued shall
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Royal Aloha Development Company
July 18, 1997
Page 2
be duly completed, executed and delivered pursuant to proper authority granted
by the Board of Directors of the Company.
Based upon the foregoing and subject to the foregoing assumptions, we
are of the opinion that, when properly authenticated and delivered by the
Trustee under the Indenture, the Notes will be legally issued and will be
binding obligations of the Company enforceable against the Company in accordance
with their terms and are entitled to the benefits (and are subject to all of the
limitations) of the Indenture, except to the extent that (a) enforcement thereof
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforcement may be sought in a proceeding in equity or law) and (b) the waiver
contained in Section 4.6 of the Indenture may be deemed unenforceable.
We express no opinion as to the law of any jurisdiction other than the
federal law of the United States and the law of the State of Nevada. To the
extent that the opinions set forth above relate to matters under the laws of the
State of Nevada, we have relied solely on the opinion of Haney, Woloson &
Mullins.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as a part thereof. We also consent to the references
to our firm in the prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
Ballard Spahr Andrews & Ingersoll, LLP
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") dated as of April 1, 1998, is
by and between Royal Aloha Development Company, a Nevada corporation (the
"Company"), and the U.S. Bank Trust, National Association (the "Escrow Agent").
RECITALS
The Company proposes to offer for sale to the general public in certain
states of the United States its 13% Eight Year Subordinated Notes (the "Notes")
up to an aggregate of $9,200,000, in a minimum principal amount of $1,000, in
accordance with the registration provisions of the Securities Act of 1933, as
amended, and pursuant to a Registration Statement on Form SB-2 (the
"Registration Statement") on file with the Securities and Exchange Commission.
In accordance with the terms of the Prospectus contained in the Registration
Statement, the Company desires to provide for the escrow of the funds invested
in the Notes until the offering amount, described below, has been received.
U.S. Bank Trust, National Association, has agreed to act as escrow
agent on behalf of the Company on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises the Parties agree as
follows:
1. Appointment of Escrow Agent. The Escrow Agent is hereby appointed as
escrow agent in accordance with the terms hereof, and the Escrow Agent agrees to
act in such capacity.
2. Establishment of Escrow Account. The Escrow Agent, as agent for the
Company to implement the provisions of this Agreement, has established an escrow
fund ("Escrow Fund") which shall contain all checks, drafts, and money orders
("Subscription Payments") and all Subscription Agreements and other related
documents ("Subscription Documents") received by the Escrow Agent directly from
Purchasers, and Subscription Payments and Subscription Documents received by the
Escrow Agent through the Company. Such Subscription Payments and Documents and
any income resulting from the investment of such Subscription Payments shall be
held, invested, and disbursed pursuant to paragraphs 5, 6, and 7 of this
Agreement.
3. Escrow Fees. The Company hereby agrees to pay the Escrow Agent at
the opening of escrow an advance payment for all ordinary services rendered
hereunder (the "Escrow Fee") which shall be calculated in accordance with the
Escrow Agent's standard rate schedule, attached hereto as Schedule 3, and
incorporated herein by reference. The Company further agrees to pay the Escrow
Agent reasonable fees, which shall be agreed upon between the Parties, for any
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services in addition to those provided for herein to the extent that the Company
has expressly requested such extraordinary services and has been made aware of
their cost in advance of their performance.
4. Deposits. The Company shall transmit to the Escrow Agent, within
three business days of receipt by the Company, all Subscription Payments and all
Subscription Agreements and Subscription Documents received by the Company for
the purchase of the Notes from the purchasers thereof ("Subscribers"), including
without limitation an IRS form W-8/W-9 for each Subscriber. All Subscription
Payments shall be made payable to U.S. Bank Trust, National Association, as
Escrow Agent for Royal Aloha Development Company. Each transmittal of
Subscription Payments shall be accompanied by a schedule listing the Subscribers
whose funds are being transmitted and the amounts of their investment. The
Company shall also provide a signed IRS form W-8/W-9 to the Escrow Agent.
5. Investment of Funds. All Subscription Payments shall be deposited in
a U.S. Bank Business Money Market account and shall upon clearance earn per diem
interest at a rate provided by the U.S. Bank System for such account. Such
investments are hereinafter referred to as "Investments."
6. Holding and Disbursement of Funds and Documents. The Escrow Agent is
hereby authorized and directed to hold the Subscription Payments and
Subscription Documents in the Escrow Fund during the term of this Agreement and
to disburse the Subscription Payments and Subscription Documents and any income
resulting from the Investments, or any part thereof, only to persons entitled
thereto in accordance with the provisions of this Agreement. The Escrow Agent
shall be permitted to commingle the Subscription Payments held in the Escrow
Fund, provided upon distribution of the Subscription Payments pursuant to
Paragraph 7 hereof, the Escrow Agent shall furnish to the Company a financial
accounting, including the disbursements made from the Escrow Fund, the expenses,
if any, theretofore charged to the Escrow Fund, and the income earned on the
Investments. All Subscription Payments and Subscription Documents deposited with
the Escrow Agent shall remain the property of the Subscriber and shall not be
subject to any lien or change by the Escrow Agent, or judgment or Creditors'
claims against the Company until released to it in the manner hereinafter
provided.
7. Termination of Escrow; Disbursement of Funds.
A. If at any time prior to termination of the escrow, the sum
of $9,200,000 in Subscription Payments has been deposited pursuant to
this Agreement, the Escrow Agent shall confirm the receipt of such
payments to the Company. The Company shall have one hundred twenty
(120) days from such confirmation from the Escrow Agent to enter into a
binding construction loan agreement (the "Construction Loan") and to
certify to the Escrow Agent that the Company has entered the
Construction Loan. Following such certification by the Company, and
upon written request of the Company, the Escrow Agent shall disburse
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promptly all Subscription Payments and all Subscription Documents to
the Company in immediately available funds. The Escrow Agent shall then
disburse to each Subscriber by check the amount of interest accrued on
the Subscription Payments of such Subscriber. All disbursements by the
Escrow Agent to Subscribers pursuant to this Section shall be made by
the Escrow Agent's usual escrow checks and shall be mailed by first
class United States Postal Services mail, postage prepaid, as soon as
practicable but not later than the fifth business day following the
first business day of the month following the written request by the
Company, at which time this Agreement shall terminate. In the event
that the Company is unable to obtain the Construction Loan within one
hundred twenty (120) days of the confirmation by the Escrow Agent of
receipt of $9,200,000 in Subscription Payments, this Escrow Agreement
shall terminate and the Escrow Agent shall release all Subscription
Payments and Subscription Documents to the Subscribers according to the
terms of paragraph 7.B below.
B. If within ninety (90) days (or pursuant to any extension by
the Company) after the effective date of the Registration Statement the
Company and any Broker/Dealer have not deposited at least $9,200,000 in
Subscription Payments with the Escrow Agent, the Escrow Agent shall so
notify the Company. The Company at its option may extend the offering
period and this Agreement for up to two (2) additional ninety (90) day
terms. At the end of any such ninety (90) day period, if Subscription
Payments of at least $9,200,000 have not been deposited with the Escrow
Agent, the Company at its option may terminate this Agreement, and upon
written notice of such termination, the Escrow Agent shall release all
Subscription Payments and the corresponding Subscription Documents
together with all interest accrued on such funds to each Subscriber
respectively at the address given by such Subscriber in the
Subscription Agreement. All disbursements by the Escrow Agent pursuant
to this Section shall be made by the Escrow Agent's usual escrow checks
and shall be mailed by first class United States Postal Services mail,
postage prepaid, as soon as practicable but not later than the fifth
business day following the first business day of the month following
written notice of termination by the Company. The Escrow Agent shall
furnish to the Company an accounting for the refund in full to all
Subscribers.
C. If the Escrow Agent receives a notice in writing from the
Company stating that the Company wishes to withdraw the offering or to
terminate the escrow before $9,200,000 in Subscription Payments have
been deposited with the Escrow Agent, the Escrow Agent shall disburse
all funds and documents held in escrow in accordance with the
provisions of paragraph 7.B above.
8. Stop Order; Termination of Escrow. If at any time prior to the
termination of this Agreement, the Escrow Agent is advised by the Securities and
Exchange Commission that a stop order has been issued by the Securities and
Exchange Commission with respect to the Registration Statement, which order has
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not been rescinded or stayed within 30 days, the Escrow Agent shall thereupon
return all Subscription Payments and Documents to the respective Subscribers in
accordance with paragraph 7.B above.
9. Collected Funds. No interest shall accrue on any Subscription
Payment and no Subscription Payment shall be disbursed pursuant to Section 7
until such Subscription Payment has been received by the Escrow Agent in
immediately available funds.
10. Liability of Escrow Agent. In performing any duties under the
Escrow Agreement, the Escrow Agent shall not be liable to the Company, any
Subscriber, or any Party for damages, losses, or expenses, except for gross
negligence of willful misconduct on part of the Escrow Agent. The Escrow Agent
shall not incur any such liability for (i) any act or failure to act made or
omitted in good faith, or (ii) any action taken or omitted in reliance upon any
instrument, including any written statement or affidavit provided for in this
Agreement that the Escrow Agent shall in good faith believe to be genuine, nor
will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with legal counsel in connection with the
Escrow Agent's duties under this Agreement and shall be fully protected in any
action taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
11. Fees and Expenses. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the Company
requests a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to this escrow or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy, or litigation, and the
Escrow Agent shall have the right to retain all documents and/or other things of
value at any time held by the Escrow Agent in this escrow until such
compensation, fees, costs, and expenses are paid. The Company promises to pay
these sums upon demand. Unless otherwise provided, the Company will pay all of
the Escrow Agent's usual charges and the Escrow Agent may deduct such sums from
the funds deposited.
12. Controversies. If any controversy arises between the Parties to
this Agreement, or with any other Party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and funds and may wait for settlement of any such
4
<PAGE>
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may require, despite what may be set
forth elsewhere in this Agreement. In such event, the Escrow Agent will not be
liable for interest or damage. Furthermore, the Escrow Agent may at its option
file an action of interpleader requiring the Parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and funds held in escrow, except all
costs, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which Company agrees to pay. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
13. Indemnification of Escrow Agent. The Company and its successors and
assigns agree jointly and severally to indemnify and hold the Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on the Escrow
Agent or incurred by the Escrow Agent in connection with the performance of its
duties under this Agreement, including but not limited to any litigation arising
from this Agreement or involving its subject matter.
14. Withholding of Interest. The Company acknowledges that payment of
any interest earned on the funds invested in this escrow will be subject to
backup withholding penalties unless a properly completed Internal Revenue
Service Form W-8 or W-9 certification is submitted to Escrow Agent.
15. Resignation of Escrow Agent. The Escrow Agent may resign at any
time upon giving at least (30) days written notice to the Company provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: The Company
shall use its best efforts to obtain a successor escrow agent within thirty (30)
days after receiving such notice. If the Company fails to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall thereupon be
discharged from any further duties and liability under this Agreement.
16. Automatic Succession. Any company into which the Agent may be
merged or with which it may consolidated, or any company to whom Agent may
transfer a substantial amount of its Global Escrow business, shall be the
Successor to the Agent without the execution or filing of any paper or any
further act on the part of any of the Parties, anything herein to the contrary
notwithstanding; provided that the combined capital and surplus of such
5
<PAGE>
Successor shall not be, immediately following such transaction, substantially
less than the combined capital and surplus of the Agent immediately prior to
such transaction.
17. Termination. This Agreement shall terminate upon the completion of
the conditions of Section 7.A, 7.B or 7.C hereof, without any notices to any
person except as provided in this Agreement, unless earlier terminated pursuant
to the terms hereof.
18. Miscellaneous.
a. Governing Laws. This Agreement is to be construed and
interpreted according to California law.
b. Counterpart. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
c. Notices. All instructions, notices and demands herein
provided for shall be in writing and shall be mailed postage prepaid,
first class mail, delivered by courier, or telecopies as follows:
If to the Company: Royal Aloha Development Company
1505 Dillingham Blvd., Suite 212
Honolulu, Hawaii 96871
Telephone No.: (808) 847-8050
Facsimile No.: (808) 841-5467
If to the Escrow Agent: U.S. Bank Trust, National Association
Global Escrow Depository Services
One California Street, 4th Floor
San Francisco, California 94111
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
d. Amendments. This Agreement may be amended only by written
consent of both parties. Any notice to be executed by or on behalf of
the Company shall be valid if signed by Jack N. Corteway.
The Company represents and agrees that it has not made nor will it in
the future make any representation that states or implies that the Escrow Agent
has endorsed, recommended or guaranteed the purchase, value, or repayment of the
Securities offered for sale by the Company. The Company further agrees that it
will insert in any prospectus, offering circular, advertisement, subscription
agreement or other document made available to prospective purchasers of the
Securities the following statement in bold face type: "U.S. Bank Trust National
Association is acting only as an escrow agent in connection with the offering of
6
<PAGE>
the Notes described herein, and has not endorsed, recommended or guaranteed the
purchase, value or repayment of such Notes," and will furnish to the Escrow
Agent a copy of each such prospectus, offering circular, advertisement,
subscription agreement, or other document at least 5 business days prior to its
distribution to prospective purchasers of the Securities.
ROYAL ALOHA DEVELOPMENT
COMPANY
By: _________________________________
U.S. BANK TRUST, NATIONAL
ASSOCIATION GLOBAL ESCROW
DEPOSITORY SERVICES
By: _________________________________
Escrow Agent
7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 6, 1998, in the Registration Statement (Form SB-2
No. 333-33019) and related Prospectus of Royal Aloha Development Company for the
registration of $9,200,000 of its 13% Eight Year Deferred Interest Subordinated
Notes.
Ernst & Young LLP
/s/ Ernst & Young LLP
Honolulu, Hawaii
April 9, 1998
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