UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to ________.
Commission File Number: 000-24331
Raintree Resorts International, Inc.
CR Resorts Capital S. de R.L. de C.V. *
(Exact name of Registrant as Specified in its Charter)
Nevada 76-0549149
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10000 Memorial Drive, Suite 480
Houston, Texas 77024
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (713) 613-2800
Securities registered pursuant
to Section 12(b) of the Act: 13% Redeemable Senior Notes due 2004
Securities registered pursuant
to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held
by non-affiliates as of December 31, 1998:
Not Applicable.
As of December 31, 1998, the Registrant had 10,766,300 shares of Common
Stock outstanding and Warrants to purchase 1,869,962 shares of Common Stock at
$0.01 per share.
*CR Resorts Capital, S. de R.L. de C.V., a subsidiary of Raintree Resorts
International, Inc., is a co-registrant, formed under the laws of the United
Mexican States (Mexican tax identification number CRC 970811E5A).
-------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
None
This report on Form 10-K includes 87 pages with the Index to Exhibits
located on pages 37 to 39.
<PAGE>
Part I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
RAINTREE RESORTS INTERNATIONAL, INC.
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which represent the Company's
expectations and beliefs concerning future events that involve risks and
uncertainties, including those associated with the effects of international,
national and regional economic conditions. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Actual results may
differ materially from those projected in the forward-looking statements.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this document will prove to be
accurate. Considering the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Except as otherwise noted, (i) all references to the "Company" or
"Raintree" are to Raintree Resorts International, Inc. and its subsidiaries,
including Whiski Jack Resorts Ltd. ("Whiski Jack"), and to the vacation
ownership segment of the predecessor business (the "Predecessor Business"), and
(ii) all references to "pesos" or "Ps." are to the currency of Mexico and all
references to "dollars" or "$" are to U.S. dollars.
BUSINESS
Overview
Raintree is a leading developer, marketer and operator of luxury vacation
ownership resorts in North America with resorts in Mexico, the United States,
and Canada. The Company believes that by positioning itself in the luxury
segment of the vacation ownership market and offering flexible ownership
alternatives and membership benefits the Company is able to capitalize on the
increasing acceptance of vacation ownership by high income consumers who desire
larger and more luxurious vacation accommodations than generally available at
upscale hotels. Depending on the resort, the Company offers floating Club
Memberships in its Raintree Vacation Club, and fractional interests of three to
five weeks in its Raintree Owners Club. The Company's resorts are located in
popular beachfront, mountain and golf destinations, including Cancun, Los Cabos,
Puerto Vallarta, and Whistler, British Columbia. The Company has also agreed to
acquire the Villa Vera Hotel & Racquet Club ("Villa Vera") in Acapulco which
will be converted in part, to vacation interval ownership units. In addition,
the Company is developing a Raintree Owners Club in the Teton Village near
Jackson Hole, Wyoming, and has agreed to acquire additional properties in
Whistler, British Columbia. The Company's future plans also include the
development of a resort on ocean-front property it owns adjacent to its resort
in Los Cabos and on ocean-front property it owns in Cozumel.
The Company primarily targets high income consumers of luxury vacation
experiences. The Company markets two types of vacation ownership interests in
its resorts: weekly intervals ("Weekly Intervals") in certain resorts and
fractional interests ("Fractional Interests" and, together with Weekly
Intervals, "Vacation Intervals") in others. Weekly Intervals provide Members at
Raintree Resorts with the assurance of luxury accommodations in a
one-or-two-bedroom fully-furnished vacation unit for one week annually,
representing an attractive alternative to hotel and lodging accommodations.
Owners of Weekly Intervals receive convenient check-in and check-out services,
full-scale patron restaurants and bars, routine maid and room service,
recreational facilities, health clubs, spas and a complete range of other
personal services. Fractional Interests will provide Members at Raintree Resorts
with a deeded interest to two- or three-bedroom, fully-furnished vacation
residences for multiple weeks and are an attractive, convenient, lower-cost
alternative to "second home" ownership. Fractional Interests will include most
of the amenities described above and many additional personalized conveniences
such as equipment and clothing storage, pre-arrival shopping services, on-site
transportation, concierge services for a variety of activities and events, ski
passes and golf club memberships or preferred tee-times, and maintenance and
security services.
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Growth Strategy
The Company believes it can achieve significant growth internally and
through an aggressive development and acquisition program. Key elements of this
strategy include:
Develop and Acquire Additional Resorts. The Company intends to concentrate
its growth during the next two to three years in the development or acquisition
of resort properties that will substantially increase the Company's revenues
outside Mexico, while maintaining a strong supply of inventory for the Raintree
Vacation Club or its Weekly Intervals. The Company intends to develop additional
vacation ownership resorts, in the immediate future, primarily in the Western
United States and Canada and then in other parts of North America. The Company's
evaluation of resort development opportunities includes determination of the
most desirable resort destinations in North America, the number of annual
tourists, the availability of golf club memberships or preferred tee-times,
property that is accessible to the resort area's primary activities such as
skiing, availability of other amenities, including spas and luxury hotel type
services and economic considerations. Where appropriate, the Company will seek
attractive hotel operators to own and manage on-site hotels. In addition, the
Company from time to time seeks opportunities to acquire vacation ownership
companies and assets, including those with marketing and other programs which
complement the Company's current operations throughout North America.
Increase Sales of Vacation Intervals. The Company plans to increase the
rate of sales of Vacation Intervals through (i) increasing the number of sales
locations as the Company expands and (ii) increasing the effectiveness of the
marketing initiatives described above by increasing the use of marketing
channels such as, travel agents, real estate agents, theme stores, domestic and
international print media, cross-selling opportunities of additional Vacation
Intervals and upgrades to existing Members and the world-wide web. As the number
of Raintree Resorts that Members can access expands, the Company believes that
the flexibility of its product will make its Vacation Intervals more attractive.
Improve Operating Margins. In August 1998, the Company instituted a cost
reduction program in Mexico, including the reduction of certain administrative
personnel. In addition, the Company believes it will improve its operating
margins as its business expands and its overhead cost in Mexico and in Houston
is spread over a higher number of sales and additional resort locations.
The Product
The Company believes that by selling a membership it has created a product
which provides members with an attractive range of vacation planning choices and
value not generally available in connection with traditional vacation ownership
products. The Company's memberships include Weekly Interval memberships ("Weekly
Memberships") in Raintree Vacation Clubs and Fractional Interest memberships
("Fractional Memberships") in Raintree Owners Club.
Weekly Memberships. Weekly Memberships allow members of the Club Regina
Resorts to stay at any one of the Raintree Resorts in Cancun, Los Cabos, Puerto
Vallarta and Acapulco. Whiski Jack traditionally sold and, since its purchase,
the Company has continued to sell, a deeded interest in a specific unit to a
specific week. The Company intends to integrate buyers of such interests into
its existing vacation ownership club. Weekly Memberships range in price from
approximately $9,000 for a studio unit with a maximum occupancy of two,
approximately $10,000 to $21,500 for a one-bedroom unit with a maximum occupancy
of four, and approximately $13,500 to $30,000 for a two-bedroom unit with a
maximum occupancy of six. Each one- and two-bedroom unit contains a separate
living room and kitchen area.
Weekly Intervals at the Club Regina Resorts in Cancun, Puerto Vallarta and
Los Cabos can be purchased for any one of three seasons: Holiday, Prime and
Select. Holiday Weekly Intervals allow Members to use resorts at these locations
during any time of the year including the five weeks of highest demand. Prime
Weekly Intervals allow Members to use the Club Regina Resorts during any time of
the year except the five weeks of highest demand, while Select Weekly Intervals
allow Members to use these resorts during 17 weeks of traditionally lower
demand. Weekly Intervals at the Club Regina Resorts are sold under the Company's
flexible "floating time," "floating unit," and "floating location" program. This
program allows a Member to use his or her Weekly Interval at any time during the
season to which it relates, or any less expensive season at any Club Regina
Resort and the Villa Vera. In addition, depending on the type of Weekly Interval
purchased, the program gives a Club Regina Resorts Member the flexibility to:
(i) elect the time of year to vacation at the Club Regina Resorts, (ii) stay at
the Club Regina Resorts at different times during a single year by dividing such
Member's week-long Weekly Interval into more than one
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segment, (iii) increase the number of weeks that such Member is entitled to stay
at the Club Regina Resorts by dividing such Member's unit into smaller units,
and (iv) buy an annual or bi-annual Weekly Interval. Furthermore, Members may
divide their Weekly Intervals into three split-week segments and thereby spend a
portion of a week at a resort at one time and the other two portions at the same
or other resorts at other times. Finally, Club Regina Resorts Members with
Weekly Intervals for one- and two-bedroom units can divide their Weekly
Intervals and use a single module within any such unit over two weeks. For
example, under this program, subject to availability, a Member that purchased a
two-bedroom unit could divide that unit into six different split week stays
(three in one-bedroom accommodations and three in studio accommodations) over
the year. Members who are at least 55 years old have the option, subject to
availability, to accelerate the use of their Weekly Interval up to one extra
week during the "Prime" season or two extra weeks during the "Select" season so
long as such Members pay an additional service fee for each year that is
accelerated. In addition, Members of Raintree Vacation Clubs also benefit from
the Company's participation in the vacation interval exchange network operated
by Resort Condominiums International, Inc. ("RCI"), the world's largest vacation
interval exchange organization with more than two million vacation interval
owners as members. Membership in RCI entitles Members, subject to availability,
to exchange their Weekly Intervals for occupancy at any of the approximately
3,100 other resorts participating in the RCI network. At Whistler, British
Columbia, the Company sells a deeded interest to Weekly Interval purchasers. The
Company is currently investigating the design and regulatory implications of
integrating buyers of Weekly Intervals in Whistler into the vacation ownership
club to which Club Regina Resort members belong.
Fractional Interest Memberships. Members owning Fractional Memberships will
have deeded interests in a two- or three-bedroom residence and may stay at any
Raintree Owners Club. The Company's first Raintree Owners Club will be The Teton
Club in Jackson Hole, Wyoming. The sales office for The Teton Club opened in
January 1999 and ground-breaking is expected in late Spring 1999 with completion
by late 2000. Memberships will range from approximately $50,000 to $240,000
depending upon the amount of time, season and size of unit. The Company intends
to allow Fractional Members to use other Raintree Owners Clubs as developed
(other than their "home resorts") on an as available basis. The memberships
entitle Members to use a fully-furnished two or three bedroom unit primarily for
three or five weeks in each year and also offer memberships in local luxury golf
or country clubs. Fractional Interest memberships allow a Member to use his or
her Fractional Interval at any time during the year, subject to availability and
seasonal concentration restrictions. All units at the Raintree Owners Club will
feature luxury amenities such as steam showers and spa tubs; stone fireplaces;
vaulted or high ceilings; and fully equipped kitchens. In addition, the Company
intends to allow these Members to use the Company's resorts containing Weekly
Intervals as a part of the Company's plan to integrate the availability of
resorts and the type of vacation experience desired by Members.
Sales and Marketing
The Company believes its sales and marketing programs are among the most
innovative and effective in the industry. For example, the Club Regina Resorts
and Villa Vera are located on properties shared with luxury hotels which
generally provide the Company with a steady source of high quality
lead-generation. In addition, the Company has designed and implemented
innovative marketing initiatives to attract affluent buyers of vacation
intervals. These marketing venues include: promotional programs such as
telemarketing, discount vacation packages; advantage points associated with
airport shopping or auto rental; and off-site sales offices. In addition, the
Company owns contemporary retail "theme stores" that offer high-end products
associated with ecological consciousness, wildlife conservation, photography,
art and local culture and plans to expand this community-oriented marketing
venue because patrons of the theme stores tend to match the profiles of Members.
All of these marketing venues are designed to create sales leads which are given
to the Company's professionally trained sales representatives. The Company
markets Fractional Interests through traditional real estate agencies and, as a
result, has experienced lower selling costs on Fractional Interests sales. The
Company also markets directly to existing Members in terms of offering larger
units (e.g. one bedroom to two bedroom) or additional weeks (e.g. add a week in
a different season) or Fractional Interests. As a part of the services provided
to Members, the Company offers financing to buyers of Weekly Intervals. The
Company encourages larger down-payments (at least 15%) than industry standards
on its Weekly Intervals to increase the quality of the pool of the Company's
receivables ("Vacation Interval receivables").
The Company sells Weekly Intervals through both on-site sales personnel at
each of its resorts and at sales offices currently located throughout Mexico. A
variety of marketing programs are employed to generate prospects for these sales
efforts, theme stores, presentations to co-located hotel guests, as well as
overnight mini-vacation packages, certificate programs, travel agencies,
telemarketing, owner referrals and various destination-specific local marketing
efforts. Additionally, incentive premiums are offered to co-located hotel guests
to encourage resort tours,
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in the form of entertainment tickets, hotel stays, gift certificates or free
meals. The Company's sales process is tailored to each prospective buyer based
upon the marketing program that brought the prospective buyer to the resort for
a sales presentation. Prospective target customers are identified through
various means of profiling.
At applicable resorts, the Company emphasizes marketing its Weekly
Intervals to guests of co-located hotels. Programs directed to these guests have
been consistently successful, both in the number of prospects generated and in
the closing rate, due to the direct experience of such guests with the quality
of the resorts and the likelihood that such guests, who typically belong to high
income households, will prequalify to purchase Vacation Intervals. In general
however, the Mexican and Canadian vacation ownership industry tends to follow
seasonal buying patterns with peak sales occurring during the peak
travel/tourism seasons, usually December through April and July through August.
The timing of these purchases, however, may be affected by weather conditions
and general or local economic conditions.
Sales of Weekly Intervals at or near the Raintree Resorts locations are
made through Company-owned theme stores, travel agencies and ground operators
and other lead generation points located in airports or shopping centers,
independently or in association with other businesses such as auto rental
companies and restaurants. The Company's theme stores, one of the Company's most
successful marketing programs, are retail businesses with a strong contemporary
appeal to affluent tourists, offering products associated with ecological
consciousness, wildlife, conservation and local culture, while at the same time
promoting the resort and inviting customers to attend sales presentations. A
share of these stores' profits is contributed to causes related to the stores'
themes. There are theme locations in Los Cabos, Puerto Vallarta and Cancun. In
Mexico, the Company also operates travel agencies in Los Cabos, Cancun and
Puerto Vallarta which provide traditional travel services to Westin Hotel guests
and potential members and also encourage their customers to attend a Raintree
presentation. Under the Company's ground operator program, the Company also
provides local transport and other services in each of Los Cabos, Puerto
Vallarta and Cancun to visitors of many different resorts in these destinations
and encourages those visitors to attend a Raintree presentation.
The Company also focuses on selling Weekly Intervals through off-site sales
centers in eight cities throughout Mexico. Each off-site sales office is staffed
with a sales manager, an office administrator, salespeople, verification
representatives and additional staff for guest registration and clerical
assistance. In addition, by using data base-based marketing approaches including
telemarketing, qualified prospects are offered mini-vacations, fly-in and
drive-in programs as a method to introduce the benefits of membership to
potential Members. Members are also contacted for referrals. Most recently, the
"universal salesman" program has been instituted whereby potential Members are
contacted by one representative of the Company, who is the potential Member's
only contact with the Company through closing of the purchase. The Company
believes that this program solves a significant problem in traditional vacation
ownership marketing approaches which is the lack of continuity in a customer's
relationship with the seller.
Finally, the Company believes that one of its best marketing resources is
its current Members. Accordingly, the Company directs programs at these Members
to encourage them to purchase additional Weekly Intervals and Fractional
Interests. These programs include a points-based program by which Members who
refer potential Members to the Company are given awards, and its bonus week
program whereby every new buyer is given a week to give to a friend or relative.
The Company cross-markets its products to its Members, continuously offering the
right to upgrade in terms of a better season, additional weeks, additional rooms
and larger units, by offering Weekly Interval Members the benefits of a
Fractional Interests. Finally, the Company markets the opportunity to stay at
the resort for additional days or weeks to Members as well as the right to rent
additional units for guests accompanying the Member to the resort.
Under the laws of the jurisdictions in which the Company sells Memberships,
each purchaser has a right to rescind a purchase for a period ranging up to 7
days. During 1998 the Company estimates its' rescission rate to be less than 13%
for Weekly Interval sales.
Customer Financing
Since an important part of the Company's sales strategy is the
affordability of Memberships, the Company believes that it will be required to
continue to finance a significant portion of its sales of Memberships. The
Company has historically provided financing for approximately 70% of its Weekly
Interval buyers and approximately 30% of all Weekly Interval buyers either pay
cash at or within 60 days of closing. Prior to its purchase by the Company,
Whiski Jack only provided third party sources of financing to Members; however,
the
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Company plans to provide such financing to purchasers of Weekly Intervals in
Whistler. Sales of Fractional Interests will generally be financed by
conventional financial or banking institutions. Buyers who finance through the
Company are required to make an adequate down payment and pay the balance of the
purchase price over one to nine years. For the year ended December 31, 1998, the
average down payment on a financed Weekly Interval was approximately 24% of its
purchase price.
Due to its ownership of Vacation Interval receivables, the Company bears
the risk of purchaser default. The Company's practice has been to continue to
accrue interest on its loans to purchasers of Vacation Intervals until such
loans are deemed to be uncollectible, at which point it expenses the interest
accrued on such loan, terminates the underlying conditional sale agreement and
returns the Vacation Interval to the Company's inventory for resale. The Company
closely monitors its loan accounts and determines whether to foreclose on a
case-by-case basis.
At December 31, l998, the Company had a portfolio of approximately 6,900
Vacation Interval receivables amounting to approximately $54 million in
outstanding principal amount, with a weighted average maturity of approximately
five years, 57% of Vacation Interval receivables were U.S. dollar denominated,
with a weighted average interest rate of approximately 13.1%, 10% of Vacation
Interval receivables were denominated in pesos, with a weighted average interest
rate of approximately 22.2%, 28% of Vacation Interval receivables were
denominated in UDI's with a weighted average interest rate of approximately 7.9%
and 5% of Vacation Interval receivables were Canada dollar denominated with a
weighted average interest rate of approximately 13.8%.
The UDI is an obligation denominated in pesos which is adjusted for Mexican
inflation. The value of the UDI is tied to the Consumer Price Index of Mexico
(Indice Nacional de Precios al Consumidor). The proceeds of loans denominated in
UDI's are paid to a borrower in pesos at the applicable UDI-peso conversion
ratio on the day of the loan. Payments of both principal and interest to the
lender are made in pesos. The amount of payments in pesos to be made as of any
date depends on the applicability of the UDI-peso conversion ratio at that date.
The effect of denominating Vacation Interval receivables in UDIs is to protect
the Company from inflation in Mexico, but not from variations in the exchange
rate between the peso and the U.S. dollar. An additional effect is that when
Mexican inflation is high, that inflation rate is effectively added to the
Company's Vacation Interval receivable income, thereby increasing the Company's
Mexican peso revenue. Conversely, if the Mexican inflation rate should decline,
Vacation Interval receivable interest rates would decline.
Flexible Membership Programs
The Company's resorts in Cancun, Puerto Vallarta and Los Cabos have been
rated "Gold Crown" by RCI (a rating given to the top 10% of all vacation
interval resorts), thus giving Members with Weekly Intervals at those resorts
superior interval exchange opportunities. The Villa Vera has also been rated
"Gold Crown" by RCI. In a 1995 study sponsored by the Alliance for Timeshare
Excellence and ARDA, the exchange opportunity was cited by purchasers of Weekly
Intervals as one of the most significant factors in determining whether to
purchase a vacation ownership interval. This is particularly true given most
Weekly Interval owners' propensity to travel. According to RCI, its members in
the United States engage in an average of 25.7 personal travel days per year and
an average of 6.2 domestic trips per year with an average duration of 4.2 days.
Members in an interval exchange program are typically allowed to exchange one or
more years of their Vacation Interval for an occupancy right in another
participating resort, based upon availability and the payment of a variable
exchange fee. A Member may exchange his Vacation Interval for an occupancy right
in another participating resort by listing the Vacation Interval as available
with the exchange organization and by requesting occupancy at another
participating resort, indicating the particular resort or geographic area to
which the Member desires to travel, the size of the unit desired and the period
during which occupancy is desired. Interval exchange programs usually assign a
rating to each listed interval, based upon a number of factors, including the
location and size of the unit, the quality of the resort and the period during
which the interval is available, and attempts to satisfy the exchange request by
providing an occupancy right in another interval with a similar rating. If an
interval exchange program is unable to meet the member's initial request, it
suggests alternative resorts based on availability.
The Company's weekly interval membership programs at the Club Regina
Resorts and the Villa Vera provide access to multiple resorts, allowing Members
to tailor their vacations according to their schedule, desired length of stay,
location preference and space requirement. For example, under the Company's
flexible "floating time," "floating unit," and "floating location" program, each
Member of the Club Regina Resorts is entitled to stay at any of the Club Regina
Resorts and the Villa Vera. In addition, depending on the type of Weekly
Interval purchased, the program gives a Club Regina Member the flexibility to:
(i) elect the time of year to vacation at the Club Regina Resorts, (ii) stay at
the Club Regina Resorts at different times during a single year by dividing such
Member's
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Weekly Interval into more than one segment, (iii) increase the number of weeks
that such Member is entitled to stay at the Club Regina Resorts by dividing such
Member's unit into smaller units, and (iv) buy an annual or bi-annual Weekly
Interval. In Whistler, the Company sells fixed weekly deeded interests. In
addition, Members of Raintree Resorts may participate in the largest vacation
interval exchange network in the world operated by Resort Condominiums
International, Inc. ("RCI"), which entitles Members, subject to availability, to
exchange their Weekly Intervals for occupancy at any of the approximately 3,100
participating resorts. The Fractional Interests that the Company intends to
offer through the development of Raintree Owners Clubs will also offer exchange
for members of any Raintree Owners Clubs to use any other Raintree Owners Club
or any of the Raintree Vacation Clubs. Given the innovative and flexible
attributes of its products, the Company believes it should be able to establish
an international brand name vacation ownership club.
The Raintree Resorts
Overview. The following tables set forth certain information regarding the
Company's resorts, current and planned Vacation Interval inventory, sales and
average prices.
<TABLE>
<CAPTION>
Resort Data
Units(1)
--------------------
Date Total
Resort and Location Opened Current Planned(2) Units
------ ------- -------- --------
<S> <C> <C> <C> <C>
Weekly:
Los Cabos.................. 1/94 130 120(3) 250
Puerto Vallarta............ 6/92 203 -- 203
Cancun..................... 3/91 69 -- 69
Acapulco................... 10/98 -- 61(4) 61
Whistler, B.C.............. (5) 10 50(6) 60
------- -------- --------
Total.................... 412 231 643
======= ======== ========
Fractional:
Jackson Hole, Wyoming...... 37 37
======== ========
<FN>
- ----------
(1) Units for Weekly Intervals contain one or two bedrooms and a common room
with a kitchen while units for Fractional Intervals contain two or three
bedrooms and a common room with a kitchen.
(2) There can be no assurance that the Company's planned expansion will occur
or that the number of units will equal the estimates set forth.
(3) The expansions at Los Cabos are in the planning stages and it is uncertain
as to the precise number of units that may be developed.
(4) The Company currently manages the Villa Vera in Acapulco which provides
exchange privileges to Club Regina members. The Company has agreed to
acquire the Villa Vera in November 1999.
(5) Whiski Jack Resorts has been in the vacation interval ownership business in
Whistler, B.C. since 1978 and currently has approximately 500 Weekly
Intervals remaining in inventory.
(6) The planned expansion in Whistler will be made primarily through the
acquisition of existing condominium units in Whistler Village.
</FN>
</TABLE>
At December 31, 1998, the Company had remaining Weekly Intervals of
6,072 in Mexico and 585 in Canada. The Company believes that the remaining
Weekly Intervals provide sufficient sales product for slightly more than one
year of sales without any additional acquisitions or development of Weekly
Intervals.
<TABLE>
<CAPTION>
Weekly Intervals Sold/Average Price
Year Ended December 31,
--------------------------------------------------------------------------
1995 1996 1997 1998
--------------- --------------- ---------------- ---------------
Weekly # Sold Price # Sold Price # Sold Price # Sold Price
------ ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Club Regina (1) 2,289 $10,941 2,508 $14,859 3,623 $14,163 3,563 $14,009
Whiski Jack (2) 533 $10,668
<FN>
- --------------
(1) Includes Vacation Intervals sold by the Predecessor Business and the Company for the applicable periods.
(2) Includes Vacation Intervals sold by the Company for the period from July 27, 1998 through December 31, 1998 only.
</FN>
</TABLE>
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The Raintree Resort at Cancun. The Raintree Resort at Cancun has offered
Weekly Memberships since March 1991. Ricardo Legorreta designed this resort,
which is on an 11-acre site at Punta Nizuc and is the first landmark tourists
see after arriving in the Cancun hotel zone from the airport. The resort,
including the co-located Westin hotel, consists of eight buildings and all rooms
offer views of either the Caribbean or the Nichupte Lagoon. The total
accommodations in the Raintree Resort in Cancun consist of 56 one-bedroom and 13
two-bedroom units.
The Raintree units are in a self-contained section of three buildings. This
area has its own bar, snack bar, multi-purpose recreation room, delicatessen,
swimming pool and Jacuzzi. Of the total of 69 apartments, 56 are one-bedroom,
two-bath units with a maximum occupancy of four, and 13 have two bedrooms and
three baths, with a maximum occupancy of six people. The units all have views of
either the sea or lagoon, fully equipped kitchens, with stoves, dishwashers,
microwave ovens, terraces with small Jacuzzis, televisions in both the living
room and bedrooms, and other decorations and furnishings of a home.
Amenities include restaurants and bars, five swimming pools, four
whirlpools, two lighted tennis courts, a fitness center, a business center and
several lobby shops including a boutique, a beauty salon and a sundries shop
with magazines, books, tobacco goods and similar items. Members have priority
access to a nearby Robert Trent Jones, Jr. 18-hole golf course.
The Raintree Resort at Puerto Vallarta. The Raintree Resort at Puerto
Vallarta has offered Weekly Memberships since it began operating. This Raintree
Resort was inaugurated in June 1992 on a 21-acre site in the Marina Vallarta
master-planned resort in Puerto Vallarta. Architect Javier Sordo Madaleno
designed the resort and the co-located Westin Hotel within the framework of
Puerto Vallarta's architectural tradition. The total accommodations in the
Raintree Resort in Puerto Vallarta consist of 161 one bedroom and 42 two bedroom
vacation ownership units. All of these facilities are distributed along an
875-foot beach facing the Pacific Ocean.
The 203 Raintree Resort units are distributed among the seven buildings in
the complex. All have views of either the beach or the marina. Of the total, 161
are one-bedroom, two-bath units with a maximum occupancy of four; and 42 have
two bedrooms and three baths, with a maximum occupancy of six. Each unit has a
fully equipped kitchen (including stove, dishwasher, microwave oven) and its own
Jacuzzi on a private terrace. Furnishings and decorations are consistent with
the quality of the complex and the idea of a Raintree Resort vacation home. In
the Raintree Resort area there is a bar, snack bar, multi-purpose recreational
room and delicatessen.
Other amenities include five restaurants and bars, four swimming pools,
three lighted tennis courts, a fitness center, a business center and shops. The
surrounding Marina Vallarta community includes an 18-hole golf course, a marina
with specialty shopping, and a separate large shopping center.
The Raintree Resort at Los Cabos. The Raintree Resort at Los Cabos has
offered Weekly Memberships since its inception. Javier Sordo Madaleno designed
this Raintree Resort, completed in January 1994, on a 15-acre site on the beach
where the Pacific Ocean meets the Sea of Cortez. The two buildings of the
co-located Westin Hotel feature a curvilinear design connecting two hills.
Inspired in color and form by the surrounding desert, this eight story structure
was constructed in native red stone. Bright, bold accents of hot pink, yellow
and green highlight the garden oasis of tropical foliage. The 130 Raintree
Resort apartments are housed in neighboring two-story structures.
The 130 Raintree Resort vacation ownership units have been distributed in
small buildings over the hilly topography to offer views of the beach and ocean.
Of the total, 104 are one-bedroom, two-bath units with a maximum occupancy of
four; and 26 have two bedrooms and three baths, with a maximum occupancy of six
people. Each unit has a fully equipped kitchenette and its own Jacuzzi on a
private balcony. Amenities include four restaurants and bars, three swimming
pools, two lighted tennis courts, a fitness center, a business center and shops.
There are five championship golf courses in the area, designed by Pete Dye,
Robert Trent Jones, Jr., and Jack Nicklaus. Nearby, Cabo San Lucas has a marina
with specialty shopping.
The Company also owns approximately nine acres immediately adjacent to the
Westin Regina Hotel on the west side ("Cabo West") which it acquired during 1998
for approximately $6.5 million of which approximately $5.0 million remains to be
paid during 1999. The Company plans to develop Cabo West with approximately 100
two and three-bedroom units and a possible hotel. The development of Cabo West
is contingent upon availability of financing on terms that it believes are
economic. The Company has future plans to construct approximately 20 additional
two-bedroom units, for 1,040 annual Weekly Intervals, on a property the Company
owns adjacent to the east side of the Raintree Resort at Los Cabos ("Cabo
East"). There can be no assurance that such development will
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occur or that the number of Weekly Intervals added to the Company's inventory
from such development will equal what is presently contemplated.
The Raintree Resort at Acapulco. The Villa Vera consists of 61 hotel units,
suites and villas. Since the Company has agreed to acquire the Villa Vera and
currently manages this property, the Company has permitted Club Regina Resorts
Members to stay there as guests and has operated the resort as a hotel. The
Company has instituted an on-site marketing program targeting non-Member guests
and has designated rooms to be made available for Club Regina Resorts Members
with Weekly Memberships. The Villa Vera is currently undergoing capital
renovations of approximately $2.0 million to convert approximately 28 units for
vacation interval ownership under the Club Regina program.
Raintree Resort at Whistler. The Raintree Resorts in Canada consist of the
operations of Whiski Jack Resorts Ltd. in the popular mountain resort area of
Whistler/Blackcomb, British Columbia. In July 1998, the Company acquired Whiski
Jack, a leader in vacation ownership marketing and sales at Whistler/Blackcomb
Mountain for almost 20 years. Whiski Jack has completed marketing fixed deeded
weeks at nine different resorts in the Whistler Village area and the Company is
currently marketing unsold inventories at five additional resorts. The Company
recently purchased seven units at the new Intercontinental Cascades Hotel. In
addition, the Company has 19 units under contract at the new Westin Whistler
resort scheduled for completion in late 1999. The Company is also evaluating
several other opportunities to acquire units in Whistler Village during 1999.
Commencing in mid 1999, the purchasers of Weekly Intervals at Whiski Jack and at
Club Regina in Mexico will be integrated into a single vacation ownership club
to be called the Raintree Vacation Club.
Planned Raintree Resort at Jackson Hole
The Raintree Resorts in the United States currently consists of one resort
under development in Wyoming. The Company has entered into a partnership
agreement with Jackson Hole Ski Corporation ("JHSC"), the owner and developer of
the Teton Village ski area near Jackson Hole, Wyoming, through which the Company
intends to develop The Teton Club containing 37 two- and three-bedroom units.
The Teton Club will offer a deeded interest in the real estate and will be sold
in three or five week intervals. Membership in Teton Pines Golf and ski
privileges are included in the membership.
Planned Raintree Resort at Cozumel
The Company owns approximately 54 acres of prime ocean-front property on
Cozumel that it plans to develop in the future as a hotel and vacation ownership
resorts. Although the Company has conducted preliminary development activities
for the Cozumel resort, it expects that the active development of this property
will not occur until late 2000 or later.
Certain Matters Regarding Club Regina Resorts
Operating Agreements. As of August 18, 1997, the Company and an affiliate
of Starwood Lodging Corporation ("Starwood") entered into an Operating Agreement
for each Club Regina Resort and co-located Westin Hotel, establishing the
day-to-day operating relationship between the Westin Hotels and the Club Regina
Resorts, including operating standards, plans, budgets, allocation of services,
expansion and construction of additional facilities, and allocation of labor and
other expenses. Each Operating Agreement is binding on any future owners of any
Westin Hotel or Club Regina Resort. Each Operating Agreement provides that the
applicable Club Regina Resort/Westin Hotel must be operated as a "first class"
resort and establishes a procedure by which a joint operating plan and budget
will be maintained by Starwood and the Company for the applicable resort.
Additionally, Starwood must provide the same services to each Club Regina Resort
as it provides to the adjacent Westin Hotel and additional services may be
contracted for, subject to the first class standard and appropriate allocation
of costs between the applicable Westin Hotel and Club Regina Resort. Each
Operating Agreement prohibits the applicable Club Regina Resort from renting,
selling or marketing any units on a transient basis except with respect to: (i)
the provision of complimentary accommodations to prospective members that
participate in marketing presentations arranged by such resort, (ii) the rental
of units to wholesalers specifically targeting potential purchasers, (iii) the
rental of units to persons accompanied by Members, and (iv) the rental of units
to vacation ownership operators experiencing overflow in their facilities. If
any Club Regina Resort rents or sells a unit on a transient basis not described
above, then the Company will be subject to significant penalties. Starwood
currently rents 54 rooms at Los Cabos and 60 rooms at Puerto Vallarta and the
Company has rented the "Pink Tower" of the Westin Regina at Cancun.
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Asset Management Agreement. In connection with Starwood's purchase of the
Westin Hotels from the Company on August 18, 1997, the Company and Starwood
entered into an Asset Management Agreement, which has a term of 50 years.
Pursuant to this agreement, the Company retained an interest in the net cash
flows of the Westin Hotels equal to 20% of the net cash flow of the Westin
Hotels in excess of approximately $18.5 million per year (the "Base Amount").
After December 31, 2000, the Base Amount will decrease pursuant to a formula.
The Company expects to recognize minimal, if any, revenue from the Asset
Management Agreement prior to 2001. The Company also is entitled to 20% of the
net sale proceeds of the Westin Hotels subject to the priority return to
Starwood upon a sale.
Trusts. The Club Regina Resorts are held through trusts. These trusts were
created on August 18, 1997, when three separate trust agreements (the "Trust
Agreements") were entered into among the Operating Subsidiaries, a subsidiary of
CR Mexico and Bancomer, as trustee, pursuant to which title to the Regina
Resorts was transferred to Bancomer, acting solely in its capacity as trustee.
Originally, under the Trust Agreements, the Operating Subsidiaries had the right
to use and exploit the vacation ownership condominium units until August 18,
2027 (the "Initial Term"), and a subsidiary of CR Mexico had the right to hold
direct title to the vacation ownership condominium units after August 19, 2027
(the "Remainder Rights"). In March 1998, the Trust Agreements were modified to
extend the Initial Term from 30 to 50 years. The Company has assigned the
proportional beneficial interests to trusts for the benefit of Members who
purchased their interest from the Company subsequent to August 18, 1997.
Government Regulation
General. The Company's marketing and sales of Weekly Intervals and certain
of its other operations are subject to extensive regulation by the states and
foreign jurisdictions in which the Raintree Resorts are located and in which
Weekly Intervals and Fractional Interests are marketed and sold.
Most U.S. states and Canadian provinces have adopted specific laws and
regulations regarding the sale of weekly interval ownership programs.
Washington, Oregon, California, Hawaii and British Columbia require the Company
to register the Raintree Resorts, the Company's vacation program, and the number
of Weekly Intervals available for sale in such state or province with a
designated state or provincial authority. The Company must amend its
registration if it desires to increase the number of Weekly Intervals registered
for sale in that state or province. Either the Company or the state or
provincial authority assembles a detailed offering statement describing the
Company and all material aspects of the project and sale of Weekly Intervals.
The Company is required to deliver the offering statement to all new purchasers
of Weekly Intervals, together with certain additional information concerning the
terms of the purchase. Laws in each state where the Company sells Weekly
Intervals grant the purchaser of Weekly Intervals the right to cancel a contract
of purchase at any time within a period ranging from three to seven calendar
days following the later of the date the contract was signed or the date the
purchaser received the last of the documents required to be provided by the
Company. Most states have other laws which regulate the Company's activities,
such as real estate licensure laws, laws relating to the use of public
accommodations and facilities by disabled persons, sellers of travel licensure
laws, anti-fraud laws, advertising laws, and labor laws.
The Federal Trade Commission has taken an active regulatory role in the
interval ownership industry through the Federal Trade Commission Act, which
prohibits unfair or deceptive acts or competition in interstate commerce. Other
federal legislation to which the Company is or may be subject includes the
Truth-In-Lending Act and Regulation Z, the Equal Opportunity Credit Act and
Regulation B, the Interstate Land Sales Full Disclosure Act, the Real Estate
Standards Practices Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the Civil Rights Act
of 1964 and 1968, the Fair Housing Act and the Americans with Disabilities Act.
Although the Company believes that it is in material compliance with all
federal, state, local and foreign laws and regulations to which it is currently
subject, there can be no assurance that it is in fact in compliance. Any failure
by the Company to comply with applicable laws or regulations could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company will continue to incur significant
costs to remain in compliance with applicable laws and regulations, and such
costs could increase substantially in the future.
The Mexican Ministry of Tourism (Secretaria de Turismo) is the principal
regulator of the Company's activities in the tourism services area. The Company
believes that it has obtained from the Mexican Ministry of Tourism, and
registered in the Mexican National Tourism Registry, all material permits
required for the operation of the Raintree
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Resorts in Mexico. In order to maintain registration under the Mexican National
Tourism Registry, services such as restaurants and bars must be provided at the
Raintree Resorts in Mexico. The Company expects to cause these services to be
rendered by Starwood and Westin pursuant to the Operating Agreements. See
"Certain Considerations -- Recent Acquisition; Lack of Prior Operating History."
The Company also believes that it is in material compliance with all federal,
state, local and foreign laws and regulations to which it and its Weekly
Intervals marketing and sale activities are or may be subject. However, no
assurance can be given that the cost of qualifying under weekly interval
ownership regulations in all jurisdictions in which the Company desires to
conduct sales will not be significant. Any failure to comply with applicable
laws or regulations could have a material adverse effect on the Company.
Under various United States federal, state, local and foreign laws,
ordinances and regulations, the owner or operator of real property generally is
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Other
federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property. There can be no assurance that any
environmental assessments undertaken by the Company with respect to the Raintree
Resorts have revealed all potential environmental liabilities, or that an
environmental condition does not otherwise exist as to any one or more of the
Raintree Resorts that could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's present operations in Mexico and Canada are subject to
Mexican and Canadian federal, state and local laws and regulations,
respectively, relating to the protection of the environment, including those
concerning water supply, wastewater, noise, soil pollution and generation and
handling of hazardous waste and materials and environmental impact. The
possibility exists that in the future the company and its facilities and
operations will encounter (i) newer and stricter federal, state or local
environmental laws and regulations, (ii) more rigorous interpretations of
existing environmental laws and regulations, and/or (iii) stricter enforcement
of federal, state and local environmental law regulations.
The Company believes that the Raintree Resorts are in compliance in all
material respects with all federal, state and local laws and regulations
relating water, atmospheric pollution, hazardous wastes or substances. The
Company has not been notified by any environmental authority or any third party,
of any material noncompliance, liability or claim related to those environmental
matters in connection with any of its present properties.
Insurance
The Company carries comprehensive liability, fire, hurricane, storm,
earthquake and business interruption insurance with respect to the Company's
resorts, with policy specifications, insured limits and deductibles customarily
carried for similar properties which the Company believes are adequate. There
are, however, certain types of losses that are generally not insured because
they are either uninsurable or not economically insurable. Should an uninsured
loss or a loss in excess of insured limits occur, the Company could lose its
capital invested in a resort, as well as the anticipated future revenues from
such resort and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could have a material
adverse effect on the Company.
Legal Proceedings
The Company is currently subject to litigation with respect to claims that
arose prior to August 18, 1997 respecting employment, contract, construction and
commissions disputes, among others. In management's judgment, none of such
lawsuits against the Company is likely to have a material adverse effect on the
Company. Moreover, pursuant to the Stock Purchase Agreement with Bancomer, the
Company is entitled to indemnification for all such claims against it. In
addition, the Company is subject to litigation with respect to a limited number
of claims that arose on or after August 18, 1997. In management's judgment, none
of such lawsuits against the Company are likely to have a material adverse
effect on the Company.
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Certain Considerations
Growth Strategy Risks. The Company intends to grow primarily through the
development and acquisition of additional resorts. The Company's future growth
and financial success will depend upon a number of factors, including its
ability to identify attractive resort acquisition opportunities, consummate the
acquisitions of such resorts on favorable terms, convert such resorts to use as
vacation ownership resorts and profitably sell Vacation Intervals at such
resorts. If the vacation ownership industry continues to consolidate, increased
competition for acquisition candidates may develop such that there may be fewer
acquisition opportunities available to the Company as well as higher purchase
prices. There can be no assurance that the Company will be able to finance,
identify, acquire or profitably manage additional businesses, or successfully
integrate acquired businesses into the Company without substantial costs, delays
or other operational or financial problems. Further, acquisitions involve a
number of special risks, including (i) possible adverse effects on the Company's
operating results, (ii) diversion of management's attention, (iii) lack of local
market knowledge and experience, (iv) inability to hire, train and retain key
acquired personnel, (v) inability to secure sufficient marketing relationships
with local hospitality, retail and tourist attraction operators, (vi) risks
associated with unanticipated events or liabilities, and (vii) adverse changes
in zoning laws, changes in real estate taxes and other operating expenses, some
or all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Customer dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on the reputation of the Company and render ineffective the Company's sales and
marketing initiatives.
In addition, as the Company expands its resort locations to resorts
catering to snow skiing, golf, hiking, fishing and other pursuits, the Company
plans to market additional Vacation Intervals to existing Members. There can be
no assurance that the Company will be able to implement such marketing program
on an economic basis, if at all. Finally, there can be no assurance that the
Company or other businesses acquired in the future will achieve anticipated
revenues and earnings.
Development and Construction Risks. The Company intends to construct,
redevelop, convert and expand additional resorts. There can be no assurance that
the Company will complete the expansion plans set forth in "Business -- The
Raintree Resorts" and "Business -- Business Strategy" or undertake to develop
other resorts or complete such development if undertaken. Risks associated with
the Company's development, construction and redevelopment/conversion activities
may include the risks that: (i) acquisition and/or development opportunities may
be abandoned; (ii) construction costs of a property may exceed original
estimates, possibly making the resort uneconomical or unprofitable; (iii) sales
of Vacation Intervals at a newly completed property may be insufficient to make
the property profitable; (iv) financing may not be available on favorable terms
for the development of, or the continued sales of Vacation Intervals at, a
property; (v) construction may not be completed on schedule, resulting in
decreased revenues and increased interest expense and (vi) borrowing capacity
may be limited by the Company's existing indebtedness. In addition, the
Company's construction activities will typically be performed by third-party
contractors, the timing, quality and completion of which the Company will be
unable to control. Furthermore, construction claims may be asserted against the
Company for construction defects and such claims may give rise to liabilities.
New development activities, regardless of whether they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development activities are also subject to risks relating to the
Company's inability to: (i) obtain, or avoid delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations, (ii) coordinate construction activities with the process of
obtaining such permits and authorizations, and (iii) obtain the financing
necessary to complete the necessary acquisition, construction, and/or conversion
work. In addition, local laws may impose liability on property developers with
respect to construction defects discovered, or repairs made by future owners of
such property. Pursuant to such laws, future owners may recover from the Company
amounts in connection with any repairs made to the developed property. Finally,
to the extent the Company elects to develop properties adjacent to luxury hotels
to provide Members with service offered to guests of such hotels, the Company
will need to negotiate the terms by which such hotels would provide services to
the Company and the Members. There can be no assurance that the Company will be
able to negotiate such terms on a basis that is favorable to the Company.
Recent Acquisitions; Lack of Prior Operating History. The Company was
organized in August 1996 by Raintree Capital Company, LLC ("RCC"). RCC is a
merchant banking firm formed in 1994 to consolidate highly fragmented
industries. The Company started operations on August 18, 1997. Prior to such
closing, the Westin Hotels and the Club Regina Resorts were under common
ownership of Bancomer, but the Club Regina Resorts were operated separately from
the Westin Hotels. The combined historical financial results of Club Regina
Resorts cover periods when they were not under control or management of the
Company and, therefore, may not be indicative of the Company's future financial
or operating results. The prospects for the Company's success must be considered
in
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light of the risks, expenses and difficulties often encountered in the
establishment of a new business in a continually evolving industry characterized
by an increasing number of market competitors.
Expansion and Regulation of Company's Business Outside of Mexico. Raintree
has recently expanded its business, including Vacation Interval marketing and
sales and acquisition and development of additional resorts outside of Mexico.
These activities are subject to extensive regulation by the applicable
jurisdictions in which its resort properties were located and in which Vacation
Intervals are or are to be marketed and sold. While the Company will continue to
use its best efforts to be in material compliance with all foreign laws and
regulations to which it may become subject, no assurance can be given that the
cost of qualifying under vacation interval ownership regulations and other
regulations in any jurisdiction in which the Company desires to conduct sales
and operate its business would not be significant. Any failure to comply with
applicable laws or regulations could have a material adverse effect on the
Company.
Adverse Mexican Economic Conditions and Government Policies. The following
information was derived in part from the Form 18-K, as amended, filed by the
United Mexican States with the Commission on June 20, 1997. The Company does not
warrant the accuracy or completeness of such information.
Because each Club Regina Resort is located in Mexico and a significant
percentage of the owners of Weekly Intervals are Mexican nationals
(approximately 47% as of December 31, 1998), the Company's financial condition
and results of operations are greatly affected by the strength of the Mexican
economy.
During the late 1980s and early 1990s, as a result of Mexican government
initiatives and the attendant increase in foreign investment, Mexico's growth
rate increased, the inflation rate was reduced significantly and the U.S.
dollar/peso exchange rate was relatively stable. During 1994, however, Mexico
experienced an economic crisis caused in part by a series of internal
disruptions and political events, including a large current account deficit
(8.0% of gross domestic product in 1994), reduced level of domestic savings (15%
of gross domestic product in 1994), civil unrest in the southern state of
Chiapas, the assassination of two prominent political figures and significant
devaluation of the peso. These events undermined the confidence of investors in
Mexico during 1994 and, combined with an increase in interest rates, led to a
substantial outflow of capital. The weaker value of the peso relative to the
dollar increased the cost, in peso terms, of imported goods and services, and
thereby increased the rate of inflation in Mexico to 52.0% in 1995 (as compared
to 7.1% in 1994). To the extent that employers adjusted wages upward to
compensate for the decline in purchasing power resulting from the devaluation of
the peso, and then adjusted prices to reflect increased wage costs, additional
inflationary pressures arose. The devaluation of the peso also led to a lack of
confidence on the part of investors in Mexico's ability to repay its short-term
obligations and, consequently, a reluctance of investors to reinvest in Mexico's
maturing government bonds. As a result, Mexico experienced a liquidity crisis
closely linked to the $29.2 billion of short-term government bonds (Tesobonos)
outstanding at the end of 1994 and maturing in 1995.
Since 1995, the Mexican government has instituted programs which sought to
(i) stabilize the exchange rate and maintain the current floating rate exchange
policy, (ii) stabilize the Mexican banking sector, (iii) establish tax
incentives for business to increase productivity and employment, (iv) increase
exports, (v) reform the pension system to encourage private domestic savings,
(vi) control inflation by decreasing public spending and implementing a
restrictive monetary policy, (vii) increase private sector investment through
privatization of transportation and telecommunications and (viii) increase
public-sector revenues, in part through increases in the general rate of the
value-added tax for certain goods and services from 10% to 15% (except for
certain "free zones" such as Cancun, Cozumel and Los Cabos, where the rate
continues to be 10%), increases in prices of fuel oil, natural gas and
electricity and increases in the minimum wage. In addition, the Mexican
government sought to minimize inflation by promoting the gradual implementation
of price increases.
Economic conditions in Mexico improved somewhat in 1996, with gross
domestic product in 1996 5.1% higher than gross domestic product in 1995, and
interest rates on 28-day Cetes declining to an average of 31.4% (from an average
of 48.4% in 1995). According to preliminary figures, in the first quarter of
1997, gross domestic product increased by 5.1% as compared to the same period in
1996. On January 15, 1997, the Mexican government repaid the remaining balance
that it borrowed on the line of credit extended by the United States and Canada.
There can be no assurance that the economic plan of the Mexican government will
achieve its stated goals or the improvement of the Mexican economy in 1996 will
continue in future periods.
The future performance of the Mexican economy may be adversely affected by
political instability in Mexico. On August 28, 1996, a little-known group
calling itself the Ejercito Popular Revolucionario (the Popular
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Revolutionary Army, or "EPR") initiated attacks in various parts of Mexico,
concentrating on military and police targets, and since that date has claimed
responsibility for a number of other attacks and has been involved in direct
skirmishes with Mexican government troops. Although the extent of popular
support enjoyed by the EPR is not known, and none of the attacks occurred within
600 miles of any of the Club Regina Resorts, the attacks adversely affected
Mexico's foreign exchange and securities markets. No assurance can be given that
attacks in the future by the EPR or any other insurgent group will not have a
similar, or worse, effect on such markets.
The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Accordingly, Mexican
governmental actions could have a significant effect on companies with Mexican
operations (including the Company), market conditions, prices and returns on
securities of companies with significant Mexican operations (including those of
the Company). On July 6, 1997, national elections were held in Mexico in which
parties opposed to the ruling Institutional Revolutionary Party ("PRI")
increased their representation in the Mexican legislature and captured the
mayoralty of Mexico City and the governorship of several states of Mexico.
Although the term of President Ernesto Zedillo, a member of the PRI, is
scheduled to continue until the year 2000, there can be no assurance that the
increased political power of parties opposed to the PRI will not result in a
change in Mexico's economic policies or the ability of President Zedillo to
implement plans or agreements similar to those referred to above. Any change in
Mexico's economic policies could have a material adverse effect on the Company's
business, results of operations, financial condition, ability to obtain
financing and prospects.
Future declines in the gross domestic product of Mexico, continued high
rates of inflation in Mexico or other adverse social, political or economic
developments in or affecting Mexico or other emerging market countries could
have a generally adverse effect on the Mexican economy, which could result in a
material adverse effect on the Company's business, results of operations,
financial condition, ability to obtain financing and prospects and on the market
price of the Issuers' securities. Finally, securities of companies, such as
Raintree, with significant exposure to emerging markets are, to varying degrees,
influenced by economic and market conditions in other emerging market countries.
Although economic conditions are different in each country, investors' reactions
to developments in one country may have effects on the securities of issuers in
other countries. There can be no assurance that the trading price of the Common
Stock will not be adversely affected by events elsewhere, especially in emerging
market countries.
In addition, the Company denominates many of its Vacation Interval
receivables in UDIs. See "Customer Financing." Although the Company believes
that its UDI program protects it from peso inflation, it does not insulate the
Company from foreign currency risk, and there can be no assurance that the rate
of return on the Company's UDI denominated loans will not be adversely affected
by a change in dollar/peso exchange rates.
Exchange Rates. The value of the peso has been subject to significant
fluctuations with respect to the U.S. dollar in the past and may be subject to
significant fluctuations in the future. The peso has experienced significant
fluctuations in short time periods including a major decline in March 1994
(following the assassination of a leading candidate in Mexico's presidential
elections) of that year. Between January 1, 1995 and December 31, 1998, the
Mexican peso depreciated an additional 87.9% to Ps.9.9 per U.S. dollar at
December 31, 1998 and fluctuated from a high, relative to the U.S. dollar, of
Ps.5.27 to a low, relative to the U.S. dollar, of Ps.10.63. No assurance can be
given that the peso will not further depreciate in value relative to the U.S.
dollar in the future.
The Mexican economy has suffered balance of payment deficits and shortages
in foreign exchange reserves. While the Mexican government does not currently
restrict the ability of Mexican or foreign persons or entities to convert pesos
to U.S. dollars, no assurance can be given that the Mexican government will not
institute a restrictive exchange control policy in the future. Any such
restrictive exchange control policy could adversely affect the Company's ability
to convert dividends or other payments received in pesos into U.S. dollars, and
could also have a material adverse effect on the Company's business and
financial condition.
The following table sets forth, for the periods indicated, the high, low,
average and period-end free market rate for the purchase and sale of U.S.
dollars (presented in each case as the average between such purchase and sale
rates), expressed in pesos per U.S. dollar.
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Free Market Rate
-----------------------------------------
Year Ended Period
December 31 High Low Average(1) End
----------- ------ ----- --------- ------
1992 3.12 3.08 3.10 3.12
1993 3.33 3.12 3.17 3.33
1994 5.75 3.11 3.39 5.00
1995 8.05 5.27 6.42 7.69
1996 8.05 7.33 7.61 7.88
1997 8.43 7.71 8.07 8.06
1998 10.63 8.04 9.16 9.90
- ----------
(1) Average exchange rates represent the annual average of the daily
free exchange rates.
Source: Banco de Mexico until November 5, 1993, with the free market rate
representing the average of the buy and sell rates on the relevant dates.
Commencing November 8, 1993, the free market rate is the Noon Buying Rate
for Mexican pesos reported by the Federal Reserve of the United States.
Seasonality. The Mexican and Canadian vacation ownership industry in
general tends to follow seasonal buying patterns with peak sales occurring
during the peak travel/tourism seasons, usually December through April and July
and August. In Mexico, American tourists tend to vacation in the destinations
where the Regina Resorts are located in the December through April season while
Mexican tourists tend to travel to these destinations more frequently during the
summer months. The timing of these purchasers, however, may be effected by
weather conditions and general and local economic conditions. Seasonality
influences could have a material adverse effect on the Company's operations.
General Economic Conditions; Concentration in Vacation Ownership Industry.
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 business. Any such
economic conditions, including recessions, may also adversely affect the future
availability of attractive financing for the Company or its customers and may
materially adversely affect the Company's business, financial condition and
results of operations. Furthermore, adverse changes in general economic
conditions may adversely affect the collectibility of the Vacation Interval
receivables. Because the Company's operations are conducted almost entirely
within the vacation ownership industry, any adverse changes affecting the
vacation ownership industry such as an oversupply of vacation ownership units, a
reduction in demand for vacation ownership units, changes in travel and vacation
patterns, changes in governmental regulations of the vacation ownership industry
and increases in construction costs or taxes, as well as negative publicity,
could have a material adverse effect on the Company's operations.
Sales Volume Risks. The Company depends on sales leads generated from
guests of its co-located hotels, other local offices, theme stores, real estate
agents and off-site offices. With respect to off-site offices, as the number of
potential customers in the geographic area of a sales office who have attended a
sales presentation increases, the Company may have increasing difficulty in
attracting additional potential customers to a sales presentation at that
office, and it may become increasingly difficult for the Company to maintain
current sales levels at its existing sales offices. Accordingly, the Company
anticipates that a substantial portion of its future sales growth will depend on
opening additional off-site sales offices which may be subject to local taxes
and compliance with additional registration and other requirements. There can be
no assurance, however, that sales from existing or new off-site sales offices
will meet the Company's expectations. If the Company does not open additional
sales offices or if existing or new sales offices do not perform as expected,
the Company's business, results of operations and financial condition could be
materially adversely affected.
Geographic Concentration in Mexico; Concentration of Customers in North
America. Until July 1998, the Company only sold Vacation Intervals in Mexico,
and at December 31, 1998 approximately 47% of Members reside in Mexico. The
Company intends to continue to sell Vacation Intervals in Mexico and to initiate
registration to permit sales in selected locations in the United States. Since
most of the Company's sales offices are currently located in Mexico, any
economic downturn in Mexico could have a disproportionate material adverse
effect on the Company's business, results of operations and financial condition.
In addition, at December 31, 1998, approximately 53% of the Company's Members
resided in the United States or Canada, and as a result, the Company may be
vulnerable to downturns in the U.S. and Canadian economies as well.
15
<PAGE>
Competition. The Company is subject to significant competition from other
entities engaged in the business of resort development, sales and operation,
including vacation interval ownership, condominiums, hotels and motels. Some of
the world's most recognized lodging, hospitality and entertainment companies
have begun to develop and sell vacation intervals in resort properties. Major
companies that now operate or are developing or planning to develop vacation
ownership resorts include Marriott International, Inc., The Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts,
Inc., Intercontinental Hotels and Resorts, Inc., and Westin. In addition, other
publicly-traded companies in the vacation ownership industry, such as Sunterra
Resorts, Inc., Fairfield Communities, Inc., Vistana, Inc., Trendwest Resorts,
Inc. and SilverLeaf, Inc. currently compete, or may compete, with the Company.
The Company believes that the fractional interest segment of the vacation
ownership market is highly fragmented and, although no major company competitors
exist, includes such competitors as Franz Klammer Lodge in Telluride, Resort
Quest International, Inc., a company specializing in vacation home rentals and
America Skiing Corporation, which sell one-quarter share interests in vacation
homes at certain of its ski locations. Many of these entities possess
significantly greater financial, marketing and other resources than those of the
Company. Management believes that recent and potential future consolidation in
the vacation interval industry will increase industry competition.
Independent Contractors. A portion of the Company's sales force has been
comprised of independent contractors. From time to time, U.S., Mexican and
Canadian federal, state and provincial authorities have asserted that
independent contractors are employees, rather than independent contractors. If,
as a result of any such assertion the Company were required to pay for and
administer added benefits and taxes related to the time such persons have been
classified as independent contractors, the Company's operating costs would
increase.
Natural Disasters - Uninsured Loss. The Company's resorts may be subject to
hurricanes, earthquakes and adverse weather patterns such as "El Nino" and
damages as a result thereof. There are certain types of losses for which the
Company does not have insurance coverage because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a resort,
as well as the anticipated future revenues from such resort and would continue
to be obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company.
Limited Inventory. The Company believes that its remaining inventory of
Vacation Intervals will be sold in slightly over one year. There can be no
assurance that the Company will be able to implement its internal growth and
acquisition strategy successfully and thereby increase its inventory of Vacation
Intervals. If the Company is unable to acquire or develop additional inventory,
the Company's business, results of operations, and financial condition could be
materially adversely affected.
Substantial Leverage and Ability to Service Debt. The Company is, and will
continue to be, highly leveraged, with substantial debt service in addition to
operating expenses and planned capital expenditures. The Company's level of
indebtedness will have several important effects on its future operations, and
could have important consequences to the holders of Common Stock, including,
without limitation, (i) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of interest and principal on its
indebtedness, (ii) covenants contained in the indenture governing the Senior
Notes (the "Indenture") and the Credit Facility will require the Company to meet
certain financial tests, and other restrictions will limit its ability to pay
dividends, borrow additional funds or to dispose of assets, and may effect the
Company's flexibility in planning for, and reacting to, changes in its business,
including possible acquisition activities, (iii) the Company's leveraged
position will substantially increase its vulnerability ot adverse changes in
general economic, industry and competitive conditions, (iv) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be limited,
and (v) in the event of a change of control the Company, the Company may be
required to purchase all of the outstanding Senior Notes at 101% of the
principal amount, as the case may be, of the Senior Notes plus any accrued and
unpaid interest thereon, and Additional Interest (as defined in the Indenture),
if any, to the date of purchase. The exercise by the holders of the Senior Notes
of their rights to require the Company to offer to purchase Senior Notes upon a
change of control could also cause a default under other indebtedness of the
Company, even if the change of control itself does not, because of the financial
effect of such purchase on the Company. The Company's ability to meet its debt
service obligations and to reduce its total indebtedness will be dependent upon
the Company's future performance, which will be subject to general economic,
industry and competitive conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
If the Company is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required, among other things
16
<PAGE>
to seek additional financing in the debt or equity markets, to refinance or
restructure all or a portion of its indebtedness, including the Senior Notes, to
sell selected assets, or to reduce or delay planned capital expenditures.
Employees
At December 31, 1998, the Company employed 425 persons, with 253 persons in
Mexico, 164 persons in Canada and 8 persons in the United States. The Company
believes employee relations are good.
ITEM 3 - LEGAL PROCEEDINGS
The Company is subject to routine litigation incidental to its business. In
the opinion of management, the resolution of such claims will not have a
material adverse effect on the operating results or financial position of the
Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Part II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common equity has not been registered pursuant to Section
12(b) of the Act and is not traded.
ITEM 6 - SELECTED FINANCIAL DATA
The historical income statement data presented below for the Predecessor
Business were derived from the historical financial statements of the
Predecessor Business and includes the use of the lease accounting method for the
Vacation Interval revenues reported by the combined resorts, because the
Predecessor Business did not sell Vacation Intervals that met the requirements
for the full accrual method of accounting. The historical income statement data
presented below for the Company uses the full accrual method of accounting
subsequent to the date it purchased the vacation ownership segment of the
Predecessor Business.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements of the Company and the Predecessor Business and the notes thereto
included elsewhere herein.
17
<PAGE>
<TABLE>
<CAPTION>
Summarized Historical Financial Data
Vacation Ownership Segment of Predecessor Business
(1) (2) Company
-------------------------------------------------- ----------------------
Seven and
(Unaudited) 1/2 months Years Ended
Years Ended December 31, Ended December 31,
------------------------------------ August 17, ----------------------
1994 1995 1996 1997 1997(5) 1998
-------- -------- -------- -------- -------- --------
Historical Income Statement Data: (in thousands except share and per share data)
Vacation ownership revenues:
<S> <C> <C> <C> <C> <C> <C>
Vacation Interval sales ............ $ 24,500 $ 25,034 $ 37,263 $ 31,479
Less amounts deferred ........... (24,064) (24,461) (36,435) (30,653)
Plus amounts recognized ........ 196 1,131 2,039 1,650
-------- -------- -------- --------
Total Vacation Interval revenue 632 1,704 2,867 2,476 $ 18,098 $ 56,508
Interest income on Vacation Interval
receivables..................... 1,042 1,839 3,294 3,277 1,557 5,848
Rental and service fee income........ 1,313 4,105 5,497 7,021 3,896 8,926
Other income ........................ 2,631 690 760 1,329 2,153 2,701
-------- -------- -------- -------- -------- --------
Total vacation ownership revenues.... 5,618 8,338 12,418 14,103 25,704 73,983
Costs and operating expenses
Cost of Vacation Interval sales . 4,569 13,161
Provision for doubtful accounts .. 2,318 4,450
Advertising, sales and marketing.....
Commissions paid ................. 4,919 7,108 5,512
Less amount deferred (4) ....... (4,824) (5,807) (5,413)
Plus amount recognized (4) ..... 178 303 313
Advertising, sales and marketing . 4,128 3,829 4,899
-------- -------- --------
Total advertising, sales and marketing (4) 15,523 4,401 5,433 5,311 8,576 23,874
Maintenance and energy............ 3,969 3,183 3,798 4,669 1,938 8,013
Depreciation and amortization (3) 10,118 -- -- -- 49 620
Amortization of goodwill.......... -- -- -- -- -- 2,885
General and administrative........ 15,688 6,637 5,400 4,504 5,417 11,463
-------- -------- -------- -------- -------- --------
Total costs and operating expenses... 45,298 14,221 14,631 14,484 22,867 64,466
-------- -------- -------- -------- -------- --------
Operating income (loss) from vacation
Ownership operations ............. (39,680) (5,883) (2,213) (381) 2,837 9,517
Interest expense.................. -- 3,884 3,108 2,827 3,931 14,947
Foreign currency exchange losses, net 4,266 2,464 (351) 74 1,333 4,299
-------- -------- -------- -------- -------- --------
Loss from vacation ownership
Operations before provision for taxes (43,946) (12,231) (4,970) (3,282) (2,427) (9,729)
Foreign income and asset taxes 5,881 3,356 3,312 1,756 909 672
-------- -------- -------- -------- -------- --------
Net loss from vacation ownership
operations before preferred
stock dividend (49,827) (15,587) (8,282) (5,038) (3,336) (10,401)
-------- -------- -------- -------- -------- --------
Preferred stock dividends............ -- -- -- -- 232 711
-------- -------- -------- -------- -------- --------
Net loss available to common stockholders $(49,827) $(15,587) $ (8,282) $ (5,038) $ (3,568) $(11,112)
======== ======== ======== ======== ======== ========
Net loss from operations per share .. $ (0.40) $ (1.03)
======== ========
Basic and diluted weighted average.. 8,843,383 10,747,409
========= ==========
shares...............................
Other Historical Financial Data:
EBITDA (6)........................ $(29,562) $ (5,883) $ (2,213) $ (381) $ 2,886 $ 13,022
======== ======== ======== ======== ======== ========
<FN>
- ----------
(1) The financial data was derived from the Combined Historical Financial Statements of the Predecessor Business which were
prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). The historical vacation
ownership segment information was prepared by identifying the direct vacation ownership revenues and expenses and allocating
the vacation ownership ("Regina Resorts") and the hotel shared expenses based on the relative number of total rooms at the
beginning of each period. The operating results of the hotel segment were reported by the Predecessor Business as discontinued
operations and accordingly, are not included in this presentation.
(2) Because the Company acquired perpetual ownership of the Regina Resorts, which had been sold by the Predecessor Business as a 30
to 50 year memberships to its customers, the historical financial information has been prepared by using the lease accounting
method as required by U.S. GAAP, which required the Predecessor Business to recognize annually only 1/30th of cumulative
vacation ownership revenues, net of cumulative provisions for doubtful accounts and cumulative commission expenses. For periods
after August 17, 1997, financial data is presented using the full accrual method of accounting in accordance with SFAS No. 66
rather than the lease accounting method. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Depreciation was not recognized by the Predecessor Business during the periods presented because the prior owner had recorded a
significant impairment loss in 1994 and the assets of the combined hotels and Regina Resorts were held for sale from then until
their sale on August 18, 1997. The Company's Historical Consolidated Statement of Operations for the year ended December 31,
1997 includes the operations of the purchased Regina Resorts only for the period August 18, 1997 through December 31, 1997.
(4) The detail of commission expense for 1994 is not available and is included in advertising, sales and marketing.
18
<PAGE>
(5) Reflects the results of operations of the Company for the twelve months ended December 31, 1997 including operations of the
acquired Regina Resorts for the period from August 18, 1997 through December 31, 1997, and does not include results of
operations of the Predecessor Business. The Company had no vacation ownership business activity prior to August 18, 1997.
(6) EBITDA represents net income before interest expense, taxes, depreciation and amortization, and also includes foreign currency
exchange gains and losses and preferred stock dividends. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be construed as a substitute
for income from operations, net income or cash flows from operating activities in analyzing the Company's operating
performance, financial position and cash flows. The EBITDA measure presented herein may not be comparable to EBITDA as
presented by other companies and is not the same as "Consolidated Cash Flow" under the Indenture.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The following table reconciles historical EBITDA to historical net loss reported for the vacation ownership segment:
Summarized Historical Financial Data
Vacation Ownership Segment of Predecessor Business Company
-------------------------------------------------- ----------------------
Seven and
(Unaudited) 1/2 months Years Ended
Years Ended December 31, Ended December 31,
------------------------------------ August 17, ----------------------
1994 1995 1996 1997 1997(5) 1998
-------- -------- -------- -------- -------- --------
( in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net loss available to common $(49,827) $(15,587) $ (8,282) $ (5,038) $ (3,568) $ (11,112)
stockholders.........................
Interest expense ................... -- 3,884 3,108 2,827 3,931 14,947
Foreign income and asset taxes ...... 5,881 3,356 3,312 1,756 909 672
Depreciation and amortization ...... 10,118 -- -- -- 49 3,505
Foreign currency exchange losses, net 4,266 2,464 (351) 74 1,333 4,299
Preferred stock dividends ........... -- -- -- 232 711
-------- -------- -------- -------- -------- --------
EBITDA .............................. $(29,562) $ (5,883) $ (2,213) $ (381) $ 2,886 $ 13,022
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Historical Consolidated Balance Sheet Data
Years Ended
December 31,
-------------------------
1997 1998
--------- ---------
(in thousands)
<S> <C> <C>
Cash and cash equivalents .............................................. $ 9,005 $ 2,960
Vacation Interval receivables and other trade receivables, net ......... 41,915 51,835
Land held for vacation ownership development,........................... 12,405 22,170
Office furniture and equipment.......................................... 1,542 3,046
Cost of unsold vacation ownership intervals ............................ 33,178 27,606
Total assets ........................................................... 119,979 129,667
Senior Notes, due 2004, net of unamortized original issue discount ..... 90,780 92,093
Shareholders' investment ............................................... 13,052 4,943
</TABLE>
19
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and related notes thereto.
COMPANY FORMATION AND INITIAL OPERATIONS IN MEXICO
The Company was organized to seek acquisition opportunities within the
vacation ownership industry. On August 18, 1997, the Company acquired the Regina
Resorts in Mexico for approximately $86.8 million. In connection with the
purchase transactions, the Company placed the property underlying each of the
three Regina Resort properties into three separate trusts held by the Company's
operating subsidiaries that were established for each resort. The operating
subsidiaries had the right to use the Regina Resorts for a period of 30 years
ending August 18, 2027. A separate subsidiary of the Company owns rights (the
"Remainder Interests") pursuant to which it had the right to indefinitely use
the Regina Resorts after August 18, 2027.
Until March 13, 1998, the Predecessor Business and the Company sold a right
to use a vacation ownership unit ("Vacation Interval") for a period of 30 years.
This 30-year period was initially selected because Mexican law limited property
ownership by trusts to 30 years. Subsequently, Mexican law was changed to allow
a trust ownership period of 50 years and in March 1998, the Company began
selling a 50-year Vacation Interval. The 30-year Vacation Intervals that had
been sold prior to the acquisition, however, were not extended to 50 years, but
the Company intends to offer to sell a 20-year extension to these
pre-acquisition Vacation Interval owners.
In June 1998, the Company assigned a proportional beneficial interest of
the Remainder Interests to each purchaser of Vacation Intervals who had bought
subsequent to the August 18, 1997 acquisition. The Company effected this
assignment of proportional beneficial interests by a legally enforceable
assignment for the benefit of such Members. The Company is currently examining
the method by which such assignment will be evidenced to Members. The Company
believes that this change in structure has had a positive effect on its Mexican
sales and marketing program as it has enabled the Company to sell an interest
that is more closely aligned with the traditional fee simple deeded interest
offered to buyers of vacation intervals in the United States. This structure
also provides for the economic interest in the Vacation Interval to be
transferred to the purchaser and allows for the use of full accrual accounting
method of profit recognition for sales made by the Company.
The Company uses a membership as its means of transferring Vacation
Intervals rather than a deeded interest because Mexican real property law does
not have effective mechanisms that would allow non-Mexicans to directly own real
property in certain areas (forbidden zones) for certain purposes. Accordingly,
the Company does not sell deeded interests. Mexican law allows Mexican
corporations, wholly owned by foreign corporations, to own land within the
forbidden zones. Accordingly, the Vacation Interval is sold through a right to
use.
ACQUISITION OF WHISKI JACK
In July 1998, the Company acquired Whiski Jack Resorts Ltd. ("Whiski Jack")
for approximately $6.6 million. The acquisition was accounted for as a purchase
and, accordingly, the results of operations are included in the financial
statements only for the periods subsequent to the date of acquisition.
RESULTS OF OPERATIONS
The following discussion relates to the financial condition and results of
operations of the Company and the vacation ownership segment of the Predecessor
Business, and is based on the financial information included in "Selected
Financial Data." The Company did not begin significant operations until August
18, 1997 and, therefore, a comparison of the Company's results between 1997 and
1998 is not meaningful as it provides results for less than a full years'
operations for 1997. In order to provide a meaningful analysis of the changes in
the operational activity levels, the Predecessor Businesses' results for the
first 7 1/2 months of 1997 are being combined with the Company's results for the
last 4 1/2 months of 1997 (both periods as outlined in the "Selected Financial
Data" section), and are presented without adjusting for the impact of either
deferred Vacation Interval revenues or deferred commission expenses as included
in the "Selected Financial Data". The Company believes that this analysis is
helpful to understand the changes in the aggregate activity levels between
years.
20
<PAGE>
After taking into account these adjustments, the comparison of 1998 to
combined 1997 and combined 1997 to 1996 remains difficult because the Company's
accounting principles for the following revenue and expense elements were not
comparable with the accounting principles used to develop the historical
operating data for the Predecessor Business:
- - Vacation Interval revenues -- Prior to August 18, 1997, the Predecessor
Business sold 30-year Vacation Intervals that were recognized using
operating lease accounting, thus deferring substantially all revenues until
future periods. Starting August 18, 1997 the Company sold Vacation
Intervals that transferred the entire economic interest to the purchaser
and recognizes all Vacation Interval revenues under the full accrual method
of profit recognition.
- - Cost of Vacation Interval revenues -- Prior to August 18, 1997, the
Predecessor Business did not record Vacation Interval cost of sales.
Instead, the value of the assets was depreciated over the assets' useful
life. Starting August 18, 1997, the Company amortizes a portion of the book
value of the cost of unsold Vacation Intervals with each sale of a Vacation
Ownership interval using the relative sales value method.
- - Provision for doubtful accounts -- Prior to August 18, 1997, the
Predecessor Business recognized no receivables because virtually all
revenues were deferred. Therefore, no provision for bad debts was required.
Starting August 18, 1997, the Company began recognizing receivables
consistent with full revenue recognition accounting and a provision to bad
debts as necessary to provide for losses inherent in the contract
receivables portfolio.
- - Commission expenses -- Similar to Vacation Interval revenues, a substantial
portion of commission expenses representing direct selling expenses were
deferred prior to August 18, 1997. Commencing August 18, 1997, all
commission expenses were recognized consistent with full revenue
recognition accounting.
- - Depreciation -- Prior to August 18, 1997, no depreciation was recognized
because Bancomer had committed to selling the assets and had, therefore,
classified the assets as assets to be disposed of in accordance with the
provisions of FASB 121, "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed Of and the assets were recorded at
their net realizable value."
The annual changes between combined 1997 and 1998 and between 1996 and
combined 1997 that are presented below are caused, in part, by the difference in
these accounting principles used by the Company and by the Predecessor Business.
21
<PAGE>
Comparison of the twelve months ended December 31, 1998 to the twelve months
ended December 31, 1997 (the combined results of the Vacation Interval segment
of the Predecessor Business and the Company).
The Company believes that this analysis is helpful to understand the
changes in the aggregate activity levels between combined 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1997
------------------------------------- Annual Amounts of
Predecessor ---------------------
Business - Company - Percentage
Seven and Four and Combined Increase Increase
1/2 Months 1/2 Months Total 1998 (Decrease) (Decrease)
--------- --------- --------- --------- -------- --------
Vacation ownership revenues:
<S> <C> <C> <C> <C> <C> <C>
Vacation Interval sales ............ $ 31,479 $ 18,098 $ 49,577 $ 56,508 $ 6,931 14.0%
Interest Income on Vacation Interval
receivables, rental and service fee
income, and other income ....... 11,627 7,606 19,233 17,475 (1,758) (9.1)%
--------- --------- --------- --------- --------
Total revenues ................ $ 43,106 $ 25,704 $ 68,810 $ 73,983 $ 5,173 7.5%
========= ========= ========= ========= ========
Operating expenses:
Cost of Vacation Interval sales .... -- $ 4,569 $ 4,569 13,161 $ (*) (*)
Provision for doubtful accounts..... -- 2,318 2,318 4,450 (*) (*)
Advertising, sales and marketing.... 10,411 8,576 18,987 23,874 4,887 25.7%
Maintenance and energy ............. 4,669 1,938 6,607 8,013 1,406 21.3%
Depreciation and amortization....... -- 49 49 620 (*) (*)
Amortization of goodwill ........... -- -- -- 2,885 2,885 --
General and administrative ......... 4,504 5,417 9,921 11,463 1,542 15.5%
--------- --------- --------- --------- --------
Total operating expenses....... $ 19,584 $ 22,867 $ 42,451 $ 64,466 (*) (*)
========= ========= ========= ========= ========
<FN>
(*) The amount and percentage change are not presented since the amount between years are not prepared on a comparable basis.
See discussion above.
</FN>
</TABLE>
Total recognized revenues increased approximately $5.2 million, or 7.5%,
during 1998. This increase was primarily due to a 14% increase in recognized
Vacation Interval sales, a 21% increase in interest income on Vacation Interval
receivables offset by a 18.2% decrease in rental and service fee income.
Recognized Vacation Interval sales grew approximately $6.9 million, or
14.0%, during 1998. The acquisition of Whiski Jack contributed approximately
$5.6 million of this increase. In Mexico, Vacation Interval sales increased by
approximately $1.3 million, or 2.7%, for the 12 months ended December 31, 1998.
The primary reason for this increase in Mexico was the implementation of new
marketing programs combined with the opening of two new sales offices during the
first nine months of 1998. The sales increase occurred despite the fact that the
actual number of weekly intervals sold in Mexico decreased 1.7%. Also, the
selling environment was impacted by several factors; first, the change in the
Mexican VAT tax laws effective January 1, 1998 whereby the sale of vacation
intervals became subject to either 10% or 15% VAT; second, a milder winter in
the U.S. and Canada that decreased the level of tourism in the first half of
1998 to Mexican resort destinations; third, adverse weather conditions in the
third quarter of 1998 including a hurricane in Los Cabos, a strong tropical
storm in Cancun and significant flooding in Puerto Vallarta; and fourth, the
uncertain economic climate in Mexico and throughout the world during the latter
part of 1998.
Interest income on Vacation Interval receivables grew by approximately $1
million, or 21%. This increase is due primarily to the corresponding increase in
the interest bearing Vacation Interval receivables, which increased from $43.9
million to $53.6 million, or 22.1%, during 1998. Vacation Interval receivables
increased with the acquisition of Whiski Jack and, in addition, due to an
overall increase in sales.
Rental and service fee income decreased by 18.2% or $2 million during 1998.
In Mexico, rental and service fee income decreased by approximately $2.6
million, or 23.7%, due in part to the rental of units to Westin at an average
rate lower than that experienced by the company during 1997. The rate negotiated
with Starwood for 1998 would have been higher except that a one-time fee of
$1.25 million was also negotiated with Starwood. This fee was recognized in 1998
as other income. Rental and service fee income was also negatively impacted
because the negotiated agreement with Starwood precludes the Company from
renting the remaining unsold units to transient vacationers other than Club
Regina members and their guests and guests secured through marketing and
promotional
22
<PAGE>
programs. Finally, increased usage by a larger owner base resulted in fewer
unsold units available for rental to guests of members or for use in marketing
promotions. The acquisition of Whiski Jack offset the decrease by approximately
$0.6 million.
The Predecessor Business did not recognize depreciation after the prior
owner classified the assets as assets to be disposed of. Under lease accounting,
the depreciation represented the cost applicable to the units leased whereas
under the full accrual method, the cost of the property is allocated to
inventory. After the August 18, 1997 acquisition, the Company began recognizing
cost of sales based on its allocation of its purchase price to unsold inventory
of Vacation Intervals and allocated the cost based on the relative sales value
method. Depreciation during 1998 relates to leasehold improvements associated
with the relocation of the Mexico City headquarters during the first quarter of
1998 combined with the implementation of new RCC software, which is the main
operations software used by the company.
The 1998 amortization of goodwill relates to the acquisition of Whiski
Jack. The goodwill is being amortized as the number of units acquired are sold.
The Predecessor Business did not record any provision for uncollectible
accounts because most of its Vacation Interval revenues were deferred, however,
the Company made a full provision for its estimated uncollectible accounts
because Vacation Interval sales after August 18, 1997 are fully recognized each
period.
Advertising, sales and marketing expenses increased approximately $4.9
million, or 25.7%, during 1998. The acquisition of Whiski Jack contributed
approximately $1.6 million to the increase. In Mexico, advertising, sales and
marketing expenses increased as a result of greater marketing efforts. In
particular, the Company has implemented marketing programs that involve theme
stores designed to promote the Company's presence through popular local cultural
and environmental themes.
Maintenance and energy expenses increased approximately $1.4 million, or
21.3%, in 1998. The acquisition of Whiski Jack contributed approximately $0.5
million to the increase. In Mexico, maintenance and energy expenses increased
approximately $0.9 million during 1998 as a result of higher occupancy rates.
The general and administrative expenses increased approximately $1.5
million, or 15.5%, in 1998. Primary causes of this increase included
approximately $1.1 million related to Whiski Jack and additional costs from
increased compensation of certain key executives, plus an increase in the number
of executive, administrative and temporary personnel in Mexico and the U.S. to
support an active development program and an administrative operation
independent of the prior owner.
Interest expense increased approximately $5.8 million in 1998 as compared
to 1997 as the Company used primarily debt in the acquisition of the timeshare
business. The Company capitalized interest of $0.5 million and $1.8 million in
1997 and 1998, respectively, associated with the land development in Cozumel and
Los Cabos during 1998.
Foreign currency exchange losses increased approximately $2.9 million, or
205.5%, in 1998. The value of the peso decreased from 8.083 per U.S. dollar at
December 31, 1997 to 9.865 per U.S. dollar at December 31, 1998, or 22%, causing
the significant 1998 exchange loss. The Company maintains a portfolio of UDI
receivables (receivables denominated in an alternate Mexican currency that is
adjusted for inflation on a daily basis) to partially offset the peso
devaluation. These inflation adjustments should offset the long-term effect of
the peso devaluation but do not offset the short-term losses that have occurred
in 1998. The amount of UDI inflation adjustments, which is included under
interest income on Vacation Interval receivables, was approximately $0.6 million
and $1.9 million for the years ended December 31, 1997 and 1998, respectively.
Included in vacation ownership revenues and operating expenses for 1998 is
the $1.6 million operating loss of Whiski Jack for the period subsequent to the
date of acquisition through year end 1998.
23
<PAGE>
Comparison of the combined historical twelve months ended December 31, 1997 to
the historical twelve months ended December 31, 1996.
No comparison of historical Company financial information is presented for
the period from 1996 to 1997 as the company did not have operations in 1996. The
Company believes that the following analysis is helpful to understand the
changes in the aggregate activity levels between 1996 and 1997. The analysis
presents the changes in the operational activity levels during 1997 and 1996 and
a summary of vacation ownership sales and expense activity levels without
adjusting for the impact of either deferred Vacation Interval revenues and or
deferred commission expenses (in thousands):
<TABLE>
<CAPTION>
1997
-------------------------------------
Predecessor Business Annual Amounts of
----------------------- Company - ---------------------
Seven and Four and Combined Percentage
1996 1/2 Months 1/2 Months Total Increase Increase
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Vacation ownership revenues:
Vacation Interval sales ............ $ 37,263 $ 31,479 $ 18,098 $ 49,577 $ 12,314 33.0%
Interest income on Vacation Interval
receivables, rental and service fee
income, and other income ....... 9,551 11,627 7,606 19,233 9,682 101.4%
--------- --------- --------- --------- --------
Total revenues ................ 46,814 43,106 25,704 68,810 21,996 47.0%
========= ========= ========= ========= ========
Operating expenses:
Cost of Vacation Interval sales .... -- -- 4,569 4,569 (*) (*)
Provision for doubtful accounts .... -- -- 2,318 2,318 (*) (*)
Advertising, sales and marketing.... 10,937 10,411 8,576 18,987 8,050 73.6%
Maintenance and energy ............. 3,798 4,669 1,938 6,607 2,809 74.0%
Depreciation and amortization....... -- -- 49 49 (*) (*)
General and administrative ......... 5,400 4,504 5,417 9,921 4,521 83.7%
--------- --------- --------- --------- --------
Total operating expenses....... $ 20,135 $ 19,584 $ 22,867 $ 42,451 (*) (*)
========= ========= ========= ========= ========
<FN>
(*) The amount and percentage change are not presented since the amount between years are not prepared on a comparable basis.
See discussion above.
</FN>
</TABLE>
Total revenues increased approximately $22 million, or 47%, during 1997.
This was the result of an increase of 33% in the 1997 Vacation Interval sales
and an increase of 101.4% for all other income. The actual number of weekly
intervals sold increased 44.5%. Management attributes the increase in the number
of Vacation Intervals sold to improved marketing efforts, stronger demand and
the introduction of the lower cost biannual product.
Interest income on Vacation Interval receivables grew approximately $1.5,
or 46.8%, primarily due to a corresponding increase in Vacation Interval
receivables of 16.4%. Rental and service fee income increased 98.6% in 1997 due
to an overall increase in vacation ownership units which were available to the
Company to rent because of the late 1996 completion of an expansion of units at
the Los Cabos location, and because of improved rental market demand in 1997.
Service fee income increased as a result of the overall increase in the number
of Members during the 1997 period.
The Predecessor Business did not recognize depreciation after the prior
owner classified the assets as assets to be disposed of. Under lease accounting,
the depreciation represented the cost applicable to the units leased whereas
under the full accrual method, the cost of the property is allocated to
inventory. After the August 18, 1997 acquisition, the Company began recognizing
cost of sales based on its allocation of its purchase price to unsold inventory
of Vacation Intervals and allocated the cost based on the relative sales value
method.
The Predecessor Business did not record any provision for uncollectible
accounts because most of its Vacation Interval revenues were deferred, however,
the Company made a full provision for its estimated uncollectible accounts
because Vacation Interval sales after August 18, 1997 are fully recognized each
period.
The 73.6% annual increase during 1997 in advertising, sales and marketing
expenses reflects the marketing investments made during 1997 to increase the
marketing program activity levels which resulted in the 33% increase in Vacation
Interval sales.
24
<PAGE>
Maintenance and energy increased approximately $2.8, or 74%, during 1997
because (i) an additional 110 vacation ownership units were completed at the Los
Cabos location in late 1996, (ii) occupancy in the vacation ownership facilities
increased significantly due to the substantial growth in the average number of
members as well as the increased number of transient guests using the facilities
in 1997, and (iii) inflationary increases in these expense elements.
General and administrative expense in 1997 increased approximately $4.5, or
83.7%. These expense elements increased significantly because (i) growth in the
administrative organization was necessary to manage and control the Company
which was experiencing overall revenue growth (ii) added costs of personnel that
were dedicated to provide services to Starwood's hotel operation which enabled
the Company to earn other income fees after August 17, 1997 (prior to August 18,
1997 the cost of these persons had been allocated directly to the discontinued
hotel segment) and (iii) the administrative expense of the Company's newly
formed Corporate group for the period August 18th through December 31, 1997
represented an increase because these functions did not exist during 1996 within
the Predecessor Businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations primarily from the sale of
Vacation Intervals, receipt of payments on the Vacation Interval receivables,
and the receipt of service fees charged to members. With respect to the sale of
Vacation Intervals, the Company generates cash from all-cash purchases and the
receipt of down payments on financed Vacation Intervals.
The Company generates cash from financing Vacation Interval sales based on
principal payments and the interest charged on Vacation Interval receivables.
Additionally, the Company uses Vacation Interval receivables as collateral in
order to obtain loans. At December 31, 1998, the Company had $53.6 million
Vacation Interval receivables with a weighted average maturity of approximately
five years. At such date, approximately (i) 62% of all of the Vacation Interval
receivables were U.S. or Canadian dollar denominated (ii) 28% of all Vacation
Interval receivables were denominated in UDIs, an obligation denominated in
pesos which is adjusted for Mexican inflation, and (iii) 10% of all Vacation
Interval receivables were denominated in pesos.
At December 31, 1998, the Company has $117.1 million of debt outstanding
consisting primarily of $100 million of 13% Senior Notes due 2004, $9.1 million
outstanding under the FINOVA credit line ("FINOVA"), which at year-end bears
interest at 9.5%, $5 million of debt bearing interest at 10%, and $2.8 million
mortgage notes payable to a bank which at year-end bears interest at 11.1%.
Approximately $5.6 million of the outstanding debt is due in 1999. In addition
to such debt, the Company has $2.1 million of 10% redeemable convertible
preferred stock which is redeemable by the holders thereof in installments of
$500,000 beginning April 1, 1999, and thereafter, redeemable quarterly.
The Company is finalizing the $13.5 million inventory financing portion of
the FINOVA credit agreement. This, along with the existing $20 million accounts
receivable based credit facility, will complete the FINOVA credit agreement.
Additionally, the Company has a credit line available from Bancomer for a four
year line of credit of $20 million. The agreement limits the use of this line to
the payment of Senior Note interest incurred and payable. This line of credit
bears interest at 11.5%, requires a fee of approximately 1.5% of amounts drawn
under the line of credit, and is secured by a portion of the Vacation Interval
receivables of CR Resorts Puerto Vallarta. At December 31, 1998, the Company
estimates that based on the current level of CR Resorts Puerto Vallarta
receivables, only $3.5 million to $4 million would be available to be drawn
under the line.
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation ownership units, land upon which
additional vacation ownership resorts may be built (which may require capital
expenditures by the Company) and/or other operations in the vacation ownership
industry. The Company is evaluating certain resort asset acquisition or
development opportunities, but it currently has no contracts or capital
commitments relating to any potential acquisitions or developments other than
those discussed above. However, the Company is actively pursuing financing for
development of the Teton Club joint venture and the Los Cabos land. In addition,
the Company is evaluating several strategic partnership opportunities, but it
likewise has no agreements relating to any such potential strategic partnership
opportunities.
To finance its growth strategy, in addition to accessing the lines of
credit with FINOVA, the Company may from time to time consider issuing debt,
equity or other securities, entering into traditional construction financing or
credit
25
<PAGE>
agreements, entering into joint venture or development agreements with respect
to its undeveloped property, or factoring additional Vacation Interval
receivables. The Company is highly leveraged and, under the Indenture, there are
limitations on the Company's ability to borrow funds and make certain equity
investments. Additionally, the FINOVA credit agreement requires the Company to
maintain certain financial covenants, including minimum equity levels.
Accordingly, there can be no assurance that the Company will be able to use debt
to finance any expansion plans beyond its plans to finance its current
commitments.
At December 31, 1998, the Company had an inventory of 6,994 Vacation
Intervals weeks in Mexico and 585 Weekly Intervals in Canada. Accordingly, the
Company believes its existing inventory will provide it with slightly more than
one year of product available for sale under existing or planned marketing
programs. The Company plans to increase its Vacation Interval inventory through
development of additional properties and making acquisitions in the short term,
by purchasing the Villa Vera, acquiring condominiums in Whistler, British
Columbia, developing the Teton Club joint venture, developing its land in Los
Cabos, developing its land in Cozumel, and making acquisitions in Mexico, the
United States and Canada.
The Company believes that its current financial position plus borrowings
available under the credit agreement with FINOVA and anticipated results from
operations will satisfy its currently planned 1999 capital expenditures of
approximately $14.2 million. The 1999 planned expenditures include the purchase
of Villa Vera, the development activities in Los Cabos and the purchase of
Vacation Interval inventory in Whistler, British Columbia. During 1998, the
Company purchased land adjacent to the Company's property in Cabo San Lucas for
$6.7 million, to be developed for use as Vacation Interval inventory.
Additionally, land held for development increased during 1998 as a result of
capitalized interest of $1.8 million and associated development costs.
At December 31, 1998, the Company is, and will continue to be, highly
leveraged, with substantial debt service requirements. The Company has incurred
losses since its inception and expects to incur a net loss for fiscal 1999. To
achieve profitable operations the Company is dependent upon a number of factors,
including its ability to increase its Vacation Interval inventory on an
economical basis through development projects or acquisition of existing resort
properties. The Company expects that its existing credit capacity and its
ability to obtain capital financings, as well as the Company's anticipated
results of operations, will be sufficient to fund its capital requirements
through the year 1999.
MEXICAN PESO CURRENCY FLUCTUATIONS
Since December 1994, Mexico has experienced difficult economic conditions,
including significant devaluation and volatility of the peso with respect to the
U.S. dollar, reduced economic activity, higher inflation, and high interest
rates. Through 1998, Mexico was considered a highly inflationary economy for
purposes of applying SFAS 52, since the three-year cumulative rate of inflation
exceeded 100%. Effective January 1, 1999, Mexico is no longer considered a
highly inflationary economy. The financial statements of the Company as well as
the Predecessor Business were prepared for all periods using the U.S. dollar as
the functional currency. The U.S. dollar was used since the debts were payable
in U.S. dollars and prices were generally established in U.S. dollars.
The effects of the Mexican peso on the Company are tempered because the
Company sells certain of its Vacation Intervals for U.S. dollars and adjusts the
price of Vacation Intervals sold for pesos to keep the revenue from such sales
constant in dollar terms. Therefore, devaluation and inflation of the peso have
not affected the Company's revenue from customers who purchase Vacation
Intervals without financing them. However, approximately 70% of the Company's
customers elect to finance their purchase of Vacation Intervals through the
Company. Of those financed, approximately 28% of the Vacation Interval
receivables are denominated in UDI's which insulate the Company from effects of
peso inflation over extended time periods with respect to those receivables.
However, the Company is not insulated from the effect of changes in the U.S
dollar/peso exchange rate with respect to UDI receivables or the 10% of
receivables denominated in pesos. Accordingly, to the extent the rate of Mexican
inflation exceeds or is less than the rate of devaluation of the peso during any
period, the Company's rate of return in constant dollar terms on UDI denominated
Vacation Interval receivables will increase or decrease.
When the rate of devaluation of the peso in any fiscal period exceeds the
rate of inflation of the peso for such period, the cost of the Company's other
transactions (such as labor expenses and general and administrative expense in
Mexico) denominated in pesos will decrease when translated into U.S. dollars.
During 1998, the devaluation of the peso exceeded the rate of inflation.
26
<PAGE>
SEASONALITY
The Mexican and Canadian vacation ownership industry in general tends to
follow seasonal buying patterns with peak sales occurring during the peak
travel/tourism seasons, usually December through April and July and August.
Seasonal influences also affect the Company's earnings so that net income and
cash receipts from customer initial down payments are typically higher in the
first and fourth calendar quarters. In Mexico, American tourists tend to
vacation in the destinations where the Regina Resorts are located in the
December through April season while Mexican tourists tend to travel to these
destinations more frequently during the summer months.
IMPACT OF YEAR 2000
The Company commenced active operations in 1997 with the acquisition of
three resorts in Mexico. The Company is implementing systems commensurate with
business objects that includes using uniform operating and financial systems for
each operating site. The Company uses Resort Computer Corporation's ("RCC")
software to manage its vacation ownership operations, including marketing
activities, sales presentations, contract management, collections, member
reservations and hotel operations. In contrast with traditional software run on
mainframe systems, the RCC software was developed in the late 1980's, and has
been Year 2000 compliant since 1994. The Company is in the process of installing
a new financial system to be used in conjunction with the operating system. This
system is scheduled for implementation prior to the end of June 1999 and is year
2000 compliant.
During 1998, the Company acquired Whiski Jack in Canada. The Company has
commenced with the conversion process of the Whiski Jack systems in order to
integrate them with the standard systems to be used by the Company. This project
is to be completed by the end of the third quarter of 1999.
Additionally, the Company has initiated discussions with all significant
suppliers including the Westin Hotels. No significant Year 2000 issues have been
identified. The Company believes that there are no significant Year 2000 issues
and that this conclusion is based on a comprehensive study of this issue.
Accordingly, management has concluded that no significant costs will be incurred
to address this issue.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates and foreign currency exchange rates. In addition to
the U.S. dollar, the Company conducts its business in the Mexican peso and the
Canadian dollar. Currently, a substantial portion of the Company's operations
are conducted in Mexico and, as a result, are subject to the impact of the any
changes in the value of the Mexican peso against the U.S. dollar.
This exposure to the Mexican peso, however, is reduced by several factors:
(1) the pricing of vacation intervals is set in U.S. dollars and thus,
notwithstanding competitive pricing issues, is not affected by fluctuations in
foreign currency, and (2) as of December 31, 1998, 73% of the Company's
receivables that are denominated in Mexican pesos are protected against currency
fluctuations resulting from inflation. This portion of the Company's receivables
is denominated in UDI's, a Mexican currency tied to the peso and indexed monthly
for inflation.
The Company is exposed to interest rates with respect to its long-term debt
obligations and receivables. The Company's primary exposures are in long-term
receivables in Mexico, totaling approximately $50.8 million, and in fixed rate,
long-term U.S. dollar denominated debt that is publicly held, totaling
approximately $105 million.
The following table sets forth the average interest rates for the scheduled
maturities of the Company's long-term debt obligations and receivables in the
context of (a) interest rate risk and (b) foreign currency exchange rate risk:
27
<PAGE>
<TABLE>
<CAPTION>
Estimated
Fair Value at
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate long-term debt:
Amount (U.S. dollar) 5,000 -- -- -- -- 100,000 105,000 (1)
Average interest rate 10.0% -- -- -- -- 13.0% 12.9%
Amount (Canadian dollar) 611 564 453 433 402 587 3,049 3,049
Average interest rate 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1%
Variable rate long-term debt:
Amount (U.S. dollar) -- -- -- -- -- 9,086 9,086 9,086
Average interest rate -- -- -- -- -- 9.5% 9.5%
Fixed rate long-term Receivables:
Amount (U.S. dollar) 5,939 6,007 5,480 3,759 2,017 1,334 24,535 24,535(2)
Average interest rate 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1%
Amount (Canadian dollar) 442 420 434 424 412 624 2,756 2,756
Average interest rate 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 13.8%
Amount (Mexican peso) 6,360 6,432 5,868 4,025 2,159 1,428 26,273 26,273(2)
Average interest rate 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7%
<FN>
(1) The fair value of the Company's senior notes cannot be determined as none of the these instruments are actively traded on the
open market. Also, the amount of premium or discount cannot be predicted were these notes to become actively traded in the
future.
(2) These financial instruments are held for other than trading purposes; the carrying amount of these instruments approximates
fair value.
</FN>
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index to the consolidated financial statements, Report of
Independent Auditors and the Consolidated Financial Statements, which appear
beginning on Page F-1 of this report and are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed Form 8-K on August 3, 1998, as amended on August 6, 1998,
regarding changes in and disagreements with accountants on accounting and
financial disclosure.
28
<PAGE>
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors; Other Key Employees
The following table sets forth the names, ages and positions of the
directors, executive officers and other key employees of the Company or its
subsidiaries. A summary of the background and experience of each of these
individuals is set forth after the table.
<TABLE>
<CAPTION>
Executive Officers
and Directors Age Position
--------------------- ------ ----------------------------------------------------------
<S> <C> <C>
Douglas Y. Bech 53 Chairman and Chief Executive Officer
John McCarthy 43 President and Director of the Company
Robert L. Brewton 46 Executive Vice President - Chief Investment Officer
George E. Aldrich 52 Senior Vice President - Finance and Accounting
Fred Daniels 52 Senior Vice President - Canada
Bruce S. MacIntire 48 Senior Vice President - Raintree Owners Club
Mario Muro 52 Senior Vice President - Marketing
Gustavo Ripol 35 Senior Vice President - Product Development
Brian R. Tucker 36 Senior Vice President - Corporate Planning and Development
Christopher W. Allick 45 Director
Christel DeHaan 56 Director
Walker G. Harman 52 Director
Thomas R. Powers 60 Director
Robert M. Werle 42 Director
</TABLE>
Douglas Y. Bech is a founding principal of Raintree Capital Company, LLC
("RCC") and the principal promoter in organizing the Company and effecting the
acquisition of the Club Regina Resorts and Westin Regina Hotels. From 1994
through October 1997, Mr. Bech was a partner in the Houston office of the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. From 1993-1994, Mr. Bech was a
partner in the Houston office of the law firm of Gardere & Wynne, L.L.P. Mr.
Bech was associated with and a senior partner of Andrews & Kurth, L.L.P. from
1970 until 1993. Throughout his career Mr. Bech has specialized in mergers and
acquisitions and financial and securities transactions. Mr. Bech serves as a
director of Frontier Oil Corporation, a New York Stock Exchange company,
eFax.com, Inc., a Nasdaq company, Pride Companies, L.P., a publicly traded
master limited partnership, and several private companies. Mr. Bech serves as an
advisory director of The Salvation Army, Houston Metropolitan Area and as a
director of The Drexler Foundation, a charitable foundation established by Clyde
Drexler, a former NBA basketball player, to assist inner city youths.
John McCarthy has been the President of the Company since August 1997. Mr.
McCarthy has been the principal executive officer of the Club Regina Resorts
since 1992. From 1992 until August 17, 1997, he served first as Vacation
Ownership Director and beginning 1993 as Director General of Bancomer's Tourism
Division. During most of this period Mr. McCarthy was responsible for
development and management of the Combined Resorts as well as the sale of The
Westin Regina Resorts for Bancomer. From 1983 to 1992 Mr. McCarthy held several
positions in Grupo Los Remedios, a large Construction and Development Group,
where among other projects, he developed The Pacifica Project in Ixtapa Mexico,
where he developed, sold and operated some 6,000 vacation intervals. Mr.
McCarthy's previous experience was with the Babcock International Group and the
Tolteca Group where he obtained experience in Finance, Personnel, Administration
and product development. He is the past President and Secretary of the
Asociacion Mexicana de Desarrolladores Turisticos (AMDETUR), the Mexican
equivalent of ARDA; he is also the past Secretary and present adviser of the
Consejo Nacional Empresarial Turistico, Mexico's Tourism Board. He serves on the
boards of Hoteles Presidente Intercontinental Mexico (seven Hotels) and
Complejos Turistico Huatulco (Club Med Huatulco). Mr. McCarthy acted as an
advisor on Tourism to President Zedillo during his campaign. He is the Treasurer
of Brimex, a charitable foundation funded by the British Government and members
of the British community for the poor, the sick and those who have suffered
because of natural disasters. Mr. McCarthy is also a Professor and acts on the
Board of The Tourism School at the Universidad Anahuac del Sur.
Robert L. Brewton was appointed Executive Vice President -- Chief
Investment Officer of the Company in April 1998. Mr. Brewton was a Senior
Partner and the Chief Investment Officer of Residential Company of America
("RCA"), a privately held multifamily real estate investment and management
company, from January 1995 until
29
<PAGE>
March 1998 when it was sold. Prior to working at RCA, Mr. Brewton served as the
President and Chief Operating Officer of Transwestern Property Company's
Multifamily Division from November 1987 until January 1995 when it was merged
into RCA. During his 24 year career in the real estate business, Mr. Brewton has
been involved in all aspects of the multifamily housing industry and has served
as either a principal, developer, or intermediary in over 100,000 apartment
units nationwide. Mr. Brewton is involved in several industry organizations,
including the Urban Land Institute, and serves on the Advisory Committee of the
National Multi Housing Council. He serves as a member of the Boards of Directors
of Apple Orthodontix, an American Stock Exchange company, and Network One, Inc.,
a private company. Mr. Brewton also serves on the Board of Directors of the
Baylor University Alumni Association and has served as a Director of the
Juvenile Diabetes Foundation.
George E. Aldrich joined the Company in November 1998 as Senior Vice
President - Accounting and Finance. In this capacity Mr. Aldrich will be
responsible for overseeing the financial reporting, tax, treasury and insurance
functions. From August 1996 through November 1998 Mr. Aldrich served as Chief
Financial Officer for KBC Advanced Technologies, Inc., a U.S. subsidiary of a
British-based public company that provides consulting services and specialized
software to the refining industry. From 1983 to 1996 Mr. Aldrich was Vice
President - Controller for Wainoco Oil Corporation (now, Frontier Oil
Corporation), a New York Stock Exchange Company. During Mr. Aldrich's tenure at
Wainoco, Wainoco had operations in the United States and Canada as well as
activities in other international locations. Prior to joining Wainoco, Mr.
Aldrich was with Arthur Andersen LLP. Mr. Aldrich has a degree in accounting
from North Texas State University and is a licensed C.P.A.
Fred Daniels joined the Company as Senior Vice President - Canada in July
1998. In this capacity, Mr. Daniels is responsible for operations of Whiski Jack
Resorts, Ltd. with whom Mr. Daniels has served since November 1997 as general
manager. Prior to joining Whiski Jack Resorts, Ltd. he was a consultant to the
vacation ownership industry and served as general manager of Christmas Mountain
Village, a mixed used resort in Wisconsin owned by Resort Development
International, Inc. ("RDI"). Prior to joining RDI in 1996 Mr. Daniels served for
more than five years as vice president of Long Lines, Ltd. in charge of resort
operations for Village West Resort in Spirit Lake, Iowa.
Bruce S. MacIntire joined the Company as Senior Vice President -- Raintree
Owners Club in October 1998. In this capacity Mr. MacIntire will be responsible
for the development and operation of the Raintree Owners Club, the Company's
Fractional Interest product. From 1997 until joining the Company, Mr. MacIntire
served as Vice President - Sales and Marketing for The River Club, a luxury
fractional vacational ownership resort in Telluride, Colorado. From 1994 until
1997 Mr. MacIntire served as Vice President Development for Marriott Ownership
Resorts, Inc., the vacation interval club business unit of Marriott Hotels. In
that capacity Mr. MacIntire managed development projects in Park City, Utah,
Aruba, Marbella, Spain, Kauai, Hawaii, Williamsburg, Virginia and Breckenridge,
Colorado. Previously, Mr. MacIntire was head of marketing for The Doral Resort
and Spa (currently The Peaks) in Telluride, Colorado including its vacation
interval ownership sales and marketing. Mr. MacIntire conceived Doral's opening
day sales event which resulted in a record opening day vacation interval sales
of $22 million. Mr. MacIntire has served in various capacities in the real
estate industry since 1972 and holds a degree in Business Administration from
Principia College.
Mario Muro is Senior Vice President -- Marketing of the Company and will
also serve as acting Chief Operating Officer for Whiski Jack beginning December
1998. Prior to the closing of the Purchase Transactions, Mr. Muro was Project
Manager, Regional Director of Bancomer Tourism Division from 1993 to 1997. He
was Director of the Los Remedios Tourism Division from 1992 to 1993, and
Director of the Grand Baja Club B.C. Project from 1991 to 1992. Mr. Muro was
President of the Association of Commercializers of TimeSharing in Puerto
Vallarta, First President of the Association of Tourist Developers in Ixtapa
Zihuatanajo and is currently the President of the AMDETUR until the year 2000.
Mr. Muro, who has 25-years experience in the vacation ownership and tourism
industry, has developed various vacation ownership marketing programs including
theme stores, marketing through travel agencies, and the Club Regina referral
program. Mr. Muro has a degree in accounting from the Instituto Tecnologico
Autonomo de Mexico .
Gustavo Ripol joined the Company in October 1997 as Senior Vice President
- -- Finance and Marketing. From 1995 to 1997, he was RCI's Marketing and
Communications Director for Latin America, where he was also responsible for
developing new business units in the region for the marketing, sale and
implementation of vacation ownership services. From 1993 to 1994, Mr. Ripol
served as Planning Director for Bancomer's Tourism Division responsible for
strategic planning for the hotel and vacation ownership business units and
development of the Club Regina Resort vacation interval product. From 1987 to
1992, Mr. Ripol held various positions as Manager of Planning & Systems,
Director of Finance and Administration and Director of Planning and Business
Development
30
<PAGE>
for Grupo Los Remedios. Mr. Ripol graduated from the Universidad Anahuac with a
degree in Engineering, and received a graduate degree in Finance at the
Instituto Tecnologico Autonomo de Mexico.
Brian R. Tucker was Vice President -- Planning and Development of the
Company from August 1997 until May 1998, at which time he was made Senior Vice
President - Corporate Planning and Development. From 1995 through 1997, Mr.
Tucker was an associate of RCC. Prior to joining RCC, Mr. Tucker was employed
for five years at Deloitte & Touche Management Consulting Group where he advised
clients in various industries concerning mergers, acquisitions and bankruptcy.
Mr. Tucker also worked for British Petroleum as a drilling and production
engineer for three years prior to receiving an M.B.A. from the Wharton School of
Finance in 1990.
Christopher W. Allick has been a Director of the Company since January
1998. Mr. Allick began serving as Managing Director, Manager Western States
Investment Banking of McDonald & Co. Securities, Inc. in July 1998. He was a
Director and Executive Vice President of Jefferies & Company, Inc., a registered
broker-dealer, from May 1993 until July 1998.
Christel DeHaan has been a director of the Company since January 1998. She
currently serves as CEO of CD Enterprises, Ltd. and the Christel DeHaan Family
Foundation, Inc. Ms. DeHaan co-founded Resort Condominiums International, Inc.,
("RCI") the world's largest vacation interval exchange company, in 1974, and
became its Chairman, CEO and sole shareholder in 1989. In November, 1996 she
sold RCI to Cendant Corporation and served on its Board of Directors until
January 1998. She is a founding director of the International Timeshare
Foundation and was elected twice to the American Resort Development Association
Board of Directors. She was appointed by President Clinton in 1995 to the White
House Conference Task Force on Travel and Tourism, and was named to the British
Tourism Hall of Fame in 1997. Ms. DeHaan is Chairman of the Board of Trustees of
the University of Indianapolis, President of the American Pianists Association
and serves on the Boards of Directors of the Indiana Symphony Society and Dance
Kaleidoscope.
Walker G. Harman has been a director of the Company since 1997. Mr. Harman
was President and Chief Executive Officer of Metro Hotels, Inc. ("Metro") from
1978 until 1998, and was its sole owner from 1985 until its sale to Meristar
Hotels and Resorts. Metro owned, developed and operated hotels and resorts
including franchises such as Hilton, Radisson, Omni, Holiday Inn and Embassy
Suites. Mr. Harman also owns and operates Sonny Bryan's Smokehouse, which has 11
locations in the Dallas, Texas area. Mr. Harman currently serves as a member of
board of directors of the Baylor Health Care System, the Board of Regents of
Baylor University, and the board of directors of the Interfaith Housing
Coalition. Mr. Harman is a member of the World Presidents Organization and the
American Hotel Motel Management Association and was president of the Baylor
Development Council from 1993 to 1994.
Thomas R. Powers has been a director of the Company since 1997. Mr. Powers
is a founding principal of RCC where he has been engaged since 1994. He served
as Chairman, President and CEO of Transamerica Fund Management Company and its
predecessor companies ("TFM") from 1976 to 1993. TFM was the investment advisor
and underwriter for a complex of 21 mutual funds. In 1995, he completed a three
year term as a member of the Board of Governors of the National Association of
Securities Dealers where he also served on the Executive Committee as well as
Chairman of the Audit Committee and the Investment Companies Committee. For
almost 20 years Mr. Powers served on the Board of Governors of the Investment
Company Institute, the national association of mutual funds ("ICI"). During that
time he served on ICI's Executive Committee and was Chairman from 1989 to 1990.
From 1988 to 1997, Mr. Powers was a member and past Chairman of the Board of
Regents of Baylor University and served as its Chairman. Mr. Powers is also a
member of the Baylor University Foundation, a Trustee and member of the Finance
Committee for the Memorial Healthcare System of Houston, Texas and a member and
past President of the Houston Chapter of the Financial Executives Institute as
well as a member of the Texas Society of C.P.A.'s and the American Institute of
C.P.A.'s. Mr. Powers is also the current Chairman of the Texas Infrastructure
Fund, a quasi-state agency. Mr. Powers serves as a director of the Fidelity
Charitable Gift Fund, a 501 (c)3 company and several private companies.
Robert M. Werle has been a Director of the Company since September 1998.
Mr. Werle is a Managing Director at Jefferies & Company, Inc. where he directs
the firm's real estate investment banking efforts. Mr. Werle has been engaged in
real estate investment banking for over 13 years with several investment banks
including, prior to joining Jefferies in 1997, Robertson Stephens & Company and
PaineWebber Incorporated.
31
<PAGE>
Director Classes and Agreements
The Company's Board of Directors currently consists of eight members and is
divided into three classes, one class of which is elected each year to hold
office for a three-year term and until successors are elected and qualified. The
terms of the Class A, Class B and Class C directors of the Company will expire
at the 2001, 1999 and 2000 annual meetings, respectively. Mr. Powers and Ms.
DeHaan serve in Class A, Messrs. Harman, and Werle in Class B and Messrs. Bech,
McCarthy and Allick in Class C. Successors to the directors whose terms have
expired are required to be elected by stockholder vote while vacancies in
unexpired terms and any additional positions created by board action are filled
by action of the existing Board of Directors. The executive officers named above
were elected to serve in such capacities until the next annual meeting of the
Board of Directors, or until their respective successors have been duly elected
and have been qualified, or until their earlier death, resignation,
disqualification or removal from office. No family relationships exist among the
executive officers or directors of the Company.
Robert Werle was appointed to the Company's Board of Directors pursuant to
an agreement by and among Jefferies & Company and the Company, and Messrs. Bech,
Powers and McCarthy. This agreement was entered into as part of the original
issue of the Senior Notes.
Director Compensation
Directors do not receive compensation for serving as directors. Directors
will be reimbursed for out-of-pocket expenses incurred in attending meetings of
the Board of Directors or committees thereof incurred in their capacity as
directors.
Committees of the Board of Directors
The Company has an Executive Committee and an Audit and Compensation
Committee. The Audit and Compensation Committee reviews and reports to the Board
of Directors the scope and results of audits by the Company's outside auditor.
The committee also recommends the firm of certified public accountants to serve
as the Company's independent public accountants, subject to nomination by the
Board of Directors and approval of the stockholders, authorize all audit and
other professional services rendered by the auditor and periodically review the
independence of the auditor. The Committee also determines the compensation of
the Company's executive officers. Membership of the Audit and Compensation
Committee is restricted to those directors who are not active or retired
officers or employees of the Company. Ms. DeHaan and Messrs. Harman and Powers
are members of the Audit and Compensation Committee and Mr. Powers serves as
Chairman. Messrs. Bech, McCarthy, Powers and Harman and Ms. DeHaan are members
of the Executive Committee, of which Mr. Bech serves as Chairman. Each Committee
met once during 1998.
32
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
Company's five most highly compensated executive officers (the "Named Executive
Officers"). Compensation information is shown for all services rendered during
the fiscal year 1998 and for the period from August 18, 1997 to December 31,
1997.
<TABLE>
<CAPTION>
Securities
Underlying
Name/Principal Position Year Annual Compensation* Options/SARs
- ----------------------------------------------------- ------ --------------------- -------------
<S> <C> <C> <C>
Douglas Y. Bech 1998 $ 255,000 100,000
Chairman 1997 90,000 --
John McCarthy 1998 260,000 20,000
President 1997 87,179 100,000
Robert L. Brewton 1998 178,906(1) 85,000
Executive Vice President - Chief Investment Officer
George Stroesenreuther 1998 143,750(2)
Senior Vice President - Finance and Accounting
George Aldrich 1998 21,250(3) 50,000
Senior Vice President - Finance and Accounting
Brian Tucker 1998 160,000 35,000
Senior Vice President - Planning 1997 45,000 --
And Development
- ------------------
<FN>
(1) Mr. Brewton's employment with the Company commenced on April 15, 1998.
(2) Mr. Stroesenreuther resigned effective as of December 31, 1998 and was paid a severance of $57,500.
(3) Mr. Aldrich's employment with the Company commenced on November 15, 1998. * The Company provides the Named Executive Officers
with certain group, life, health, medical and other non-cash benefits generally available to all salaried employees.
</FN>
</TABLE>
Report on Executive Compensation
This report documents the components of the Company's compensation programs
for its executive officers and describes the basis on which fiscal 1998
compensation determinations were made with respect to the executive officers of
the Company. All fiscal 1998 compensation decisions with respect to base
salaries, annual compensation and stock option grants were made by the Board of
Directors with the objectives of attracting, retaining, motivating and rewarding
high caliber executive officers to manage the Company's business; inspiring
executive officers to innovatively and aggressively pursue Company goals; and
align the long-term interests of executive officers with those of the Company's
stockholders through use of stock options.
Compensation for each of the Company's executive officers were determined
on an individual basis, taking into account compensation by industry
competitors, their performance as executive officers of the Regina Resorts when
owned by Bancomer, if applicable, and general economic conditions. Mr.
McCarthy's compensation was negotiated based upon his performance as an
executive officer of the Regina Resorts prior to the Company's purchase thereof
and the Company's desire to retain him, formalized in an employment agreement.
See "- Employment Agreements." Mr. Bech's compensation was structured to be
comparable to Mr. McCarthy's compensation. Messrs. Brewton's and Tucker's
compensation were based on their experience in real estate acquisition and
development and financial and corporate planning, respectively.
Stock Options: The Company uses stock options to relate the benefits
received by executive officers and key employees to the amount of appreciation
realized by the stockholders over comparable periods. While the Company directly
granted Mr. McCarthy stock options, the other executive officers were granted
stock options under the Company's 1997 Long Term Incentive Plan. See " - 1997
Long Term Incentive Plan."
33
<PAGE>
Stock Options Granted
Except as noted, the following table provides certain information regarding
the number of stock options to purchase shares of the Company's Common Stock
granted pursuant to the Plan to the Named Executive Officers during the period
form October 1997 through December 1998, all of which were granted at an
exercise price of $5.00 per share with a 10-year term. The Company currently has
outstanding options to purchase 546,500 shares of common stock, all of which
were granted at $5.00 per share except for options for 100,000 shares granted to
Mr. McCarthy at $2.00 per share. The Company makes no representation as to the
current market value of its common stock but believes that the $5.00 per share
represents a fair price to grant options to employees.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Percentage of For Option Term (1)
Options Total Options --------------------------
Name Granted Granted 5% 10%
- ----------------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Douglas Y. Bech 100,000 15.5% $ 314,447 $ 796,871
John McCarthy 120,000 18.6% 188,668 478,123
Robert L. Brewton 85,000 13.1% 267,280 677,341
George Aldrich 50,000 7.7% 157,224 398,436
Brian Tucker 35,000 5.4% 110,057 278,905
- ----------
<FN>
(1) The 5% and 10% assumed annual rates of compound stock price appreciation over the term of option are computed in accordance
with rules and regulations of the Securities and Exchange Commission and do not represent the Company's estimate of stock price
appreciation or a projection by the Company of future stock prices.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Option Exercises and Option Values
Value of Unexercised
Total In-the-Money Options
Shares Options at Year-End 1998 at Year-End 1998*
------------------------ ------------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas Y. Bech -- -- 20,000 80,000 -- --
John McCarthy -- -- 40,000 80,000 -- --
Robert L. Brewton -- -- 17,000 68,000 -- --
George Aldrich -- -- 10,000 40,000 -- --
Brian Tucker -- -- 7,000 28,000 -- --
----------
<FN>
* The Company does not have any publicly-traded equity and, therefore, the market value of the Company's Common Stock is
considered speculative. In early 1998, the Company issued a certain number of shares of Common Stock at $5.00 per share but
makes no representation as to the current value of such shares.
</FN>
</TABLE>
1997 Long Term Incentive Plan
In August 1997, the Board of Directors of the Company approved the
Company's 1997 Long Term Incentive Plan (the "Plan"). The purpose of the Plan is
to provide directors, officers, key employees, consultants and other service
providers with additional incentives by increasing their ownership interests in
the Company. Individual awards under the Plan may take the form of one or more
of: (i) either incentive stock options and nonqualified stock options ("NQSOs"),
(ii) stock appreciation rights (iii) restricted or deferred stock; (iv) dividend
equivalents and (v) other awards not otherwise provided for, the value of which
is based in whole or in part upon the value of common stock.
The Compensation Committee, or such other committee as the Board of
Directors designates, who will administer the Plan and select the individuals
who will receive awards and establish the terms and conditions of those awards.
The maximum number of shares of Common Stock that may be subject to outstanding
awards, determined immediately after the grant of any award, may not exceed the
greater of 800,000 shares or 8% of the aggregate number of shares of Commons
Stock outstanding at the time of such grant. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
34
<PAGE>
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common stock may then be listed or quoted;
provided, however, that without the consent of any affected participant in the
Plan, no such action may materially impair the rights of such participant under
any award granted to him.
Employment Agreements
The Company has entered into employment agreements with each of the Named
Executive Officers. Each employment agreement provides for three-year employment
terms at the end of which each extends for successive one-year terms. Each of
the employment agreements provide for an initial base salary plus a bonus
pursuant to the Company's bonus plan administered by the Compensation Committee
of the Company's Board of Directors. In addition to any other payments to be
made to the Named Executive Officers under his employment agreement, each Named
Executive Officer is generally entitled to his salary for up to one year, earned
bonuses, vested stock options and any other sums due him, if his employment is
terminated thereunder for any reason other than "cause" (as defined in the
employment agreement), resignation, death or disability. Each of the Named
Executive Officers is subject to a one-year non-competition agreement with the
Company.
Exculpatory Charter Provision; Liability and Indemnification of Officers and
Directors
The Company has included in its Amended and Restated Articles of
Incorporation provisions to eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty; provided,
however, that such provision does not eliminate liability for (i) acts or
omissions not in good faith or which involve intentional misconduct, fraud, or a
knowing violation of law, or (ii) violations under Section 78.300 of the NGCL
concerning unlawful distributions to shareholders. However, these provisions
will not limit the liability of the Company's directors under the federal
securities laws. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers.
35
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 30, 1998, by each person known by the
Company to be the beneficial owner of more than 5% of the Common Stock, (giving
effect for such purpose the outstanding Warrants to purchase Common Stock for
$0.01 per share) each of the Company's directors and executive officers and all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each person's address is 10000 Memorial Drive, Suite 480, Houston,
Texas 77024. The number of shares of Common Stock currently outstanding is
10,766,300 and there are outstanding Warrants to purchase 1,869,962 shares of
Common Stock at $0.01 per share, or a total of 12,636,262.
Beneficial Ownership(1)
--------------------------
Shares
Beneficially Percent
Name Owned(1) of Class
------------------------------------ ---------- --------
Douglas Y. Bech (2) 1,901,912 15.1
John McCarthy (2) 215,367 1.7
Robert L. Brewton (2) 120,000 *
George Aldrich (2) 56,000 *
Fred Daniels (2) 4,000 *
Bruce MacIntire (2) 12,000 *
Mario Muro (2) 12,500 *
Gustavo Ripol (2) 4,000 *
Brian R. Tucker (2) 106,000 *
Christopher W. Allick (3) 72,955 *
345 California Street, Suite 3400
San Francisco, CA 94104
Christel DeHaan 783,333 6.2
10 West Market Street, Suite 1990
Indianapolis, IN 46204
Walker G. Harman (4) 1,840,000 14.6
8080 N. Central Expwy.
Suite 1600, LB 82
Dallas, TX 75206
Thomas R. Powers 1,110,213 8.8
Robert Werle (5) 328,345(6) 2.6
Jefferies & Company, Inc.
11100 Santa Monica Blvd. 10th Floor
Los Angeles, CA 90025
William T. Criswell (7) 1,077,440 8.5
3000 Bent Cypress Drive
Wellington, FL 33414
All directors and officers as a group 6,566,625 52.0(8)
(14 persons)
* Less than 1%
(1) To the Company's knowledge, such person has sole voting and investment
power with respect to all Common Stock shown as beneficially owned by such
person, unless otherwise indicated. The outstanding Warrants to purchase
1,869,962 shares for $0.01 per share are included for purposes of computing
the percentage of outstanding shares.
(2) Excludes options to purchase shares of Common Stock.
(3) Mr. Allick's shares are beneficially owned by and are held of record by
Jefferies & Company, Inc.
(4) Includes 1,840,000 shares of Common Stock held by Metro Mexico Investment
Partners ("MMIP"). Mr. Harman is a general partner of MMIP and, as such,
can be deemed to have beneficial ownership of the shares MMIP holds. Mr.
Harman disclaims ownership of 120,000 of such shares.
(5) Mr. Werle disclaims beneficial ownership to all such shares except 33,062
shares.
(6) Excludes 72,955 shares owned beneficially by Mr. Allick.
(7) Includes 673,400 shares of Common Stock that Mr. Criswell or affiliated
entities hold, subject to the claims of two other persons.
(8) All directors and officers as a group have an aggregate voting power with
respect to the outstanding shares of Common Stock (excluding the Warrants)
of 61.0%.
36
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K
(a) (1) and (a) (2) Financial Statements and Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section
of this report beginning on page F-1. All other schedules are not
applicable or not required and accordingly have been omitted.
(a) (3) Exhibits
The following documents are filed as part of this report.
Exhibit No. Description
- ------------ -------------
3.1* -- Amended and Restated Articles of Incorporation Raintree Resorts
International, Inc. ("RRI US"), dated August 12, 1997. (incorporated
by reference to Exhibit 3.1 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
3.2* -- Articles of Incorporation of C.R. Resorts Capital, S. de R.L. de
C.V., dated August 11, 1997 (English Translation which includes
by-laws). (incorporated by reference to Exhibit 3.2 to Amendment No. 1
dated April 22, 1998 to Registrant's Registration Statement on Form
S-4/A-File No. 333-49065)
3.3* -- By-Laws of Raintree Resorts International, Inc., formerly known as
Club Regina Resorts, Inc., effective April 15, 1997. (incorporated by
reference to Exhibit 3.3 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
3.4* -- Certificate of Designations of Class A Redeemable Convertible
Preferred Stock of RRI US. (incorporated by reference to Exhibit 3.4
to Amendment No. 1 dated April 22, 1998 to Registrant's Registration
Statement on Form S-4/A-File No. 333-49065)
3.5* -- Certificate of Amendment to the Amended and Restated Articles of
Incorporation of Club Regina Resorts, Inc., changing the name to
Raintree Resorts International, Inc., dated May 12, 1998.
(incorporated by reference to Exhibit 3.5 to Amendment No. 2 dated May
22, 1998 to Registrant's Registration Statement on Form S-4/A-File No.
333-49065)
3.6* -- Certificate of Designations of Class B Preferred Stock of the
Company. (incorporated by reference to Exhibit 3.1 to Registrant's
Form 10-Q for the quarter ended September 30, 1998)
4.1* -- Indenture (including Forms of Registered Note and Outstanding
Note), dated December 5, 1997, among the Issuers and IBJ Schroder Bank
& Trust Company. (incorporated by reference to Exhibit 4.1 to
Amendment No. 1 dated April 22, 1998 to Registrant's Registration
Statement on Form S-4/A-File No. 333-49065)
4.2* -- Series B Warrant Agreement (including form of warrant), dated
December 5, 1997, between RRI US and Jefferies & Company, Inc.
(Initial Purchaser). (incorporated by reference to Exhibit 4.2 to
Amendment No. 1 dated April 22, 1998 to Registrant's Registration
Statement on Form S-4/A-File No. 333-49065)
4.3* -- Warrant Agreement (including form of warrant), dated December 5,
1997, between RRI US and the Warrant Agent. (incorporated by reference
to Exhibit 4.3 to Amendment No. 1 dated April 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
37
<PAGE>
4.4* -- Articles of Raintree Resorts Holdings Ltd., (Canada) dated July 19,
1998. (incorporated by reference to Exhibit 4.1 to Registrant's Form
10-Q for the quarter ended June 30, 1998)
4.5* -- Voting Trust, Exchange and Support Agreement, dated as of July 27,
1998, by and among Raintree Resorts International, Inc., Raintree
Resorts International Canada Ltd. and Raintree Resorts Holdings, ULC.
(incorporated by reference to Exhibit 4.2 to Registrant's Form 10-Q
for the quarter ended June 30, 1998)
10.1*-- Second Amended and Restated Stock Purchase Agreement, dated August
18, 1997, by and among Bancomer, RRI US, Desarrollos Turisticos
Bancomer, S.A. de C.V. and CR Hotel Acquisition Company, L.L.C.
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 dated
April 22, 1998 to Registrant's Registration Statement on Form
S-4/A-File No. 333-49065)
10.2*-- Cross Indemnity Agreement, dated August 18, 1997 by and among
Bancomer, RRI US and others named therein. (incorporated by reference
to Exhibit 10.2 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.3*-- Post-Closing Agreement, dated August 19, 1997, by and among
Bancomer, RRI US and others named therein. (incorporated by reference
to Exhibit 10.3 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.4*-- Asset Management Agreement, dated August 18, 1997, by and among
Starwood Lodging Corporation and RRI US. (incorporated by reference to
Exhibit 10.4 to Amendment No. 2 dated May 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
10.5*-- Form of Operating Agreement by and among Starwood and subsidiaries
of RRI US (English translation). (incorporated by reference to Exhibit
10.5 to Amendment No. 1 dated April 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
10.6*-- Warrant Shares Registration Rights Agreement, dated December 5,
1997, between RRI US and the Initial Purchaser. (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.7*-- A/B Exchange Registration Rights Agreement, dated December 5,
1997, among the Issuers and the Initial Purchaser. (incorporated by
reference to Exhibit 10.7 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.8*-- Series B Warrant Registration Rights Agreement, dated December 5,
1997, between RRI US and the Initial Purchaser. (incorporated by
reference to Exhibit 10.8 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.9*-- Form of Indemnity Agreement. (incorporated by reference to Exhibit
10.10 to Amendment No. 1 dated April 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
10.10* -- Form of Registration Rights Agreement, by and among RRI US and
stockholders of RRI US. (incorporated by reference to Exhibit 10.11 to
Amendment No. 1 dated April 22, 1998 to Registrant's Registration
Statement on Form S-4/A-File No. 333-49065)
10.11* -- Form of Shareholders Agreement, by and among RRI US and
stockholders of RRI US. (incorporated by reference to Exhibit 10.12 to
Amendment No. 1 dated April 22, 1998 to Registrant's Registration
Statement on Form S-4/A-File No. 333-49065)
10.12* -- 1997 Long-Term Incentive Plan. (incorporated by reference to
Exhibit 10.13 to Amendment No. 1 dated April 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
10.13* -- Tax Allocation Agreement dated August 18, 1997, by and among
Starwood Lodging Corporation and RRI US. (incorporated by reference to
Exhibit 10.14 to Amendment No. 1 dated April 22, 1998 to Registrant's
Registration Statement on Form S-4/A-File No. 333-49065)
38
<PAGE>
10.14* -- Agreement dated May 20, 1996 by and among Starwood Capital Group,
L.L.C., RRI US and Raintree Capital Company, LLC. (incorporated by
reference to Exhibit 10.15 to Amendment No. 1 dated April 22, 1998 to
Registrant's Registration Statement on Form S-4/A-File No. 333-49065)
10.15* -- Agreement dated May 20, 1996 by and among SLT Realty Limited
Partnership, RRI US and Raintree Capital Company, LLC. (incorporated
by reference to Exhibit 10.16 to Amendment No. 1 dated April 22, 1998
to Registrant's Registration Statement on Form S-4/A-File No.
333-49065)
10.16* -- Agreement on Opening of Loan Against Current Account with Trust
Guarantee, dated July 20, 1998, by and among Bancomer Sociedad Anonima
de Capital Variable, Institucion de Banca Multiple, Grupo Financiero,
C.R. Resorts Capital S. de R.L. de C.V., and C.R. Resorts Puerto
Vallarta, Variable Capital Limited Liability Corporation.
(incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q
for the quarter ended June 30, 1998)
10.17* -- Registration Rights Agreement, dated as of July 27, 1998, by and
among Raintree Resorts International, Inc., a Nevada corporation, and
certain Shareholders thereof. (incorporated by reference to Exhibit
10.2 to Registrant's Form 10-Q for the quarter ended June 30, 1998)
10.18+ -- Loan and Security Agreement for $20,000,000, dated November 23,
1998, by and between FINOVA Capital Corporation and CR Resorts Cancun,
S. de R.L. de C.V.; CR Resorts Los Cabos, S. de R.L. de C.V.; CR
Resorts Puerto Vallarta, S. de R.L. de C.V.; Corporacion Mexitur, S.A.
de C.V.; CR Resorts Cancun Timeshare Trust S. de R.L. de C.V.; CR
Resorts Cabos Timeshare Trust, S. de R.L. de C.V. and CR Resorts
Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
10.19+ -- Corporate Guarantee and Subordination Agreement to the Loan and
Security Agreement for $20,000,000 with FINOVA, dated November 23,
1998, by and between FINOVA Capital Corporation and Raintree Resorts
International, Inc.
21.1+ -- List of Subsidiaries of RRI Inc.
27.1+ -- Financial Data Schedule
- -------------------
* previously filed
+ filed herewith
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Houston, the State of
Texas, on March 19, 1999.
RAINTREE RESORTS INTERNATIONAL, INC.
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
By: /s/ GEORGE E. ALDRICH
----------------------------------------
George E. Aldrich
Senior Vice President - Finance and Accounting
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ DOUGLAS Y. BECH
- -------------------------- Chairman and Chief Executive March 16, 1999
Douglas Y. Bech Officer (principal executive officer)
/s/ JOHN McCARTHY
- -------------------------- President and Chief Operating Officer March 16, 1999
John McCarthy
/s/ GEORGE E. ALDRICH Senior Vice President - Finance March 16, 1999
- -------------------------- and Accounting (principal
George E. Aldrich financial and accounting officer)
/s/ CHRISTOPHER W. ALLICK
- -------------------------- Director March 16, 1999
Christopher W. Allick
- -------------------------- Director March __, 1999
Christel DeHaan
/s/ WALKER G. HARMAN
- -------------------------- Director March 16, 1999
Walker G. Harman
/s/ THOMAS R. POWERS
- -------------------------- Director March 16, 1999
Thomas R. Powers
/s/ ROBERT M. WERLE
- -------------------------- Director March 16, 1999
Robert M. Werle
40
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................................................................F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1998...........................................................................F-3
Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 1997 and 1998 ......................................................F-4
Consolidated Statements of Shareholder's Investment
for the years ended December 31, 1997 and 1998.......................................................F-5
Consolidated Statements of Cash Flows for the period
for the years ended December 31, 1997 and 1998 ......................................................F-6
Notes to Consolidated Financial Statements...............................................................F-7
CR RESORTS CAPITAL, S. DE R.L. DE C.V. (A WHOLLY OWNED FINANCE SUBSIDIARY)
Report of Independent Public Accountants.................................................................F-22
Consolidated Balance Sheets as of December 31, 1997 and 1998.............................................F-23
Consolidated Statements of Income and Retained Earnings for the period
August 18, 1997 through December 31, 1997
and for the year ended December 31, 1998.............................................................F-24
Consolidated Statements of Cash Flows for the period
August 18, 1997 through December 31, 1997 and for the year
ended December 31, 1998..............................................................................F-25
Notes to Consolidated Financial Statements...............................................................F-26
FINANCIAL STATEMENTS OF PREDECESSOR BUSINESS FOR JANUARY 1, 1997 THROUGH
AUGUST 17, 1997 - DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
Report of Independent Public Accountants.................................................................F-31
Consolidated Statement of Operations for the Period
January 1, 1997 through August 17, 1997..............................................................F-32
Consolidated Statement of Cash Flows for the Period
January 1, 1997 through August 17, 1997..............................................................F-33
Notes to Consolidated Financial Statements...............................................................F-34
FINANCIAL STATEMENTS OF PREDECESSOR BUSINESS FOR 1996- DESARROLLOS
TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statement of Operations (unaudited) for the year ended
December 31, 1996 ...................................................................................F-41
Consolidated Statement of Cash Flows (unaudited) for the year ended
December 31, 1996 ...................................................................................F-42
Notes to Consolidated Financial Statements (unaudited)...................................................F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Raintree Resorts International, Inc.:
We have audited the accompanying consolidated balance sheets of Raintree Resorts
International, Inc. (a Nevada corporation) and subsidiaries (the Company) as of
December 31, 1997 and 1998, and the related consolidated statements of
operations and comprehensive income, shareholders' investment and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Raintree Resorts
International, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 19, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
December 31,
---------------------------------------
1997 1998
------------------ -----------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................... $ 9,005 $ 2,960
Vacation Interval receivables and other trade receivables, net........... 41,915 51,835
Inventories ............................................................. 939 775
Refundable Mexican taxes ................................................ 4,117 3,488
Office furniture and equipment .......................................... 1,542 3,046
Land held for vacation ownership development ............................ 12,405 22,170
Equity investments....................................................... 2,500 2,949
Cost of unsold vacation ownership intervals and related club memberships 33,178 27,606
Retained interest in hotel cash flows ................................... 4,000 4,000
Deferred loan costs...................................................... 8,697 7,413
Goodwill, net .......................................................... -- 1,240
Prepaid and other assets ............................................... 1,681 2,185
-------- --------
Total assets ................................................................ $119,979 $129,667
======== ========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities ............................... $ 10,093 $ 11,850
Notes payable .......................................................... 1,000 17,135
Senior Notes, due 2004, net of unamortized original issue
discount of $9,220 and $7,907, respectively .......................... 90,780 92,093
Taxes payable .......................................................... 2,131 1,618
Unearned services fees .................................................. 2,923 2,028
------- -------
Total liabilities .......................................................... 106,927 124,724
Commitments and Contingencies
Shareholders' Investment
Preferred stock; par value $.001; 5,000,000 shares authorized, shares
issued and outstanding 37,500 at December 31, 1997 and 1998 .......... -- --
Convertible preferred stock; $100 per share liquidation value;
0 and 20,775 shares issued and outstanding at December 31, 1997
and 1998, respectively ............................................... -- 2,078
Common stock; par value $.001; 45,000,000 shares authorized, shares
issued and outstanding 10,701,300 and 10,766,300 at
December 31, 1997 and 1998, respectively ............................. 11 11
Additional paid-in capital .............................................. 7,046 7,371
Warrants to purchase 1,869,962 shares of common stock.................... 9,331 9,331
Accumulated deficit ..................................................... (3,336) (13,737)
Cumulative translation adjustment ....................................... -- (111)
-------- --------
Total shareholders' investment .............................................. 13,052 4,943
-------- --------
Total liabilities and shareholders' investment .............................. $119,979 $129,667
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands except share and per share data)
Years Ended
December 31,
-----------------------------------
1997 1998
---------------- ---------------
<S> <C> <C>
Statement of Operations
Revenues
Vacation Interval sales ....................................................... $ 18,098 $ 56,508
Rental and service fee income ................................................. 3,896 8,926
Interest income on vacation interval receivables .............................. 1,557 5,848
Other income .................................................................. 2,153 2,701
--------- ---------
Total revenues ............................................................. 25,704 73,983
Costs and Operating Expenses
Cost of Vacation Interval sales ............................................... 4,569 13,161
Provision for doubtful accounts ............................................... 2,318 4,450
Advertising, sales and marketing .............................................. 8,576 23,874
Maintenance and energy ........................................................ 1,938 8,013
General and administrative .................................................... 5,417 11,463
Depreciation .................................................................. 49 620
Amortization of goodwill ...................................................... -- 2,885
--------- ---------
Total costs and operating expenses ......................................... 22,867 64,466
--------- ---------
Operating income ................................................................ 2,837 9,517
Interest expense, net ......................................................... 3,931 14,947
Foreign currency exchange losses, net ......................................... 1,333 4,299
--------- ---------
Net loss before taxes ........................................................... (2,427) (9,729)
Foreign income and asset taxes ................................................ 909 672
--------- ---------
Net loss before preferred dividends ............................................. (3,336) (10,401)
Preferred stock dividends ..................................................... 232 711
--------- ---------
Net loss available to common shareholders ....................................... $ (3,568) $ (11,112)
========= =========
Loss per share
Basic and Diluted ............................................................. $ (.40) $ (1.03)
Weighted average number of common shares:
Basic and Diluted ............................................................. 8,843,383 10,747,409
Comprehensive Income
Net loss before preferred stock dividends ....................................... $ (3,336) $ (10,401)
Other comprehensive loss:
Foreign currency translation adjustment ..................................... -- (111)
--------- ---------
Comprehensive loss .............................................................. $ (3,336) $ (10,512)
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(in thousands except share and per share data)
Total
Convertible Additional Warrants Cumulative Shareholders'
Common Preferred Preferred Paid-In To Purchase Accumulated Translation Investment
Stock Stock Stock Capital Stock Deficit Adjustment (Deficit)
------ --------- --------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issue 8,100,000 common shares........ $ 8 $ 4 $ 12
Issue 2,000,000 commons shares on
August 18, 1997 to subsidiary of
Starwood Capital in connection
with the purchase transactions .. 2 2
Issue 37,500 preferred shares in
exchange for shareholder loans of
$3.75 million .................. $ -- 3,750 3,750
Issue common shares; 200,000 for
cash; 258,450 in connection with
Senior Note offering; and 142,850
in connection with the purchase
transaction ..................... 1 3,292 3,293
Issue warrants to purchase
1,869,962 common shares and
related issue costs ............. $ 9,331 9,331
Net loss for the year ended
December 31, 1997................ $ (3,336) (3,336)
------ ------- -------- -------- -------- ---------- ------- --------
Balance, December 31, 1997........... 11 -- 7,046 9,331 (3,336) 13,052
Issue 65,000 common shares
at $5 per share ................. -- 325 325
Issue 20,775 convertible preferred
stock as partial consideration
for the purchase of Whiski Jack . -- $ 2,078 2,078
Cumulative translation adjustment $ (111) (111)
Net loss for the year ended (10,401) (10,401)
December 31, 1998................ ------ ------- -------- -------- -------- ---------- ------- --------
Balance, December 31, 1998........... $ 11 $ -- $ 2,078 $ 7,371 $ 9,331 $ (13,737) $ (111) $ 4,943
====== ======= ======== ======== ======== ========== ======= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
-------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
Operating activities
Net loss ..................................................................... $ (3,336) $ (10,401)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................. 252 6,033
Provision for doubtful accounts ............................................ 2,318 4,450
Equity loss in investments ................................................. (13) 25
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables .................. (5,753) (11,383)
Inventories ................................................................ (132) 164
Refundable Mexican taxes ................................................... (3,375) 629
Cost of unsold vacation ownership intervals and related club memberships ... 627 8,515
Deferred loan costs ........................................................ (407) 69
Prepaid and other assets ................................................... (1,447) (327)
Accounts payable and accrued liabilities ................................... 6,681 7
Taxes payable .............................................................. (815) (541)
Unearned services fees ..................................................... 1,070 (1,129)
----------- ----------
Net cash used in operating activities (4,330) (3,889)
Investing activities
Purchase of vacation ownership business, net of cash acquired................. (85,482) (3,225)
Purchase of land and other assets held for vacation ownership development .... (43) (5,240)
Additions to office furniture and equipment .................................. (813) (1,968)
----------- ----------
Net cash used in investing activities ........................................... (86,338) (10,433)
Financing activities
Issuance of stock ............................................................ 1,013 325
Proceeds from shareholder loans .............................................. 4,900 --
Proceeds from issuance of notes payable to a bank in connection
with the purchase transactions ............................................. 82,954 --
Additional bank and other loans .............................................. 1,000 11,575
Repayment of bank and shareholder loans ...................................... (84,104) (3,667)
Issuance of Senior Notes, less related expenses .............................. 93,910 --
----------- ----------
Net cash provided by financing activities ....................................... 99,673 8,233
Increase (decrease) in cash and cash equivalents ................................ 9,005 (6,089)
Effect of exchange rate changes on cash ......................................... -- 44
Cash and cash equivalents, at beginning of the period ........................... -- 9,005
----------- ----------
Cash and cash equivalents, at end of the period ................................. $ 9,005 $ 2,960
=========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for interest ..................................... $ 3,252 $ 14,053
Cash paid during the period for income and asset taxes ....................... 183 1,672
Non-cash investing activities
Issuance of warrants in conjunction with debt offering ....................... $ 9,331 $ --
Issuance of common stock in conjunction with debt offering ................... 1,292 --
Issuance of common stock in settlement of financial advisory fees ............ 1,000 --
Conversion of shareholder loans to preferred stock ........................... 3,750 --
Issuance of preferred stock in conjunction with purchase of Whiski Jack ...... -- 2,078
Issuance of notes payable in conjunction with purchase of land ............... -- 5,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and interval data)
1. GENERAL INFORMATION
General
The financial statements include the accounts of Raintree Resorts
International, Inc., a Nevada corporation, (the "Ultimate Parent") and all of
its wholly owned subsidiaries (the "Company"). The Company develops, markets,
and operates vacation ownership resorts in North America with resorts in Mexico,
Canada and the United States. The Company's headquarters are located in Houston,
Texas with administrative offices in Mexico City, Mexico and Whistler, British
Columbia, Canada.
Company Formation and Initial Operations
On August 18, 1997, Raintree Resorts International, Inc. (formerly Club
Regina Resorts, Inc.) which was incorporated in August 1996, purchased all of
the stock of Desarrollos Turisticos Regina S. de R.L. de C.V. and its
subsidiaries (the "Predecessor Business"). In summary, the Company acquired net
vacation ownership assets ("Regina Resorts") of approximately $86.8 million from
a Mexican bank (Bancomer) using shareholder loans of approximately $3.8 million
and seller financing of approximately $83 million. The allocation of the
purchase price was to the following net assets (in millions):
<TABLE>
<S> <C>
Vacation Interval receivables and other trade receivables........................................ $ 37.2
Land held for vacation ownership development .................................................... 12.2
Cost of unsold vacation ownership intervals and employee housing, etc. .......................... 33.8
Investment in a 50% held company ................................................................ 2.5
Cash and other assets ........................................................................... 6.0
Retained interests in hotel cash flows .......................................................... 4.0
------
Total assets .................................................................................... 95.7
Less liabilities assumed ........................................................................ (8.9)
------
Net purchase price .............................................................................. $ 86.8
======
</TABLE>
Contemporaneous with the purchase, the real property of the Predecessor
Business, the Regina Resorts and Westin Hotels, was segregated such that each
would be able to be owned by separate companies. The Westin Hotels were then
sold by the Company to SLT Realty Limited Partnership, an affiliate of Starwood
Lodging Trust and Starwood Lodging Corporation (collectively "Starwood") for
$132.75 million on August 18, 1997. No gain or loss was recognized on the sale.
These transactions are referred to herein as the Purchase Transactions.
As a result of the Purchase Transactions, the Company owns and operates
three luxury Mexican vacation ownership resorts in Cancun, Puerto Vallarta and
Cabo San Lucas, Mexico. Prior to August 18, 1997, the Company did not have
significant operations or revenues and prior to April 1997 the Company was
inactive.
In connection with the Purchase Transactions, the Company borrowed
approximately $83 million and replaced such borrowing with its Senior Notes. The
Company is, and will continue to be, highly leveraged, with substantial debt
service requirements. The Company has incurred losses since its inception and
expects to incur a net loss for fiscal 1999. To achieve profitable operations
the Company is dependent upon a number of factors, including its ability to
increase its Vacation Interval inventory on an economical basis through
development projects or acquisition of existing resort properties. The Company
expects that its existing credit capacity and its ability to obtain capital
financings as well as the Company's anticipated results of operations will be
sufficient to fund its capital requirements through the year 1999.
F-7
<PAGE>
Acquisition of Whiski Jack
On July 24, 1998, the Company acquired the assets and assumed certain
liabilities of Whiski Jack Resorts Ltd. ("Whiski Jack") for approximately $6.6
million. The acquisition was accounted for as a purchase and, accordingly, the
results of operations are included in the financial statements only for the
periods subsequent to the date of acquisition. The purchase price has been
allocated to the assets and liabilities assumed based upon the fair values at
the date of acquisition. The excess purchase price over the fair values of the
net assets acquired has been recorded as goodwill, totaling approximately $4.2
million, to be amortized pro rata as the individual weeks acquired in the
acquisition are sold. Amortization expense was $2.9 million for the year ended
December 31, 1998.
The Company periodically evaluates the recoverability of intangibles
resulting from business acquisitions and measures the amount of impairment, if
any, by assessing current and future levels of income and cash flows as well as
other factors, such as business trends and prospects and market and economic
conditions.
Proforma Financial Information
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1997 and 1998 assume the Predecessor Business and Whiski
Jack acquisitions occurred as of January 1, 1997:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net revenues ................................................................... $ 77,666 $ 81,237
Net loss ....................................................................... (9,122) (6,654)
Net loss available to common shareholders ...................................... (9,949) (7,500)
Basic and diluted loss per common share ........................................ (0.94) (0.70)
</TABLE>
The pro forma adjustments include the pre-acquisition results of the
Predecessor Business for the period from January 1, 1997 to August 17, 1997, and
Whiski Jack for 1997 and for the period from January 1, 1998 to July 23, 1998.
The adjustments include the recognition of deferred revenue and expenses that
were previously accounted for under the lease method of accounting by the
Predecessor Business, the amortization of goodwill generated from the
acquisitions, interest expense on the debt assumed to be issued to finance the
purchase, and the effect of the acquisitions on income taxes. The pro forma
amounts are based upon certain assumptions and estimates and do not reflect any
benefit from economies which might have been achieved from combined operations.
The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place at the beginning of each of the
fiscal periods presented, nor are they indicative of the results that will be
obtained in the future.
New Product Structure
Effective July 1, 1998, the Company put into effect a new product structure
to sell its Vacation Intervals ("Vacation Intervals") under a right-to-use
membership entitling owners to a 50-year contractual right to use Vacation
Interval units. This right includes the right to participate either in (i) an
extension of the contractual right to use if practicable under Mexican law or
(ii) the proceeds from the sale of the Los Cabos, Cancun and Puerto Vallarta
Resorts in 2047. This new membership has a term of 50 years instead of the 30
years which applied under the prior marketing structure. The Company believes
that the change in structure has had a positive effect on its Mexican sales and
marketing programs as it has been able to sell an interest that is more closely
aligned with the traditional fee simple deeded interest offered by the timeshare
industry to buyers of vacation intervals in the United States.
The Company has also extended the same rights of ownership to purchasers of
vacation ownership interest for the period from August 18, 1997 to July 1, 1998
through a legally enforceable assignment. The Company is currently examining the
method by which such assignment will be evidenced to the purchasers.
F-8
<PAGE>
Amendment to Mexican Value Added Tax Law
In December 1997, the Mexican Value Added Tax Law ("VAT") was amended to
make all vacation ownership operations, regardless of the structure subject to
the VAT, effective January 1, 1998. This would have caused a new Company member
to pay 10 to 15% more for each Vacation Interval depending on the sales
location. In response to these events, the Company decreased its Vacation
Interval prices on an average of five percent to compensate in part for the tax
charged to the customer. The Company will benefit, however, from the fact that
the Company is now able to recover all of the VAT paid as part of the marketing
efforts to sell the Vacation Intervals. The Company believes that because of
these changes in the tax law and its marketing arrangements, the Company will be
able to reduce VAT tax expenses equivalent to six percent of the revenue from
the sale of Vacation Intervals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany balances
have been eliminated in consolidation. The Company reports its 50% interest in a
company that owns and rents housing to both employees and non-employees of the
Company using the equity method of accounting. Certain reclassifications have
been made to prior year's financial statements to be consistent with the current
year's presentation.
Foreign Currency Accounting and Fluctuations
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican pesos. The accounts
of the Mexican subsidiaries have been re-measured into United States ("U.S.")
dollars in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation. The Company's stated sales prices are U.S.
dollar denominated as are a significant amount of its vacation interval
contracts receivable. Additionally, the Company's debt is U.S. dollar
denominated. Accordingly, the Mexican pesos are translated to U.S. dollars for
financial reporting purposes in using the U.S. dollar as the functional currency
and exchange gains and losses as well as translation gains and losses are
reported in income and expense. The resulting net exchange and translation
losses for the period August 18, 1997 through December 31, 1997 (the period the
Company had operations in Mexico during 1997) and the year ended December 31,
1998 were $1,333 and $4,299, respectively. This net loss was primarily related
to the decline in the value of the peso to the U.S. dollar during the period
August 18, 1997 through December 31, 1997 and the year ended December 31, 1998
as follows:
<TABLE>
<CAPTION>
Exchange rates Pesos US Dollar
-------------- ----- ---------
<S> <C> <C> <C>
August 18, 1997........................................................ 7.766 = $1.00
December 31, 1997...................................................... 8.083 = $1.00
March 31, 1998......................................................... 8.517 = $1.00
June 30, 1998 ......................................................... 9.041 = $1.00
September 30, 1998 .................................................... 10.112 = $1.00
December 31, 1998...................................................... 9.865 = $1.00
</TABLE>
The Company uses the U.S. dollar as the functional currency in Mexico based
on the Company's analysis of the salient factors for selection of functional
currency under FASB Statement No. 52 - Foreign Currency Translation. Therefore,
the recent decline in the inflation rate in Mexico below the threshold for
mandatory designation of the functional currency as the U.S. dollar in Mexico,
will not change the Company's accounting for its Mexican operations.
The Company maintains its Canadian accounting records and prepares its
financial statements for its Canadian subsidiaries in Canadian dollars. The
balance sheet accounts of the Canadian subsidiaries have been re-measured into
U.S. dollars. Accordingly, the Canadian dollars are translated to U.S. dollars
for financial reporting purposes using the U.S. dollar as the basis for
reporting translation gains and losses. The resulting net translation gains and
losses are reported as required in the equity section of the balance sheet under
the caption "cumulative translation adjustment."
F-9
<PAGE>
The future valuation of the Mexican peso and the Canadian dollar related to
the U.S. dollar cannot be determined, estimated or projected.
Comprehensive Income
Comprehensive income is defined by Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, and is net income plus direct
adjustments to stockholders' equity. The cumulative translation adjustment of
the Company's Canadian foreign subsidiaries is the only such direct adjustment
applicable to the Company.
Cash and Cash Equivalents
The Company considers demand accounts and short-term investments with
maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents include $0.8 million in restricted funds at December 31,
1998.
Vacation Interval Receivables and Concentration of Geographic and Credit Risk
As of December 31, 1998, 95% of the Company's Vacation Interval receivables
relate to sales that entitle the owner upon payment of a service fee, a defined
right to use vacation ownership facilities at the Company's various resorts in
Mexico. While the Company does not obtain collateral for such Vacation Interval
receivables, the Company does not believe it has significant credit risk with
regard to its Vacation Interval receivables, because in the instance of
uncollectibility of a contract, the Company retains the right to recover and
re-sell the underlying defaulted Vacation Interval. Historically, the Company
has been able to re-sell such intervals at prices in excess of the defaulted
receivable balances. Management believes the allowance for uncollectible
accounts is adequate to cover probable losses inherent in the contracts
receivable portfolio at December 31, 1998.
The Company estimates that at December 31, 1998 approximately 57% of all of
the Vacation Interval receivables were U.S. dollar denominated, 28% of all
Vacation Interval receivables were denominated in UDIs, an obligation
denominated in pesos which is adjusted for Mexican inflation ("UDI"), and 10% of
all Vacation Interval receivables were denominated in Mexican pesos and 5% of
all Vacation Interval receivables were denominated in Canadian dollars.
A significant portion of the Company's customers reside in Mexico and all
of the Company's sales offices which sell vacation ownership interest of Club
Regina are currently located in Mexico. Any economic downturn in Mexico, which
has a history of economic instability, could have a material adverse effect on
the Company's business, results of operations and financial condition.
Seasonality
The Mexican and Canadian vacation ownership industry in general tends to
follow seasonal buying patterns with peak sales occurring during the peak
travel/tourism seasons, usually December through April and July and August.
Seasonal influences also affect the Company's earnings so that net income and
cash receipts from customer initial down payments are typically higher in the
first and fourth calendar quarters. In Mexico, American tourists tend to
vacation in the destinations where the Regina Resorts are located in the
December through April season while Mexican tourists tend to travel to these
destinations more frequently during the summer months.
Fair Market Value of Financial Instruments
The carrying amount of Vacation Interval receivables and other trade
receivables, reimbursements receivable from Starwood for shared acquisition
costs, notes payable, and notes payable to shareholders approximate their
estimated fair market value because of the short-term maturity of those
instruments and/or because they bear market interest rates as of December 31,
1998. The fair market value of the Senior Notes has not be determined since they
are not traded on a formal exchange market and they are volatile due to being
speculative in nature.
F-10
<PAGE>
Inventories
Inventories, which include supplies, other consumables, and items held for
sale in the Company's retail shops are stated at the lower of cost (FIFO method)
or estimated market.
Office Furniture and Equipment
Office furniture and equipment is stated at cost net of accumulated
depreciation of $57 and $662 at December 31, 1997 and 1998, respectively, and
the office furniture and equipment are related to assets used by the Company in
its administration and marketing functions and is depreciated using the straight
line method over the estimated useful lives of three to seven years.
Land Held for Vacation Ownership Development
The Company owns a parcel of undeveloped beachfront property located in
Cozumel, Mexico and a parcel of land adjacent to its Regina Resort located in
Cabo San Lucas, Mexico. The Company plans to construct additional vacation
ownership facilities on these parcels of land. Although preliminary
architectural and engineering planning has commenced, no commitments have been
made regarding these planned expansion projects. Further work on the Cozumel
property will likely occur in late 2000 or later.
Land held for vacation ownership development includes the cost of land, and
additionally, development costs and capitalized interest. Interest of $0.5
million and $1.8 million during the year ended December 31, 1997 and 1998,
respectively, was capitalized related to these developmental properties.
Costs of Unsold Vacation Ownership Intervals and Related Club Memberships
In Mexico, the Company is the beneficiary of trusts that hold fee simple
title to the vacation ownership facilities at the three Regina Resorts. The
Company reports its allocated acquisition costs related to these trust rights to
use these facilities, to the extent that such Vacation Intervals were unsold,
within the balance sheet as "cost of unsold vacation ownership interval weeks
and related club memberships." At December 31, 1997 and 1998, the Company holds
rights for 12,566 and 6,994 Vacation Interval weeks, respectively. The Company
also includes in inventory the rights to Vacation Intervals sold prior to August
18, 1997 that revert back to the Company at the end of the 30-year lease. Trust
rights in Mexico are carried at the lower of carrying amount or fair value less
cost to sell. Fair value is estimated by discounting estimated future net cash
flow from the sale of such rights.
In Canada, the Company sells Vacation Interval ownership properties on a
weekly interval basis under a fee simple title arrangement. The Company reports
its costs related to these properties at the lower of cost or market, within the
balance sheet as "Cost of unsold vacation ownership intervals and related club
memberships". At December 31, 1998, the Company held title to properties
totaling 585 weeks.
Retained Interests in Hotel Cash Flows
In connection with the August 18, 1997 Purchase Transactions discussed in
Note 1, the Company sold the Westin Hotels to Starwood but retained an economic
interest in the hotels which is defined by an agreement under which Starwood
will pay the Company 20% of it's future cash flows, as defined, over a 50 year
period. The Company allocated $4.0 million of its net purchase price to this
agreement based on the estimated present value of expected payments arising from
the agreement. The Company estimates that it will begin receiving amounts under
this agreement in 2001. The Company will carefully monitor the expected cash
flow based on the reported results of the hotel operations and will record an
impairment loss if the carrying value of this asset should exceed the present
value of the expected future cash payments.
F-11
<PAGE>
Deferred Loan Costs
The costs incurred in connection with the Senior Notes and the Finova
Capital Corporation credit agreement in the amount of $8,721 have been deferred
and are being amortized over the term of the Senior Notes and credit agreement
using the effective interest method. The balance of deferred loan costs was
$8,697 and $7,413 at December 31, 1997 and 1998, respectively. Amortization
expense for the years ended December 31, 1997 and 1998 totaled $92 and $1,215,
respectively, and is included in interest expense.
Revenue Recognition
The Company recognizes sales of Vacation Intervals on an accrual basis
after a binding sales contract is executed and an adequate down payment is
received. For transactions that do not qualify for accrual method of accounting,
all revenue is deferred using the deposit method.
Advertising Expense
The Company expenses advertising costs as incurred.
Loss Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share also includes the assumed conversion of all
securities, such as options, warrants, convertible debt and convertible
preferred stock, if dilutive. Since the Company has a net loss for the periods
reported, no conversion is assumed as conversion of the Company's warrants and
stock options would be anti-dilutive. Additionally, the Preferred Stock and
Convertible Preferred Stock are convertible only upon the consummation of an
initial public offering and are, therefore, not included in weighted average
number of common shares.
The following is a reconciliation of the numerator and denominator for
basic and diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
Numerator - Basic and Diluted:
Loss available to common shareholders ............................... $ (3,568) $ (11,112)
Denominator:
Basic - weighted average number of common shares .................... 8,843,383 10,747,409
Adjustments:
Warrants associated with Senior Notes ............................ -- --
Common stock options ............................................. -- --
Diluted ............................................................ 8,843,383 10,747,409
Loss per share
Basic and diluted.................................................... $ (.40) $ (1.03)
</TABLE>
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.
F-12
<PAGE>
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares, as determined by
the Board of Directors, at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and accordingly, recognizes no compensation expense for the stock
option grants.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities." SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. The Company currently does not employ
derivative instruments and believes that the adoption of SFAS No. 133, required
in the year 2000, will not materially impact the Company.
3. VACATION INTERVAL RECEIVABLES AND OTHER TRADE RECEIVABLES
Vacation Interval receivables and other trade receivables were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Vacation Interval receivables ....................................... $ 43,872 $ 53,563
Service fee receivables ............................................. 2,156 1,047
Other trade receivables ............................................. 3,892 4,787
Less - allowances for uncollectible accounts ........................ (8,005) (7,562)
--------- ---------
Total ....................................................... $ 41,915 $ 51,835
========= =========
</TABLE>
At December 31, 1998, the weighted average interest rate earned on Vacation
Interval receivables denominated in U.S. dollars was 13.1%, in Mexican pesos was
22.2%, in UDI's was 7.9%, and in Canadian dollars was 13.8%. These receivables
are collected in monthly installments over periods ranging from 12 months to 9
years. The overall weighted average interest rate is 12.7%. The interest rates
range from 8% to 40.9%.
The following table reflects the principal maturities of Vacation Interval
receivables as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Period ended December 31:
<S> <C>
1999 ............................................................................. $12,742
2000 ............................................................................. 12,859
2001 ............................................................................. 11,782
2002 ............................................................................. 8,207
Thereafter ........................................................................ 7,973
</TABLE>
The activity in the Vacation Interval receivables and other trade
receivables allowance for doubtful accounts for the year ended December 31, 1997
and 1998 is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998
--------------- ----------------
<S> <C> <C>
Balance, beginning of year -- $ 8,005
Amount recorded in connection with Purchase Transaction ............. $ 5,500 --
Adjustment to purchase price allocation ............................ 850 --
Provision charged to expense ........................................ 2,318 4,450
Cancellation of contracts and receivables charge off ................ (663) (4,893)
---------- ----------
Balance, end of year ................................................ $ 8,005 $ 7,562
========== ==========
</TABLE>
F-13
<PAGE>
4. SENIOR NOTES PAYABLE
On December 5, 1997, the Company and its indirect wholly-owned Mexican
financial subsidiary ("Issuers") jointly issued $100 million of Senior Notes due
December 1, 2004. The Company also issued warrants to the noteholders to
purchase 1,869,962 common shares. The estimated fair market value of the
warrants on the date that the warrants were issued was $4.99 per warrant or
$9,331 in total. This amount was recorded as an increase in shareholders'
investment and original issue discount in the Company's balance sheet. The
original issue discount is being amortized to expense over the warrant exercise
period of 84 months. A portion of net proceeds ($82,954) was used to repay the
outstanding loans and related accrued interest payable to the Company's lender
bank (Bancomer).
The Senior Notes are payable in U.S. dollars and bear interest at 13% per
annum with interest payable semi-annually on June 1st and December 1st. The
Senior Notes are general unsecured obligations of the Issuers.
The indenture pursuant to which the Senior Notes were issued (the
"Indenture") contains certain covenants that, among other things, limit the
ability of the Issuers to incur certain additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase equity
interests (as defined) or subordinated indebtedness, create certain liens, enter
into certain transactions with affiliates, sell assets of the Issuers, issue or
sell equity interests of the Company's subsidiaries, or enter into certain
mergers and consolidations. In addition, under certain circumstances, the
Issuers will be required to offer to purchase the Senior Notes at a price equal
to 100% of the principal amount, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase, with the proceeds of certain asset
sales (as defined).
Any payments (interest or principal) made to the noteholders will be made
free and clear of any withholding for any present or future taxes, duties,
levies, imposts, assessments or other governmental charges of whatever nature
imposed by Mexico or any subdivision of Mexico, or by any related authority or
agency having power to tax, unless such taxes are required by law, rule or
regulation to be withheld or deducted, in which case, subject to certain
exceptions, the Issuers will pay such additional amounts ("Additional Amounts")
as may be necessary so that the net amount received by noteholders of the Senior
Notes (including Additional Amounts) after such withholding or deduction will
not be less than the amount that would have been received in the absence of such
withholding or deduction.
5. NOTES PAYABLE
Summary of Notes Payable -
December 31,
----------------------------------------
1997 1998
------------------ ------------------
Notes Payable to a Bank ....... $ 1,000 $ 276
Cabos West Notes Payable ..... -- 5,000
Credit Agreement Notes ........ -- 9,086
Mortgages Payable ............. -- 2,773
Line of Credit ................ -- --
--------- ---------
$ 1,000 $ 17,135
========= =========
The current maturities of Senior Notes and notes payable are $5,611 in
1999, $564 in 2000, $453 in 2001, $433 in 2002, $402 in 2003 and $109,672
thereafter.
Notes Payable to a Bank - The notes payable to a bank at December 31, 1997 and
1998 had interest payable at 11%, and 7.75%, respectively. The 1997 note was
paid in 1998 and the 1998 notes are due in 1999 and 2000 in the amounts of $162
and $114, respectively.
Cabos West Notes Payable - On September 17, 1998, in connection with the Cabos
West land purchase, the Company entered into notes payable secured by the land.
The notes bear interest at 10% and are due in 1999.
F-14
<PAGE>
Credit Agreement Notes - In November 1998, the Company negotiated a
commitment letter with Finova Capital Corporation, which included an agreement
to provide a receivables based credit facility of $20 million that was finalized
in November 1998, and an inventory based credit facility to be finalized in
1999. The agreement limits the use of proceeds to acquisitions, development,
working capital and repayment of existing obligations. Notes receivable
denominated in United States dollars and held by United States or Canadian
residents are assigned to the lender and as payments are received, they are
applied to this loan. The agreement requires replacement of notes that become 60
days past due. Furthermore, the outstanding loan balance bears interest at a
fluctuating base rate plus 175 points, which, at December 31, 1998 was 9.5% per
annum. The fluctuating base rate is the "Corporate Base" rate of Citibank, N.A.,
New York, which the bank publicly announces from time to time, and is a rate
charged by the bank to it's most creditworthy commercial borrowers. Also, the
agreement requires the Company to maintain certain minimum financial ratios
including a minimum capital requirement. The line of credit matures 84 months
from the date of the last advance made against it.
Mortgages Payable - Mortgages payable consist of the assignment of specific
Whiski Jack Vacation Interval receivables to related and third party buyers. The
mortgages payable bear interest at a major Canadian bank's prime rate plus 1.25%
to prime plus 8.5% and are payable in monthly installments over periods ranging
from twelve months to ten years. The average interest rate during 1998 was 11.1%
and at December 31, 1998 the prime rate was 6.75%.
Line of Credit - In July 1998, the Company received approval from Bancomer of a
$20 million line of credit that expires July 2002. The agreement limits the use
of proceeds to the payment of interest incurred and payable under the Senior
Notes. The outstanding loan balance bears interest at 11.5% per annum. Under the
line of credit, all borrowings and interest will be payable in U.S. dollars.
Loans under the line will be secured by a portion of the present and future
United States dollars, pesos and UDI based accounts receivable of an indirect
wholly-owned subsidiary (CR Resorts Puerto Vallarta). Also, the agreement
requires certain of the Company's subsidiaries to maintain certain minimum
financial ratios. In order to activate the line of credit, the Company will be
required to pay the bank a fee of 1.5% of funds drawn under the line of credit.
6. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
In July 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," was issued. SFAS, No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997.
The Company has only one line of business, which develops, markets and
operates luxury vacation ownership resorts. The Company has operations in three
geographic areas. The following is a breakdown of revenues and assets by
geographic area:
<TABLE>
<CAPTION>
United
Mexico Canada States Total
-------- -------- -------- --------
As of and for year ended December 31, 1998:
<S> <C> <C> <C> <C>
Revenues from external customers ......................... $ 66,036 $ 6,524 $ 1,423 $ 73,983
Operating Income (loss) .................................. 13,481 (1,550) (2,414) 9,517
Total Assets ............................................. 117,541 9,643 2,483 129,667
Capital expenditures ..................................... 11,381 163 190 11,734
As of and for year ended December 31, 1997:
Revenues from external customers ......................... $ 24,857 $ -- $ 847 $25,704
Operating Income (loss) .................................. 3,670 -- (833) 2,837
Total Assets ............................................. 105,051 -- 14,928 119,979
Capital expenditures ..................................... 930 -- 51 981
</TABLE>
Revenues are attributed to countries based on the location of the vacation
ownership resorts.
F-15
<PAGE>
7. RELATED PARTY TRANSACTIONS AND AGREEMENTS
Related Party Mortgages Payable
At December 31, 1998, the aggregate principal amount of mortgages payable to
related parties was $1,868. Interest accrues on the mortgages at rates ranging
from prime plus 3% to prime plus 7.75% per annum and are payable in monthly
installments over periods ranging from twelve months to ten years.
Related Party Notes Payable
At August 18, 1997, the Company had a $1.15 million note payable to CR
Management Company, a partnership and the original shareholder, which accrued
interest at 8%. The note plus accrued interest was paid in full in December
1997.
Related Party Agreements
In connection with the Purchase Transactions, the Company and Starwood
entered into various operating agreements related to the joint operation and
ownership of certain common facilities at the combined resorts. Starwood has
rented specified rooms at two of the Company's Regina Resorts for a one-year
period ending August 18, 1998 for $1.06 million which has been recognized into
income along with related fees of $1.95 million over the term of the agreements.
The operating agreements provide for certain operating standards at the combined
resorts and prohibit the Company from renting vacant vacation ownership units on
a transient basis. The Company will be liable for significant penalties should
it violate certain provisions of these operating agreements.
In connection with the sale of the Westin Hotels to Starwood as discussed
in Note 1, the Company entered into an agreement with Starwood which provided
the Company with a retained economic interest in the future cash flows of the
hotels in excess of defined levels. This agreement provides, among other things,
for the Company to receive 20% of the cash flow, as defined, including cash flow
from any future refinancing and/or sale of the hotel facilities. The Company is
to provide certain strategic advisory services to Starwood which will involve
minimal cost to the Company. The Company has allocated a value of $4 million to
this retained interest in the balance sheet under the caption, "retained
interest in hotel cash flows," based on discounted estimated future cash flows
to be received by the Company.
8. SHAREHOLDERS' INVESTMENT
Preferred Stock
On May 20, 1997, the Company obtained a loan from Starwood Capital of $0.75
million which included warrants for the issuance of 2 million shares of common
stock at no exercise price. The Company determined that the value of the
warrants on the date of issue was nominal. Accordingly, no debt discount was
recorded in connection with the borrowing. The Company had obtained additional
shareholder loans of $3 million which were subordinated to other indebtedness
and provided for interest to accrue at the annual rate of 16.5%. On October 29,
1997, the shareholders waived all interest and exchanged the $3.75 million of
total shareholder loans for 37,500 shares of Class A Preferred Stock (Class A
Preferred) which provide for preferential annual dividends of $619 (16.5% of
$3.75 million), accruing from and after August 18, 1997. The dividend rate shall
be 20% after August 18, 2002. Cumulated dividends accrue dividends, on a
quarterly basis, at the rate of 12% per year. Cumulative unpaid dividends
totaled $232 and $943 at December 31, 1997 and 1998, respectively. No cash
dividends are required to be paid prior to an initial public offering of the
Company's common stock or the sale of the Company. Under the Class A Preferred,
upon an initial public offering or stock merger by the Company, the Company may
redeem all cumulated dividends in exchange for either cash or stock of the
Company valued at 85% of the IPO price or 100% of the merger consideration
value, as the case may be. Furthermore, in such event, the holders of the Class
A Preferred have the right to convert the liquidation preference of each share
of Class A Preferred into stock of the Company valued at 85% of the IPO price or
100% of the merger consideration value, as the case may be.
F-16
<PAGE>
So long as any shares of the Class A Preferred are outstanding, no dividend
is permitted to be declared or paid or set apart for payment on any other series
of stock ranking on a parity with the Class A Preferred as to dividends, unless
all unpaid dividends on the Class A Preferred are paid. Furthermore, if all
accrued dividends on the Class A Preferred Stock have not been paid, the Company
is not permitted to declare or pay or set apart for payment any dividends or
make any other distributions on its Common Stock or any other class of stock or
series thereof of the Company ranking, as to distributions in the event of a
liquidation, dissolution or winding up of the Company, voluntary or involuntary
(a "Liquidation"), junior to the Class A Preferred until such dividends on the
Class A Preferred and any redemption obligations due and owing under the
Certificate of Designations governing the Class A Preferred have been paid. Upon
any Liquidation of the Company, the holders of the Class A Preferred are
entitled to receive, out of assets of the Company which remain after
satisfaction in full of all valid claims of creditors of the Company and which
are available for payment to stockholders, and subject to the rights of the
holders of any stock of the Company ranking senior to or on a parity with the
Class A Preferred in respect of distributions upon Liquidation, before any
amount shall be paid to or distributed among the holders of Common Stock, or any
other shares ranking junior to the Class A Preferred in respect of distributions
upon Liquidation, liquidating distributions per share of the Class A Preferred
in the amount of $100 per share, plus an amount equal to the accrued and unpaid
dividends thereon. Preferred shares also provide that dividends will accrue
monthly whether paid currently or not. Dividends may be paid by the Company, at
its option in shares of common stock. The Class A Preferred Stock is redeemable
at the Company's option and is convertible at the holders option into shares of
common stock.
Convertible Preferred Stock
In connection with the purchase of Whiski Jack, the Company issued 20,775
shares of redeemable convertible preferred stock (Convertible Preferred) through
its wholly owned subsidiary, Raintree Resorts International Canada, Ltd.
(Raintree Canada). The shares are redeemable with a liquidation preference of
$100 per share. The preferred shares accrue dividends at the rate of 10% per
annum, which are required to be paid quarterly beginning on October 31, 1998. If
the Company has not satisfied certain conditions, primarily the completion of an
initial public offering of the Company's common stock, prior to November 1, 1998
and prior to April 1, 1999, the Convertible Preferred will be redeemable by the
holders thereof in installments of $500 beginning April 1, 1999, and quarterly
thereafter. If the conditions are met, the Convertible Preferred will
automatically convert into shares of exchangeable preferred of Raintree Canada,
based on the price of the Company's common stock, if publicly traded. Each share
of exchangeable preferred cannot be transferred and will only be exchangeable
for one share of the Company's common stock.
Company Stock Options
1997 Long Term Incentive Plan - On August 18, 1997, the Board of Directors and
the Company's stockholders approved the Company's 1997 Long Term Incentive Plan
(the Plan). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interest in the Company. Individual awards under the
Plan may take the form of one or more of (i) either incentive stock options or
non-qualified stock options; (ii) stock appreciation rights; (iii) restricted or
deferred stock; (iv) dividend equivalents and (v) other awards not otherwise
provided for, the value of which is based in whole or in part upon the value of
the common stock.
The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 800,000 shares or 8% of the aggregate number of shares of
common stock outstanding.
Other Options - On August 15, 1997, the Company issued stock options covering
100,000 shares of common stock to the Company's president at an agreed upon
exercise price of $2 per share, which management believes was not less than the
estimated fair market value of the common stock on the date of grant. A total of
25,000 of these options vested immediately; the remainder vest at the rate of
25,000 per year for three years.
F-17
<PAGE>
Stock Option Summary - As allowed by Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" (FAS 123), the Company has
elected to continue to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting for its stock
option plans. Under APB 25, the Company does not recognize compensation expense
on the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date. As required by FAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options granted under the
fair value method of FAS 123. The Black-Scholes option pricing model was used
with the following weighted-average assumptions: risk-free interest between
6.33% and 5.16% for 1997 and 1998 dividend yield of 0%, expected market price
volatility factor of 0, and a option life of ten years for both years ended
December 31, 1997 and 1998.
The following are pro forma disclosures that may not be representative of
similar future disclosures because: (i) additional options may be granted in
future years and (ii) the computations used to estimate the "fair value" of the
stock options are subject to significant subjective assumptions, any one or all
of which may differ in material respects from actual amounts. Furthermore,
management believes that these disclosures may vary were the Company's common
stock publicly traded.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net income available to common shareholders as reported .......... $ (3,568) $ (11,112)
Estimated "fair value" of stock options vesting during the periods. -- (192)
----------- -----------
Adjusted net loss ................................................ $ (3,568) $ (11,304)
=========== ===========
Adjusted loss per share - basic and diluted ...................... $ (.40) $ (1.05)
Number of common shares used in the per share calculations:
Basic and diluted .............................................. 8,843,383 10,747,409
</TABLE>
A summary of all the Company's stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1998
--------------------------- ---------------------------
Weighted- Weighted-
Options Average Options Average
(000) Exercise Price (000) Exercise Price
------- -------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year ................. -- $ -- 258 $ 3.84
Granted .................................................. 263 3.86 450 5.00
Exercised ................................................ -- -- -- --
Forfeited ................................................ 5 5.00 62 5.00
Outstanding at the end of the year ...................... 258 3.84 646 4.54
Exercisable at the end of the year........................ 57 3.67 165 4.09
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$2.00 to $5.00. The weighted-average remaining contractual life of those options
is 9.3 years.
F-18
<PAGE>
9. INCOME TAXES
The Company, a Nevada corporation, files an annual U.S. Federal income tax
return. The Company incurred net losses for the period ended December 31, 1997
and 1998 in Mexico as well as the United States. Accordingly, no provision for
U.S. or Mexican income taxes was made during 1997 or 1998. The Company's
Canadian operations which were acquired in 1998 were taxable for Canadian tax
purposes. The Company has indicated that the earnings of the Mexican and
Canadian subsidiaries will be permanently reinvested by those subsidiaries.
Accordingly, a provision for taxes has been made for 1998 Canadian taxes, with
no addition for dividend withholding tax or for U.S. federal income tax or
credits on such income. Furthermore, no addition for dividend withholding tax or
for U.S. federal income tax or credits on Mexican income has been provided.
For the period ended December 31, 1997, the Mexican subsidiaries of the
Company filed separate Mexican income tax returns. An application has been made
to file certain of the income tax returns of the Company's Mexican operations on
a consolidated basis beginning in 1998.
In connection with the Purchase Transactions of August 18, 1997, the
Company and Starwood were allocated a portion of the net operating losses of the
Predecessor Businesses. The Company anticipates that it has received
approximately $60 million of Mexican net operating losses, which will begin to
expire in the year 2000 as follows: 2000 -- $2.5 million, 2001 -- $9 million,
2002 -- $14.3 million, 2003 -- $33.6 million, and the remainder through the year
2005. For financial statement purposes, a valuation allowance of $20 million has
been recognized to offset the estimated $20 million of deferred tax assets
related to those carryforwards. Additionally, the Mexican subsidiaries have
approximately $1 million of asset tax carryovers from prior periods which will
be used to offset future taxable income, to the extent that the net operating
losses are no longer available. For financial statement purposes, a valuation
allowance has been recognized to offset the estimated deferred tax assets
related to these carryovers.
The U.S. federal income tax regulations may, under certain circumstances,
cause income transactions in Mexico or Canada to give rise to U.S. income taxes,
subject to an adjustment for foreign tax credits. For 1997, the Company's
Mexican operations subsequent to August 18, 1997 resulted in losses for purposes
of U.S. federal income taxation. For 1998, Mexican operations gave rise to a
loss for purposes of U.S. federal income taxation, and as stated above, no
provision has been made for U.S. tax on such income. Conversely, the Canadian
operations will give rise to income for purposes of U.S. federal income taxation
under Subpart F of the Internal Revenue Code. This income will be recognized to
the extent of current Canadian earnings and profits. However, such income will
be offset by U.S. net operating losses currently available, and therefore, no
provision has been made for U.S. tax on such income. Furthermore, the foreign
tax credits associated with Subpart F income will give rise to an additional
deferred tax asset for U.S. purposes.
Federal income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1998
---------------------------------- --------------------------------------------
U. S. Mexico Total U. S. Mexico Canada Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Federal
Current ........................ $ -- $ 909 $ 909 $ -- $ 100 $ 572 $ 672
Deferred ....................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
$ -- $ 909 $ 909 $ -- $ 100 $ 572 $ 672
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1998
---------------------------------- --------------------------------------------
U. S. Mexico Total U. S. Mexico Canada Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income tax expense (recovery) at
the statutory rate...................... $ (390) $ (175) $ (565) $ (1,056) $ 212 $ (531) $ (1,375)
Increase (decrease) resulting from
Non-deductible expenses.............. 44 -- 44 160 -- 960 1,120
Exchange losses net of tax inflation. -- 178 178 -- (224) -- (224)
Other ............................... 346 906 1,252 896 112 143 1,151
-------- -------- -------- -------- -------- -------- --------
$ -- $ 909 $ 909 $ -- $ 100 $ 572 $ 672
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences for the years ended
result principally from the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1998
---------------------------------- --------------------------------------------
U. S. Mexico Total U. S. Mexico Canada Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Deferred income tax liabilities
Depreciation ............... $ -- $ (140) $ (140) $ -- $ (812) $ -- $ (812)
Inventories ................ -- (331) (331) -- (305) -- (305)
Prepaid expenses / fees..... (234) (342) (576) -- (253) -- (253)
Accounts receivable ........ -- -- -- -- (7,566) -- (7,566)
-------- -------- -------- -------- -------- -------- --------
Total (234) (813) (1,047) -- (8,936) -- (8,936)
Deferred income tax assets
Deferred finders fee........ 414 -- 414 -- -- -- --
Reserves ................... -- 2,804 2,804 -- 3,517 -- 3,517
Unearned service fees ...... -- 596 596 -- 700 -- 700
Asset tax carryovers ....... -- 1,015 1,015 -- 1,026 -- 1,026
Tax loss (NOL) carryovers .. 166 23,188 23,354 1,242 21,838 -- 23,080
Foreign tax credits ........ -- -- -- 75 -- -- 75
-------- -------- -------- -------- -------- -------- --------
Total 580 27,603 28,183 1,317 27,081 -- 28,398
Valuation allowance (346) (26,790) (27,136) (1,317) (18,145) -- (19,462)
-------- -------- -------- -------- -------- -------- --------
Total $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
10. CONTINGENCIES AND COMMITMENTS
General
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings which constitute ordinary
routine litigation incidental to the Company's business. In the opinion of
management, all such matters are either adequately covered by insurance or are
not expected to have a material adverse effect on the Company.
Lease Information
The Company leases administrative and sales office space and certain
equipment under non-cancellable lease agreements. Total rent expense for the
years ended December 31, 1997 and 1998 was approximately $317 and $1,659,
respectively. These operating leases expire in various years in the future. Some
of these leases may be renewed. Future minimum payments under all of the
Company's non-cancelable operating leases with initial terms of one year or more
were as follows at December 31, 1998:
<TABLE>
<S> <C>
1999 ............................................................................. $ 1,634
2000 ............................................................................. 1,123
2001 ............................................................................. 731
2002 ............................................................................. 641
2003 ............................................................................. 105
--------
Total ............................................................................ $ 4,234
========
</TABLE>
Villa Vera Acquisitions
The Company has executed a letter of intent and made an advance payment of
$500 to acquire the land and facilities of the Villa Vera Hotel & Racquet Club
(the "Villa Vera") for $6.1 million. The purchase price includes the cost of
conversion of certain of the 74 hotel units into vacation ownership units. The
Villa Vera is in Acapulco, Mexico and the vacation ownership units will increase
the Company's inventory by approximately 3,200 vacation interval weeks. Closing
of this acquisition is expected in late 1999.
F-20
<PAGE>
Canadian Condominium Acquisitions
The Company has committed to purchase 23 condominium units in Whistler,
British Columbia at an aggregate purchase price of $4.4 million. Deposits of
$409 have been paid with the balance to be paid during 1999, or thereafter,
based on completion of construction and transfer of ownership.
Legal Proceedings
The Company is currently subject to litigation with respect to claims that
arose prior to August 18, 1997 respecting employment, contract, construction and
commissions disputes, among others. In management's judgment, none of such
lawsuits against the Company is likely to have a material adverse effect on the
Company. Moreover, pursuant to the Stock Purchase Agreement with Bancomer, the
Company is entitled to indemnification for all such claims against it. In
addition, the Company is subject to litigation with respect to a limited number
of claims that arose on or after August 18, 1997. In management's judgment, none
of such lawsuits against the Company are likely to have a material adverse
effect on the Company.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
CR Resorts Capital, S. de R.L. de C.V.:
We have audited the accompanying balance sheets of CR Resorts Capital, S. de
R.L. de C.V. (a Mexican Corporation), translated into U.S. dollars, as of
December 31, 1997 and 1998, and the related statements of operations and
accumulated results and cash flows for the period from August 18, 1997 through
December 31, 1997, and for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 translated financial statements referred to above present
fairly, in all material respects, the financial position of CR Resorts Capital,
S. de R.L. de C.V., as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from August 18, 1997 through
December 31, 1997, and for the year ended December 31, 1998, in conformity with
the accounting principles generally accepted in the United States.
ARTHUR ANDERSEN
March 19, 1999
Mexico City, Mexico
F-22
<PAGE>
<TABLE>
<CAPTION>
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
(A Wholly Owned Finance Subsidiary)
BALANCE SHEETS
(In thousands of U.S. dollars)
December 31,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Assets
Cash ................................................................ $ 8 $ 24
Loans and related accrued interest receivable from affiliates........ 90,862 94,751
Deferred loan costs, net of accumulated amortization of
$67 and $1,010 at December 31, 1997 and 1998 respectively......... 5,536 5,596
Other assets......................................................... 2 295
----------- -----------
Total assets ............................................................ $ 96,408 $ 100,666
=========== ===========
Liabilities and Shareholders' Equity
Accrued expenses .................................................... $ 138 $ 1,267
Due to Raintree Resorts International, Inc. (Ultimate Parent) ....... 13,931 17,116
Notes payable to a bank ............................................. 1,000 --
Senior Notes due 2004, bearing interest at 13%, net of unamortized
original issue discount of $9,469 and $8,104
at December 31, 1997 and 1998, respectively....................... 80,530 81,896
Accrued interest payable ............................................ 808 1,025
----------- -----------
Total liabilities ....................................................... 96,407 101,304
Shareholders' Equity
Capital stock........................................................ -- --
Accumulated results.................................................. 1 (638)
----------- -----------
Total shareholders' equity............................................... 1 (638)
----------- -----------
Total liabilities and shareholders' equity............................... $ 96,408 $ 100,666
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
(A Wholly Owned Finance Subsidiary)
STATEMENTS OF OPERATIONS AND ACCUMULATED RESULTS
(In thousands of U.S. dollars)
For the Period
August 18, 1997 For the
through Year Ended
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Revenues, representing interest and related fees charged to affiliates .. $ 3,778 $ 15,960
Expenses
Interest expense on bank loans and Senior Notes ..................... 3,623 14,949
Interest expense on notes payable to the Ultimate Parent ............ 42 889
General and administrative, including $94 and $244 of managementfees
charged by an affiliate for accounting and administrative services
for the periods ended December 31, 1997 and 1998, respectively.... 101 783
Translation loss (gain), net ........................................ 11 (22)
----------- -----------
Total expenses 3,777 16,599
----------- -----------
Income (loss) before income taxes........................ 1 (639)
Income taxes....................................................... -- (273)
Tax loss carryforwards............................................. -- 273
----------- -----------
Net income (loss) for the period......................................... 1 (639)
Accumulated results at beginning of period .............................. -- 1
----------- -----------
Accumulated results at end of period .................................... $ 1 $ (638)
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
(A Wholly Owned Finance Subsidiary)
STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
For the Period
August 18, 1997 For the
through Year Ended
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Operating activities
Net income (loss) for the period ..................................... $ 1 $ (639)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of loan costs and discount 158 2,379
Changes in operating assets and liabilities
Other assets ...................................................... (2) (363)
Due to Ultimate Parent ............................................ 620 (615)
Due from affiliates ............................................... (4,158) (3,889)
Accrued expenses and accrued interest ............................. 946 1,346
----------- -----------
Net cash used in operating activities .................................... (2,435) (1,781)
Investing activities
Loans to affiliates .................................................. (86,704) --
----------- -----------
Cash used in investing activities ........................................ (86,704) --
----------- -----------
Financing activities
Proceeds from Ultimate Parent loan ................................... 3,750 3,800
Proceeds from issuance of notes payable to a bank in connection
with the purchase transactions .................................... 82,954 --
Repayment of bank loans .............................................. (82,954) (3,000)
Issuance of Senior Notes ............................................. 90,000 --
Payments for debt issuance costs ..................................... (5,603) (1,003)
Proceeds from bank loan .............................................. 1,000 2,000
----------- -----------
Net cash provided by financing activities ................................ 89,147 1,797
----------- -----------
Increase in cash ......................................................... 8 16
Cash at beginning of period............................................... -- 8
----------- -----------
Cash at end of period .................................................... $ 8 $ 24
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest ............................. $ 2,913 $ 12,444
=========== ===========
Non-cash financing activities
Increase in due to affiliate resulting from debt discount and costs $ 8,398 $ 2,790
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-25
<PAGE>
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
(A Wholly Owned Finance Subsidiary)
NOTES TO FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share data)
1. ORGANIZATION AND FINANCIAL ACTIVITY
CR Resorts Capital, S. de R.L. de C.V. ("Capital"), which is 100% owned by
Canarias Future SRL, a wholly-owned subsidiary of Raintree Resorts
International, Inc. (formerly "Club Regina Resorts, Inc.") (the "Ultimate
Parent"), was formed in August, 1997 for purposes of obtaining financing of the
Ultimate Parent's Mexican operations.
The Company has no employees, therefore administrative services are
provided by an affiliated company.
On August 18, 1997, the Ultimate Parent purchased all of the stock of
Desarrollos Turisticos Regina S. de R.L. de C.V. and its subsidiaries (the
"Predecessor Businesses"). Contemporaneous with the purchase, the real property
was segregated into condominium regimes so that the Regina Resorts and Westin
Hotels would be able to be owned by separate companies. The Westin Hotels were
then sold to SLT Realty Limited partnership, an affiliate of Starwood Capital
Group, L.L.C. ("Starwood"). These transactions are referred to herein as the
Purchase Transactions.
On August 18, 1997, Capital obtained bank loans aggregating $82,954 as well
as other related party loans that were used to make loans to the operating
subsidiaries of the Ultimate Parent. See Note 4.
On December 5, 1997, Capital and its Ultimate Parent ("Issuers") jointly
issued $100 million of Senior Notes due December 1, 2004 ("Senior Notes") and
Capital recorded $90 million of such debt along with the related deferred loan
costs of $5,603. The Ultimate Parent also issued warrants to the noteholders to
purchase 1,869,962 common shares. These warrants were estimated to have a value
of $4.99 per warrant or $9,331 in total. This amount was recorded as an increase
in shareholders' investment by the Ultimate Parent and as original issue
discount and account payable to the Ultimate Parent in the amount of $9,561 on
Capital's balance sheet. The original issue discount is being amortized to
expense over the warrant exercise period of 84 months and was $91 and $1,366 for
the periods ended December 31, 1997 and 1998, respectively, and is included in
interest expense. Substantially, all of the net proceeds of the Senior Notes
offering were used to repay the outstanding loans and related accrued interest
payable by Capital to its lender bank (Bancomer).
The Senior Notes are payable in United States ("U.S.") Dollars and bear
interest at 13% with interest payable semi-annually on June 1st and December
1st. The Senior Notes are general unsecured obligations of the Issuers.
Any payments (interest or principal) in respect of the Senior Notes will be
made free and clear of and without any withholding or deduction for or on
account of any present or future taxes, duties, levies, imposts, assessments or
other governmental charges of whatever nature imposed or levied by or on behalf
of Mexico or any subdivision thereof or by any authority or agency therein or
thereof having power to tax ("Taxes"), unless such Taxes are required by law,
rule or regulation or by the interpretation or administration thereof to be
withheld or deducted, in which case, subject to certain exceptions, the Issuers
will pay such additional amounts ("Additional Amounts") as may be necessary so
that the net amount received by holders (the "Holders") of the Senior Notes
(including Additional Amounts) after such withholding or deduction will not be
less than the amount that would have been received in the absence of such
withholding or deduction.
F-26
<PAGE>
The indenture pursuant to which the Senior Notes were issued (the
"Indenture") contains certain covenants that, among other things, limit the
ability of the Issuers to incur additional Indebtedness and issue preferred
stock, pay dividends or make other distributions, repurchase Equity Interest (as
defined) or Subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, sell assets of the Issuers, issue or sell Equity
Interests of the Ultimate Parent's subsidiaries, or enter into certain mergers
and consolidations. In addition, under certain circumstances, the Issuers will
be required to offer to purchase the Senior Notes as a price equal to 100% of
the principal, if any, to the date of purchase, with the proceeds of certain
Assets Sales (as defined).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Translation to U.S. Dollars
All amounts are recorded in the Company's accounting records in Mexican
pesos.
Since the significant transactions are denominated in U.S. dollars, the
functional currency of the Company's operations is the U.S. dollar. Therefore,
the Mexican peso financial statements were remeasured into U.S. dollars by
applying the procedures specified in Statement of Financial Accounting Standards
(SFAS) No. 52 as follows:
a) Quoted year-end rates of exchange are used to remeasure monetary assets
and liabilities.
b) All other assets and shareholders' investment accounts are remeasured at
the rates of exchange in effect at the time the items were originally
recorded.
c) Revenues and expenses are remeasured at the average rates of exchange in
effect during the period.
d) Foreign exchange gains and losses recorded in Mexican pesos as a result
of fluctuations in the rate of exchange between the Mexican peso and U.S.
dollar are eliminated.
e) Translation gains and losses arising from the remeasurement are included
in the determination of net income of the period in which such gains and
losses arise.
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 of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Deferred Loan Costs
The costs incurred in connection with the issue of the Senior Notes, due
2004, have been deferred in the balance sheets and are being amortized on an
effective interest rate method over the seven-year term of these Senior Notes.
Amortization expense for the periods ended December 31, 1997 and 1998 totaled
$67 and $943, respectively, and is included in interest expense.
Income Taxes
Deferred income taxes are provided by the liability method in accordance
with SFAS No. 109 for all temporary differences between the amounts of assets
and liabilities for financial and tax reporting purposes.
F-27
<PAGE>
SFAS No. 109 requires that deferred tax liabilities or assets at the end of
each period be determined using the tax rate expected to be in effect when the
related taxes are expected to be paid or recovered. Accordingly, income tax
provisions increase or decrease in the same period in which a change in tax
rates is enacted.
There are no significant timing differences between book and tax basis. Due
to the uncertainty of their realization, the Company has not recorded the
deferred income tax asset for the potential future tax saving related to tax
loss carryforwards amounts indicated in Note 6.
Financial Instruments
The Company has considered the disclosure provisions of Statement of
Financial Accounting Standards No. 105, "Disclosure of Information about
Financial Instruments with off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk", as well as the provisions of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments". The Company does not have any financial instruments
which would call for any additional disclosures under Statements 105 and 107.
The fair market value of the Senior Notes has not been determined since they are
not traded on a formal exchange market and they are volatile due to being
speculative in nature.
Transactions in Foreign Currency
Foreign currency transactions are recorded at the exchange rate as of the
date of the transaction. At December 31, 1997 and 1998, the Company adjusted its
foreign currency denominated assets and liabilities to the exchange rate of
8.0833 and 9.865 Mexican pesos per U.S. dollar, respectively.
3. RELATED PARTY TRANSACTIONS AND BALANCES
Loans Receivable from Intercompany Affiliates
Loans receivable from affiliates are payable in U.S. dollars upon demand
and bear interest at 16% and 13.80% in 1997 and 1998, respectively. Receivable
balances at December 31, are:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Top Acquisition Sub, S. de R.L. de C.V. $ 22,898 $ 27,290
CR Resorts Puerto Vallarta, S. de R.L. de C.V. 47,791 51,722
CR Resorts Cancun, S. de R.L. de C.V. 7,779 9,308
CR Resorts Los Cabos, S. de R.L. de C.V. 12,246 11,951
Corporacion Mexitur, S. de R.L. de C.V. - (5,900)
Other 148 380
----------- -----------
$ 90,862 $ 94,751
============ ===========
</TABLE>
Loans receivable from affiliates and associated interest income are
eliminated in the consolidation of Capital into the consolidated financial
statements of the Ultimate Parent.
Notes Payable to Related Parties
At December 31, 1997 and 1998, Capital had $3.75 million and $7.55 million
of notes payable to the Ultimate Parent which bear interest at 16% and are
payable upon demand.
Notes payable to related parties and the associated interest expense are
all payable in U.S. dollars and have been eliminated in the consolidation of
Capital into the consolidated financial statements of the Ultimate Parent.
F-28
<PAGE>
4. NOTES PAYABLE TO A BANK
The note payable to a bank at December 31, 1997 represented a $1 million
loan with interest at 11% per annum which was due on January 19, 1998.
Capital had notes payable to a bank at August 18, 1997 of $82,954 with
interest at approximately 10% per annum. These loans were paid in full on
December 5, 1997 from the proceeds of the Senior Note offering.
5. LINE OF CREDIT
In July 1998, the Company received approval from Bancomer of a $20 million
line of credit that expires July 2002. The agreement limits the use of proceeds
to the payment of interest incurred and payable under the Senior Notes. The
outstanding loan balance bears interest at 11.5% per annum. Under the line of
credit, all borrowings and interest will be payable in U.S. dollars. Loans under
the line will be secured by a portion of the present and future United States
dollars, pesos and UDI based accounts receivable of an indirect wholly-owned
subsidiary (CR Resorts Puerto Vallarta, S. de R.L. de C.V.). Also, the agreement
requires certain of the Company's affiliates to maintain certain minimum
financial ratios. In order to activate the approved line of credit, the Company
will be required to pay the bank a fee of 1.5% of fund drawn under the line of
credit. At December 31, 1998, there were no outstanding balances under this
facility.
6. TAX ENVIRONMENT
Income and Asset Tax Regulations
The Company is subject to income taxes (ISR) and the asset tax (IMPAC). ISR
is computed taking into consideration the taxable and deductible effects of
inflation, such as amortization calculated on restated asset values and
considering the effects of inflation on certain monetary assets and liabilities
through the inflationary component. The statutory rate for income taxes was 34%
for the year ended December 31, 1998. Beginning in 1999, the income tax rate
increased from 34% to 35%, with the obligation to pay this tax each year at a
rate of 30% (transitorily 32% in 1999) and the remainder upon distribution of
earnings.
IMPAC is computed at an annual rate of 1.8% of the average of the majority
of restated assets less certain liabilities, and the tax is paid only to the
extent that it exceeds the ISR of the period. Any required payment of IMPAC is
recoverable against any excess of ISR over IMPAC for the preceding three and
following ten years.
The main differences that affect taxable income are the recognition of
inflation effects for tax purposes through the inflationary component, and
nondeductible expenses.
Tax Loss Carryforwards
At December 31, 1998 the Company has tax loss carryforwards for income tax
purposes which will be indexed for inflation through the year applied, in the
following restated amounts:
Expiration Date Amount
--------------- ------
2007 $ 167
======
F-29
<PAGE>
7. SHAREHOLDERS' EQUITY
At December 31, 1997 and 1998, capital stock consisted of two shares fully
subscribed and paid, representing the fixed portion in the amount of 3,000
Mexican pesos, which is not subject to withdrawal. Variable portion is
unlimited.
The annual net income of the Company (in Mexican pesos) is subject to the
legal requirement that 5% thereof be transferred to a legal reserve until the
reserve equals 20% of capital stock. This reserve may not be distributed to the
shareholders during the existence of the Company, except in form of a stock
dividend.
As of 1999, dividends paid to individuals or foreign residents will be
subject to income tax withholding at an effective rate ranging from 7.5% to
7.7%, depending on the year in which the earnings were generated. In addition,
if earnings for which no corporate tax has been paid are distributed, the tax
must be paid upon distribution of the dividends. Consequently, the Company must
keep a record of earnings subject to each tax rate.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Desarrollos Turisticos Bancomer, S.A. de C.V.:
We have audited the accompanying consolidated statements of operations and cash
flows of Desarrollos Turisticos Bancomer, S.A. de C.V. (a Mexican Corporation)
and Subsidiaries (the Company), translated into U.S. dollars, for the period
from January 1, 1997 through August 17, 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the translated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Desarrollos Turisticos Bancomer, S.A.
de C.V. and Subsidiaries, for the period
from January 1, 1997 through August 17, 1997, in conformity with the accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN
March 19, 1999
Mexico City, Mexico
F-31
<PAGE>
<TABLE>
<CAPTION>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of U.S. dollars)
January 1, 1997
Through
August 17, 1997
-----------
<S> <C>
Revenues
Vacation interval sales ........................................................ $ 31,479
Less: amounts deferred to future periods ....................................... (30,653)
Add: amounts recognized from prior periods ..................................... 1,650
-----------
2,476
Interest income on contracts receivables ....................................... 3,277
Rental of unsold units ......................................................... 4,560
Maintenance fee income ......................................................... 2,461
Other .......................................................................... 1,329
-----------
11,627
Total revenue ......................................................... 14,103
Operating expenses
Commissions paid to sales personnel........................................ 5,512
Less: amounts deferred to future periods .................................. (5,413)
Add: amounts recognized from prior periods ................................ 313
Maintenance of unsold units ............................................... 110
-----------
Total operating expenses, net ......................................... 522
Gross profit ................................................................... 13,581
Advertising, sales and marketing ............................................... 4,899
General and administrative ..................................................... 4,504
Maintenance ................................................................... 4,559
Interest expense ............................................................... 2,827
Valued added and other taxes.................................................... 1,002
Translation loss, net .......................................................... 74
-----------
17,865
Loss from continuing operations before taxes .......................... (4,284)
Asset taxes .................................................................... 754
-----------
Net loss from continuing operations .............................. (5,038)
Discontinued hotel operations
Net income of discontinued hotel operations (less tax expense
of $1,256) ......................................................... 2,302
-----------
Net loss for the period......................................................... $ (2,736)
===========
The accompanying notes are an integral part of this financial statement.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of U.S. dollars)
January 1, 1997
Through
August 17, 1997
-----------
<S> <C>
Operating Activities
Net loss from continuing operations .............................................. $ (5,038)
Adjustments to reconcile net loss to net cash provided by operating activities -
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (10,088)
Deferred costs ............................................................ (5,100)
Accounts payable .......................................................... 628
Deferred revenue .......................................................... 26,269
Net income of discontinued hotel operations ............................... 2,302
Assets/liabilities of discontinued hotel operations........................ 264
-----------
Net cash provided by operating activities ........................................ 9,237
Investing Activities
Acquisition of property, plant, and equipment .................................... (849)
-----------
Net cash used in investing activities ............................................ (849)
Financing Activities
Proceeds from notes payable to related parties ................................... 1,727
Distribution to shareholders .................................................... (11,000)
-----------
Net cash used in financing activities ............................................ (9,273)
Decrease in cash and cash equivalents ............................................ (885)
Cash and cash equivalents at beginning of period ................................. 2,563
-----------
Cash and cash equivalents at end of period ....................................... $ 1,678
===========
Supplemental disclosure of cash flow information
Interest paid ............................................................... $ 7,197
Income and asset taxes paid ................................................. $ 1,752
Non-cash financing activities
Conversion of debt to equity ................................................ $ 120,743
The accompanying notes are an integral part of this financial statement.
</TABLE>
F-33
<PAGE>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prior to August 18, 1997, Desarrollos Turisticos Bancomer, S.A. de C.V.(the
"Company"), was a wholly owned subsidiary of Bancomer, S.A. de C.V.("Bancomer"),
a Mexican banking and financial services institution. The Company was acquired
by Raintree Resorts International Inc. (formerly "Club Regina Resorts, Inc.").
Contemporaneous with the purchase, the real property was segregated into
condominium regimes so that the Regina Resorts and Westin Hotels would be able
to be owned by separate companies. The Westin Hotels were then sold to SLT
Realty Limited Partnership, an affiliate of Starwood Capital Group L.L.C.
The Company owns and operates certain hospitality assets, which comprise
primarily deluxe resort hotels and vacation ownership properties in Cancun,
Puerto Vallarta, and Cabo San Lucas, Mexico. The Company's principal operations
consist of (1) developing and acquiring hotel and vacation ownership resorts,
(2) marketing and selling vacation intervals at its resorts, (3) providing
consumer financing for the purchase of vacation intervals at its resorts, and
(4) managing the operations of its resorts.
The accompanying consolidated financial statements include the accounts of
Desarrollos Turisticos Bancomer, S.A. de C.V., and all of its majority owned
subsidiaries, which are listed below:
Club Regina, S.A. de C.V.
Servicios Turisticos Integrales Cobamex, S.A. de C.V.
Corporacion Habitacional Mexicana, S.A. de C.V.
Corporacion Mexitur, S.A. de C.V.
Promotora y Desarrolladora Pacifico, S.A. de C.V.
Promotora Turistica Nizuc, S.A. de C.V.
Desarrollos Turisticos Integrales Cabo San Lucas, S.A. de C.V.
Desarrollos Turisticos Integrales de Cozumel, S.A. de C.V.
All significant intercompany balances and transactions have been
eliminated.
Translation to U.S. Dollars
All amounts are recorded in the Company's accounting records in Mexican
pesos.
Since the significant transactions in U.S. dollars are mainly vacation
interval sales, advertising expenses, advisory services and interest earned, the
functional currency of the Company's operations is the U.S. dollar. Therefore,
the Mexican peso consolidated financial statements were remeasured into U.S.
dollars by applying the procedures specified in Statement of Financial
Accounting Standards (SFAS) No. 52 as follows:
a) Quoted period-end rates of exchange are used to remeasure monetary
assets and liabilities.
b) All other assets and shareholders' equity accounts are remeasured at the
rates of exchange in effect at the time the items were originally recorded.
c) Revenues and expenses are remeasured at the average rates of exchange in
effect during the period.
d) Foreign exchange gains and losses recorded in Mexican pesos as a result
of fluctuations in the rate of exchange between the Mexican peso and U.S.
dollar are eliminated.
F-34
<PAGE>
e) Translation gains and losses arising from the remeasurement are included
in the determination of net income of the period in which such gains and
losses arise.
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 of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Contracts Receivable and Concentration of Credit Risk
Substantially all contracts receivable relate to sales of vacation
ownership interests. While the Company does not obtain collateral for such
contracts, the Company does not believe it has significant concentrations of
credit risk in its contracts receivable because in the instance of
uncollectibility of a contract, the Company retains the right to recover and
resell the defaulted interval. Historically, the Company has been able to resell
such intervals at prices in excess of the defaulted receivable balances.
A portion of the Company's customers reside in Mexico and the Company
intends to continue to conduct business in Mexico. All of the Company's sales
offices are currently located in Mexico and any economic downturn in Mexico,
which has a history of economic instability, could have a material adverse
effect on the Company's business, results of operations and financial condition.
Revenue Recognition
The Company sells shares of Class B stock in a majority-owned subsidiary to
vacation ownership buyers. The rights associated with the Class B shares allow
the buyers to use a specified type of accommodation (one-bedroom, two-bedroom,
etc.) during a specified season at any of the Company's resorts on a first-come,
first-serve basis annually for approximately thirty years. The sales price of
such Class B shares is recognized using operating lease accounting and therefore
ratably over the thirty-year right to use period and the costs of selling the
Class B shares, which include brokerage commissions, commissions to sales
personnel, and marketing costs directly associated with successful sales, are
deferred and recognized ratably over the right-to-use period.
Interest income from contracts receivable is recognized as accrued.
Maintenance fees are billed to Class B shareholders annually and recognized
as earned over 12 months. Maintenance expenses are recognized when incurred.
A provision for uncollectible contracts receivable is accrued for contracts
which become more than 180 days past due. Deferred revenue related to contracts
cancelled in any year subsequent to the year of sale is recognized to the extent
of cumulative cash collections in excess of costs. Deferred costs are recognized
in their entirety.
Advertising Expense
Advertising costs, which include solicitations of prospective vacation
interval buyers, are expensed as incurred to the extent they cannot be directly
associated with a successful sale of Class B shares to a vacation interval
buyer. Advertising expenses in the period from January 1, 1997 through August
17, 1997 totaled $2,965, and are included in advertising, sales and marketing
expenses.
F-35
<PAGE>
Income Taxes
Deferred income taxes are provided by the liability method in accordance
with SFAS No. 109 for all temporary differences between the amounts of assets
and liabilities for financial and tax reporting purposes.
SFAS No. 109 requires that deferred tax liabilities or assets at the end of
each period be determined using the tax rate expected to be in effect when the
related taxes are expected to be paid or recovered. Accordingly, income tax
provisions increase or decrease in the same period in which a change in tax
rates is enacted.
Due to the uncertainty of the realization of the tax loss carryforwards,
the Company has not recorded the deferred income tax asset for the potential
future tax saving related to temporary differences, as indicated in Note 4.
Transactions in Foreign Currency
Foreign currency transactions are recorded at the exchange rate as of the
date of the transaction. At August 17, 1997, the Company adjusted its foreign
currency denominated assets and liabilities to the exchange rate of 7.766
Mexican pesos per U.S. dollar.
Employee Benefits
Under Mexican labor law, the Company is liable for indemnity payments and
seniority premiums to employees terminating under certain circumstances.
Seniority premiums are charged to operations as incurred.
Indemnity payments to involuntarily terminated employees are charged to
results in the period in which they are made.
2. CONTRACTS RECEIVABLE AND CREDIT LOSSES
Vacation ownership contracts receivables are originated when vacation
ownership buyers elect to finance their purchases through the Company. The
Company requires a minimum 15% down payment. A majority of purchasers are
citizens of the United States and Canada. Vacation ownership contracts
receivable bear interest from 14% to 15% and are collected in monthly
installments over periods ranging from 12 months to 7 years. Approximately 66%
of vacation interval contracts receivable were U.S. dollar-denominated at August
17, 1997.
Because the Company collects non-refundable cash from vacation ownership
buyers in excess of deferred profit, and because the Company has historically
been able to resell vacation ownership intervals at prices in excess of canceled
receivable balances, the Company does not provide for credit losses related to
doubtful contracts.
3. RELATED IMPAIRMENT LOSS
During the last quarter of 1994, management approved and committed to a
plan to dispose of the hotel and vacation interval assets of the Company. Based
on the issuance of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, in March 1995, the Company
concluded that the assets should be classified as held for sale and valued at
the lower of cost or fair value less costs to sell. An impairment loss was
recorded in the year ended December 31, 1994 to reflect the estimated sales
proceeds less costs to sell. No depreciation expense was provided from the
period from the adoption of the plan of disposal through the date of sale.
F-36
<PAGE>
4. TAX ENVIRONMENT
Income and Asset Tax Regulations
The Company is subject to income taxes (ISR) and the asset tax (IMPAC). ISR
is computed taking into consideration the taxable and deductible effects of
inflation, such as depreciation calculated on restated asset values, and the
deduction of purchases instead of cost of sales, which permits the deduction of
current costs, and considering the effects of inflation on certain monetary
assets and liabilities through the inflationary component. The statutory rate
for income taxes was 34% for the period ended August 17, 1997. Beginning in
1999, the income tax rate increased from 34% to 35%, with the obligation to pay
this tax each year at a rate of 30% (transitorily 32% in 1999) and the remainder
upon distribution of earnings.
IMPAC is computed at an annual rate of 1.8% of the average of the majority
of restated assets less certain liabilities, and the tax is paid only to the
extent that it exceeds the ISR of the period. Any required payment of IMPAC is
recoverable against any excess of ISR over IMPAC for the preceding three and
following ten years.
The subsidiaries of the Company generally file separate Mexican income tax
returns. Because operations of the Company and each of its subsidiaries have
resulted in losses, only nominal amounts of income taxes have become payable.
Employee Profit Sharing Regulations
The income for purposes of employee profit sharing does not consider the
inflationary component. Depreciation is based on historical rather than restated
values. Employee profit sharing has been computed on the basis of the results of
each individual company.
Tax Loss Carryforwards
At August 17, 1997 the Company has tax loss carryforwards for income tax
purposes which will be indexed for inflation through the year applied, in the
following restated amounts:
Expiration Date Amount
--------------- ----------
2002 $ 14,973
2003 22,295
2004 47,212
2005 12,296
2006 1,665
2007 3,896
----------
$ 102,337
==========
Net Loss
The annual net income of the Company (in Mexican pesos) is subject to the
legal requirement that 5% thereof be transferred to a legal reserve until the
reserve equals 20% of capital stock. This reserve may not be distributed to the
shareholders during the existence of the Company, except in form of a stock
dividend.
As of 1999, dividends paid to individuals or foreign residents will be
subject to income tax withholding at an effective rate ranging from 7.5% to
7.7%, depending on the year in which the earnings were generated. In addition,
if earnings for which no corporate tax has been paid are distributed, the tax
must be paid upon distribution of the dividends. Consequently, the Company must
keep a record of earnings subject to each tax rate.
F-37
<PAGE>
5. RELATED PARTY TRANSACTIONS
The Company's shareholder is the principal owner or has substantial
ownership interests in other entities with which the Company transacts business.
The following table summarizes transactions with related parties for the period
from January 1, 1997 through August 17, 1997:
Expense for the period:
Interest........................ $ 7,539
Lease........................... $ 244
6. COMMITMENTS
Certain subsidiaries of the Company entered into an operation and
administrative agreement with Westin Mexico, S.A. de C.V. ("Westin"), through
December 2003. The Company believes it has the right to terminate the agreement
pursuant to provisions related to change of control of Westin, but has not
asserted that right. Under the agreement, the subsidiaries are obligated to pay
certain cost and expense reimbursements related to promotion, marketing,
reservations, and sales.
Additionally, the subsidiaries are obligated to pay 0.9% of total operating
revenues for technical services provided by Westin. Technical services expense
was $1,564 for the period.
Additionally, Westin is entitled to management fees based on a percentage
of the total operating revenues of the hotels (ranging from 1% to 2% over the
life of the contract), as well as additional fees for maintaining certain
percentages related to gross margin operations (calculated as a percentage of
total operating revenues and ranging from 2.5% to 6%). Management fees were $756
and gross margin fees were $1,564 for the period, respectively.
7. CONTINGENCIES
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings which constitute
litigation incidental to the Company's business. In the opinion of management,
all such matters are either adequately covered by insurance or are not expected
to have a material adverse effect on the Company.
8. SALE OF COMPANY
On the close of business on August 17, 1997, Bancomer sold its interest in
the Company to Raintree Resorts International, Inc. (formerly Club Regina
Resorts, Inc.) In connection with such sale, the Bancomer affiliate provided
financing to Raintree Resorts International for approximately $83,000.
9. DISCONTINUED OPERATIONS
As mentioned in Note 1, contemporaneously with the acquisition of the
Company, Raintree Resorts International, Inc. sold the hotel operations.
Accordingly, the Company's hotel segment has been presented as discontinued
operations in accordance with APB Opinion No. 30.
F-38
<PAGE>
Information relating to the discontinued hotel operations for the seven
and one-half month period ended August 17, 1997 are as follows:
Revenues:
Rooms ........................................... $ 20,832
Food and beverage ............................... 11,342
Other departments ............................... 2,297
Miscellaneous ................................... 242
--------
Total revenues ........................ 34,713
Expenses:
Rooms ........................................... 2,952
Food and beverage ............................... 6,068
Other departments ............................... 746
Advertising, sales and marketing ................ 2,964
General and administrative ...................... 6,311
Maintenance ..................................... 4,818
Interest expense ................................ 4,712
Valued added and other taxes..................... 1,682
Other expense ................................... 819
Translation loss ................................ 83
--------
31,155
Income before taxes ............................... 3,558
Asset taxes ..................................... 1,256
--------
Net income for the period.............. $ 2,302
========
F-39
<PAGE>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS
December 31, 1996
F-40
<PAGE>
<TABLE>
<CAPTION>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in thousands)
Year Ended
December 31, 1996
-----------
<S> <C>
Revenues
Vacation interval sales ............................................................... $ 37,263
Less: amounts deferred to future projects ........................................ (36,435)
Add: amounts recognized from prior sales ......................................... 2,039
-----------
2,867
Interest income on contracts receivables .............................................. 3,294
Rental of unsold units ................................................................ 2,898
Maintenance fee income ................................................................ 2,599
Other ................................................................................. 760
-----------
Total revenue ................................................................ 12,418
Operating expenses
Commissions paid to salespeople........................................................ 7,108
Less amounts deferred to future periods .......................................... (5,807)
Add amounts recognized from prior sales .......................................... 303
Maintenance of unsold units ........................................................... 188
-----------
Operating expenses, net ...................................................... 1,792
-----------
Gross profit .......................................................................... 10,626
Advertising, sales and marketing ...................................................... 3,829
General and administrative ............................................................ 5,400
Maintenance .......................................................................... 3,610
Interest expense ...................................................................... 3,108
Exchange loss ......................................................................... (351)
-----------
Loss from continuing operations before taxes ................................. (4,970)
Income taxes .......................................................................... --
Other taxes ........................................................................... 3,312
-----------
Net loss from continuing operations .............................................. (8,282)
Discontinued hotel operations:
Net income of discontinued hotel operations (less tax expense of $1,321 in 1996).. 6,537
-----------
Net loss .............................................................................. $ (1,745)
===========
The accompanying notes are an integral part of this financial statement.
</TABLE>
F-41
<PAGE>
<TABLE>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in thousands)
Year Ended
December 31, 1996
-----------
<S> <C>
Operating Activities
Net loss ............................................................................. $ (1,745)
Adjustments to reconcile net loss to net cash provided by operating activities -
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (1,508)
Contracts receivable .......................................................... (7,024)
Inventory ..................................................................... (154)
Taxes to be recovered ......................................................... (1,299)
Deferred costs ................................................................ (5,504)
Other assets .................................................................. (714)
Accounts payable .............................................................. 218
Reservations deposits ......................................................... 59
Other liabilities ............................................................. (2,271)
Unearned deposits ............................................................. 1,030
Deferred revenue .............................................................. 31,100
Assets/liabilities of discontinued hotel operations, net ........................ (4,824)
-----------
Net cash provided by operating activities ............................................ 7,364
Investing Activities
Acquisition of property, plant, and equipment ........................................ (2,565)
-----------
Net cash used in investing activities ................................................ (2,565)
Financing Activities
Proceeds from notes payable to related parties ....................................... 50,112
Distribution to stockholders ........................................................ (54,620)
-----------
Net cash used in financing activities ................................................ (4,508)
Increase in cash and cash equivalents ................................................ 291
Cash and cash equivalents at beginning of period ..................................... 2,272
-----------
Cash and cash equivalents at end of period ........................................... $ 2,563
===========
Supplemental Disclosures
Interest paid ........................................................................ $ 7,725
Income and asset taxes paid .......................................................... 2,138
The accompanying notes are an integral part of this financial statement.
</TABLE>
F-42
<PAGE>
DESARROLLOS TURISTICOS BANCOMER, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prior to August 18, 1997, Desarrollos Turisticos Bancomer, S.A. de C.V.
(the "Company"), was a wholly owned subsidiary of Bancomer, S.A. de C.V.
("Bancomer"), a Mexican banking and financial services institution. The Company
owns and operates certain hospitality assets of Bancomer, which comprise
primarily deluxe resort hotels and vacation ownership properties in Cancun,
Puerto Vallarta, and Cabo San Lucas, Mexico. The Company's principal operations
consist of (1) developing and acquiring hotel and vacation ownership resorts,
(2) marketing and selling vacation intervals at its resorts, (3) providing
consumer financing for the purchase of vacation intervals at its resorts, and
(4) managing the operations of its resorts.
The consolidated financial statements include the accounts of Desarrollos
Turisticos Bancomer, S.A. de C.V., and all of its majority owned subsidiaries,
which are listed below:
Club Regina, S.A. de C.V.
Servicios Turisticos Integrales Cobamex, S.A. de C.V.
Corporacion Habitacional Mexicana, S.A. de C.V.
Corporacion Mexitur, S.A. de C.V.
Promotora y Desarrolladora Pacifico, S.A. de C.V.
Promotora Turistica Nizuc, S.A. de C.V.
Desarrollos Turisticos Integrales Cabo San Lucas, S.A. de C.V.
Desarrollos Turisticos Integrales de Cozumel, S.A. de C.V.
All significant intercompany balances and transactions have been
eliminated.
Translation of Foreign Currency
The Company maintains its accounting records and prepares its financial
statements for domestic purposes in Mexican pesos. The balance sheet accounts of
the Mexican subsidiaries have been remeasured into U.S. dollars in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation. The Company's stated sales prices are dollar denominated as are a
significant amount of its Vacation Interval contracts receivable. Additionally,
the Company's debt is US Dollar denominated. Accordingly, the Mexican Pesos are
translated to US Dollars for financial reporting purposes in using the US Dollar
as the functional currency and exchange gains and losses as well as translation
gains and losses are reported in income and expense. Accordingly, the exchange
gain of $351 for the year ended December 31, 1996 has been included in income
and expense.
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 of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-43
<PAGE>
Contracts Receivable and Concentration of Credit Risk
Substantially all contracts receivable relate to sales of vacation
ownership interests. While the Company does not obtain collateral for such
contracts, the Company does not believe it has significant concentrations of
credit risk in its contracts receivable because in the instance of
uncollectibility of a contract, the Company retains the right to recover and
resell the defaulted interval. Historically, the Company has been able to resell
such intervals at prices in excess of the defaulted receivable balances.
A significant portion of the Company's customers reside in Mexico and the
Company intends to continue to conduct business in Mexico. All of the Company's
sales offices are currently located in Mexico and any economic downturn in
Mexico, which has a history of economic instability, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Revenue Recognition
The Company sells shares of Class B stock in a majority-owned subsidiary to
vacation ownership buyers. The rights associated with the Class B shares allow
the buyers to use a specified type of accommodation (one-bedroom, two-bedroom,
etc.) during a specified season at any of the Company's resorts on a first-come,
first-serve basis annually for approximately thirty years. The sales price of
such Class B shares is recognized under operating lease accounting and
therefore, ratably over the thirty-year right to use period and the costs of
selling the Class B shares, which include brokerage commissions, commissions to
sales personnel, and marketing costs directly associated with successful sales,
are deferred and recognized ratably over the right-to-use period.
Interest income from contracts receivable is recognized when received.
Maintenance fees are billed to Class B shareholders annually and recognized
as earned over 12 months. Maintenance expenses are recognized when incurred.
A provision for uncollectible contracts receivable is accrued for contracts
which become more than 180 days past due. Deferred revenue related to contracts
cancelled in any year subsequent to the year of sale is recognized to the extent
of cumulative cash collections in excess of costs. Deferred costs are recognized
in their entirety.
Advertising Expense
Advertising costs, which include solicitations of prospective timeshare
buyers, are expensed as incurred to the extent they cannot be directly
associated with a successful sale of Class B shares to a timeshare buyer.
Advertising expense for the year 1996 totaled $4,398, and is included in
advertising, sales and marketing expenses.
2. CONTRACTS RECEIVABLE AND CREDIT LOSSES
Contracts receivables are originated when vacation ownership buyers elect
to finance their purchases through the Company. The Company requires a minimum
15% down payment; a majority of purchasers are citizens of the United States and
Canada. Vacation ownership contracts receivable bear interest from 14% to 15%
and are collected in monthly installments over periods ranging from 12 months to
7 years. Approximately 71% of timeshare contracts receivable were U.S.
dollar-denominated at December 31, 1996.
F-44
<PAGE>
Changes in the allowance for uncollectible accounts for the year ended
December 31, 1996 were as follows:
Balance at beginning of year ..................... $ 3,014
Provisions for uncollectible accounts ............ 2,895
Cancellations and write-offs of
uncollectible accounts ........................ (4,134)
-------
Balance at end of year ...................... $ 1,775
=======
Because the Company collects non-refundable cash from vacation ownership
buyers in excess of deferred profit, and because the Company has historically
been able to resell vacation ownership intervals at prices in excess of canceled
receivable balances, the Company does not provide for credit losses related to
doubtful contracts.
3. IMPAIRMENT LOSS
During the last quarter of 1994, management approved and committed to a
plan to dispose of the hotel and timeshare assets of the Company. Based on the
issuance of SFAS 121, Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed of, in March 1995, the Company concluded that
the assets should be classified as held for sale and valued at the lower of cost
or fair value less costs to sell. An impairment loss of $130,000 was recorded in
December of 1994 to reflect the estimated sales proceeds less costs to sell. No
depreciation expense was provided from the period from the adoption of the plan
of disposal through December 31, 1996. The Company was the beneficiary of
certain trusts established to retain title to beachfront property in accordance
with Mexican law. The property held in trust consists of the real estate upon
which the Company has constructed hotels and vacation ownership buildings in
Cancun, Puerto Vallarta, and Cabo San Lucas. The trusts are for an original term
of 33 years and expire from 2017 through 2023. The Trusts can be renewed for an
additional thirty years.
4. INCOME TAXES
The subsidiaries of the Company generally file separate Mexican income tax
returns. Because operations of the Company and each of its subsidiaries have
resulted in losses, only nominal amounts of income taxes have become payable.
The Company pays the greater of its income tax liability or a tax on net
assets. The amount of asset tax paid in excess of income taxes is available to
reduce future income tax payments.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are deferred timeshare revenue
and costs, inventories, and tax loss carryforwards.
F-45
<PAGE>
Net deferred tax assets at December 31, 1996 are as follows:
Deferred costs ................................ $ (5,200)
Inventories ................................... (1,800)
Deferred revenue .............................. 26,000
Net operating losses .......................... 99,000
--------
Net deferred taxes before valuation allowance . 118,000
Valuation allowance ........................... (118,000)
--------
Net deferred tax assets ....................... $ --
========
5. RELATED PARTY TRANSACTIONS
The Company's shareholder is the principal owner or has substantial
ownership interests in other entities with which the Company transacts business.
The following table summarizes transactions with related parties:
1996
---------
Liabilities:
Notes payable .............................. $ 119,016
Accounts payable ........................... --
Interest payable ........................... 2,264
Expenses:
Interest expense ........................... 8,287
Lease expense .............................. 161
Fees ...................................... --
6. COMMITMENTS
Certain subsidiaries of the Company entered into an operation and
administrative agreement with Westin Mexico, S.A. de C.V. ("Westin"), through
December 2003. The Company believes it has the right to terminate the agreement
pursuant to provisions related to change of control of Westin, but has not
asserted that right. Under the agreement, the subsidiaries are obligated to pay
certain cost and expense reimbursements related to promotion, marketing,
reservations, and sales.
Additionally, the subsidiaries are obligated to pay 0.9% of total operating
revenues for technical services provided by Westin. Technical services expense
was $867 for the year ended December 31, 1996.
Additionally, Westin is entitled to management fees based on a percentage
of the total operating revenues of the hotels (ranging from 1% to 2% over the
life of the contract), as well as additional fees for maintaining certain
percentages related to gross margin operations (calculated as a percentage of
total operating revenues and ranging from 2.5% to 6%), the management fee was
$764 and gross margin fee was $437 for the year ended December 31, 1996.
F-46
<PAGE>
7. CONTINGENCIES
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings which constitute
litigation incidental to the Company's business. In the opinion of management,
all such matters are either adequately covered by insurance or are not expected
to have a material adverse effect on the Company.
8. SALE OF COMPANY
On August 18, 1997, Bancomer sold its interest in the Company to Raintree
Resorts International, Inc. (formerly Club Regina Resorts, Inc.). In connection
with such sale, the Bancomer affiliate provided financing to Raintree Resorts
International Inc.
9. DISCONTINUED OPERATIONS
Contemporaneously with the acquisition of the Company, Raintree Resorts
International, Inc. sold the hotel operations. Accordingly, the Company's hotel
segment has been presented as discontinued operations in accordance with APB No.
30 for all periods presented.
Information relating to the discontinued hotel operations for the year
ended December 31, 1996 is as follows:
Revenues:
Rooms .................................... $ 27,328
Food and beverage ........................ 13,606
Other departments ........................ 3,950
Miscellaneous ............................ 178
---------
Total revenues ................. 45,062
Expenses:
Rooms .................................... 4,904
Food and beverage ........................ 7,547
Other departments ........................ 1,894
Advertising, sales and marketing ......... 4,099
General and administrative ............... 7,340
Maintenance .............................. 5,411
Interest expense ......................... 5,179
Other expense ............................ 830
---------
Income before taxes .......................... 7,858
Income taxes ............................. --
Other taxes .............................. 1,321
---------
Net income ..................... $ 6,537
=========
F-47
<PAGE>
LOAN AND
SECURITY AGREEMENT
CR Resorts Cancun, S. de R.L. de C.V.
CR Resorts Los Cabos, S. de R.L. de C.V.
CR Resorts Puerto Vallarta, S. de R.L. de C.V.
Corporacion Mexitur S.A. de C.V.
CR Resorts Cancun Timeshare Trust, S. de R.L. de C.V.
CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V.
CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
Borrower
c/o Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Address
$20,000,000 Amount of Loan
Date: November 23, 1998
INTERNATIONAL RESORT FINANCE
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS....................................................................................................1
2. LOAN COMMITMENT; USE OF PROCEEDS...............................................................................6
2.1 Receivables Loan Commitment; Determination of Advance Amounts.........................................6
2.2 Receivables Loan Revolver.............................................................................6
2.3 Continuation of Obligations Throughout Term...........................................................6
2.4 Use of Advances.......................................................................................6
2.5 Repayment of Receivables Loan.........................................................................6
2.6 Interest..............................................................................................6
2.7 Receivables Loan Minimum Required Payments............................................................7
2.8 Prepayment............................................................................................7
2.9 Receivables Loan Fee; Custodial Fee; Availability Fee.................................................7
2.10 Application of Proceeds of Collateral and Payments....................................................8
2.11 Borrower's Unconditional Obligation to Make Payments..................................................8
3. SECURITY 8
3.1 Grant of Security Interest in Receivables Collateral..................................................8
3.2 Ineligible Instruments................................................................................9
3.3 Lockbox Collections and Servicing.....................................................................9
3.4 Replacement of Agents.................................................................................9
3.5 Maintenance of Security..............................................................................10
3.6 Liability of Guarantors..............................................................................10
4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND MAXIMUM FREQUENCY OF ADVANCES; METHOD OF DISBURSEMENT....10
4.1 Delivery of Receivables Loan Documents and Due Diligence Items Prior to Initial Advance..............10
4.2 Additional Conditions Precedent for Subsequent Advances..............................................13
4.3 General Conditions Precedent to All Advances.........................................................13
4.4 Conditions Satisfied at Borrower's Expense...........................................................13
4.5 Minimum Amount and Maximum Frequency of Advances.....................................................13
4.6 Disbursement of Advances.............................................................................13
4.7 No Waiver............................................................................................13
5. BORROWER'S REPRESENTATIONS AND WARRANTIES.....................................................................13
5.1 Good Standing........................................................................................14
5.2 Power and Authority; Enforceability..................................................................14
5.3 Borrower's Principal Place of Business...............................................................14
5.4 No Litigation........................................................................................15
5.5 Compliance with Legal Requirements...................................................................15
5.6 No Misrepresentations................................................................................15
5.7 No Default for Third Party Obligations...............................................................15
i
5.8 Payment of Taxes and Other Impositions...............................................................15
5.9 Sales Activities.....................................................................................15
5.10 Time-Share Interest Not a Security...................................................................15
5.11 Zoning Compliance....................................................................................15
5.12 Eligible Instruments.................................................................................15
5.13 Assessments and Reserves.............................................................................15
5.14 Title to and Maintenance of Common Areas and Amenities...............................................15
5.15 Trust................................................................................................15
5.16 Year 2000............................................................................................16
5.17 Survival and Additional Representations and Warranties...............................................16
6. BORROWER'S COVENANTS..........................................................................................16
6.1 Borrower's Affirmative Covenants.....................................................................16
6.2 Borrower's Negative Covenants........................................................................20
6.3 Survival of Covenants................................................................................22
7. DEFAULT 22
7.1 Events of Default....................................................................................22
7.2 Remedies.............................................................................................23
7.3 Application of Proceeds During an Event of Default...................................................24
7.4 Uniform Commercial Remedies; Sale; Assembly of Receivables Collateral................................24
7.5 Application of Proceeds..............................................................................24
7.6 Lender's Right to Perform............................................................................25
7.7 Non-Exclusive Remedies...............................................................................25
7.8 Waiver of Marshalling................................................................................25
7.9 Attorney-in-Fact.....................................................................................25
8. COSTS AND EXPENSES; INDEMNIFICATION...........................................................................25
8.1 Costs and Expenses...................................................................................25
8.2 Indemnification......................................................................................26
9. CONSTRUCTION AND GENERAL TERMS................................................................................26
9.1 Special Provisions Relating to Trust.................................................................26
9.2 Payment Location.....................................................................................28
9.3 Entire Agreement.....................................................................................28
9.4 Powers Coupled with an Interest......................................................................28
9.5 Counterparts; Facsimile Signatures...................................................................28
9.6 Notices..............................................................................................28
9.7 Successors and Assigns...............................................................................28
9.8 Severability.........................................................................................29
9.9 Time of Essence......................................................................................29
9.10 Miscellaneous........................................................................................29
9.11 CHOICE OF LAW........................................................................................29
9.12 CHOICE OF JURISDICTION; WAIVER OF VENUE..............................................................29
9.13 WAIVER OF JURY TRIAL.................................................................................29
9.14 INDUCEMENT TO LENDER.................................................................................29
9.15 Compliance With Applicable Usury Law.................................................................29
9.16 NO RELATIONSHIP WITH PURCHASERS......................................................................30
9.17 NO JOINT VENTURE.....................................................................................30
9.18 Standards Applied to Lender's Actions................................................................30
9.19 Meaning of Subordination.............................................................................30
9.20 Scope of Reimbursable Attorney's Fees................................................................30
9.21 Publicity............................................................................................30
9.22 Permitted Contests...................................................................................30
9.23 Reliance.............................................................................................31
9.24 Currency.............................................................................................31
9.25 Consideration........................................................................................31
9.26 Judgment Currency....................................................................................31
Schedule ......... Schedule of Additional Terms
Exhibit A......... Conditions of Eligible Instrument
Exhibit B......... Permitted Encumbrances
Exhibit C......... Borrower's Certificate
Exhibit C-1....... Receivables Re-Assignment
ii
Exhibit D......... FINOVA Wiring Information
Exhibit E......... Additional Conditions to Receivables Loan Advances
Exhibit E-1....... Request for Receivables Loan Advance and Certification
Exhibit E-2....... Receivables Assignment
iii
</TABLE>
This LOAN AND SECURITY AGREEMENT is entered into for good and valuable
consideration, by and between FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender"), and CR Resorts Cancun, S. de R.L. de C.V. ("CR Cancun"); CR Resorts
Los Cabos, S. de R.L. de C.V. ("CR Cabos"); CR Resorts Puerto Vallarta, S. de
R.L. de C.V. ("CR Puerto Vallarta"); Corporacion Mexitur, S.A. de C.V.
("Corporacion Mexitur"); CR Resorts Cancun Timeshare Trust, S. de R.L. de C.V.
("Cancun Sub"); CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V. ("Cabos
Sub") and CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
("Puerto Vallarta Sub"), individually and collectively, jointly and severally,
"Borrower".
<PAGE>
1. DEFINITIONS
As used in this Agreement and the other Receivables Loan Documents unless
otherwise expressly indicated in this Agreement or the other Receivables Loan
Documents, the following terms shall have the following meanings (such meanings
to be applicable equally both to the singular and plural terms defined).
"Advance": an advance of the proceeds of the Receivables Loan by Lender to,
or on behalf of, Borrower in accordance with the terms and conditions of this
Agreement.
"Affiliate": with respect to any individual or entity, any other individual
or entity that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such individual
or entity.
"Agents": the Servicing Agent and the Lockbox Agent.
"Agreement": this Loan and Security Agreement, as it may be from time to
time renewed, amended, restated or replaced.
"Applicable Usury Law": the usury law chosen by the parties pursuant to the
terms of paragraph 9.11 or such other usury law which is applicable if such
usury law is not.
"Articles of Organization": the charter, articles, operating agreement,
joint venture agreement, partnership agreement, by-laws and any other written
documents evidencing the formation, organization, governance and continuing
existence of an entity.
"Availability Advance": an Advance which is made against an Eligible
Instrument after the first Advance made against such Instrument and is based
upon the difference at such time between the Borrowing Base of such Instrument
and the unpaid principal balance of the Receivables Loan attributable to such
Instrument; provided that the substitution of an Eligible Instrument for an
ineligible Instrument pursuant to paragraph 3.2 shall not be deemed to be an
Availability Advance for purposes of this paragraph, but the first and every
subsequent Advance against such substituted Eligible Instrument shall be deemed
to be an Availability Advance.
"Availability Fee": the meaning given to it in paragraph 2.9(c).
"Base Rate": means the publicly announced "Corporate Base" rate of
Citibank, N.A., as initially determined on the closing of the Receivables Loan
and as the same may thereafter change from time to time. As used above, the
"Corporate Base" rate of Citibank shall mean the rate of interest publicly
announced from time to time by Citibank, N.A., New York, New York, as the base
rate of interest charged by Citibank to its most creditworthy commercial
borrowers, notwithstanding the fact that some borrowers of Citibank may borrow
from Citibank at rates less than such announced base rate.
"Basic Interest": the meaning given to it in paragraph 2.6.
"Basic Interest Rate": the per annum rate of interest described in the
Schedule as the Basic Interest Rate.
"Borrower": individually and collectively, jointly and severally, the
individuals or business organizations signing below and identified above as
"Borrower"; and, subject to the restrictions on assignment and transfer
contained in this Agreement, their respective successors and assigns.
"Borrower's Knowledge": the actual, current knowledge of the chief
executive officers of Borrower.
"Business Day": any day other than a Saturday, a Sunday, a national holiday
in the United States of America or Mexico or a day on which banks in Phoenix,
Arizona or Mexico City are required to be closed.
"CILP Assignment": a written assignment to be executed and delivered to
Lender by Borrower and creating in favor of Lender a perfected, direct, first
and exclusive assignment of the Contracts, Intangibles, Licenses and Permits in
order to facilitate Performance of the Obligations, as it may be from time to
time renewed, amended, restated or replaced.
"Collateral": the Receivables Loan Collateral and the collateral pledged to
Lender pursuant to the Receivables Loan Security Documents.
"Commitment Letter": that certain Commitment Letter from Borrower to Lender
dated November 13, 1998 concerning the Receivables Loan and the Inventory Loan.
1
"Contracts, Intangibles, Licenses, Permits": all contracts, licenses,
permits, plans and other intangibles in which Borrower now or hereafter has
rights and are now or hereafter used in connection with the marketing and sale
of Time-Share Interests and the management and/or operation of the Time-Share
Project.
"Custodial Fee": the meaning given to it in paragraph 2.9(b).
"Default Rate": the per annum rate of interest identified in the Schedule
as the Default Rate.
"Dollars" or "$": shall mean United States Dollars.
"Eligible Instrument": an Instrument which conforms to the standards set
forth in Exhibit A. An Instrument that has qualified as an Eligible Instrument
shall cease to be an Eligible Instrument upon the date of the first occurrence
of any of the following: (a) any installment due with respect to that Instrument
becomes more than sixty (60) days past due or (b) that Instrument otherwise
fails to continue to conform to the standards set forth in Exhibit A.
"Environmental Certificate": an environmental certificate executed and
delivered to Lender by Borrower and such other persons as Lender may require and
containing representations, warranties and covenants regarding the environmental
condition of the Time-Share Project, as it may be from time to time renewed,
amended, restated or replaced.
"Event of Default": the meaning set forth in paragraph 7.1.
"FPSI": FINOVA Portfolio Services, Inc., an Arizona corporation, and its
successors and assigns.
"GAAP": shall mean generally accepted accounting principles as in effect
from time to time in the United States of America, consistently applied,
throughout the period involved and with the prior periods, which shall include
the official interpretations thereof by the Financial Accounting Standards Board
or any successor thereto.
"Guarantor": at any time, a person or entity then required under the terms
of this Agreement to guarantee all or any part of the Obligations.
"Guaranty": a primary, joint and several guaranty or guarantee agreement
made by a Guarantor with respect to all or any part of the Obligations, as it
may be from time to time renewed, amended, restated or replaced.
"Impositions": all real estate, personal property, excise, privilege,
transaction, documentary stamp and other taxes, charges, assessments and levies
(including non-governmental assessments and levies such as maintenance charges,
association dues and assessments under private covenants, conditions and
restrictions) and any interest, costs, fines or penalties with respect thereto,
general and special, ordinary and extraordinary, foreseen and unforeseen, of any
kind and nature whatsoever which at any time prior to or after the execution
hereof may be assessed, levied or imposed. Impositions shall include any and all
taxes, withholding obligations, deduction, license fees, assessments, charges,
fines, penalties, or any property, privilege, excise, real estate or other
taxes, charges or assessments currently or hereafter levied or imposed by any
state, local or federal authority of Mexico upon or in connection with or
measured by the Receivables Loan Documents, the Collateral or the principal,
interest or other amounts payable by Borrower to Lender under the Receivables
Loan Documents, together with any amounts which must be withheld from the
proceeds of the Receivables Collateral pursuant to, without limitation, Sections
871, 881 and 1442 of the IRC. Imposition shall not include taxes payable to the
United States of America or to any state or political subdivision thereof
measured by the net income payable by Lender.
"Incipient Default": an event which after notice and/or lapse of time would
constitute an Event of Default.
"Indenture": the Indenture dated December 5, 1997, pursuant to which the
Redeemable Senior Notes were issued.
"Ineligibility Event": the meaning given to it in paragraph 3.2.
"Inventory Loan": that certain loan identified in the Commitment Letter as
the Inventory Loan.
"Installment Date": the meaning given to it in paragraph 2.7.
"Instrument": a purchase money promissory note which has arisen out of a
sale of a Time-Share Interest by Borrower to a Purchaser, is made payable by
such Purchaser to Borrower.
"Insurance Policies": the insurance policies that Borrower is required to
maintain and deliver pursuant to paragraph 6.1(c).
"IRC": The United States Internal Revenue Code, as amended.
"Lease Assignment": a written assignment to be executed and delivered to
Lender by Corporacion Mexitur and creating in favor of Lender a perfected,
direct, first and exclusive security interest in any sales office leases under
which Corporacion Mexitur conducts Time-Share Interest sales, in order to secure
Performance of the Obligations, and as it may be from time to time renewed,
2
amended, restated or replaced. The execution and delivery of the Lease
Assignment shall be a condition precedent to the closing of the Inventory Loan.
"Legal Requirements": (a) all present and future judicial decisions,
statutes, regulations, permits, licenses or certificates of any governmental
authority in any way applicable to Borrower directly or by virtue of its trust
beneficial interest on the Time Share Project; and (b) all contracts or
agreements (written or oral) by which Borrower directly or by virtue of its
trust beneficial interest on the Time Share Project, is bound or, if compliance
therewith would otherwise be in conflict with any of the Receivables Loan
Documents, by which Borrower directly or by virtue of its trust beneficial
interest on the Time Share Project, becomes bound with Lender's prior written
consent.
"Lender": FINOVA Capital Corporation, a Delaware corporation, and its
successors and assigns.
"Lockbox Agent": business organization identified in the Schedule as the
Lockbox Agent, or its successor as lockbox agent under the Lockbox Agreement.
"Lockbox Agreement": an agreement to be made among Lender, Borrower,
Trustee and Lockbox Agent, which provides for Lockbox Agent to collect through a
lockbox payments under Instruments constituting part of the Receivables
Collateral and to remit them to Lender, as it may be from time to time renewed,
amended, restated or replaced.
"Maximum Receivables Loan Amount": the amount identified in the Schedule as
the Maximum Receivables Loan Amount.
"Mexican GAAP": generally accepted accounting principals in Mexico in
accordance with the provisions established by the Mexican Accountants Institute.
"Minimum Opinion Matters": (a) A favorable legal opinion of counsel for
Borrower and Guarantor, which counsel must be acceptable to Lender, dated as of
the day of Required Closing Date, covering the due authorization, execution and
delivery of the Receivables Loan Documents; the enforceability and sufficiency
of Borrower's consumer documents; the absence of environmental liability schemes
in Mexico that would impose any liability on Lender upon an enforcement of
Lender's lien on the Time-Share Project, or otherwise; the enforceability,
validity and binding effect of the Receivables Loan Documents and of all legal
charges, liens and security interests granted thereby, under law of the state of
Arizona and the laws of Mexico; the enforceability under the laws of Mexico of
the Arizona choice of law, venue and jurisdiction provisions contained in the
Receivables Loan Documents; compliance under the laws of Mexico of applicable
usury laws; the procedures and requirements which must be satisfied by the
Borrower in connection with the making of withholding payments to the Mexican
taxing authorities; and such other matters as Lender may require, including
without limitation, Lender's satisfaction that under Mexican law, it can achieve
the practical realization of the remedies set forth in the Receivables Loan
Documents. In connection with such usury opinion, counsel shall be required to
opine that the Receivables Loan is not usurious under the law of Mexico (without
reliance on any usury savings clause).
(b) A favorable opinion from a tax attorney, acceptable to Lender,
providing that Borrower will be exempt from the payment of withholding taxes
associated with the Receivables Loan and with the Receivables Collateral due to
the foreign location of the Time-Share Project, Borrower's foreign jurisdiction
of organization, or the nationality of the purchasers of use rights and
memberships and further providing that Lender will incur no adverse tax
consequences as a result of making the Receivables Loan.
"Minimum Required Time-Share Approvals": Official communications issued by
the Mexican Consumer Protection Agency (Procuraduria Federal del Consumidor)
evidencing that the Purchase Contract and Time-Share Program Consumer Documents
were approved and registered by such government agency.
"Mirror Notes": Those notes totaling, in the aggregate, One Hundred Million
Dollars ($100,000,000.00) issued by CR Cancun, CR Cabos or CR Puerto Vallarta in
favor of CR Resorts Capital S. de R.L. de C.V.
"Obligations": all obligations, agreements, duties, covenants and
conditions of Borrower to Lender which Borrower is now or hereafter required to
Perform under the Receivables Loan Documents.
"Operating Agreements": shall mean each of the following: (a) that certain
Contrato de Operacion, dated as of March 18, 1998, by and between Starwood
Cancun, S. de R.L. de C.V., CR Cancun, CR Resorts Remainder Company, S. de R.L.
de C.V., and Bancomer, S.A., Institucion de Banca Multiple, Grupo Financiero
Bancomer, Division Fiduciaria, (b) that certain Contrato de Operacion, dated as
of March 18, 1998, by and between Starwood Los Cabos, S. de R.L. de C.V., CR
Cabos, CR Resorts Remainder Company, S. de R.L. de C.V., and Bancomer, S.A.,
Institucion de Banca Multiple, Grupo Financiero Bancomer, Division Fiduciaria,
and (c) that certain Contrato de Operacion, dated as of March 18, 1998, by and
between Starwood Puerto Vallarta, S. de R.L. de C.V., CR Puerto Vallarta, CR
Resorts Remainder Company, S. de R.L. de C.V., and Bancomer, S.A.,
3
Institucion de Banca Multiple, Grupo Financiero Bancomer, Division
Fiduciaria.
"Oversight Agreement": an agreement between Borrower Lender, FPSI and
Servicing Agent, in form and substance satisfactory to Lender, allowing FPSI to
oversee and monitor the collection and servicing functions of the Servicing
Agent.
"Pass-Through Certificates": shall mean each of the following: (a) the Club
Regina Trust I Trust Certificate Nos. 1 and 2, each of which has been issued,
signed, registered and authenticated by Trustee, together with all replacements
and substitutions therefor, each representing an undivided fifty percent (50%)
of the beneficial interest in said Trusts, and (b) the Club Regina Trust II
Trust Certificate Nos. 1 and 2, each of which has been issued, signed,
registered and authenticated by Trustee, together with all replacements and
substitutions therefor, each representing an undivided fifty percent (50%) of
the beneficial interest in said Trust.
"Performance" or "Perform": full, timely and faithful performance of the
Obligations by Borrower.
"Permitted Debt": the meaning given to it in paragraph 6.2(b).
"Permitted Encumbrances": the rights, restrictions, reservations,
encumbrances, easements and liens of record which Lender has agreed to accept as
set forth in Exhibit B.
"Pledge Agreement": shall mean, individually and collectively, (i) that
certain Security Agreement dated of even date herewith, between Trustee and
Lender, pursuant to which Trustee has granted to Lender a security interest in
the Receivables Collateral owned by Trustee under the Club Regina Trust I as
security for Borrower's payment and Performance of the Obligations and as
security for Trustee's Performance of Trustee's obligations under such Pledge
Agreement, in form and substance acceptable to Lender in its discretion, and
(ii) that certain Security Agreement dated of even date herewith, between
Trustee and Lender, pursuant to which Trustee has granted to Lender a security
interest in the Receivables Collateral owned by Trustee under the Club Regina
Trust II as security for Borrower's payment and Performance of the Obligations
and as security for Trustee's Performance of Trustee's obligations under such
Pledge Agreement, in form and substance acceptable to Lender in its discretion.
"Purchase Contract": a purchase contract pursuant to which Borrower has
agreed to sell and a third party has agreed to purchase a Time-Share Interest.
"Purchaser": a purchaser who has executed a Purchase Contract.
"Quiet Enjoyment Rights": the meaning given to it in paragraph 4.1(b).
"Receivables": membership, use rights and other consumer receivables
arising from the sale of Time-Share Interests in the Time-Share Project.
"Receivables Assignment": a written assignment of specific Instruments and
their proceeds, executed by Borrower and Trustee substantially in form and
substance identical to Exhibit E-2.
"Receivables Collateral": (a) the Instruments which are now or hereafter
assigned, endorsed or delivered to Lender pursuant to this Agreement or against
which an Advance has been made; (b) all rights under all documents evidencing,
securing or otherwise pertaining to such Instruments, including, without
limitation, Purchase Contracts and escrow agreements; (c) all collateral and
other security interests given to secure an Instrument; (d) all Borrower's
rights under all escrow agreements and accounts pertaining to any of the
foregoing; (e) all reservation systems pertaining to the use of Time-Share
Interests; (f) the Trust Collateral; (g) all computer software, files, books and
records of Borrower pertaining to any of the foregoing; and (h) the cash and
non-cash proceeds of all of the foregoing, including, without limitation
(whether or not acquired with cash proceeds), all accounts, chattel paper,
contract rights, documents, general intangibles, instruments, fixtures, and
equipment, inventory and other goods.
"Receivables Loan": the revolving line of credit loan made pursuant to
Article 2.
"Receivables Loan Borrowing Base": with respect to an Eligible Instrument,
an amount equal to the percentage of the unpaid principal balance of such
Eligible Instrument identified in the Schedule as the RLBB Principal Balance
Percentage.
"Receivables Loan Borrowing Base Shortfall": at any time, the amount by
which the unpaid principal balance of the Receivables Loan exceeds the aggregate
Receivables Loan Borrowing Base of all Eligible Instruments.
"Receivables Loan Borrowing Term": the period commencing on the date of
this Agreement and ending on the close of the Business Day (or if not a Business
Day, the first Business Day thereafter) on the date identified in the Schedule
as the Receivables Loan Borrowing Term Expiration Date.
"Receivables Loan Collateral": the Receivables Collateral, the Insurance
Policies, and any and all other property now or hereafter serving as security
for the Performance of the Obligations, and all products and proceeds thereof.
4
"Receivables Loan Documents": this Agreement, the Receivables Loan Note,
any and all Guaranties, any and all Subordination Agreements, the Lockbox
Agreement, the Servicing Agreement, the Oversight Agreement, the Environmental
Certificate, the Receivables Loan Security Documents, and all other documents
now or hereafter executed in connection with the Receivables Loan, as they may
be from time to time renewed, amended, restated or replaced.
"Receivables Loan Fee": the amount identified in the Schedule as the
Receivables Loan Fee.
"Receivables Loan Maturity Date": the date (or if not a Business Day, the
first Business Day thereafter) which is identified in the Schedule as the
Receivables Loan Maturity Date.
"Receivables Loan Note": the promissory note to be made and delivered by
Borrower to Lender pursuant to paragraph 4.1, having a face amount equal to the
Maximum Receivables Loan Amount, dated as of even date herewith, and made
payable to Lender to evidence the Receivables Loan, as it may be from time to
time renewed, amended, restated or replaced.
"Receivables Loan Opening Prepayment Date": the date identified in the
Schedule as the Receivables Loan Opening Prepayment Date.
"Receivables Loan Prepayment Premium": an amount to be paid pursuant to
paragraph 2.8 upon a prepayment of the Receivables Loan, determined by
multiplying the amount of the prepayment by the percentage identified in the
Schedule as the Receivables Loan Prepayment Premium and determined in accordance
with provisions of the Schedule.
"Receivables Loan Security Documents": the CILP Assignment, the Pledge
Agreement, the Receivables Assignments, the Time-Share Management Agreement
Assignment, the Time-Share Marketing Agreement Assignment, this Agreement, the
Lease Assignment and all other documents now or hereafter securing the
Obligations, as they may be from time to time renewed, amended, restated or
replaced.
"Redeemable Senior Notes": those Series A and Series B thirteen percent
(13%) senior notes due December 1, 2004 in the aggregate principal amount of One
Hundred Million Dollars ($100,000,000.00) issued by Guarantor and CR Resorts S.
de R.L. de C.V. and held by IBJ Schroder Bank and Trust Company, as trustee.
"Resolution": a resolution of a corporation certified as true and correct
by an authorized officer of such corporation, a certificate signed by the
manager of a limited liability company and such members whose approval is
required, or a partnership certificate signed by all of the general partners of
such partnership and such other partners whose approval is required.
"Required Closing Date": the date identified in the Schedule as the
Required Closing Date.
"Required Guarantors": the individuals identified in the Schedule as the
Required Guarantors.
"Schedule": the Schedule of Additional Terms which follows the signature
pages of the parties.
"Servicing Agent": the business organization identified in the Schedule as
the Servicing Agent, or its successor as Servicing Agent under the Servicing
Agreement.
"Servicing Agreement": the agreements to be made among Lender,
Borrower, Trustee and Servicing Agent, which provides for Servicing Agent to
perform for the benefit of Lender accounting, reporting and other servicing
functions with respect to the Receivables Collateral, as it may be from time to
time renewed, amended, restated or replaced.
"Subordination Agreement": a subordination agreement made by a Subordinator
subordinating indebtedness owed to it by Borrower to all or a part of the
Obligations, as it may be from time to time renewed, amended, restated or
replaced.
"Subordinator": at any time, a person or entity then required under the
terms of paragraph 6.1(e) to subordinate indebtedness owed to it by Borrower to
all or any part of the Obligations.
"Term": the duration of this Agreement, commencing on the date as of which
this Agreement is entered into and ending when all of the Obligations have been
Performed and Lender has no further obligation to extend credit in connection
with the Receivables Loan.
"Third Party Consents": those consents which Lender requires Borrower to
obtain, or which Borrower is contractually or legally obligated to obtain, from
others in connection with the transaction contemplated by the Receivables Loan
Documents.
"Time-Share Interest": a personal right to occupy and use a variable Unit
in the Time-Share Project at any time during the season to which it relates for
a period of at least seven (7) consecutive days every calendar year or every
other calendar year.
"Time-Share Program": the program under which Purchasers may own Time-Share
Interests, enjoy their respective Time-Share Interests on a recurring basis, and
share the expenses associated with the operation and management of such program.
5
"Time-Share Program Consumer Documents": the Purchase Contract, Instrument,
deed of conveyance, credit application, credit disclosures (if applicable),
rescission right notices, final subdivision public reports/prospectuses/public
offering statements, receipt for public report, exchange affiliation agreement
and other documents used or to be used by Borrower in connection with the sale
of Time-Share Interests.
"Time-Share Program Governing Documents": the trusts holding the Time-Share
Project; the Purchase Contracts; the Instruments, the rules and regulations of
the Borrower; the regulations for Club Regina's Multi-Resort System; any and all
rules and regulations from time to time adopted by the Borrower; the Operating
Agreements; and any subsidy agreement by which Borrower is obligated to
subsidize shortfalls in the budget of the Time-Share Program in lieu of paying
assessments.
"Time-Share Project": individually and collectively, those time-share
projects identified in the Schedule as the Time-Share Project.
"Trusts": shall mean each of: (a) the Club Regina Trust I established
pursuant to that certain Receivables Trust Agreement, dated as of November ___,
1998, by and between Cabos Sub and Puerto Vallarta Sub, collectively as
depositor, and Trustee, as trustee, (b) the Club Regina Trust II, established
pursuant to that certain Receivables Trust Agreement, dated as of November ___,
1998, by and between Cabos Sub and Puerto Vallarta Sub, collectively as
depositor, and Trustee, as trustee, together with any and all amendments,
substitutions and modifications of the foregoing.
"Trust Collateral": shall mean the Pass-Through Certificates, all the
beneficial interest in the Trusts and all proceeds of the foregoing.
"Trustee": shall mean U.S. Trust Company, National Association, a national
banking association organized and existing under the laws of the United States
of America, as Trustee under the Trusts, and any successor trustees thereunder.
"Unit": a dwelling unit in the Time-Share Project.
2. LOAN COMMITMENT; USE OF PROCEEDS
2.1 Receivables Loan Commitment; Determination of Advance Amounts. Lender
hereby agrees, if Borrower has Performed all of the Obligations then due, to
make Advances to Borrower in accordance with the terms and conditions of this
Agreement for the purposes specified in paragraph 2.4. The maximum amount of an
Advance shall be equal to (a) the aggregate Receivables Loan Borrowing Base for
all Eligible Instruments less (b) the then unpaid principal balance of the
Receivables Loan; provided, however, at no time shall the unpaid principal
balance of the Receivables Loan exceed the Maximum Receivables Loan Amount.
2.2 Receivables Loan Revolver. The Receivables Loan is a revolving line of
credit; however, all Advances shall be viewed as a single loan. Borrower shall
not be entitled to obtain Advances after the expiration of the Receivables Loan
Borrowing Term unless Lender, in its discretion, agrees in writing with Borrower
to make Advances thereafter on terms and conditions satisfactory to Lender.
2.3 Continuation of Obligations Throughout Term. Whether or not Borrower's
right to obtain Advances has terminated, this Agreement and Borrower's liability
for Performance of the Obligations shall continue until the end of the Term.
2.4 Use of Advances. Borrower will use the proceeds of the Receivables Loan
only for the following purposes: acquisitions, development, working capital and
repayment of existing obligations. The initial Advance of the Receivables Loan
shall be used, inter alia, to satisfy Guarantor's or its Affiliate's existing
indebtedness to Bancomer S.A. and pay the interest due on the Redeemable Senior
Notes. In order to accomplish the foregoing purposes, Borrower shall be
permitted to make intercompany loans to its Affiliates.
2.5 Repayment of Receivables Loan. The Receivables Loan shall be evidenced
by the Receivables Loan Note and shall be repaid in immediately available funds
according to the terms of the Receivables Loan Note and this Agreement.
2.6 Interest. Except as otherwise provided in this Receivables Loan Note or
this Agreement, interest ("Basic Interest") shall accrue on the unpaid principal
balance of the Receivables Loan from time to time outstanding at the Basic
Interest Rate. Basic Interest shall be calculated on the basis of the actual
number of days elapsed during the period for which interest is being charged
predicated on a year consisting of three hundred sixty (360) days. Payments of
principal, Basic Interest and any other amounts due and payable under the
Receivables Loan Documents shall earn interest after the date on which they are
due at the Default Rate. At the option of Lender, while an Event of Default
exists, Basic Interest shall accrue at the Default Rate.
2.7 Receivables Loan Minimum Required Payments.
(a) Monthly Payments. Commencing on the last Business Day of the calendar
month in which the initial Advance is made and on the last Business Day of
each
6
succeeding month thereafter ("Installment Date") until the Receivables Loan
Maturity Date or the date on which the Receivables Loan is paid in full,
whichever date first occurs, Borrower will pay to Lender an installment payment
of principal and interest on the Receivables Loan equal to one hundred percent
(100%) of all proceeds (except servicing fee payments made by consumers whose
principal and interest payments then due have been paid in full and payments
which are identified by such consumers as tax and insurance impounds or
maintenance and other assessment payments and are required to be so treated by
Lender) of the Receivables Collateral collected during the month in which the
payment is required to be made plus all such proceeds collected during any
preceding month during the Term and not previously paid to Lender, including,
without limitation, all payments collected under the Instruments which
constitute part of the Receivables Collateral. Regardless of whether the
proceeds of the Receivables Collateral are sufficient for that purpose, interest
on the principal balance hereof from time to time outstanding shall be due and
payable monthly in arrears on each Installment Date.
(b) Borrowing Base Maintenance. If there exists a Receivables Loan
Borrowing Base Shortfall for any reason other than an Ineligibility Event
which is subject to the provisions of paragraph 3.2 and Borrower knows of
the occurrence of such condition or should have known of its occurrence by
virtue of reports required to be delivered to Lender, Borrower, without
notice or demand, will immediately (a) make to Lender a principal payment
in an amount equal to the Receivables Loan Borrowing Base Shortfall plus
accrued and unpaid interest on such principal payment or (b) deliver to
Lender or cause the Trustee to deliver to Lender one or more Eligible
Instruments having an aggregate Receivables Loan Borrowing Base not less
than the Receivables Loan Borrowing Base Shortfall. Simultaneously with the
delivery of Eligible Instruments to correct a Receivables Loan Borrowing
Base Shortfall, Borrower will deliver to Lender or cause Trustee to deliver
to Lender all of the items (except for a "Request for Receivables Advance
and Certification") required to be delivered by Borrower (or Trustee) to
Lender pursuant to paragraph 4.2, together with a "Borrower's Certificate"
in form and substance identical to Exhibit C.
2.8 Prepayment.
(a) Prohibitions on Prepayment; Receivables Loan Prepayment Premium.
Without the prior written consent of Lender, Borrower shall not be entitled
to prepay the Receivables Loan except in accordance with the terms of this
Agreement. Commencing on the Receivables Loan Opening Prepayment Date,
Borrower shall have the option to prepay the Receivables Loan on any
Installment Date, upon thirty (30) days' prior written notice, accompanied
by the simultaneous payment of the applicable Receivables Loan Prepayment
Premium. No more than fifty percent (50%) of the then outstanding principal
balance of the Receivables Loan may be prepaid within the twelve (12) month
period beginning on the Receivables Loan Opening Prepayment Date or during
any successive twelve (12) month period thereafter, provided, however, that
at such time as the unpaid principal balance of the Receivables Loan is no
greater than Two Million Dollars ($2,000,000), Borrower shall have the
right to prepay the Receivables Loan in full during any successive twelve
(12) month period thereafter, under the conditions set forth above.
(b) Exceptions to Prepayment Prohibitions. Notwithstanding anything in
paragraph 2.8(a) to the contrary, the following shall not be prepayments
prohibited pursuant to paragraph 2.8(a) or require the payment of the
Receivables Loan Prepayment Premium: (i) principal payments scheduled under
the Receivables Loan Note including, without limitation, those payments
required pursuant to paragraphs 2.7 and 3.2 unless due to an intentional
misrepresentation or breach of warranty by Borrower or Guarantor concerning
the Receivables Collateral qualifying as Eligible Instruments; and (ii)
prepayments of the Receivables Loan resulting from prepayments of the
Receivables Collateral by Purchasers which have not been solicited by
Borrower in breach of the terms and conditions of paragraph 6.2(e).
(c) Receivables Loan Prepayment Premium Payable for Involuntary
Prepayments. The Receivables Loan Prepayment Premium shall be payable
regardless of whether the prepayment of the Receivables Loan is voluntary
or is required because repayment of the Receivables Loan has been
accelerated pursuant to any of Lender's rights under the Receivables Loan
Documents (including, without limitation, any right to accelerate following
casualty or
7
condemnation or when an Event of Default exists).
2.9 Receivables Loan Fee; Custodial Fee; Availability Fee.
(a) Receivables Loan Fee. Borrower will pay to Lender the Receivables Loan
Fee in accordance with the requirements set forth in the Schedule. The
Receivables Loan Fee has been earned and shall be non-refundable. An
application fee in the amount of Ten Thousand Dollars ($10,000) has been
received by Lender, is non-refundable and shall not be applied against the
Receivables Loan Fee or any other costs and expenses due to Lender.
(b) Custodial Fee. In addition to all other fees required to be paid in
connection with the Receivables Loan, Borrower shall pay to Lender the fee
("Custodial Fee") identified in the Schedule as the Custodial Fee per each
Instrument which is delivered to Lender in connection with the Receivables
Loan and is in the physical custody of Lender. The Custodial Fee for an
Instrument shall be paid by Borrower to Lender at the time the Instrument
is assigned to Lender. After the Custodial Fee is paid for an Instrument,
no fee shall be payable to Lender for any Instrument which is delivered to
Lender pursuant to paragraph 3.2 in replacement for an Instrument for which
Borrower has paid the Custodial Fee. Once a Custodial Fee has been paid to
Lender, Borrower shall not be entitled to any reimbursement of any portion
hereof.
(c) Availability Fee. Borrower will pay to Lender, at the time of any
Advance, a fee ("Availability Fee") equal to the product of the percentage
identified in the Schedule as the Availability Fee Percentage times the
portion of such Advance which constitutes an Availability Advance.
2.10 Application of Proceeds of Collateral and Payments. Notwithstanding
anything in the Receivables Loan Documents to the contrary, the amount of all
payments or amounts received by Lender with respect to the Receivables Loan
shall be applied to the extent applicable under the Receivables Loan Documents:
(a) first, to any past due payments of interest on the Receivables Loan and to
accrued interest on the Receivables Loan through the date of such payment,
including any default interest; (b) then, to any late fees, examination fees and
expenses, collection fees and expenses and any other fees and expenses due to
Lender under the Receivables Loan Documents in connection with the Receivables
Loan; and (c) last, the remaining balance, if any, to the unpaid principal
balance of the Receivables Loan; provided, however, while an Event of Default or
Incipient Default exists, each payment received with respect to the Receivables
Loan shall be applied to such amounts owed to Lender by Borrower as Lender in
its discretion may determine. In calculating interest and applying payments as
set forth above: (a) interest on the Receivables Loan shall be calculated and
collected through the date payment is actually received by Lender; (b) interest
on the outstanding principal balance of the Receivables Loan shall be charged
during any grace period permitted under the Receivables Loan Documents; (c) at
the end of each month, all past due interest and other past due charges provided
for under the Receivables Loan Documents with respect to the Receivables Loan
shall be added to the principal balance of the Receivables Loan in accordance
with the provisions of Article 363 of the Mexican Commercial Code; and (d) to
the extent that Borrower makes a payment or Lender receives any payment or
proceeds of the Collateral for Borrower's benefit that is subsequently
invalidated, set aside or required to be repaid to any other person or entity,
then, to such extent, the Obligations in connection with the Receivables Loan
intended to be satisfied shall be revived and continue as if such payment or
proceeds had not been received by Lender and Lender may adjust the Receivables
Loan balance as Lender, in its discretion, deems appropriate under the
circumstances. The provisions of this paragraph 2.10 are also subject to the
parties rights and obligations under the Receivables Loan Documents as to the
application of proceeds of the Collateral following an Event of Default.
2.11 Borrower's Unconditional Obligation to Make Payments. Whether or not
the proceeds from the Receivables Loan Collateral shall be sufficient for that
purpose, Borrower will pay when due all payments required to be made pursuant to
any of the Receivables Loan Documents, Borrower's obligation to make such
payments being absolute and unconditional.
3. SECURITY
3.1 Grant of Security Interest in Receivables Collateral. To secure the
Performance of all of the Obligations and to secure to Trustee's Performance of
all of its obligations under the Pledge Agreement, Borrower hereby grants to
Lender a security interest in and assigns to Lender (i) the Trust Collateral and
(ii) all other items of Receivables Collateral (other than the Trust
Collateral). Such security interest shall be absolute, continuing, perfected,
direct, first, exclusive and applicable to all existing and future Advances and
to all of the Obligations and to all of the obligations of the Trustee under the
Pledge Agreement. Borrower will unconditionally assign, endorse and deliver to
Lender, with full recourse, all Instruments which are part of the Receivables
Collateral.
8
To the extent that the Trustee is the owner of the Receivables Collateral,
Borrower hereby irrevocably instructs the Trustee to grant to Lender, pursuant
to the Pledge Agreement, a security interest in the Receivables Collateral owned
by the Trustee and furthermore instructs the Trustee to unconditionally assign,
endorse and deliver to Lender, with full recourse, all of the Instruments owned
by the Trustee and which are part of the Receivables Collateral. Borrower
further warrants and guarantees the enforceability of the Receivables
Collateral. Lender is hereby appointed Borrower's attorney-in-fact to take any
and all actions in Borrower's name and/or on Borrower's behalf deemed necessary
or appropriate by Lender with respect to the collection and remittance of
payments (including the endorsement of payment items) received on account of the
Receivables Collateral; provided, however, that Lender shall not take any action
which is described in paragraph 7.2(c) unless an Event of Default exists. Lender
may notify persons bound thereby of the existence of Lender's interest as
assignee in the Receivables Collateral and request from any person bound by the
Receivables Collateral any information relating to such person.
3.2 Ineligible Instruments. If an Instrument which is part of the
Receivables Collateral ceases to be an Eligible Instrument or is determined not
to be an Eligible Instrument ("Ineligibility Event") and as a result of the
occurrence of such Ineligibility Event, the unpaid principal balance of the
Receivables Loan is in excess of the Receivables Loan Borrowing Base, (such
excess, hereinafter the "Borrowing Base Shortfall"), then within thirty (30)
days thereafter Borrower will either (a) make to Lender a principal payment in
an amount equal to the Borrowing Base Shortfall plus accrued and unpaid interest
on such payment or (b) replace or cause the Trustee to replace such ineligible
Instruments with one or more Eligible Instruments having an aggregate
Receivables Loan Borrowing Base not less than the Borrowing Base Shortfall.
Simultaneously with the delivery of the replacement Eligible Instrument to
Lender for an ineligible Instrument, Borrower will deliver to Lender and cause
the Trustee to deliver all of the items (except for a "Request for Receivables
Loan Advance and Certification") required to be delivered by Borrower (or
Trustee) to Lender pursuant to paragraph 4.2, together with a "Borrower's
Certificate" in form and substance identical to Exhibit C. Lender will reassign
and/or endorse to Trustee, without recourse or warranty of any kind, the
ineligible Instrument if: (a) no Event of Default or Incipient Default exists;
(b) Borrower has made any principal payment and Performed any replacement
obligations as required above in connection with any Ineligibility Event caused
by such ineligible Instrument; and (c) Borrower has requested Lender in writing
to release the ineligible Instrument. Borrower will prepare the reassignment
document which shall be in form and substance identical to Exhibit C-1 and will
deliver it to Lender for execution, and Lender will send Borrower and Trustee
the re-assignment document and send to Borrower or Trustee, as the case may be,
the Instrument being reassigned within thirty (30) days after satisfaction of
the conditions precedent specified in the foregoing sentence.
3.3 Lockbox Collections and Servicing. Lockbox Agent shall be instructed
and required to collect payments on the Instruments constituting part of the
Receivables Collateral and remit collected payments to Lender on the last day
(or if such day is not a Business Day, on the preceding Business Day) of each
and every month after the date of the first Receivables Loan Advance, according
to the terms of the Lockbox Agreement. Payments shall not be deemed received by
Lender until Lender actually receives such payments from Lockbox Agent. Pursuant
to the Servicing Agreement, Servicing Agent shall be instructed and required to
furnish to Lender at Borrower's sole cost and expense, no later than the tenth
(10th) day of each month commencing with the first full calendar month following
the date of this Agreement, a report, in a format satisfactory to Lender, which:
(a) shows as of the end of the prior month with respect to each Instrument which
constitutes part of the Receivables Collateral (i) all payments received,
allocated between principal, interest, late charges and taxes, (ii) the opening
and closing balances, (iii) present value calculated at the Discount Rate (when
and if Servicing Agent possesses such capability), (iv) average consumer
interest rates; and (v) extensions, refinances, prepayments and other similar
adjustments; and (b) indicates delinquencies of thirty (30), sixty (60), ninety
(90) days and in excess of ninety (90) days. Borrower will pay without notice or
demand any amount which was due and payable by Borrower on the last Business Day
of the preceding month covered by such reports within five (5) Business Days of
Borrower's Knowledge of such amounts. If such reports are not timely received,
Lender may estimate the amount which was due and payable. Borrower will pay upon
demand the amount determined by Lender in good faith to be due and payable. If
payment is made on the basis of Lender's estimate and thereafter reports
required by this paragraph are received by Lender, the estimated payment amount
shall be adjusted by an additional payment or a refund to the correct amount, as
the reports may indicate; such additional amount to be paid by Borrower upon
demand and such refund to be made by Lender within five (5) Business Days after
the receipt by Lender of the aforementioned reports, in accordance with the
provisions of Section 9.6 hereof. At the end of each calendar quarter, Borrower
will deliver or cause the Servicing Agent to deliver to Lender a current list of
the names, addresses and phone numbers of the obligors on each of the
Instruments constituting part of
9
the Receivables Collateral. Borrower will also deliver or cause Servicing
Agent to deliver to Lender, promptly after receipt of a written request for
them, such other reports with respect to Instruments constituting part of the
Receivables Collateral as Lender may from time to time reasonably require.
3.4 Replacement of Agents. If a default on the part of an Agent exists and
continues under the agreement to which it is a party or an Event of Default
exists and continues, Lender, subject to any additional restriction thereon
contained in the Lockbox Agreement or the Servicing Agreement, as applicable,
may at any time and from time to time, substitute a successor or successors to
any Agent acting under the Servicing Agreement or Lockbox Agreement. In any
event, if, at any time during the term of the Receivables Loan, Lender is not
satisfied with the servicing and collection abilities of Resort Communications,
Inc., Lender shall have the right to require that such servicing and collection
functions be performed by another servicing and collection company satisfactory
to Lender pursuant to a servicing agreement satisfactory in form and content to
Lender.
3.5 Maintenance of Security. Borrower will deliver or cause to be delivered
to Lender and will maintain or cause to be maintained in full force and effect
throughout the Term (except as otherwise expressly provided in such Receivables
Loan Document), as security for the Performance of the Obligations, the
Receivables Loan Security Documents and all other security required to be given
to Lender pursuant to the terms of this Agreement.
3.6 Liability of Guarantors. The payment and Performance of the Obligations
shall be jointly, severally, primarily and unconditionally guaranteed by the
Required Guarantors.
4. CONDITIONS PRECEDENT TO ADVANCES; MINIMUM AMOUNT AND MAXIMUM FREQUENCY
OF ADVANCES; METHOD OF DISBURSEMENT
4.1 Delivery of Receivables Loan Documents and Due Diligence Items Prior to
Initial Advance. Lender's obligation to make the initial Advance shall be
subject to and conditioned upon the terms and conditions set forth in the
following subparagraphs and elsewhere in this Agreement:
(a) Receivables Loan Documents. Borrower shall have delivered to Lender or
caused to be delivered to Lender the following duly executed, delivered
(where appropriate) and in form and substance satisfactory to Lender, not
later than the Required Closing Date:
(i) the Receivables Loan Documents;
(ii) UCC financing statements for filing and/or recording, as
appropriate, where necessary to perfect the security interests in the
Collateral;
(iii) the Receivables Assignment applicable to such Advance;
(iv) [Reserved]
(v) a favorable opinion or opinions from independent counsel for
Borrower, which counsel shall be satisfactory to Lender and which
opinion shall cover such matters as Lender may require, including,
without limitation, the Minimum Opinion Matters pertaining to Borrower
and the Time-Share Project;
(vi) a favorable opinion or opinions from independent counsel for any
and all Guarantors and (if any) other sureties for the Performance of
the Obligations, which counsel shall be approved by Lender and which
opinion shall cover such matters as Lender may require, including,
without limitation, the Minimum Opinion Matters pertaining to such
persons;
(vii) the Third Party Consents;
(viii) a request for the Receivables Loan Advance in form and
substance identical to Exhibit E-1; and
(ix) such other documents as Lender may reasonably require to effect
the intent and purposes of this Agreement.
(b) Organizational, Time-Share Project and Other Due Diligence Documents.
Borrower shall have delivered to Lender prior to the earlier of (a) the
date of the initial Advance or (b) the Required Closing Date:
(i) the Articles of Organization of Borrower, any and all Required
Guarantors and (if any) other sureties for the Obligations;
(ii) the Resolutions of Borrower, any and all Required Guarantors and
(if any) other sureties for the Obligations and, if applicable, their
respective managers, members and partners, to the extent any such
entity is not a natural person, authorizing the execution and delivery
of the Receivables Loan Documents, the transactions contemplated
thereby and such other matters as Lender may require;
10
(iii) evidence of good standing for all Required Guarantors and (if
any) other sureties for the Performance of the Obligations and, if
applicable, their respective managers, members and partners, to the
extent any such entity is not a natural person, from the state of its
organization and evidence that Borrower and Guarantor have obtained
all approvals, consents and business licenses which are necessary to
enable each of them, as applicable, to execute the Receivables Loan
Documents, consummate the Receivables Loan and operate within Mexico;
(iv) a Phase I environmental assessment of the Time-Share Project;
(v) evidence that all taxes and assessments on the Time-Share Project
have been paid;
(vi) such evidence as Lender may reasonably require that Purchasers
whose Instruments are the subject of the Receivables Assignment have
good and marketable title to the Time-Share Interests they have
purchased;
(vii) a condominium map of the Time-Share Project;
(viii) all permits, licenses, approvals and certificates for the
occupancy, use and operation of the Time-Share Project for time-share
and other intended uses and for the sale of Time-Share Interest,
including any necessary architectural committee approvals;
(ix) evidence that the Time-Share Project is zoned for time-share and
other intended uses and that all approvals required for such uses
under any covenants, conditions and restrictions have been obtained.
In addition, evidence satisfactory to Lender that the present use of
the Time-Share Project will not violate any existing bylaws,
restrictions, covenants or regulations affecting the Time-Share
Project;
(x) the Minimum Required Time-Share Approvals;
(xi) a copy of the Time-Share Program Consumer Documents and the
Time-Share Program Governing Documents;
(xii) the Insurance Policies;
(xiii) evidence that the Time-Share Project is not located within a
flood prone area or, if within a flood zone, evidence that flood
insurance has been obtained;
(xiv) evidence of the current and continued availability of utilities
necessary to serve the Time-Share Project for time-share and other
intended uses;
(xv) evidence of access to and parking for the Time-Share Project
adequate for time-share and hotel uses;
(xvi) a copy of all marketing contracts, management contracts, service
contracts, operating agreements, equipment leases, space leases and
other agreements pertaining to the Time-Share Project and which are
necessary for the sale, operation and intended time-share use of the
Time-Share Project and are not otherwise required pursuant to another
item in this paragraph;
(xvii) evidence that each owner of a Time-Share Interest will have
available to it the quiet and peaceful enjoyment of the Time-Share
Interest (including promised amenities and necessary easements) owned
by it which cannot be disturbed so long as such owner is not in
default of its obligations to pay the purchase price of its Time-Share
Interest, to pay assessments to the Borrower, and to comply with
reasonable rules and regulations pertaining to the use of the
Time-Share Interest ("Quiet Enjoyment Rights");
(xviii) the items required pursuant to Exhibit E;
(ixx) fully executed copy of the Trusts in a form approved by Lender,
certified correct by Borrower and Trustee;
(xx) original Pass-Through Certificates, with the assignment section
thereof executed by Borrower "in blank";
(xxi) copy of the notification, as contemplated under paragraph 9.1(c)
hereof, given by Borrower to Trustee, the contents of which shall be
acceptable to Lender, together with an acknowledgment from Trustee
indicating receipt thereof;
(xxii) copy of the notification, as contemplated under paragraph
9.1(d) hereof, given by Borrower to Trustee, the contents of which
shall be acceptable to Lender, together with an acknowledgment from
Trustee indicating receipt of such
11
notification and receipt of the agreements relating to the Obligations
;
(xxiii) satisfactory evidence that upon the initial Advance, Borrower
shall have good and marketable title to the Collateral. In addition,
satisfactory evidence that the security interests to be granted to
Lender have been duly perfected as first and prior charges and
security interests and that there are no other legal charges or
security interests filed against Borrower or the property of Borrower;
and
(xxiv) such other items as Lender requests which are reasonably
necessary to evaluate the request for the Advance and the satisfaction
of the conditions precedent to the Advance.
(c) Local Issues. Lender shall be satisfied with Mexican laws governing all
matters relating to the Receivables Loan, including without limitation, the
creation and perfection of security on real estate, the creation and
perfection of the assignment of purchaser contracts, the creation,
marketing and sale of unsold use rights and memberships, and other related
matters.
(d) Transfer Fees. Lender shall have received in form and substance
satisfactory to Lender, evidence of payment of transfer fees and taxes
assessed by applicable governmental authorities in connection with the
Receivables Loan or the transfer as contemplated in paragraph 4.1(k)
hereof.
(e) Certificate re Financial Statements. Lender shall have received in form
and substance satisfactory to Lender, a certification by the Borrower and
the Guarantor that the financial statements submitted to Lender by Borrower
and the Guarantor prior to the issuance of the Commitment Letter are true
and correct in all material respects. Borrower shall deliver to Lender
proforma consolidated financial statements prepared on the assumption that
the full amount of the Receivables Loan and the Inventory Loan have been
advanced to the Borrower and reflecting that the Borrowers, on a
consolidated basis, have a positive net worth and are solvent.
(f) Portfolio Interest Trust. Lender shall have received, in form and
substance satisfactory to Lender, evidence that the Instruments from United
States residents forming part of the Receivables Collateral being pledged
to Lender are held in one of the Trusts.
(g) Operating Agreements. Lender shall have received and approved the
Operating Agreements and shall have received evidence satisfactory to
Lender that the Operating Agreements are appurtenant to and run with the
land and that Lender would have the benefits of the Operating Agreements if
Lender held a first beneficial interest in the fideocomiso trust that holds
the unsold Time-Share Interest inventory or by other means.
(h) Credit Reports; Search Reports; Site Inspections. Lender shall have
received, in form and substance satisfactory to Lender, the results of UCC
searches (or its equivalent under Mexican law) with respect to Borrower,
lien, litigation, judgment and bankruptcy searches (or its equivalent under
Mexican law) for Borrower, any and all Required Guarantors and conducted in
such jurisdictions as Lender deems appropriate and having a currency
meeting Lender's requirements, credit references with respect to Borrower
and all Required Guarantors and background checks on Douglas Y. Bech,
Antonio Gutierrez, John McCarthy and Robert Brewton. In addition, a member
of Lender's credit department shall have visited the Time-Share Project and
shall be satisfied with the results of such inspection.
(i) Organizational Structure. Lender shall be satisfied with the
organizational structure of Borrower and Guarantor.
(j) Broker: If the services of a broker have been utilized by Borrower to
arrange the Receivables Loan, evidence that any fee due such broker or
brokers has been paid or shall be paid. In any event, such fees are to be
borne solely by Borrower.
(k) Subsidiaries. All of the beneficial interest in the Trusts shall be
held by, or shall have been transferred by CR Cancun, CR Cabos and CR
Puerto Vallarta, as the case may be, into the name of Cancun Sub, Cabos Sub
and Puerto Vallarta Sub, and Lender shall be satisfied that none of the
Borrowers will incur any adverse income tax consequences as a result of the
foregoing.
(l) Existing Debt. Lender shall have reviewed and approved the terms and
conditions of the Redeemable Senior Notes, the Mirror Notes and any other
indebtedness owed by
12
Borrower or Guarantor. There shall exist no default, events of default or
incipient defaults under the Redeemable Senior Notes, the Mirror Notes or
such other indebtedness.
(m) Year 2000 Questionnaire. Borrower shall have satisfactorily completed
Lender's Year 2000 Questionnaire.
(n) Affiliation. Lender has received evidence satisfactory to it that the
Time-Share Projects are affiliated with either Resort Condominium
International or Interval International and are in good standing with such
exchange companies.
4.2 Additional Conditions Precedent for Subsequent Advances. For each
Advance, other than an Availability Advance, Lender's obligation to make such
Advance shall be subject to the terms and conditions set forth in Exhibit E,
including delivery of the items called for therein, by no later than the
Required Closing Date, with respect to the initial Advance, and at least five
(5) Business Days prior to the date of an Advance, with respect to each Advance
thereafter.
4.3 General Conditions Precedent to All Advances. Lender's obligation to
fund any Advance is subject to and conditioned upon the additional terms and
conditions set forth in the following subparagraphs being satisfied at the time
of such Advance:
(a) No material adverse change shall have occurred in the Time-Share
Project, the Collateral, the business or financial condition of Borrower or
any Required Guarantor (since the date of the latest financial and
operating statements given to Lender by or on behalf of Borrower or any
such Guarantor), or the ability of Borrower to Perform the Obligations.
(b) There shall have been no material, adverse change in the warranties and
representations made in the Receivables Loan Documents by Borrower, any
Required Guarantor and/or any surety for the Performance of the
Obligations.
(c) Neither an Event of Default nor Incipient Default shall have occurred
and be continuing.
(d) The interest rate applicable to the Advance (before giving effect to
any savings clause) will not exceed the maximum rate permitted by the
Applicable Usury Law.
(e) Borrower shall have paid to Lender the Receivables Loan Fee and all
other fees which are required to be paid at the time of the Advance.
(f) Lender is satisfied, in its discretion, that Lender will incur no
adverse foreign tax consequences as a result of the making of the Advance
and the performance of its obligations under the Receivables Loan
Documents. Lender shall be further satisfied, in its discretion, that the
principal and interest payments being made to Lender with respect to the
Receivables Loan and any other monies payable to Lender under the
Receivables Loan Documents will not be subject to withholding or subject
Lender to a withholding requirement.
(g) In the event the Instrument against which the Advance is to be made is
from a United States resident, such Instrument is held in one of the
Trusts.
(h) The Pass-Through Certificates are "in registered form".
4.4 Conditions Satisfied at Borrower's Expense. The conditions to Advances
shall be satisfied by Borrower at its expense.
4.5 Minimum Amount and Maximum Frequency of Advances. Advances shall be
made in amounts not less than the amounts identified in the Schedule as the
Minimum Advance Amount. Advances shall be made no more frequently in any
calendar month than the frequency identified in the Schedule as the Maximum
Advance Frequency.
4.6 Disbursement of Advances. Advances may be payable to Borrower; or if
requested by Borrower and approved in writing by Lender, to others, either
severally or jointly with Borrower, for the credit or benefit of Borrower.
Advances shall be disbursed in Dollars by wire transfer or, at Borrower's option
exercised by written request to Lender, by check or drafts. Borrower will pay
Lender's reasonable charge in connection with any wire transfer, and Lender's
current charge is identified in the Schedule as the Wire Transfer Fee. Lender
may, at its option, withhold from any Advance any sum (including costs and
expenses) then due to it under the terms of the Receivables Loan Documents or
which Borrower would be obligated to reimburse Lender pursuant to the
Receivables Loan Documents if first paid directly by Lender.
4.7 No Waiver. Although Lender shall have no obligation to make an Advance
unless and until all of the conditions precedent to the Advance have been
satisfied, Lender may, at its discretion, make Advances prior to that time
without waiving or releasing any of the Obligations.
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5. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower hereby jointly and severally represent and warrant to Lender that:
5.1.1 Corporate Existence. CR Cancun is a duly organized and validly
existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where CR Cancun is at any time selling
Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. CR Cancun has
full power and authority to carry on its business and own its property.
5.1.2 Corporate Existence. CR Cabos is a duly organized and validly
existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where CR Cabos is at any time selling
Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. CR Cabos has full
power and authority to carry on its business and own its property.
5.1.3 Corporate Existence. CR Puerto Vallarta is a duly organized and
validly existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where CR Puerto Vallarta is at any time selling
Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. CR Puerto
Vallarta has full power and authority to carry on its business and own its
property.
5.1.4 Corporate Existence. Corporacion Mexitur is a duly organized and
validly existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where Corporacion Mexitur is at any time
selling Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. Corporacion
Mexitur has full power and authority to carry on its business and own its
property.
5.1.5 Corporate Existence. Cancun Sub is a duly organized and validly
existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where Cancun Sub is at any time selling
Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. Cancun Sub has
full power and authority to carry on its business and own its property.
5.1.6 Corporate Existence. Cabos Sub is a duly organized and validly
existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where Cabos Sub is at any time selling
Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. Cabos Sub has
full power and authority to carry on its business and own its property.
5.1.7 Corporate Existence. Puerto Vallarta Sub is a duly organized and
validly existing business organization of the type identified in the Schedule as
Borrower's Type of Business Organization under the laws of the jurisdiction
identified in the Schedule as Borrower's Jurisdiction of Organization and is
authorized to do business in the jurisdiction where the Time-Share Project is
located and in each jurisdiction where Puerto Vallarta Sub is at any time
selling Time-Share Interests or where at any time the location or nature of its
properties or its business makes such qualification necessary. Puerto Vallarta
Sub has full power and authority to carry on its business and own its property.
5.2 Power and Authority; Enforceability. Borrower has full power and
authority to execute and deliver the Receivables Loan Documents and to Perform
the Obligations. All action necessary and required by Borrower's Articles of
Organization and all other Legal Requirements for Borrower to obtain the
Receivables Loan, to execute and deliver the Receivables Loan Documents which
have been or will be executed and delivered in connection with the Receivables
Loan Documents and to Perform the Obligations has been duly and effectively
taken. The Receivables Loan Documents
14
are and, and to Borrower's Knowledge,
shall be, legal, valid, binding and enforceable against Borrower; and do not
violate the Applicable Usury Law or constitute a default or result in the
imposition of a lien under the terms or provisions of any agreement to which
Borrower is a party. Except for the Third Party Consents delivered pursuant to
paragraph 4.1(a) and the consents evidenced by the Resolutions delivered
pursuant to paragraph 4.1(b), no consent of any governmental agency or any other
person not a party to this Agreement is or will be required as a condition to
the execution, delivery or enforceability of the Receivables Loan Documents .
5.3 Borrower's Principal Place of Business. Each Borrower's principal place
of business and chief executive office are located at the addresses identified
in the Schedule as Borrower's Principal Place of Business and Borrower's Chief
Executive Office.
5.4 No Litigation. There is no action, litigation or other proceeding
pending or, to Borrower's Knowledge, threatened before any arbitration tribunal,
court, governmental agency or administrative body against Borrower, which might
materially adversely affect the Time-Share Project, the Collateral, the business
or financial condition of Borrower, or the ability of Borrower to Perform the
Obligations. Borrower will promptly notify Lender if any such action, litigation
or proceeding is commenced or threatened. Borrower is not subject to
governmental liens, levies or garnishments for liabilities unrelated to the
taxation of the income from the Trusts.
5.5 Compliance with Legal Requirements. To Borrower's Knowledge, Borrower
has complied with all Legal Requirements in all material respects, including,
without limitation, all Legal Requirements of the state in which the Time-Share
Project is located and all other governmental jurisdictions in which the
Time-Share Project is located or in which Time-Share Interests will be sold or
offered for sale by Borrower.
5.6 No Misrepresentations. The Receivables Loan Documents and all
certificates, financial statements and written materials furnished to Lender by
or on behalf of Borrower in connection with the Receivables Loan do not contain
as of the date furnished to Lender any untrue statement of a material fact or
omit to state a fact which materially adversely affects or in the future may
materially adversely affect the Time-Share Project, the Collateral, the business
or financial condition of Borrower or any Guarantor, or the ability of Borrower
to Perform the Obligations.
5.7 No Default for Third Party Obligations. Borrower is not in default
under any other agreement evidencing, guaranteeing or securing borrowed money or
a receivables purchase financing or in violation of or in default under any
material term in any other material agreement, instrument, order, decree or
judgment of any court, arbitration or governmental authority to which it is a
party or by which it is bound.
5.8 Payment of Taxes and Other Impositions. Borrower has filed all tax
returns and has paid all Impositions, if any, required to be filed by it or paid
by it, including real estate taxes and assessments relating to the Time-Share
Project or the Collateral.
5.9 Sales Activities. Prior to the date of this Agreement, Borrower has
sold Time-Share Interests and offered Time-Share Interests for sale only in the
jurisdictions identified in the Schedule as the Jurisdictions Where Sales And/or
Offers to Sell Have Occurred.
5.10 Time-Share Interest Not a Security. Borrower has not sold or offered
for sale any Time-Share Interest as an investment. Except for the sale to
Purchasers of Series B Shares of variable capital stock in and to any of CR
Cancun, CR Cabos and/or CR Puerto Vallarta (in connection with Borrower's Club
Regina B Shares sales program), neither the sale nor the offering for sale of
any Time-Share Interest will constitute the sale or the offering for sale of a
security under any applicable law.
5.11 Zoning Compliance. Neither time-share use nor other transient use and
occupancy of the Time-Share Project violates or constitutes or will violate or
constitute a non-conforming use or require a variance under any private covenant
or restriction or any zoning, use or similar law, ordinance or regulation
affecting the use or occupancy of the Time-Share Project.
5.12 Eligible Instruments. Each Instrument which is assigned to Lender
pursuant to this Agreement and against which an Advance is requested or which is
assigned in satisfaction of Borrower's obligations under paragraph 2.7 or 3.2
shall be an Eligible Instrument at the time of assignment. Borrower has
Performed all of its obligations to Purchasers, and there are no executory
obligations to Purchasers to be Performed by Borrower, except for non-delinquent
and executory obligations disclosed to Purchasers in their Purchase Contracts.
5.13 Assessments and Reserves. (a) The Borrower has authority to levy
annual assessments to cover the costs of maintaining and operating the
Time-Share Project; (b) to Borrower's Knowledge, levied assessments will be
adequate to cover the current costs of maintaining and operating the Time-Share
Project and to establish and maintain a reasonable reserve for capital
improvements to the extent and as required under the Operating Agreements and
Time-Share Program Consumer Documents; and (c) to Borrower's Knowledge, there
will be no events (other than inflation) which could give rise to a material
increase in such costs, except for
15
additions of subsequent phases of the
Time-Share Project that will not materially increase assessments.
5.14 Title to and Maintenance of Common Areas and Amenities. (a) The
Borrower will at all times own the furnishings in the Units and all the common
areas in the Time-Share Project and other amenities which have been promised or
represented as being available to Purchasers, free and clear of liens and
security interests except for the Permitted Encumbrances; (b) no part of the
Time-Share Project is or will be subject to partition by the owners of
Time-Share Interests; and (c) all access roads and utilities and off-site
improvements necessary to the use of the Time-Share Project will have been
dedicated to and/or accepted by the responsible governmental authority or
utility company or are owned by an association of owners of property in a larger
planned development or developments of which the Time-Share Project is a part.
5.15 Trusts. Each of Cabos Sub and Puerto Vallarta Sub have good right and
power to execute the Trusts and perform their respective obligations thereunder.
All action necessary and required by Cabos Sub's and Puerto Vallarta Sub's
Articles of Organization and all applicable laws for the execution and delivery
of the Trusts and all other documents executed and delivered in connection
therewith have been duly and effectively taken and the Trusts are and shall be
legal, valid, binding and enforceable against each of Cabos Sub and Puerto
Vallarta Sub in accordance with their terms. The execution, delivery and
performance of the Trusts and all other documents executed and delivered in
connection therewith will not violate, constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance (other than in
favor of Lender) upon any of the properties or assets of Cabos Sub or Puerto
Vallarta Sub pursuant to the provisions of any law, regulation, judgment,
decree, order, franchise or permit applicable to Cabos Sub or Puerto Vallarta
Sub; Cabos Sub's and Puerto Vallarta Sub's Articles of Organization; or any
other contract or other agreement or instrument which Cabos Sub or Puerto
Vallarta Sub is a party or by which Cabos Sub or Puerto Vallarta Sub or Cabos
Sub's or Puerto Vallarta Sub's properties or assets are bound. No consent of any
government or agency thereof, or any other person, firm or entity not a party
thereto, is or will be required as a condition to the execution, delivery,
performance or enforceability of the Trusts.
5.16 Year 2000. Borrower has taken all action necessary to assure that
there will be no material adverse change to Borrower's business by reason of the
advent of the year 2000, including without limitation that all computer-based
systems, embedded microchips and other processing capabilities effectively
recognize and process dates after April 1, 1999.
5.17 Survival and Additional Representations and Warranties. The
representations and warranties contained in this Article 5 are in addition to,
and not in derogation of, the representations and warranties contained elsewhere
in the Receivables Loan Documents and shall be deemed to be made and reaffirmed
prior to the making of each Advance.
6. BORROWER'S COVENANTS
6.1 Borrower's Affirmative Covenants.
(a) Corporate Existence. Borrower will maintain its existence as a business
organization of the type described below when it has signed this Agreement,
duly organized and validly existing as the type of organization identified
in the Schedule as Borrower's Type of Business Organization under the laws
of the jurisdiction identified in the Schedule as Borrower's Jurisdiction
of Organization and remain authorized to do business in the jurisdiction
where the Time-Share Project is located and in each jurisdiction where
Borrower is then selling Time-Share Interests or where at any time the
location or nature of its properties or its business then makes such
qualification necessary. Borrower will maintain full authority to Perform
the Obligations and to carry on its business and own its property.
(b) Compliance with Legal Requirements. Borrower will comply with and
maintain in full force and effect all Legal Requirements in all material
respects, including, without limitation, all Legal Requirements of the
jurisdiction in which the Time-Share Project is located and all other
governmental jurisdictions in which the Time-Share Project is located or in
which Time-Share Interests will be sold or offered for sale by Borrower.
Borrower shall at all times cause the Time-Share Project to be affiliated
and in good standing with Resort Condominium International or Interval
International.
(c) Insurance. Borrower will pay the cost of and will maintain and deliver
to Lender evidence of insurance policies required by Lender which cover
such risks (including hurricane risk), are written by insurers and are in
amounts and on forms satisfactory to Lender.
(d) Reports.
(i) Financial Information. During the Term, Borrower shall be required
to furnish or cause to be furnished to Lender the following financial
statements prepared in
16
reasonable detail, and certified as correct by
the principal financial officer of the subject of such statement: (a)
within forty-five (45) days after the end of each fiscal quarter, a
statement of profit and loss, a balance sheet, and a cash flow
statement as of the end of such quarter, as to each entity
constituting Borrower (prepared on a consolidated basis and translated
into English) and as to Guarantor, showing operating results for such
quarter for the period from the beginning of the relevant fiscal year
through the end of such quarter and for the comparable period of the
preceding fiscal year, if any; (b) within one hundred twenty (120)
days after the end of each fiscal year, a statement of profit and
loss, a balance sheet and a cash flow statement as of the end of such
year, as to each entity constituting Borrower, as to Guarantor, and as
to any time-share association; (c) within thirty (30) days after end
of each fiscal quarter, an audit report of Borrower's existing
Time-Share Interests inventory levels as of the end of such quarter
year, in a form acceptable to Lender, reconciling the Time-Share
Interests inventory levels and the sales thereof prepared by Lender or
a certified public accounting firm acceptable to Lender. Such report
shall demonstrate to Lender that (A) accurate inventory levels are
being maintained by Borrower and reported to Lender, (B) accurate
inventory systems and controls are being maintained by Borrower, (C)
Lender has received any required release payments, and (D) Borrower
has not sold more Unit types than are available during a particular
season. The annual financial statements of the Borrower shall be
prepared on a consolidated basis and shall be statutory audited by a
certified public accounting firm acceptable to Lender in accordance
with Mexican GAAP. The annual financial statements of Guarantor shall
be audited by a certified public accounting firm acceptable to Lender
in accordance with GAAP. The annual financial statements for the
Time-Share Association shall be in the form typically prepared by such
association. Borrower's and Guarantor's annual financial statements
shall be accompanied by a management letter from the accountants
detailing any deficiencies in accounting practices and commenting on
any other accounting-related matters. Together with Borrower's and
Guarantor's quarterly financial statements, Borrower and Guarantor
will deliver to Lender a certificate signed by Borrower's and
Guarantor's chief executive officer and chief financial officer
stating that there exists no Event of Default or Incipient Default or,
if any such Event of Default or Incipient Default exists, specifying
the nature and period of its existence and what action Borrower and
Guarantor propose to take with respect to it. Such certificate shall
state specifically that Borrower is in compliance with paragraphs
6.1(c), 6.1(e), 6.2(b) and 6.2(c), shall demonstrate the extent to
which Borrower is in compliance with Sections S.5(a), S.5(b) and
S.5(c) of the Schedule, shall demonstrate the extent to which
Guarantor is in compliance with the financial covenants required of
Guarantor under the Guaranty and shall be accompanied by Borrower's
bank statement reflecting compliance with the Cash Equivalents
covenant contained in Section S.5(b) of the Schedule. Borrower shall
require that Guarantor supply to Lender copies of any compliance
certificates submitted by Guarantor to the holder of the Redeemable
Senior Notes concurrently with the submission of such certificate to
such holder(s) and any notices (other than notices of a routine
nature) given by the holder of the Redeemable Senior Notes to
Guarantor or given by Guarantor to the holder of the Redeemable Senior
Notes, concurrently with such giving or receipt. For purposes of this
paragraph, in the case of a partnership or limited liability company,
"chief executive officer" of an entity shall mean the general partner,
member or manager having primary responsibility for the operations of
such entity; and "chief financial officer" of such an entity shall
mean the general partner, member or manager having primary
responsibility for the finances of such entity.
(ii) Litigation. Borrower will promptly notify Lender if any action,
litigation or other proceeding becomes pending or, to Borrower's
Knowledge, threatened before any arbitration tribunal, court,
governmental agency or administrative body against Borrower, which
might materially adversely affect the Time-Share Project, the
Collateral, the business or financial condition of Borrower, or the
ability of Borrower to Perform the Obligations.
(iii) Sales Reports. On or before the tenth (10th) day after the end
of each month, Borrower will cause to be furnished to Lender a sales
report showing the following information prepared with respect to each
Time-Share Project and on a consolidated basis as to all Time-Share
Projects: the number of tours, the number of sales and closings of
Time-Share Interests and the aggregate dollar amount
17
thereof,
including average sales price and down payments, during such month.
(iv) Time-Share Project and Sales Information. Borrower will deliver
current price lists for Time-Share Interests to Lender from to time to
time within ten (10) Business Days after receipt of a written request
from Lender to do so. Borrower will deliver to Lender from time to
time, as available and promptly upon amendment or effective date,
sales literature, registrations/consents to sell, and final
subdivision public reports/public offering statements/prospectuses.
Borrower will deliver to Lender any changes which Borrower proposes or
any other person having the power to do so proposes be made to the
Time-Share Program Consumer Documents and/or the Time-Share Program
Governing Documents last delivered to Lender, together with a
description and explanation of the changes; and other items requested
by Lender which relate to the Time-Share Interests.
(v) Right to Inspect. Borrower will at its expense permit Lender and
its representatives at all reasonable times to inspect the Time-Share
Project and to inspect, audit and copy Borrower's books and records,
provided, however, that, so long as no Event of Default or Incipient
Default has occurred and is continuing, Lender shall provide to
Borrower ten (10) Business Days' prior written notice before
conducting such inspections and audits. In that regard, Lender shall
likewise have the right to audit Borrower's use right or membership
inventory levels at such frequencies as Lender shall deem appropriate,
at Borrower's sole cost and expense. Borrower will permit FPSI,
Lender's wholly owned servicing subsidiary, to monitor the collection
and servicing function of Borrower with respect to those Receivables
collected and serviced by Borrower. Such monitoring shall be performed
at Lender's sole cost and expense except that Borrower shall reimburse
FPSI, on demand, for FPSI's travel expenses incurred in connection
with such monitoring. Provided there does not exist an Event of
Default, FPSI shall perform such monitoring no more frequently than
once per calendar year. During an Event of Default, there shall be no
limit on the frequency of such monitoring by FPSI and all such
monitoring performance during the pendency of an Event of Default
shall be performed at Borrower's sole cost and expense.
(vi) Time-Share Project Budgets. Within thirty (30) days after the end
of each fiscal year, Borrower will submit to Lender a proposed annual
maintenance and operating budgets of the Time-Share Project, certified
to be adequate by the Borrower and a statement of the annual
assessment to be levied upon the owners of Time-Share Interests.
(vii) Material Increases to Assessments. If Borrower has Knowledge or
has reason to believe that an event (other than general changes in the
economy) has occurred or could occur which could give rise to a
material increase in assessments to cover the then current costs of
operating the Time-Share Project and to establish and maintain a
reasonable reserve for capital improvements to the Time-Share Project,
it will notify Lender of the occurrence of such event.
(viii) Additional Information. Borrower will deliver to Lender the
reports and other information required pursuant to paragraph 3.3, and
Borrower will make available such further information as Lender may
from time to time reasonably request.
(e) Subordination of Indebtedness Owing to Affiliates. Borrower will cause
any and all indebtedness (other than the Mirror Notes) owing by it to its
shareholders, directors, officers, partners, members or managers, as the
case may be, to Guarantors, or to the relatives or Affiliates of Borrower
or any of the foregoing, and all liens, security interests and other
charges on the assets of Borrower to be fully subordinated in all aspects
to the Obligations pursuant to written agreements satisfactory to Lender;
provided, however, that (A) if neither an Event of Default nor an Incipient
Default then exists or will exist after giving effect to such payment, such
subordination shall not extend to (i) reasonable bonuses, salaries, other
compensation and fees at normal and customary rates for services actually
rendered so long as the payment of such salaries and fees is not prohibited
or otherwise limited pursuant to any provision set forth in the Schedule
and (ii) payments expressly permitted pursuant to the terms of this
Agreement and (B) any such subordination shall be subject to section 4.08
of the Indenture.
(f) Payment of Taxes. Borrower will file all tax returns and will pay all
taxes, if any, required to be filed by it or paid by it, including real
estate taxes and assessments
18
relating to the Time-Share Project or the
Collateral. Borrower will provide to Lender not more than thirty (30) days
after such Impositions required to be paid pursuant to the preceding
sentence become delinquent evidence that all taxes required to be paid
pursuant to the preceding sentence on the Units and Time-Share Project
common areas and related amenities have been paid in full.
(g) Impositions. All payments to be made by Borrower under the Receivables
Loan Documents shall be free of expense to Lender and to FPSI with respect
to the amount of any Impositions, all of which Impositions Borrower assumes
and shall pay when due pursuant to the laws of each of Mexico and the
United States of America, and in all events prior to the date on which
penalties apply, in addition to the other payments provided for in the
Receivables Loan Documents to be made by it. Borrower's Obligation to pay
Impositions shall likewise include the Obligation to pay any increase to
Lender or FPSI in tax imposed by Mexico or the United States of America (or
any political subdivisions of either) as a result of inclusion in income of
Lender of any amount required by this paragraph 6.1(g) to be paid to or for
Lender or FPSI. In that regard, but without limiting the generality of the
foregoing, the Basic Interest, the Default Rate, the Receivables Loan Fee,
the Custodial Fee, the Availability Fee, any prepayment premiums and any
other amounts payable under the Receivables Loan Documents on which
Impositions may be imposed shall be "grossed up" by any such Impositions
which may be imposed, in the way of withholding payments or otherwise, so
that after taking into account the payment of such Impositions, Lender and
FPSI receive, at the times and frequencies required under the Receivables
Loan Documents, the same amount of interest and other amounts as it would
receive had such Impositions not been imposed. Borrower shall promptly make
such withholding payments to the Mexican and United States of America
taxing authorities, shall obtain receipts from such authorities as to the
making of such withholding payments, shall supply Lender with true and
correct copies of such receipts within five (5) Business Days following
receipt thereof and shall in all other respects comply with all applicable
Mexican and United States of America tax laws with respect to the making of
such Imposition payments. FPSI is hereby expressly made a third-party
beneficiary of the provisions of this paragraph and shall have the right to
enforce this paragraph against Borrower in the same manner as if FPSI were
a party to this Agreement.
(h) Further Assurance. Borrower will execute or cause to be executed all
documents and do or cause to be done all acts necessary for Lender to
perfect or evidence and to continue the perfection of the liens and
security interest of Lender in the Collateral or otherwise to effect the
intent and purposes of the Receivables Loan Documents.
(i) Fulfillment of Obligations to Purchasers. Borrower will fulfill, and
will cause its Affiliates, agents and independent contractors at all times
to fulfill, all their respective material obligations to Purchasers.
Borrower will Perform all of its material obligations under the Time-Share
Program Consumer Documents and the Time-Share Program Governing Documents.
(j) Material Increases to Assessments. Borrower (i) will (A) discharge its
obligations under the Time-Share Program Governing Documents and (B)
maintain a reasonable reserve for capital improvements to the Time-Share
Project to the extent and as required under the Operating Agreements and
Time-Share Program Consumer Documents; and (ii) will pay not less often
than once every twelve (12) months, the difference between (A) the
cumulative total amount of the maintenance and operating expenses incurred
in the operation and maintenance of the Time-Share Project, together with a
reasonable reserve for capital improvements to the extent and as required
under the Operating Agreements and Time-Share Program Consumer Documents;
and the amount of any installment of real property taxes currently due and
payable with respect to the Time-Share Project and related amenities,
through the end of the calendar month preceding the month in which such
payment is made and (B) the cumulative total amount of assessments payable
to the Borrower, by owners (other than Borrower) of Time-Share Interests
therein through the end of the calendar month preceding the month in which
such payment is made.
(k) Maintenance of Time-Share Project and Other Property. Borrower will
maintain or cause to be maintained in good condition and repair all common
areas in the Time-Share Project and other on-site amenities which have been
promised or represented as being available to Purchasers and, to the extent
19
owned by Borrower or an Affiliate of Borrower, all portions of improvements
in which Units are located and are not part of the Time-Share Project.
Borrower will maintain a reasonable reserve to assure compliance with the
terms of the foregoing sentence. Borrower shall maintain the Operating
Agreements in full force and effect and shall make no material
modifications to the same without the prior written consent of Lender.
(l) Maintenance of Larger Tract. To the extent either the Time-Share
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the
Time-Share Project, Borrower will pay its commercially reasonable share of
common expenses to be allocated to the Time-Share Project. Borrower will
use commercially reasonable efforts to cause all such property which is not
part of the Time-Share Project to be professionally managed in a first
class manner.
(m) Collection of Receivables Collateral. Borrower will undertake the
diligent, timely and commercially reasonable collection of amounts
delinquent under each Instrument which constitutes part of the Receivables
Collateral and will bear the entire expense of such collection. Lender
shall have no obligation to undertake any action to collect under any
Instrument.
(n) Notice of Lender's Interest. Borrower will deliver under its letterhead
notice of Lender's interest in the Receivables Collateral to persons bound
thereby, if requested, and will cause such notice to comply with applicable
law.
(o) Year 2000. Borrower shall take all action necessary to assure that
there will be no material adverse change to Borrower's business by reason
of the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing
capabilities effectively recognize and process dates after April 1, 1999.
At Lender's request, Borrower shall provide to Lender assurance reasonably
acceptable to Lender that Borrower's computer-based systems, embedded
microchips and other processing capabilities are year 2000 compatible.
(p) Inventory Loan. In the event the Inventory Loan has not closed by
January 31, 1999, Borrower shall, on or before that date, cause Lender to
be named as beneficiary under the fideocomiso trust that holds Borrower's
unsold Time-Share Interest inventory or otherwise be granted rights in form
satisfactory to Lender to such extent so that Lender will have the right,
directly or indirectly, to enforce the Operating Agreements. Lender's
ability to enforce the Operating Agreement shall not restrict or limit the
Borrower's ability to sell Time-Share inventory in the ordinary course of
business.
(q) Withholding Tax. For so long as any of the Obligations remain
outstanding, Borrower agrees to take all steps now or hereafter required in
order to avoid the imposition of withholding taxes under Section 871, 881
and 1442 of the IRC or any successors statutes. Without limiting the
generality of the foregoing, Borrower hereby agrees, for so long as any of
the Obligations are made outstanding:
(i) to maintain the Trusts in full force and effect, provided,
however, that Borrower may dissolve any Trust at any time from and
after the date on which the corpus of said Trust no longer contains
any Instruments forming a part of the Receivables Collateral;
(ii) prior to such time as Borrower requests that Lender make an
Advance against a particular Instrument, to transfer and convey the
Instrument to the applicable Trust and cause the Instrument to remain
within such Trust for so long as Lender has a security interest in
such Instrument;
(iii) to perform all acts required of Borrower under the Trusts
including without limitation the delivery to the Trustee of an IRS
Form W-8 within the time period required under the Trusts and furnish
Lender with a copy of such Form W-8 concurrently with the delivery of
the same to the Trustee; and
(iv) not to engage in a United States trade or business, as that term
is interpreted under the IRC. In that regard, but without limited to
generality of the foregoing, Borrower agrees to engage in no
operational, marketing, collection, administrative, servicing or other
business within the United States. To the extent that Borrower retains
the services of an Affiliate for purposes of performing operational,
marketing, collection, administrative, servicing or other business
activities for the benefit of Borrower, such business activities shall
be conducted pursuant to arms-length pricing and terms and be
evidenced by a written agreement
20
approved by Lender. Borrower shall
abide by all of its obligations under such agreement in a timely
fashion. Any such Affiliate retained to perform such business
activities on the part of Borrower shall perform similar businesses
and services with and on behalf of persons or entities other than
Borrower.
(r) Signatures. In the event recommended by Lender's Mexican counsel,
Borrower shall cause its authorized officer to initial or execute each page
of each Receivables Loan Document, promptly upon the request of Lender.
6.2 Borrower's Negative Covenants.
(a) Change in Borrower's Name or Principal Place of Business. Borrower will
not change its name or move its principal place of business or chief
executive office except upon not less than sixty (60) days' prior written
notice to Lender.
(b) Restrictions on Additional Indebtedness. Subject to the additional
restrictions set forth in paragraph 6.2(c) below, Borrower will not incur
any additional indebtedness, including, without limitation, any liability
under any capitalized lease or any liability as a guarantor or other
contingent liability, except for (i) short term accounts payable incurred
in connection with the operation of the Time-Share Project in the ordinary
course of business, (ii) the financing of time-share receivables
denominated in Mexican Pesos or Unidades de Inversion ("UDI's"), and (iii)
the Mirror Notes ("Permitted Debt"). If Lender consents to the incurring by
Borrower of additional indebtedness, Lender shall have the right of first
refusal to provide such financing to Borrower. If, during the Term,
Borrower wishes to accept an offer from a third party for financing
Borrower shall give Lender written notice of its intent to do so together
with a copy of the written proposal for the financing from the prospective
third party lender. Lender shall have ten (10) Business Days from receipt
of the notice and any other items reasonably requested by Lender in
connection with such proposed financing to issue a financing proposal to
extend such financing upon terms substantially equivalent or better than
those contained in the proposal from the prospective third party lender and
failure to do so shall be deemed to be an election by Lender not to extend
such financing. Lender shall have forty-five (45) days following the
receipt of the financing proposal timely accepted by Borrower within which
to issue a commitment; provided, however, Lender shall have no obligation
to issue such commitment. The failure of Lender to issue a commitment
within the foregoing period of time shall be deemed to be an election by
Lender not to extend such financing. In such event, Borrower shall be free
to accept the proposal from such third party lender and close such
transaction on terms that are in all material respects no more favorable to
the third party lender than those contained in its proposal. Borrower shall
not however, have the right to close such financing with such third party
lender on terms more favorable to the third party lender than those
contained in the proposal from the third party lender unless Lender has
been given the right to provide Borrower financing on terms substantially
equivalent to or better than those offered by such third party lender, as
more fully provided above.
(c) Restrictions on Liens or Transfers. Borrower, without the prior written
consent of Lender, will not: (i) sell, convey, lease, pledge, hypothecate,
encumber or otherwise transfer any security for the Performance of the
Obligations; (ii) permit or suffer to exist any liens, security interests
or other encumbrances on the Collateral, except for the Permitted
Encumbrances and liens and security interests expressly granted to Lender;
(iii) sell, convey, lease, transfer or dispose of all or substantially all
of its assets to another entity provided, however, that this section (iii)
shall not be any more restrictive to the Borrower than is permitted by
section 4.08 of the Indenture; or (iv) if Borrower is an organization,
permit or suffer to exist any change in the legal or beneficial ownership
of Borrower or any person controlling Borrower (whether directly or
indirectly, through one (1) or more intermediaries) or any change in the
power to control it or any person controlling Borrower (whether directly or
indirectly, through one or more intermediaries). Without limiting Lender's
right to withhold its approval for other reasons, as a condition to
approval of any lien, security interest or other charge upon any of the
Collateral, Lender may require that the third party execute a subordination
agreement satisfactory to Lender and provide Quiet Enjoyment Rights to
owners of Time-Share Interests.
(d) No Sales Activities Prior to Approval. Borrower will not sell any
Time-Share Interest or offer any Time-
21
Share Interest for sale in any
jurisdiction, unless: (i) Borrower has delivered to Lender true and
complete copies of the Minimum Required Time-Share Approvals required in
such jurisdiction for its proposed conduct and all other evidence required
by Lender that Borrower has complied with all Legal Requirements of such
jurisdiction governing its proposed conduct; and (ii) Borrower has
delivered to Lender the Time-Share Program Consumer Documents and the
Time-Share Program Governing Documents which Borrower will be using in
connection with the Time-Share Project and the sale or offering for sale of
Time-Share Interests in such jurisdiction and such documents have been
approved by Lender, which approval shall not be unreasonably withheld.
(e) No Modification of Receivables Collateral or Payments by Borrower.
Borrower will not cancel or materially modify, or consent to or acquiesce
in any material modification (including, without limitation, any change in
the interest rate or amount, frequency or number of payments) to, or
solicit the prepayment of, any Instrument which constitutes part of the
Receivables Collateral (except for solicitations by the Borrower which
result in prepayment of a particular Instrument in exchange for a discount
not exceeding five percent (5%) of the principal balance of such
Instrument); or waive the timely performance of the material obligations of
the Purchaser under any such Instrument or its security; or release the
security for any such Instrument. Borrower will not pay or advance directly
or indirectly for the account of any Purchaser any sum required to be
deposited or owing by the Purchaser either under any Purchase Contract or
under any Instrument which constitutes part of the Receivables Collateral.
(f) No Modification of Time-Share Documents. Borrower will not cancel or
materially modify, or consent to or suffer to exist any cancellation or
material modification of any Time-Share Program Consumer Document or any
Time-Share Program Governing Document without the prior written consent of
Lender, such consent not to be unreasonably withheld or delayed.
(g) Maintenance of Larger Tract. To the extent either the Time-Share
Project is part of a larger common ownership regime or planned development
or parts of buildings in which Units are located are not part of the
Time-Share Project, Borrower will not permit common expenses to be
allocated to the Time-Share Project in an unreasonably disproportionate
manner.
6.3 Survival of Covenants. The covenants contained in this Article 6 are in
addition to, and not in derogation of, the covenants contained elsewhere in the
Receivables Loan Documents and shall be deemed to be made and reaffirmed prior
to the making of each Advance.
7. DEFAULT
7.1 Events of Default. The occurrence of any of the following events or
conditions shall constitute an Event of Default by Borrower under the
Receivables Loan Documents:
(a) failure of Lender to receive from Borrower within five (5) Business
Days of the date when due and payable (i) any amount payable under the
Receivables Loan Note or (ii) any other payment due under the Receivables
Loan Documents, except for the payment due at the Receivables Loan Maturity
Date for which no grace period is allowed;
(b) any representation or warranty which is made by Borrower or Guarantor
and is contained in the Receivables Loan Documents or in any certificate
furnished to Lender under the Receivables Loan Documents by or on behalf of
Borrower proves to be, in any material adverse respect, false or misleading
as of the date deemed made;
(c) a default in the Performance of the Obligations set forth in paragraph
3.2, 6.1(c), 6.1(e), 6.2(b), 6.2(c)(i), 6.2(c)(iii) or 6.2(c)(iv) hereof or
in Sections S.5(a), S.5(b) or S.5(c) of the Schedule;
(d) a default in the Performance of the Obligations or a violation of any
term, covenant or provision of the Receivables Loan Documents (other than a
default or violation referred to elsewhere in this paragraph 7.1) which
continues unremedied (i) for a period of thirty (30) days after notice of
such default or violation to Borrower in the case of a default under or
violation of paragraph 6.2(c)(ii) or any default or violation which can be
cured by the payment of money alone or (ii) for a period of thirty (30)
days after notice to Borrower in the case of any other default or
violation;
22
(e) an "Event of Default," as defined in any of the other Receivables Loan
Documents;
(f) any default, which default continues beyond any applicable cure period,
by any Borrower under (i) the Mirror Notes or under the documents and
instruments executed in connection therewith or (ii) any other agreement
evidencing, guaranteeing or securing borrowed money or a receivables
purchase financing involving an obligation in excess of Fifty Thousand
Dollars ($50,000) to make a payment of principal or interest or to
repurchase receivables; or any other material default by any Borrower
permitting the acceleration of any of the payment or repurchase obligations
of such Borrower which, if accelerated, will be in excess of Fifty Thousand
Dollars ($50,000) in the aggregate;
(g) any final, non-appealable judgment or decree for money damages or for a
fine or penalty against any Borrower which is not paid and discharged or
stayed within thirty (30) days thereafter and, when aggregated with all
other judgment(s) or decree(s) that have remained unpaid and undischarged
or are not stayed for such period, such amount is in excess of Fifty
Thousand Dollars ($50,000) as to any individual Borrower or Two Hundred
Thousand Dollars ($200,000) in the aggregate as to all such Borrowers.
(h) any party holding a lien on or security interest in any Collateral,
other than a lien created by a Purchaser solely with respect to the
Time-Share Interest(s) owned by it, commences foreclosure or similar sale
thereof;
(i) a material adverse change in the Time-Share Project, the Collateral or
the business or financial condition of any Borrower, which change is not
enumerated in this paragraph 7.1, as the result of which Lender in good
faith deems the prospect of Performance of the Obligations impaired or the
Collateral imperiled;
(j) Any Borrower shall (i) generally not be paying its debts as they become
due, (ii) file, or consent by answer or otherwise to the filing against it
of, a petition for relief or reorganization, arrangement or liquidation or
any other petition in bankruptcy or insolvency under the laws of any
jurisdiction including, without limitation, the commencement of a
bankruptcy (quiebra), insolvency (suspension de pagos) or similar
proceedings in accordance with the Mexican Bankruptcy Insolvency Law (Ley
de Quiebras y Suspension de Pagos), (iii) make an assignment for the
benefit of its creditors, (iv) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers for itself or any
substantial part of its property, (v) be adjudicated insolvent, (vi)
dissolve or commence to wind-up its affairs or (vii) take any action for
purposes of the foregoing; or a petition for relief or reorganization,
arrangement or liquidation or any other petition in bankruptcy or
insolvency or the appointment of a custodian under the laws of any
jurisdiction is filed against any Borrower or a custodian is appointed for
any Borrower, the Collateral or any material part of any Borrower's
property and such proceeding is not dismissed and appointment vacated
within ninety (90) days thereafter;
(k) any of the events enumerated in paragraphs 7.1(b), (f), (g), (h), (i)
or (j) occurs with respect to any partner or manager of Borrower, if
Borrower is a partnership or limited liability company, Guarantor or other
surety for the Performance of the Obligations or Guarantor defaults in the
Performance of any of its obligations under the Guaranty executed by it;
(l) failure of Lender to receive from Borrower, within thirty (30) days of
the date Borrower knows of such event, notice of any event which renders
any representation or warranty in any Receivables Loan Documents false in
any material, adverse respect were it made after the occurrence of such
condition;
(m) any default, which continues beyond any applicable cure period, by
Guarantor under (i) the Redeemable Senior Notes or under the document and
instruments executed in connection therewith or (ii) any other agreement
evidencing, guaranteeing or securing borrowed money or a receivables
purchase financing involving an obligation in excess of Fifty Thousand
Dollars ($50,000) to make a payment of principal or interest or to
repurchase receivables; or any other material default by Guarantor
permitting the acceleration of any of the payment or repurchase obligations
of Guarantor which, if accelerated, will be in excess of Fifty Thousand
Dollars ($50,000) in the aggregate;
(n) Trustee defaults in the performance of its Secured Obligations under
and
23
as defined in the Pledge Agreement, if such default continues
unremedied for (i) a period of fifteen (15) days after notice thereof to
Trustee and Borrower in the case of a default which can be cured by the
payment of money only or (ii) a period of thirty (30) days after notice
thereof to Trustee and Borrower in the case of any other default;
(o) any representation or warranty of Trustee contained in the Pledge
Agreement proves to be, in any material respect, false or misleading as of
the date deemed made and such misleading representation or warranty has a
material adverse effect on Lender.
(p) if by or under the authority of any governmental authority the
management of any Borrower or its business is curtailed to the point of
making it effectively inoperative by any seizure or intervention or
proceedings of any nature;
(q) if any of the Time-Share Projects are appropriated or possession
thereof is lost by the Borrower;
(r) if for any reason any Mexican authorities close the Time-Share Project
or enjoin the further sale of Time-Share Interests therein; or
(s) if caused by the acts of Borrower or the Trustee, the zero balance
accounts maintained in the name of the Trustee under the Lockbox Agreement
are not swept into an account of which Lender is the sole owner, as
required under the Lockbox Agreement and such condition continues for a
period of five (5) Business Days.
7.2 Remedies. At any time after an Event of Default has occurred and while
it is continuing, Lender may but without obligation, in addition to the rights
and powers granted elsewhere in the Receivables Loan Documents and not in
limitation thereof, do any one or more of the following:
(a) cease to make further Advances;
(b) declare the Receivables Loan Note, together with any applicable
Receivables Loan Prepayment Premium and all other sums owing by Borrower to
Lender in connection with the Receivables Loan, immediately due and payable
without notice, presentment, demand or protest, which are hereby waived by
Borrower;
(c) with respect to the Receivables Collateral, (i) after any applicable
delinquency on a Purchase Contract, institute collection, foreclosure and
other enforcement actions against Purchasers and other persons obligated on
the Receivables Collateral, (ii) enter into modification agreements and
make extension agreements with respect to payments and other performances,
(iii) release persons liable for performance, (iv) settle and compromise
disputes with respect to payments and performances claimed due, all without
notice to Borrower, without being called to account therefor by Borrower
and without relieving Borrower from Performance of the Obligations, and (v)
receive, collect, open and read all mail of Borrower for the purpose of
obtaining all items pertaining to the Receivables Collateral;
(d) proceed to protect and enforce its rights and remedies under the
Receivables Loan Documents and to foreclose or otherwise realize upon its
security for the Performance of the Obligations, or to exercise any other
rights and remedies available to it at law, in equity or by statute;
(e) without notice to Borrower, have a receiver appointed for Borrower
and/or its property;
(f) Exercise any and all remedies of a secured party under the Arizona
Uniform Commercial Code and under Mexican law with respect to the
Collateral;
(g) following the realization by Lender of its security interest in the
Trust Collateral, terminate or revoke the Trusts or either of them;
(h) without limiting any other rights or remedies of Lender, exercise all
rights and remedies under the Pledge Agreement; and
7.3 Application of Proceeds During an Event of Default. Notwithstanding
anything in the Receivables Loan Documents to the contrary, while an Event of
Default exists, any cash received and retained by Lender in connection with the
Receivables Collateral may be applied to payment of the Obligations in the
manner provided in paragraph 7.5.
7.4 Uniform Commercial Remedies; Sale; Assembly of Receivables Collateral.
(a) UCC Remedies; Sale of Receivables Collateral. Lender shall have all of
the rights and remedies of a secured party under
24
the Uniform Commercial
Code of the State of Arizona and all other rights and remedies accorded to
a Secured Party at equity or law. Any notice of sale or other disposition
of the Receivables Collateral given not less than ten (10) Business Days
prior to such proposed action in connection with the exercise of Lender's
rights and remedies shall constitute reasonable and fair notice of such
action. Lender may postpone or adjourn any such sale from time to time by
announcement at the time and place of sale stated on the notice of sale or
by announcement of any adjourned sale, without being required to give a
further notice of sale. Any such sale may be for cash or, unless prohibited
by applicable law, upon such credit or installment as Lender may determine.
Borrower shall be credited with the net proceeds of such sale only when
such proceeds are actually received by Lender in good current funds.
Despite the consummation of any such sale, Borrower shall remain liable for
any deficiency on the Obligations which remains outstanding following such
sale. All net proceeds recovered pursuant to a sale shall be applied in
accordance with the provisions of paragraph 7.5.
(b) Lender's Right to Execute Conveyances. Lender may, in the name of
Borrower or in its own name, make and execute all conveyances, assignments
and transfers of the Receivables Collateral sold in connection with the
exercise of Lender's rights and remedies; and Lender is hereby appointed
Borrower's attorney-in-fact for this purpose.
(c) Obligation to Assemble Receivables Collateral. Upon request of Lender
when an Event of Default exists, Borrower shall assemble the Receivables
Collateral and make it available to Lender at a time and place designated
by Lender, if it is not already in Lender's possession.
7.5 Application of Proceeds. The proceeds of any sale of all or any part of
the Receivables Collateral made in connection with the exercise of Lender's
rights and remedies shall be applied in the following order of priorities;
first, to the payment of all costs and expenses of such sale, including without
limitation, reasonable compensation to Lender and its agents, attorneys' fees,
and all other expenses, liabilities and advances incurred or made by Lender, its
agents and attorneys, in connection with such sale, and any other unreimbursed
expenses for which Lender may be reimbursed pursuant to the Receivables Loan
Documents; second, to the payment of all late charges required by the
Receivables Loan Documents to be paid by Borrower, in such order and manner as
Lender shall in its discretion determine; third, to the payment of the
Obligations, in such order and manner as Lender shall in its discretion
determine, with no amounts applied to payment of principal until all interest
has been paid; fourth, to the other Obligations in such order and manner as
Lender may determine; and last, to the payment to Borrower, its successors or
assigns, or to whosoever may be lawfully entitled to receive the same, or as a
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
7.6 Lender's Right to Perform. Lender may, at its option, and without any
obligation to do so, pay, perform and discharge any and all obligations agreed
to be paid or Performed in the Receivables Loan Documents by Borrower or any
surety for the Performance of the Obligations if (a) such person fails to do so
and (b) (i) an Event of Default exists and at least five (5) Business Days'
notice has been given to such person of Lender's intention to take such action,
(ii) the action taken by Lender involves obtaining insurance which such person
has failed to maintain in accordance with the Receivables Loan Documents or to
deliver evidence thereof, or (iii) in the opinion of Lender, such action must be
taken because an emergency exists or to preserve any of the Collateral or its
value. For such purposes Lender may use the proceeds of the Collateral. All
amounts expended by Lender in so doing or in exercising its remedies under the
Receivables Loan Documents following an Event of Default shall become part of
the Obligations, shall be immediately due and payable by Borrower to Lender upon
demand, and shall bear interest at the Default Rate from the dates of such
expenditures until paid.
7.7 Non-Exclusive Remedies. No remedy in any Receivables Loan Document
conferred on or reserved to Lender is intended to be exclusive of any other
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under any Receivables Loan Document
or now or hereafter existing at law or in equity. No delay or omission to
exercise any right or power shall be construed to be a waiver of or acquiescence
to any default or a waiver of any right or power; and every such right and power
may be exercised from time to time and as often as may be deemed expedient.
7.8 Waiver of Marshalling. Borrower, for itself and for all who may claim
through or under it, hereby expressly waives and releases all right to have the
Collateral, or any part of the Collateral, marshalled on any foreclosure, sale
or other enforcement of Lender's rights and remedies.
7.9 Attorney-in-Fact. For the purpose of exercising its rights and remedies
under paragraphs 7.2(c)
25
and 7.6, Lender may do so in Borrower's name or its name
and is hereby appointed as Borrower's attorney-in-fact to take any and all
actions in Borrower's name and/or on Borrower's behalf as Lender may deem
necessary or appropriate in its discretion in the accomplishment of such
purposes.
8. COSTS AND EXPENSES; INDEMNIFICATION
8.1 Costs and Expenses.
8.1.1 Borrower will pay on demand any and all costs and expenses incurred
by Lender (exclusive of Lender's employees' expenses other than travel expenses)
in connection with the initiation, documentation and closing of the Receivables
Loan, the making of Advances, the protection of the Collateral, or the
enforcement of the Obligations against Borrower, including, without limitation,
all attorneys', inspecting architect's/engineer's and other professionals' fees
(including, without limitation, reasonable out-of-pocket expenses and reasonable
and normal charges of such attorneys' and other professionals for photocopy,
telecopy and computer services, and clerical overtime), consumer credit reports,
and revenue, documentary stamp, transaction and intangible taxes. Without
limiting the generality of the foregoing, if a bankruptcy proceeding is
commenced by or against Borrower or otherwise involving the Collateral, Lender
shall, to the extent not already provided for herein, be entitled to recover,
and Borrower shall be obligated to pay, Lender's attorneys' fees and costs
incurred in connection with: any determination of the applicability of the
bankruptcy laws to the terms of the Receivables Loan Documents or Lender's
rights thereunder; any attempt by Lender to enforce or preserve its rights under
the bankruptcy laws or to prevent Borrower or any other person from seeking to
deny Lender its rights thereunder; any effort by Lender to protect, preserve or
enforce its rights against the Collateral, or seeking authority to modify the
automatic stay of 11 U.S.C. Section 362 or otherwise seeking to engage in such
protection, preservation or enforcement; or any proceeding(s) arising under the
bankruptcy laws, or arising in or related to a case under the bankruptcy laws.
In addition to the foregoing, Borrower agrees to timely pay all fees and
expenses of Trustee to perform the services contemplated under the Pledge
Agreement and under the Trusts. Borrower agrees to supply to Lender written
notice in the event the Trustee advises Borrower that the Trustee intends to
increase the fees and expenses payable to Trustee in connection with the
performance of its services under the Pledge Agreement and Trusts, within three
(3) Business Days following Borrower's Knowledge of such contemplated increase.
8.1.2 Borrower agrees to timely pay and reimburse the Trustee for all
Trustee's fees, costs and expenses incurred by or due and owing to the Trustee
under or in connection with the Trusts and Pledge Agreement and agrees to take
such steps as are necessary in order to prevent the Trustee from charging such
costs, fees and expenses against the Trust Estate (as that term is defined in
the Trusts) or from seeking reimbursement of such fees and expenses from the
proceeds of the Receivables Collateral. In the event Borrower or Trustee
withholds tax from the proceeds otherwise payable under the Receivables
Collateral, Borrower shall pay to Lender on the last day of each and every month
during the Term, the amount of tax so withheld during such month. In the event
Trustee expends or advances any funds which will be charged against the Trust
Estate or for which Trustee will be seeking reimbursement from the proceeds of
the Receivables Collateral, Borrower shall, within eight (8) days following
notification by Trustee as to such contemplated expenditure or advance, deposit
with Trustee, monies in an amount equal to such contemplated advance or
expenditure so that the Trust Estate and the proceeds from the Receivables
Collateral shall not be reduced by such advance or expenditure. In the event
such notice is given and Borrower fails to deposit such monies (and
notwithstanding the fact that such failure shall be deemed an Event of Default),
in the event Trustee does not or, has no obligation to so notify Borrower, or in
the event the Trustee charges Trustees fees, costs or expenses against the Trust
Estate or against the proceeds of the Receivables Collateral (and
notwithstanding the fact that such act on the part of the Trustee shall be
deemed an Event of Default), Borrower nevertheless shall pay to Lender on the
last day of each and every month during the Term, the amount of such advance,
expenditure or charge so made by Trustee during such month. The amounts payable
by Borrower to Lender hereunder shall be deemed proceeds from the Receivables
Collateral and shall be applied in the priority set forth in paragraph 2.10
hereof.
8.2 Indemnification. Borrower will INDEMNIFY, PROTECT, HOLD HARMLESS, and
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defend Lender, FPSI and their respective successors, assigns and shareholders
(including corporate shareholders), and the directors, officers, employees,
servants and agents of the foregoing, for, from and against: (a) any and all
liability, damage, penalties, or fines, loss, costs or expenses (including,
without limitation, court costs and attorneys' fees), claims, demands, suits,
proceedings (whether civil or criminal), orders, judgments, penalties, fines and
other sanctions whatsoever asserted against it and arising from or brought in
connection with the Time-Share Project, the Collateral, Lender's status by
virtue of the Receivables Loan Documents, creation of liens and security
interests, the terms of the Receivables Loan Documents or the transactions
related thereto, the security interest that Lender asserts in the Trust
Collateral, the holding by Lender of a beneficial interest in the Trusts or the
dissolution and liquidation of the Trusts, a breach of Borrower's obligations
under Paragraph 6.1(g), any assertion or claim that Lender is required to
withhold any tax due on the proceeds of any Instrument or Trust Collateral, or
any act or omission of Borrower or an Agent, or their respective employees or
agents, whether actual or alleged unless such act or omission is caused by
Lender's gross negligence or willful misconduct; and (b) any and all brokers'
commissions or finders' fees or other costs of similar type by any party in
connection with the Receivables Loan. On written request by a person or other
entity covered by the above agreement of indemnity, Borrower will undertake, at
its own cost and expense, on behalf of such indemnitee, using counsel
satisfactory to the indemnitee, the defense of any legal action or proceeding to
which such person or entity shall be a party. At Lender's option, Lender may at
Borrower's expense prosecute or defend any action involving the priority,
validity or enforceability of the Collateral. FPSI is hereby expressly made a
third-party beneficiary of the indemnity obligations of Borrower contained in
this paragraph 8.2 and shall have the right to enforce such indemnity
obligations against Borrower in the same manner as if FPSI were a party to this
Agreement.
9. CONSTRUCTION AND GENERAL TERMS
9.1 Special Provisions Relating to Trusts.
(a) Borrower acknowledges that Lender's security interest in the
Receivables Collateral and other collateral pledged to Lender as security
for the Obligations and Trustee's obligations under the Pledge Agreement
secures, inter alia, the payment and performance by Trustee of its
obligations under the Pledge Agreement. Borrower agrees that neither demand
on, nor pursuit of any remedies against Trustee shall be required as a
condition precedent to, and neither the pendency nor prior termination of
any action, suit or proceeding against Trustee shall bar or prejudice the
making of a demand upon Borrower hereunder or the exercise of any remedies
against Borrower. Neither (i) the exercise or failure to exercise by Lender
of any rights or remedies conferred to it under the Pledge Agreement; (ii)
the recovery of a judgment against Trustee; (iii) the commencement of any
action at law or the recovery of a judgment against Trustee and the
enforcement thereof; (iv) the taking or institution of any action against
Trustee nor (v) any delay in taking or pursuing any of the foregoing shall
extinguish or affect the obligations of Borrower hereunder. Lender may,
without impairing the liability of Borrower hereunder, extend the time for
payment or performance of any obligations of Trustee under the Pledge
Agreement; release or compromise any liability of Trustee thereunder;
extend the time for payment of the obligations of Trustee thereunder; and
agree to any amendment or modification or alteration of the Pledge
Agreement on such terms and conditions as may be acceptable to Lender.
Borrower shall have no rights of subrogation and hereby waives any right to
participate in any of the Collateral (as that term is defined in the Pledge
Agreement). Borrower waives any and all suretyship defenses and defenses in
the nature thereof.
(b) Borrower agrees to perform all acts that are necessary, required or
contemplated under the terms of the Trusts in order for Lender to have and
receive a security interest in the Receivables Collateral (including
without limitation a security interest in the Trust Collateral and an
assignment of the Pass-Through Certificates) and in order to insure that
all of the proceeds of the Receivables Collateral are paid directly to
Lender by virtue of and as a result of Lender's Security Interest in the
Trust Collateral and by virtue of the assignment in favor of Lender of the
Pass-Through Certificates.
(c) Without limiting the generality of the foregoing, Borrower agrees to
notify Trustee, pursuant to the provisions of Section V(D) of the Trusts,
that (i) Lender has a Security Interest in the Trust Collateral, (ii) such
Security Interest is a Pledge and/or Security Interest (as such terms are
defined in the Trusts) and not an outright assignment and (iii) all amounts
due with respect to the Trust Collateral shall be paid to Lender rather
than to Borrower until all of the Obligations have been paid and Performed
in full. Borrower agrees not to vary,
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modify or revoke the foregoing instructions to Trustee without the prior
written consent of Lender.
(d) Without further limiting the generality of the foregoing, Borrower
agrees to instruct Trustee, pursuant to Section II(C) of the Trusts, to
grant to Lender a Security Interest in Trustee's interest in the
Receivables Collateral as security for the payment and Performance of the
Obligations. Borrowers agree not to vary, modify or revoke the foregoing
instructions to Trustee, without the prior written consent of Lender.
(e) Borrower hereby agrees that Lender is entitled to receive, by virtue of
its security interest in the Trust Collateral, all proceeds from
Receivables Collateral and that all amounts due with respect to the Trust
Collateral (to the extent arising from or pertaining to the Receivables
Collateral) shall be paid to Lender rather than to Borrower until all of
the Obligations have been paid and Performed in full.
(f) Borrower shall not authorize or approve the performance by Trustee of
any extraordinary services, for which Trustee shall seek compensation,
without the advance written consent of Lender.
(g) Borrower shall not remove Trustee (or any successor to Trustee) as
trustee under the Trusts without the express written consent of Lender.
Borrower shall not appoint a successor trustee under the Trusts without
obtaining Lender's consent as to the identity of such successor and without
causing such successor, as a condition to such appointment, to become a
party to the Pledge Agreement, the Servicing Agreement and the Lockbox
Agreement in the same manner and to the extent that Trustee is such a
party. Borrower shall not modify the Trusts in any respect without the
prior written consent of Lender. Borrower shall not revoke or terminate the
Trusts without the prior written consent of Lender.
(h) Borrower recognizes that registration of certain of the Receivables
Collateral or other collateral under the federal and state securities laws
may be impractical because of the expenses or delays involved in the
registration process and that in the absence of such registration, Lender
may be unable to effect a public sale of all or a part of the Collateral,
but may be compelled to resort to one or more private sales to a restricted
group of purchasers who will be obliged to agree, among other things, to
acquire such collateral for their own account, for investment and not with
a view to the distribution or resale thereof. Borrower agrees that private
sales so made may be at prices and other terms less favorable to the seller
than if such collateral were sold at public sales, and that Lender has no
obligation to delay sale of any such Collateral for a period of time
necessary to permit such collateral to be registered for public sale under
the Securities Act of 1933, as amended, and any applicable Blue Sky or
other state securities laws. Borrower agrees that sales made under the
foregoing circumstances shall not be deemed to have been made in a
commercially unreasonable manner by virtue of any terms less favorable to
the seller resulting from the private nature of such sales.
(i) Borrower agrees to enforce, short of termination, all of the
obligations of Trustee under the Trust Agreements and hereby authorizes
Lender, following an Event of Default, to so enforce such obligations, in
the name of Borrower or otherwise but at the cost and the expense of
Borrower.
(j) Borrower shall not, at any time during the Term, (i) own in the
aggregate ten percent (10%) or more of the voting stock of any corporate
obligor of any receivables held by the Trusts, or ten percent (10%) or more
of the capital or profits interests of any obligor of any such receivables
that is a partnership or (ii) become a related person with respect to any
obligor on any of the receivables within the Trusts (within the meaning of
IRC Section 864(d)(4);
(k) Notwithstanding the fact that such transfer may constitute an Event of
Default, the Pass-Through Certificates shall be transferred only by the
surrender of an old Pass-Through Certificate and either the reissuance of
the old Pass-Through Certificate to the new holder or the issuance of a new
Pass-Through Certificate, in each case registered in the name of the new
holder;
(l) The identity of the owner of the receivables held by the Trusts shall
be reflected on books and records maintained by the Collection Agent
maintained pursuant to the Trust on behalf of the makers of those note
representing such receivables.
9.2 Payment Location. All monies payable under the Receivables Loan
Documents shall be paid to
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Lender at its address set forth following its signature in lawful monies of
the United States of America, unless otherwise designated in the Receivables
Loan Documents or by Lender by notice.
9.3 Entire Agreement. The Receivables Loan Documents exclusively and
completely state the rights and obligations of Lender and Borrower with respect
to the Receivables Loan. No modification, variation, termination, discharge,
abandonment or waiver of any of the provisions or conditions of the Receivables
Loan Documents shall be valid unless in writing and signed by a duly authorized
representative of the party sought to be bound by such action. The Receivables
Loan Documents supersede any and all prior representations, warranties and/or
inducements, written or oral, heretofore made by Lender, Borrower and the
Required Guarantors concerning this transaction, including the Commitment
Letter. However the Commitment Letter, to the extent it pertains to the
Inventory Loan, shall survive the execution of the Receivables Loan Documents
and the closing of the Receivables Loan.
9.4 Powers Coupled with an Interest. The powers and agency hereby granted
by Borrower are coupled with an interest and are irrevocable until the
Obligations have been paid in full and are granted as cumulative to Lender's
other remedies for collection and enforcement of the Obligations.
9.5 Counterparts; Facsimile Signatures. Any Receivables Loan Document may
be executed in counterpart, and any number of copies of such Receivables Loan
Document which have been executed by all parties shall constitute one (1)
original. Delivery of an executed counterpart of any Receivables Loan Document
by telefacsimile shall be equally as effective as delivery of a manually
executed counterpart of such Receivables Loan Document. Any party delivering an
executed counterpart of any Receivables Loan Document by telefacsimile shall
also deliver a manually executed counterpart of such Receivables Loan Document,
but the failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of such Receivables Loan Document.
9.6 Notices. All notices, requests or demands required or permitted to be
given under the Receivables Loan Documents shall be in writing, and shall be
deemed effective (a) upon hand delivery, if hand delivered or (b) two (2)
Business Days after such are deposited for delivery via Federal Express or other
nationally recognized overnight courier service, addressed as shown below, or to
such other address as the party being notified may have designated in a notice
given to the other party. Written notice may be given by telecopy to the
telecopier number shown below or to such other telecopier number as the party
being notified may have designated in a notice given to the other party, which
notice shall be effective on the day of receipt if received during the
recipient's normal business hours on the day of receipt or otherwise on the next
Business Day; provided that such notice shall not be deemed effective unless not
later than the next Business Day, a copy of such notice is hand delivered or
deposited for delivery via courier in accordance with the requirements set forth
above. The notice addresses and telecopy numbers for Borrower and Lender are set
forth at the end of this Agreement following their respective signatures.
9.7 Successors and Assigns. All the covenants of Borrower and all the
rights and remedies of the Lender contained in the Receivables Loan Documents
shall bind Borrower, and, subject to the restrictions on merger, consolidation
and assignment contained in the Receivables Loan Documents, its successors and
assigns, and shall inure to the benefit of Lender, its successors and assigns,
whether so expressed or not. Borrower may not assign its rights in the
Receivables Loan Documents in whole or in part. Except as may be expressly
provided in a Receivables Loan Document, no person or other entity shall be
deemed a third party beneficiary of any provision of the Receivables Loan
Documents.
9.8 Severability. If any provision of any Receivables Loan Document is held
to be invalid, illegal or unenforceable under present or future laws, the
legality, validity and enforceability of the remaining provisions of the
Receivables Loan Documents shall not in any way be affected or impaired thereby.
In lieu of each such illegal, invalid or unenforceable provision, there shall be
added to the Receivables Loan Document affected, a provision that is legal,
valid and enforceable and as similar in terms to such illegal, invalid and
unenforceable provision as may be possible.
9.9 Time of Essence. Time is of the essence in the Performance of the
Obligations.
9.10 Miscellaneous. All headings are inserted for convenience only and
shall not affect any construction or interpretation of the Receivables Loan
Documents. Unless otherwise indicated, all references in a Receivables Loan
Document to clauses and other subdivisions refer to the corresponding
paragraphs, clauses and other subdivisions of the Receivables Loan Document; the
words "herein," "hereof," "hereto," "hereunder" and words of similar import
refer to the Receivables Loan Document as a whole and not to any particular
paragraph, clause or other subdivision; and reference to a numbered or lettered
subdivision of an Article or paragraph shall include relevant matter within the
Article or paragraph which is applicable to but not within such numbered or
lettered subdivision. All
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Schedules and Exhibits referred to in this Agreement are incorporated in
this Agreement by reference. Whenever the words "including", "include", or
"includes" are used in the Receivables Loan Documents, they shall be interpreted
in a non-exclusive manner as though the words, "without limitation," immediately
followed the same.
9.11 CHOICE OF LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED THEREIN, THE
RECEIVABLES LOAN DOCUMENTS AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES
THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF ARIZONA (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF THE UNITED
STATES.
9.12 CHOICE OF JURISDICTION; WAIVER OF VENUE. EACH OF BORROWER AND LENDER:
(A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF
THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR
RELATING TO ANY RECEIVABLES LOAN DOCUMENT OR THE SUBJECT MATTER THEREOF AND
WAIVE ANY OTHER JURISDICTION OR VENUE TO WHICH THE PARTIES MAY OTHERWISE BE
ENTITLED; AND (B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY
WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY
SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING
IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH OF BORROWER AND LENDER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
9.13 WAIVER OF JURY TRIAL. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER ANY RECEIVABLES LOAN DOCUMENT WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES; AND THEREFORE, THEY AGREE THAT ANY
LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING
WITHOUT A JURY, AND KNOWINGLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY SUCH
PROCEEDING.
9.14 INDUCEMENT TO LENDER. ALL OF THE PROVISIONS SET FORTH IN THIS
PARAGRAPH ARE A MATERIAL INDUCEMENT FOR LENDER'S MAKING ADVANCES TO BORROWER.
(BORROWER'S INITIALS RE: 9.11 - 9.14 _____)
9.15 Compliance With Applicable Usury Law. It is the intent of the parties
hereto to comply with the Applicable Usury Law. Accordingly, notwithstanding any
provisions to the contrary in the Receivables Loan Documents, in no event shall
the Receivables Loan Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law.
9.16 NO RELATIONSHIP WITH PURCHASERS. LENDER DOES NOT HEREBY ASSUME AND
SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S
RELATIONSHIP BEING THAT ONLY OF A CREDITOR WHO HAS TAKEN AN ASSIGNMENT FROM
BORROWER OF THE INSTRUMENTS IN ORDER TO FACILITATE PERFORMANCE OF THE
OBLIGATIONS. EXCEPT AS REQUIRED BY LAW AND FOR FILINGS MADE WITH THE SECURITIES
& EXCHANGE COMMISSION OR ANY STOCK EXCHANGE ON WHICH BORROWER'S STOCK IS TRADED,
BORROWER WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH
RESPECT TO THE TIME-SHARE PROJECT, THE SALE OF TIME-SHARE INTERESTS OR
OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF LENDER.
9.17 NO JOINT VENTURE. THE RELATIONSHIP OF BORROWER AND LENDER IS THAT OF
DEBTOR AND CREDITOR, AND IT IS NOT THE INTENTION OF EITHER OF SUCH PARTIES BY
THIS OR ANY OTHER INSTRUMENT BEING EXECUTED IN CONNECTION WITH THE RECEIVABLES
LOAN TO ESTABLISH A PARTNERSHIP, AND THE PARTIES HERETO SHALL NOT UNDER ANY
CIRCUMSTANCES BE CONSTRUED TO BE PARTNERS OR JOINT VENTURERS.
9.18 Standards Applied to Lender's Actions. Unless otherwise specifically
stipulated elsewhere in the Receivables Loan Documents, if a matter is left in
the Receivables Loan Documents to the decision, requirement, request,
determination, judgment, opinion, approval, consent, satisfaction, acceptance,
agreement, option or discretion of Lender, its employees, Lender's counsel or
30
any agent for or contractor of Lender, such action shall be deemed to be
exercisable by Lender or such other person in its sole and absolute discretion
and according to standards established in its sole and absolute discretion.
Without limiting the generality of the foregoing, "option" and "discretion"
shall be implied by use of the words "if" or "may."
9.19 Meaning of Subordination. Any subordination required to be given under
the Receivables Loan Documents to Lender shall include the subordination of and
the deferral of the right to receive payments on the subordinated obligations
except to the extent expressly permitted in this Agreement; the remittances to
Lender of all prohibited payments received by the third party; the subordination
of all liens, security interests, assignments and other encumbrances and claims
held by the subordinating party on or against any of Borrower's property to
Lender's interest (whenever acquired) in such property; and an agreement on the
part of the third party not to exercise any remedies against Borrower so long as
all obligations under the Receivables Loan Documents have not been fully
satisfied.
9.20 Scope of Reimbursable Attorney's Fees. As used in the Receivables Loan
Documents, the term "attorneys' fees" includes the reasonable fees of attorneys
licensed to practice law in any jurisdiction, law clerks, paralegals,
investigators and others not admitted to the bar but performing services under
the supervision of a licensed attorney, and the expenses (including, without
limitation, normal and customary charges for telecopy and photocopy services and
clerical overtime) incurred by them in the performance of their services. As
used in the Receivables Loan Documents, attorneys' fees incurred by Lender in
the enforcement of any remedy or covenant include, without limitation,
attorneys' fees incurred in any foreclosure of the Receivables Loan Security
Documents, in protecting or sustaining the lien or priority of the Collateral,
or in any proceeding arising from or connected with any such matter, including
any bankruptcy, receivership, injunction or other similar proceeding, or any
appeal from or petition for review of any such matter, and with or without
litigation.
9.21 Publicity. Lender is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof. Borrower consents to such
advertising and authorizes Lender to use Borrower's name, logo, insignia,
descriptive art work, trade name, trademark, or other similar material, whether
or not protected by copyright (or otherwise), in any such advertisement.
9.22 Joint and Several. All of the Obligations, covenants, representations
and warranties of Borrower in any of the Receivables Loan Documents shall be the
joint and several Obligations, covenants, representations and warranties of each
entity constituting Borrower, except to the extent otherwise set forth to the
contrary. Although Lender and Borrower intend that each entity constituting
Borrower shall be jointly and severally liable for all Obligations, to the
extent that this Agreement or the other Receivables Loan Documents may be
determined to secure indebtedness of any Borrower for which any other Borrower
is not primarily liable, each Borrower expressly waives the benefit of any and
all defenses available to a guarantor, surety, endorser or accommodation party
dependent on an obligor's character as such. Without limiting the generality of
the foregoing, each such other Borrower's liability hereunder shall not be
affected or impaired in any way by any of the following acts or things (which
Lender is hereby expressly authorized to do, omit or suffer from time to time
without notice to or consent of anyone):
(i) any acceptance of collateral security, guarantors, accommodation
parties or sureties for any or all Obligations;
(ii) any extension or renewal of any Obligations (whether or not for longer
than the original period) or any modification of the interest rate,
maturity or other terms of the Obligations;
(iii) any waiver or indulgence granted to any Borrower, and any delay or
lack of diligence in the enforcement of any or all Obligations owed by any
Borrower;
(iv) any full or partial release of, compromise or settlement with, or
agreement not to sue, any Borrower or the Guarantor or other person liable
on any Obligations;
(v) any release, surrender, cancellation or other discharge of any or all
Obligations of Borrower or the acceptance of any instrument in renewal or
substitution for any instrument evidencing any Obligations;
(vi) any failure to obtain collateral security (including rights of setoff)
for any Obligations or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security for
any Obligations;
(vii) any modification, alteration, substitution, exchange, surrender,
cancellation, termination, release or other change, impairment, limitation,
loss or discharge of any collateral security for any Obligations;
31
(viii) any assignment, sale, pledge or other transfer of any of the
Obligations owed by any Borrower; or
(ix) any manner, order or method of application of any payments or credits
on any Obligations.
Each Borrower waives all rights that it may now have or hereafter acquire,
whether by subrogation, contribution, reimbursement, recourse, exoneration,
contract or otherwise, to recover from any other Borrower or from any property
of any other Borrower any sums paid under this Agreement. No Borrower will
exercise or enforce any right of contribution to recover any such sums from any
person who is a co-obligor with any Borrower or a guarantor or surety of the
Obligations or from any property of any such person or entity until all of the
Obligations shall have been fully paid and discharged.
9.23 Reliance. Lender's examination, inspection, or receipt of information
pertaining to Borrower, any Guarantor, the Collateral or the Time-Share Project
shall not in any way be deemed to reduce the full scope and protection of the
warranties, representations and Obligations contained in the Receivables Loan
Documents.
9.24 Currency. All monetary amounts for all purposes hereunder shall be
denominated in United States Dollars. All amounts payable under the Receivables
Loan Documents shall be payable solely in United States Dollars in immediately
available funds for deposit into the bank account set forth in the attached
Exhibit D or such other account as Lender shall from time to time indicate by
written notice to Borrower.
9.25 Consideration. Each of the entities comprising Borrower acknowledges
the Lender would not make the Receivables Loan contemplated hereby unless each
of such entities (a) became a party to this Agreement and the other Receivables
Loan Documents, (b) became jointly and severally liable for the payment and
performance of all of the Obligations, and (c) granted to Lender a security
interest, subject to Permitted Encumbrances, in all items of Collateral owned by
each Borrower. Although each of the entities comprising Borrower maintains its
separate legal existence and operates as a distinct and separate entity, such
entities have historically engaged in substantial business with each other and
have operated, and intend to continue operating, as a joint and consolidated
entity for financial planning and cash management purposes and for purposes of
achieving certain business operation efficiencies. Each of the entities
comprising Borrower will therefore benefit from the financing arrangement and
accommodations made by Lender under this Agreement and the other Receivables
Loan Documents. Finally, it was a condition precedent on the part of Lender to
the closing of the Receivables Loan that each of CR Cabo, CR Cancun and CR
Puerto Vallarta form Cabo Sub, Cancun Sub and Puerto Vallarta Sub, respectively,
and that CR Cabo, CR Cancun and CR Puerto Vallarta assign to Cabo Sub, Cancun
Sub and Puerto Vallarta Sub, inter alia, all of their right, title and interest,
if any, in and to the beneficial interest in the Trusts.
9.26 Judgment Currency. If, for the purpose of obtaining or enforcing
judgment against Borrower or Guarantor in any court in any jurisdiction, it
becomes necessary to convert into any other currency (such other currency being
hereinafter referred to as the "Judgment Currency") an amount due in United
States Dollars under the Receivables Loan Documents, the conversion shall be
made at the rate of exchange available to Lender on the Business Day immediately
preceding (i) the date of actual payment of the amount due, in the case of any
proceeding in the courts of the State of Arizona or in the courts of any other
jurisdiction that will give effect to such conversion being made on such date,
or (ii) the date on which the judgment is given, in the case of any proceeding
in the courts of any other jurisdiction (the applicable date as of which such
conversion is made pursuant to this provision being hereinafter referred to as
the "Judgment Conversion Date"). If, in the case of any proceeding in the court
of any jurisdiction referred to above, there is a change in the rate of exchange
available to Lender between the Judgment Conversion Date and the date of actual
receipt of the amount due in immediately available funds, Borrower or Guarantor,
as the case may be, shall pay such additional amount (if any, but in any event
not a lesser amount) as may be necessary to ensure that the amount actually
received in the Judgment Currency, when converted at the rate of exchange
available to Lender on the date of payment, will produce the amount of United
States dollars, which could have been purchased with the amount of the Judgment
Currency stipulated in the judgment or judicial order at the rate of exchange on
the Judgment Conversion Date.
[SIGNATURE PAGE FOLLOWS]
32
<PAGE>
[SIGNATURE PAGES/LOAN AND SECURITY AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective name, personally or by their duly authorized
representatives as of November 23, 1998.
BORROWER
CR RESORTS CANCUN, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Chief Financial Officer
Telecopy No.: 713-613-2828
CR RESORTS LOS CABOS, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Chief Financial Officer
Telecopy No.: 713-613-2828
[ADDITIONAL SIGNATURES FOLLOW]
<PAGE>
CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc. 10000 Memorial Drive,
Suite 480 Houston, Texas 77024 Attention: Chief Financial
Officer Telecopy No.: 713-613-2828
CORPORACION MEXITUR, S.A. de C.V., a Mexican corporation
with variable capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc. 10000 Memorial Drive,
Suite 480 Houston, Texas 77024 Attention: Chief Financial
Officer Telecopy No.: 713-613-2828
[ADDITIONAL SIGNATURES FOLLOW]
<PAGE>
CR RESORTS CANCUN TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Chief Financial Officer
Telecopy No.: 713-613-2828
CR RESORTS CABOS TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Chief Financial Officer
Telecopy No.: 713-613-2828
[ADDITIONAL SIGNATURES FOLLOW]
<PAGE>
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de R.L. de
C.V., a Mexican limited responsibility corporation with
variable capital
/s/ DOUGLAS Y. BECH
By: Douglas Y. Bech
Title: Attorney-in-Fact
WITNESS:
/s/ ROBERT L. BREWTON
Name: Robert L. Brewton
Notice Address and Telecopy Number:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Chief Financial Officer
Telecopy No.: 713-613-2828
<PAGE>
A copy of all notices to the Borrower shall also be sent as follows (which
shall not be deemed notice):
Battle Fowler 2049
Century Park East, Suite 2350
Los Angeles, CA 90067
Attention: Rick Davis, Esq.
Telecopy No.: 310-277-0336
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR Resort Cancun, S.
de R.L. de C.V., a Mexican limited responsibility corporation with variable
capital on behalf of such corporation. He/She is personally known to me or has
produced __________________________ as identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR Resorts Los
Cabos, S. de R.L. de C.V., a Mexican limited responsibility corporation with
variable capital on behalf of such corporation. He/She is personally known to me
or has produced __________________________ as identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR Resort Puerto
Vallarta, S. de R.L. de C.V., a Mexican limited responsibility corporation with
variable capital on behalf of such corporation. He/She is personally known to me
or has produced __________________________ as identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of Corporacion Mexitur,
S.A. de C.V., a Mexican corporation with variable capital on behalf of such
corporation. He/She is personally known to me or has produced
__________________________ as identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR Resorts Cancun
Timeshare Trust, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital on behalf of such corporation. He/She is
personally known to me or has produced __________________________ as
identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR Resorts Cabos
Timeshare Trust, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital, on behalf of such corporation. He/She is
personally known to me or has produced __________________________ as
identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 23 day of
November, 1998, by DOUGLAS Y. BECH, the Attorney-in-Fact of CR
Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital on behalf of such corporation.
He/She is personally known to me or has produced __________________________ as
identification.
/s/ BEA M. ROBERTSON
Notary Public in and for said State and County NOTARY SEAL HERE
My commission expires: 10-31-99
<PAGE>
LENDER FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
/s/ MIRIAN SANTA CRUZ
Name: Mirian Santa Cruz
title: Vice President
Lender's Notice Address and Telecopy Number:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President--International Resort Finance
Telecopy: (602) 874-6444
with a copy to:
FINOVA Capital Corporation
7272 East Indian School Road, Suite 410
Scottsdale, Arizona 85251
Attn.: Vice President-Group Counsel
Telecopy: (602)874-6445
<PAGE>
SCHEDULE OF ADDITIONAL TERMS
S.1 This Schedule has been incorporated by reference into and form a part
of that Loan and Security Agreement dated as of November 23, 1998 between FINOVA
Capital Corporation and CR Resorts Cancun, S. de R.L. de C.V., CR Resorts Los
Cabos, S. de R.L. de C.V., CR Resorts Puerto Vallarta, S. de R.L. de C.V.,
Corporacion Mexitur, S.A. de C.V., CR Resorts Cancun Timeshare Trust, S. de R.L.
de C.V., CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V., and CR Resorts
Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
S.2 To the extent of any inconsistency between this Schedule and the other
provisions of the provisions of the Loan and Security Agreement, the provisions
of this Schedule shall prevail.
S.3 The provisions of the Loan and Security Agreement are supplemented as
follows (paragraph references are references to paragraphs of the Loan and
Security Agreement) which are intended to be supplemented by the following
provisions :
(a) [RESERVED]
(b) P. 1. Basic Interest Rate: One and three-fourths percent (1.75%) per
annum in excess of the Base Rate fluctuating monthly on the first day of
each calendar month based upon the Base Rate in effect on such date.
(c) P. 1. Default Rate: two percent (2%) above the Basic Interest Rate or
(b) the maximum contract rate permitted under the applicable usury law,
whichever of (a) or (b) is lesser.
(d) [Reserved]
(e) P. 1. Lockbox Agent: Bank One, Arizona, N.A.
(f) P. 1. Maximum Receivables Loan Amount: Twenty Million Dollars
($20,000,000).
(g) P. 1. RLBB Principal Balance Percentage: ninety percent (90%).
(h) [RESERVED]
(i) P. 1. Receivables Loan Borrowing Term Expiration Date: Eighteen (18)
months following the date of the first Advance, provided, however, that in
the event during such eighteen (18) month period there does not occur an
Event of Default or Incipient Default with respect to which Lender gave
Borrower written notice, the Receivables Loan Borrowing Term Expiration
Date shall be thirty six (36) months from the date of the first Advance.
(j) P. 1. Receivables Loan Fee: Two Hundred Thousand Dollars ($200,000).
(k) P. 1. Receivables Loan Maturity Date. Eighty-four (84) months from the
last Advance.
(l) P. 1. Receivables Loan Opening Prepayment Date. The date two (2) years
from the date of the first Advance.
(m) P. 1 Receivables Loan Prepayment Premium: The Receivables Loan
Prepayment Premium at any time shall be equal to an amount which is the
product of the then unpaid principal amount being prepaid times a
percentage based upon the year after the Receivables Loan Opening
Prepayment Date in which the prepayment occurs and determined in accordance
with the following schedule:
<TABLE>
<CAPTION>
Years After Receivables Loan Applicable Receivables Loan
Opening Prepayment Date Prepayment Premium Percentage
<S> <C> <C>
Year 1 4 %
Year 2 3 %
Year 3 2 %
thereafter none
</TABLE>
Year 1 shall be the period of time commencing on the Receivables Loan
Opening Prepayment Date and expiring twelve months thereafter. Each Year
thereafter begins on the next succeeding anniversary date of the Receivables
Loan Opening Prepayment Date and ends twelve (12) months thereafter. If the
prepayment occurs during a period when prepayment is closed, the applicable
prepayment premium percentage (if Lender agrees to allow such prepayment) shall
be five percent (5%).
(n) P. 1. Required Closing Date. November 25, 1998.
(o) P. 1. Required Guarantors: Raintree Resorts International, Inc.
(p) P. 1. Servicing Agent: Resort Communications, Inc., subject to Lender's
right to remove such Servicing Agent as provided in the Agreement.
(q) P. 1. Time Share Project: Club Regina Resort at Los Cabos, Club Regina
Resort at Puerto Vallarta and Club Regina Resort at Cancun.
(r) P. 2.9(a).Payment of Receivables Loan Fee: The Receivables Loan fee
shall be payable as follows: A total of One Hundred Fifty Thousand Dollars
($150,000) is due and payable at or prior to the Required Closing Date. The
remaining balance of Fifty Thousand Dollars ($50,000) is due in the earlier
of one (1) year following the Required Closing Date or at such time as the
unpaid principal balance of the Receivables Loan reaches Fifteen Million
Dollars ($15,000,000).
(s) P. 2.9(b).Custodial Fee: Five Dollars ($5).
(t) P. 2.9(c).Availability Fee Percentage: one percent (1%).
(u) P. 4.5. Minimum Advance Amount. One Hundred Thousand Dollars
($100,000).
(v) P. 4.5. Maximum Advance Frequency: twice per calendar month with a Five
Hundred Dollar ($500) charge being imposed in connection with the second
Receivables Advance in any one (1) calendar month. Lender shall have the
right to withhold the amount of such charge from such Advance.
(w) P. 4.6. Wire Transfer Fee. Twenty Five Dollars ($25).
(x) P. 5.1, 6.1. Borrower's Type of Business Organization:
(1) CR Cancun: a Mexican limited responsibility corporation with
variable capital;
(2) CR Cabos: a Mexican limited responsibility corporation with
variable capital;
(3) CR Puerto Vallarta: a Mexican limited responsibility corporation
with variable capital;
(4) Corporacion Mexitur: a Mexican corporation with variable capital;
(5) Cancun Sub: a Mexican limited responsibility corporation with
variable capital;
(6) Cabos Sub: a Mexican limited responsibility corporation with
variable capital;
(7) Puerto Vallarta Sub: a Mexican limited responsibility corporation
with variable capital;
(y) P. 5.1, 6.1. Borrower's Jurisdiction of Organization.
(1) CR Cancun: Mexico
(2) CR Cabos: Mexico
(3) CR Puerto Vallarta: Mexico
(4) Corporacion Mexitur: Mexico
(5) Cancun Sub: Mexico
(6) Cabos Sub: Mexico
(7) Puerto Vallarta Sub: Mexico
(z) P. 5.3. Borrower's Principal Place of Business.
(1) CR Cancun: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(2) CR Cabos: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(3) CR Puerto Vallarta: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(4) Corporacion Mexitur: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(5) Cancun Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(6) Cabos Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(7) Puerto Vallarta Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(aa) P. 5.3. Borrower's Chief Executive Office.
(1) CR Cancun: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(2) CR Cabos: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(3) CR Puerto Vallarta: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(4) Corporacion Mexitur: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(5) Cancun Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(6) Cabos Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(7) Puerto Vallarta Sub: Boulevard Adolfo Ruiz Cortinez
No. 3642 P.B. y Piso 7
Col. Jardines del Pedrigal
C.P. 01900, Mexico DF
(aa) P. 5.9 Jurisdiction Where Sales and/or Offers to Sell Have Occurred.
Mexico.
S.4 [RESERVED]
S.5 In addition to the other representations, warranties and covenants of
Borrower set forth in the Loan and Security Agreement, Borrower represents,
warrants and covenants as follows:
(a) On the final day of each fiscal quarter of Borrower, commencing with
the fiscal quarter ending March 31, 1999 and on the final day of each
fiscal year of Borrower, commencing with the fiscal year ending December
31, 1999, the sum of (i) the total of Borrower's consolidated costs and
expenses for commissions and selling relating to the retail sales of
time-share interests, use rights, memberships and fractional ownership
interests and (ii) the total of Borrower's consolidated general and
administrative expenses (the costs and expenses described in clauses (i)
and (ii) hereinafter the "SGA Expenses") shall not exceed sixty percent
(60%) of the sum of the gross proceeds of Borrower's consolidated processed
sales of retail time-shares interests, use rights, memberships and
fractional ownership interests plus "Demo Sales" for the same period (each
net of cancellations of and discounts on such sales) ("Net Sales"). The
foregoing covenant shall be tested quarterly based upon Borrower's total
aggregate SGA Expenses and Net Sales for the immediately preceding three
(3) month period and annually based upon Borrower's total aggregate SGA
Expenses and Net Sales for the immediately preceding twelve (12) month
period. SGA Expenses and Net Sales shall be as determined in accordance
with Mexican GAAP.
(b) Borrower shall not permit Delinquencies as of the end of any three (3)
consecutive calendar months during the term of the Receivables Loan to
exceed four percent (4%) of the aggregate then unpaid principal balance of
all Receivables which have been pledged or assigned to Lender. For purposes
hereof, Delinquencies shall mean, individually and collectively,
Receivables pledged or assigned to Lender under which an installment
payment becomes more than sixty (60) days past due. This covenant shall be
tested on a consolidated level as to all of the entities constituting
Borrower.
(c) Borrower shall maintain a ratio of Adjusted Current Assets to Adjusted
Current Liabilities of no less than 1.25 to 1.0 tested quarterly commencing
March 31, 1999. For purposes hereof, the term Adjusted Current Assets shall
mean the current assets shown on Borrower's balance sheet minus any
receivables owed to Borrower or any of them from any Affiliate and any
time-share accounts receivable, plus time-share accounts receivable
reserves and time-share cancellation reserves, determined on a consolidated
basis as to all entities constituting Borrower. For purposes hereof, the
term Adjusted Current Liabilities shall mean the current liabilities shown
on Borrower's balance sheet minus the current portion of any liabilities
owed by Borrower to any Affiliates and the current portion of any
installments due under the Mirror Notes, determined on a consolidated basis
as to all entities constituting Borrower.
<PAGE>
EXHIBIT A
CONDITIONS OF ELIGIBLE INSTRUMENT
(a) Lender has a valid, direct and perfected first lien/security interest
in the Instrument and security therefor and has a valid and perfected first
priority right to payments.
(b) The Instrument does not represent a sale by Borrower, directly or
indirectly, to any of its members, managers, shareholders, directors, officers,
partners, as the case may be, its agents, employees or creditors, or any
relative or Affiliate of Borrower, of Guarantor or of the foregoing.
(c) Borrower has received from the Purchaser a minimum cash down payment of
ten percent (10%) of the total sales price (no part which has been advanced or
loaned to the Purchaser by Borrower, directly or indirectly) with such down
payment being represented by a cash or credit card payment.
(d) The Instrument must provide for level consecutive monthly installments
of principal and interest in U. S. funds over a term (from its effective date)
not exceeding eighty four (84) months from the date of its execution, and after
taking into account the making of an Advance against such Instrument, the
weighted average interest rate on all Instruments then assigned or pledged to
Lender does not fall below thirteen percent (13%) per annum. The foregoing
weighted calculation shall be performed by FPSI by applying their usual and
customary weighted average formula to such Instruments.
(e) At the time of funding of an Advance against the Instrument, no
scheduled installment payment on the Instrument is more than thirty (30) days
past due or has been deferred more than thirty (30) days.
(f) The Purchaser in all respects, including, without limitation, its
creditworthiness, is acceptable to Lender; has obtained from Borrower marketable
title to the purchased Time-Share Interest; and has not purchased more than four
(4) Time-Share Interests.
(g) The Instrument and any security for the payment of the amount due under
the Instrument are bona fide, are in form and substance satisfactory to Lender
and are valid and enforceable in accordance with their terms; upon the obligor's
default under the Instrument, subject only to notice and a reasonable grace
period, payment of the balance of the indebtedness owing under the Instrument
may be immediately accelerated and the lien of any security may be foreclosed or
realized upon; and title of the Purchaser to the purchased Time-Share
Interest(s) is subject only to the Permitted Encumbrances.
(h) The Unit(s) and the amenities that have been promised to the Purchasers
have been completed, fully furnished and approved and ready for occupancy and
the furnishings in those Units are free of any lien except for the Permitted
Encumbrances; no Unit or other part of the common areas of the Time-Share
Project is subject to partition; and the time-share use of the Units and
amenities conform to all applicable restrictions and laws, necessary approvals
having been obtained.
(i) The Instrument, any security for the payment of the amount due under
the Instrument and the related sale transaction comply with all applicable laws;
Borrower has Performed all its obligations due to the Purchaser and there are no
executory obligations to the Purchaser to be Performed by Borrower; and the
Purchaser does not have any right of rescission, set-off, abatement,
counterclaim or the like.
(j) The Purchaser is a United States or Canadian resident, unless the
Purchasers of at least ninety percent (90%) of all other Eligible Instruments
are United States or Canadian residents.
(k) The Unit represented by such Time-Share Interest is part of the Club
Regina Multi-Resort System.
(l) The Instrument executed by a Purchaser who is a United States resident
and representing the financed portion of the purchase price of a Time-Share
Interest is held by the Trustee in the Trust. In all other circumstances, the
Instrument is owned by Cancun Sub, Cabos Sub or Puerto Vallarta Sub.
(m) The Instrument is serviced by the Servicing Agent.
(n) As an alternative to the eligibility criteria set forth in
subparagraphs (c) and (d) above, the Instrument provides for level consecutive
monthly installments of principal and interest in U.S. funds over a term (from
its effective date) not exceeding twenty four (24) months from its execution,
with interest accruing on the unpaid balance at a rate as low as zero percent
(0.0%) per annum and the Borrower has received from the Purchaser a minimum cash
down payment of fifty percent (50%) of the total sales price (no part of which
has been advanced or loaned to the Purchaser by the Borrower, directly or
indirectly) with such down payment being represented by cash or credit card
payment; and provided that when the unpaid principal balance of such Instrument
is added to the unpaid principal balance of all other Instruments meeting the
eligibility criteria set forth in this subparagraph and against which an Advance
has been made, such sum is not in excess of ten percent (10%) of the unpaid
principal balance of all Instruments against which an Advance has been made.
(o) The Instruments contained within the Club Regina Trust II shall contain
language substantially similar to the following:
The maker and payee hereof hereby agree that the identity of the owner of
this Promissory Note and the payee entitled to receive payments of
principal and interest pursuant to this Promissory Note shall be reflected
upon books maintained by Resort Communications, Inc., the "Custodian" on
behalf of maker for such purpose, and that all transfers, including
pledges, of the ownership of this Promissory Note, or any interest therein,
must be reflected in a book entry in the record of ownership maintained by
Custodian that identifies the owner of this Promissory Note or any interest
therein. For purposes of this paragraph, a "book entry" is defined as a
written record of ownership (maintained on paper and/or in magnetic or
electronic media) that identifies the holder of an interest in the
obligations represented by this Promissory Note. This Promissory Note may
not be endorsed in blank, made payable to bearer or otherwise be
transferred in such a manner that the Promissory Note could be come a
bearer instrument.
(q) To the extent that the Instrument is made by a Mexican resident, such
Instrument is endorsed with a form of endorsement approved by Lender's Mexican
counsel.
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
(a) Taxes and assessments which are a lien but are not yet due and payable.
(b) The matters shown on that _________________________ dated
_________________, issued by _____________________________, except for the
following:
<PAGE>
EXHIBIT C
BORROWER'S CERTIFICATE
CR Resorts Cancun, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital; CR Resorts Los Cabos, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital; CR Resorts
Puerto Vallarta, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital; Corporacion Mexitur, S.A. de C.V., a Mexican
corporation with variable capital; CR Resorts Cancun Timeshare Trust, S. de R.L.
de C.V., a Mexican limited responsibility corporation with variable capital; CR
Resorts Cabos Timeshare Trust, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital, and CR Resorts Puerto Vallarta
Timeshare Trust, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital (collectively "Borrower") hereby jointly and
severally certify to FINOVA CAPITAL CORPORATION ("Lender") that (i) the total
unpaid payments due under the Instruments described in Schedule A attached
hereto and by this reference incorporated herein and the unpaid principal
balance for each such Instrument is as set forth in Schedule A; and (ii) such
Instruments are, individually and collectively, Eligible Instruments.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Loan and
Security Agreement between Borrower and Lender dated as of ______________,
199____, as it may be from time to time renewed, amended, replaced or restated.
DATED: ____________, ______.
"BORROWER" CR RESORTS CANCUN, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CR RESORTS LOS CABOS, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CORPORACION MEXITUR, S.A. de C.V., a Mexican corporation
with variable capital
By:
Type/Print Name:
Title:
CR RESORTS CANCUN TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
By:
Type/Print Name:
Title:
CR RESORTS CABOS TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
By:
Type/Print Name:
Title:
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de R.L. de
C.V., a Mexican limited responsibility corporation with
variable capital
By:
Type/Print Name:
Title:
<PAGE>
EXHIBIT C-1
RECEIVABLES RE-ASSIGNMENT
When recorded, mail to:
<PAGE>
RE-ASSIGNMENT OF INSTRUMENTS
KNOW ALL MEN BY THESE PRESENTS:
That FINOVA Capital Corporation, a Delaware corporation ("Assignor") for
Ten Dollars ($10.00) and other valuable consideration to it in hand, the receipt
whereof is hereby acknowledged, does by these presents grant, bargain, sell,
assign, transfer and set over unto [Trust or Borrower dependent upon the nature
of Instrument] ("Assignee") Assignee all of Assignor's interest in the
Instruments ("Instruments") described in Schedule A attached hereto and by this
reference incorporated herein.
TOGETHER WITH all obligations therein secured, all moneys due and to become
due thereunder, and all interest thereon, and all rights arising therefrom.
This re-assignment is made without recourse and without representation or
warranty of any kind, express and implied (except that Assignor has not sold or
assigned any interest in or otherwise encumbered the Instruments or other rights
being reassigned hereunder).
IN WITNESS WHEREOF, the Assignor has caused these presents to be executed
the ____ day of _________________, 199__.
WITNESS: "Assignor"
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
Type/Print Name:
Title:
STATE OF ___________________) ) County of ____________________)
I, _______________________, a notary public in and for the State and County
aforesaid, do certify that ____________________________________ whose name, as
________________________ of _____________________, is signed to the writing
above, bearing date on the ___ day of ________________________, has acknowledged
the same before me in my County aforesaid.
Given under my hand and official seal this ___ day of ___________________.
My term of office expires on the ____ day of ____________________.
Notary Public
<PAGE>
SCHEDULE a
to RE-assignment of instruments
Purchaser
Date
Original Principal
Amount Secured
<PAGE>
EXHIBIT D
FINOVA BANK ACCOUNT
<PAGE>
EXHIBIT E
ADDITIONAL CONDITIONS
TO RECEIVABLES LOAN ADVANCES
(a) a completed and executed "Request for Receivables Loan Advance and
Certification," in form and substance identical to Exhibit E-1.
(b) (i) signed original Instruments which qualify as Eligible Instruments
and have been duly and unconditionally endorsed to Lender by Borrower or the
Trustee, as the case may be, (ii) copies of signed receipts for public offering
statements/property reports/prospectuses required to be given to Purchasers in
connection with the sales of Time-Share Interests giving rise to such
Instruments, (iii) the original Purchase Contracts and copies of credit
disclosure statements and other items requested by Lender which were signed by
such Purchasers in connection with such sales, and (iv) evidence that all
rescission rights have expired and Borrower has Performed all its statutory and
contractual obligations with respect thereto.
(c) a Receivables Assignment in recordable form and otherwise in form and
substance identical to Exhibit E 2 to the Loan and Security Agreement, properly
completed, executed and acknowledged assigning the Instruments covered by item
(b) above.
(d) if not previously furnished, evidence satisfactory to Lender that: (i)
all Time-Share Interests which are the subject of the Instruments covered by
item (b) above have all necessary and promised on-site and off-site improvements
thereto and necessary and promised utilities are available; (ii) all Units and
amenities which are to be available to Purchasers obligated on the Instruments
covered by item (b) above have been completed in accordance with all applicable
building codes and are fully furnished, necessarily equipped and will be
available for use by Purchasers without disturbance or termination of their use
rights so long as they are not in default of their obligations under the
Instruments; and (iii) all furnishings in the Units and amenities are owned by
the Borrower, free of charges, liens and security interests other than the
Permitted Encumbrances.
(e) if requested by Lender, written confirmation from the Servicing Agent
that it has not received notice of any complaint, demand, set-off, or claim by
any person, including, without limitation, any Purchaser, with respect to the
Instruments covered by item (b) above (other than as to routine matters
involving the servicing of an Instrument) and certifying the unpaid total
payments due under the unpaid principal balance of such Instruments.
(f) if requested by Lender in accordance with its normal underwriting
procedures, a credit report from a recognized consumer credit reporting agency
on each Purchaser obligated under an Instrument covered by item (b) above.
(g) if requested by Lender, evidence reasonably satisfactory to it that
there are no conflicting charges or security interests claimed in the
Receivables Collateral.
(h) if requested by Lender following a material change of circumstances or
not more often than annually at Lender's discretion, an opinion from independent
counsel to Borrower satisfactory to Lender with respect to the continued
compliance of the Time-Share Project and Borrower's sales and marketing
activities with applicable laws, the enforceability of the Instruments and such
other matters as Lender shall reasonably require.
(i) if requested by Lender following a material change of circumstances or
not more often than annually at Lender's discretion, an opinion letter from
independent counsel to Lender with respect to the continued compliance of the
Time-Share Project and Borrower's sales and marketing activities with applicable
laws, the enforceability of the Instruments and such other matters as Lender
shall reasonably require.
(j) if requested by Lender, such other items which are reasonably necessary
to evaluate the request for the Receivables Loan Advance and the satisfaction of
the conditions precedent thereto.
(k) evidence that the Borrower has delivered to the Trustee and the Lender
a Form W-8 as required under Paragraph 6.1(r)(iii) of the Agreement of which
this Exhibit forms a part.
<PAGE>
EXHIBIT E-1
REQUEST FOR RECEIVABLES LOAN ADVANCE
AND CERTIFICATION
The undersigned ("Borrower") requests FINOVA CAPITAL CORPORATION ("Lender")
to make a Receivables Loan Advance in the sum of _____________________________
______________ UNITED STATES DOLLARS (U.S. $_____________) upon receipt hereof,
pursuant to the Loan and Security Agreement between such parties dated as of
_______________, 19____ (with any amendments, "Agreement").
Borrower hereby certifies to Lender that (i) the total unpaid payments due
under the Instruments for which the requested disbursement of the Receivables
Loan is sought and the unpaid principal balance for each such Eligible
Instrument is as set forth on Schedule A attached hereto and by this reference
incorporated herein; (ii) the Instruments against which the requested
disbursement of the Receivables Loan is sought are, individually and
collectively, Eligible Instruments; (iii) no material adverse change has
occurred in the financial condition or in the business and operations of
Borrower since _______________, _____, the date of the last financial statements
delivered to Lender; (iv) all representations and warranties contained in the
Agreement are true and correct as of the date hereof; (v) neither an Event of
Default nor an Incipient Default exists; and (vi) Borrower has Performed and
complied with all agreements, covenants and conditions required by the Agreement
to be Performed and complied with prior to or at the date of the requested
disbursement of the Receivables Loan.
Except as otherwise defined herein or the context otherwise requires, all
capitalized terms used herein have the meaning given to them in the Agreement.
DATED: ________________, ______.
"BORROWER"
CR RESORTS CANCUN, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CR RESORTS LOS CABOS, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:
Type/Print Name:
Title:
CORPORACION MEXITUR, S.A. de C.V., a Mexican corporation
with variable capital
By:
Type/Print Name:
Title:
CR RESORTS CANCUN TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
By:
Type/Print Name:
Title:
CR RESORTS CABOS TIMESHARE TRUST, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
By:
Type/Print Name:
Title:
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de R.L. de
C.V., a Mexican limited responsibility corporation with
variable capital
By:
Type/Print
Name: Title:
<PAGE>
EXHIBIT E-2
RECEIVABLES ASSIGNMENT
ASSIGNMENT OF INSTRUMENTS AND RECEIVABLES COLLATERAL
KNOW ALL MEN BY THESE PRESENTS:
That U. S. Trust Company, National Association, as Trustee of the Club
Regina Trust I, U.S. Trust Company, a national association, as Trustee of the
Club Regina Trust II, CR Resorts Cancun, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital; CR Resorts Los Cabos, S. de
R.L. de C.V., a Mexican limited responsibility corporation with variable
capital; CR Resorts Puerto Vallarta, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital; Corporacion Mexitur, S.A. de
C.V., a Mexican corporation with variable capital; CR Resorts Cancun Timeshare
Trust, S. de R.L. de C.V., a Mexican limited responsibility corporation with
variable capital; CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital, and CR Resorts
Puerto Vallarta Timeshare Trust, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital (collectively, "Assignor"), as
owner of the Instruments ("Instruments") described in Schedule A attached hereto
and by this reference incorporated herein, together with all other items of
Receivables Collateral pertaining to such Instruments, for Ten Dollars ($10.00)
and other valuable consideration to it in hand paid by FINOVA Capital
Corporation, a Delaware corporation ("Assignee"), the receipt whereof is hereby
acknowledged, does by these presents grant, bargain, sell, assign, transfer and
set over unto Assignee all of Assignor's interest in said Instruments and
Receivables Collateral pertaining thereto.
TOGETHER WITH all obligations therein secured, all moneys due and to become
due thereunder, and all interest thereon, and all rights arising therefrom.
For purposes hereof, the term Receivables Collateral shall be as defined in
that certain Loan and Security Agreement between CR Resorts Cancun, S. de R.L.
de C.V., CR Resorts Los Cabos, S. de R.L. de C.V., CR Resorts Puerto Vallarta,
S. de R.L. de C.V., Corporacion Mexitur S.A. de C.V., CR Resorts Cancun
Timeshare Trust, S. de R.L. de C.V., CR Resorts Cabos Timeshare Trust, S. de
R.L. de C.V., and CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V
as Borrower and FINOVA Capital Corporation as Lender dated __________, 19__, as
amended.
This Assignment may be executed in any number of separate counterparts, all
of which, when taken together, shall constitute one and the same instrument,
notwithstanding the fact that all parties have not signed the same counterpart.
IN WITNESS WHEREOF, the Assignor has caused these presents to be executed
the ___ day of ________________, 199__.
"Assignor"
WITNESS: CR RESORTS CANCUN, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:
Type/Print Name:
Title:
WITNESS: CR RESORTS LOS CABOS, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital
By:
Type/Print Name:
Title:
WITNESS: CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable
capital
By:
Type/Print Name:
Title:
WITNESS: CORPORACION MEXITUR, S.A. de C.V., a Mexican
corporation with variable capital
By:
Type/Print Name:
Title:
WITNESS: CR RESORTS CANCUN TIMESHARE TRUST, S. de R.L. de
C.V., a Mexican limited responsibility corporation with
variable capital
By:
Type/Print Name:
Title:
WITNESS: CR RESORTS CABOS TIMESHARE TRUST, S. de R.L. de
C.V., a Mexican limited responsibility corporation with
variable capital
By:
Type/Print Name:
Title:
WITNESS: CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de
R.L. de C.V., a Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
WITNESS: U. S. TRUST COMPANY, NATIONAL ASSOCIATION, as
Trustee of the Club Regina Trust I
By:
Type/Print Name:
Title:
WITNESS: U. S. TRUST COMPANY, NATIONAL ASSOCIATION, as
Trustee of the Club Regina Trust II
By:
Type/Print Name:
Title:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1998, by _______________________________________, the
__________________________ of CR Resorts Cancun, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital on behalf of such
corporation. He/She is personally known to me or has produced
__________________________ as identification.
Notary Public in and for said State and County
My commission expires:
<PAGE>
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1998, by _______________________________________, the
__________________________ of CR Resorts Los Cabos, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital on behalf of
such corporation. He/She is personally known to me or has produced
__________________________ as identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
________________________, 1998, by _______________________________________, the
__________________________ of CR Resorts Puerto Vallarta, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital on behalf of
such corporation. He/She is personally known to me or has produced
__________________________ as identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
________________________, 1998, by _______________________________________, the
__________________________ of Corporacion Mexitur, S.A. de C.V., a Mexican
corporation with variable capital on behalf of such corporation. He/She is
personally known to me or has produced __________________________ as
identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
________________________, 1998, by _______________________________________, the
__________________________ of CR Resorts Cancun Timeshare Trust, S. de R.L. de
C.V., a Mexican limited responsibility corporation with variable capital on
behalf of such corporation. He/She is personally known to me or has produced
__________________________ as identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1998, by _______________________________________, the
__________________________ of CR Resorts Cabos Timeshare Trust, S. de R.L. de
C.V., a Mexican limited responsibility corporation with variable capital, on
behalf of such corporation. He/She is personally known to me or has produced
__________________________ as identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1998, by _______________________________________, the
__________________________ of U. S. Trust Company, National Association, as
Trustee of the Club Regina Trust I, on behalf thereof. He/She is personally
known to me or has produced __________________________ as identification.
Notary Public in and for said State and County
My commission expires:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1998, by _______________________________________, the
__________________________ of U. S. Trust Company, National Association, as
Trustee of the Club Regina Trust II, on behalf thereof. He/She is personally
known to me or has produced __________________________ as identification.
Notary Public in and for said State and County
My commission expires:
<PAGE>
SCHEDULE a
to assignment of instruments
Purchaser
Date
Original Principal
Amount Secured
<PAGE>
CORPORATE GUARANTEE AND SUBORDINATION AGREEMENT
THIS CORPORATE GUARANTEE AND SUBORDINATION AGREEMENT ("Guarantee") is made
as of November 23, 1998, by and between RAINTREE RESORTS INTERNATIONAL, INC., a
Nevada corporation ("Guarantor") and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Lender is contemplating entering into a Loan and Security
Agreement (such Loan and Security Agreement, and any and all amendments,
modifications, supplements, riders, exhibits and schedules that are attached
thereto and may hereafter be attached thereto being hereinafter collectively
referred to as the "Agreement") with CR RESORTS CANCUN, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital; CR RESORTS LOS
CABOS, S. de R.L. de C.V., a Mexican limited responsibility corporation with
variable capital; CR RESORTS PUERTO VALLARTA, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital; CORPORACION MEXITUR,
S.A. de C.V., a Mexican corporation with variable capital; CR RESORTS CANCUN
TIMESHARE TRUST, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital; CR RESORTS CABOS TIMESHARE TRUST, S. de R.L.
de C.V., a Mexican limited responsibility corporation with variable capital, and
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital, (individually,
collectively, jointly and severally, "Borrower") to be dated as of the date
hereof, whereby Lender will lend to Borrower the sum of money ("Loan") as
therein set forth, to be evidenced by a promissory note ("Note") as called for
in the Agreement, which Loan is to be secured by the collateral ("Collateral")
described therein; and
WHEREAS, Guarantor is an affiliate of Borrower as set forth in paragraph
4.1(b) of this Guarantee and will benefit from the execution and delivery of the
Agreement by and between Borrower and Lender and the making of the Loan; and
WHEREAS, Lender is willing to enter into the Agreement with, and make the
Loan to, Borrower only if Guarantor agrees for as long as any amounts may be due
and payable by Borrower to Lender pursuant to the Note and/or the Agreement (a)
to guarantee the full, prompt, complete and faithful performance of all the
terms, covenants, conditions and obligations on Borrower's part to be performed
under the Receivables Loan Documents and (b) to subordinate all of Guarantor's
liens, security interests, claims and rights of any kind that they may now have
or hereafter acquire against Borrower and/or Borrower's assets and property, of
any and all kinds, now or hereafter existing ("Borrower's Property") resulting
from Borrower's present and future indebtedness to Guarantor; other than
indebtedness
1
created by the Mirror Notes (as defined in the Indenture [hereinafter
defined]; and Guarantor is willing to so agree; and
NOW, THEREFORE, in order to induce Lender to enter into the Agreement with
Borrower and to fund the Loan, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, Guarantor hereby
unconditionally covenants and agrees with Lender as follows:
ARTICLE I - GUARANTEE
1.1 Guarantor absolutely and unconditionally, jointly and severally with
any other Obligors (as defined in paragraph 3.1), guarantees the full, prompt,
complete and faithful performance, payment, observance and fulfillment by
Borrower of all the obligations, covenants and conditions on the part of
Borrower to be performed or observed pursuant to the Receivables Loan Documents
("Obligations"), including, but not limited to, the payment of any and all sums
that may become due to Lender from Borrower thereunder, whether Borrower is
liable individually or jointly with others. Guarantor further agrees to pay all
expenses (including reasonable attorneys' fees and legal expenses) paid or
incurred by Lender in endeavoring to collect the Obligations, or any part
thereof, or securing the performance thereof, or in enforcing this Guarantee,
whether or not litigation is instituted.
1.2 Guarantor covenants and agrees absolutely and unconditionally that, in
case of an Event of Default, within five (5) Business Days of the receipt of
written notice from or on behalf of Lender to the effect that there exists such
an Event of Default and of the Obligations which Borrower has failed to pay or
perform, Guarantor will pay in its entirety the entire unpaid principal balance
with accrued and unpaid interest due under the Note and any other sums properly
due and owing to Lender under the Receivables Loan Documents (collectively, the
"Unpaid Amount") in lawful money of the United States to Lender at its offices
at 7272 East Indian School Road, Suite 410, Scottsdale, Arizona 85251, or will
provide Lender with evidence of the performance of the Obligation which Borrower
has failed to perform. If Guarantor should fail to pay any sums properly due
Lender hereunder within said five (5) Business Days following receipt of
Lender's request for payment of any such sums, then said sums shall bear
interest at the Default Rate. Further, if Guarantor shall fail to pay such
amount or perform such Obligation, Lender may institute and pursue any action or
proceeding to judgment or final decree and may enforce any such judgment or
final decree against Guarantor and collect in the manner provided by law out of
its property, wherever situated, the monies adjudged or decreed to be payable.
If Guarantor shall pay such amount or perform such Obligation within the time
frame provided in this paragraph 1.2, Lender shall accept such payment or
performance as a cure by Borrower made during the cure periods provided to
Borrower in the Receivables Loan Documents.
1.3 This Guarantee shall not be limited to any particular period of time,
but, rather, shall continue absolutely, unconditionally and irrevocably until
all terms, covenants
2
and conditions of the Receivables Loan Documents have been fully and
completely performed by Borrower or otherwise discharged and/or released by
Lender, and Guarantor shall not be released from any duty, obligation or
liability hereunder so long as there is any claim of Lender against Borrower
arising out of the Receivables Loan Documents which has not been performed,
settled or discharged in full, or during any period for which this Guarantee is
continued in effect or reinstated pursuant to paragraph 3.7.
ARTICLE II - SUBORDINATION
2.1 Guarantor, to the extent permitted by Section 4.08 of the Indenture,
subordinates all present and future indebtedness other than the Mirror Notes
(the "Related Indebtedness") owed by Borrower to Guarantor and all liens,
security interests, claims and rights of any kind (the "Related Liens") that
Guarantor may now have or hereafter acquire against Borrower and/or Borrower's
Property resulting from the Related Indebtedness (the Related Indebtedness and
Related Liens are collectively the "Subordinated Indebtedness") shall, to the
extent permitted by Section 4.08 of the Indenture, be subordinate, inferior and
subject to the claims and rights of Lender against Borrower and/or Borrower's
Property under the terms of any of the Receivables Loan Documents whether direct
or contingent or whether now or hereafter created. Unless an Event of Default or
Incipient Default has occurred and is continuing or will exist after giving
effect to such payment, Guarantor may receive, accept and retain for its own
account all payments made on the Subordinated Indebtedness.
2.2 Guarantor will not take any action which will either (a) force the sale
or cause the foreclosure of Borrower's Property in order to satisfy the
Subordinated Indebtedness or (b) affect in any manner any or all of Lender's
liens, security interests, claims or rights of any kind that Lender may now have
or hereafter acquire against Borrower and/or Borrower's Property. Guarantor will
refrain from taking any action which is in any way inconsistent with or in
derogation of this subordination or of the rights of Lender hereunder and
covenants to perform such further acts as necessary or appropriate to give
effect to this subordination. Without limiting the generality of the foregoing,
Guarantor will not assign any portion of the Subordinated Indebtedness, except
expressly subject to the terms of this Guarantee; and Guarantor shall cause all
evidence of the Subordinated Indebtedness to set forth the provisions hereof or
to bear a legend that it is subject hereto.
ARTICLE III - REMEDIES AND RIGHTS OF LENDER
3.1 Lender shall give Guarantor notice in writing of any Event of Default
but neither failure to give, nor defect in, any notice shall extinguish or in
any way affect the obligations of Guarantor hereunder or give rise to any claim
by Guarantor for breach, other than to the extent the periods governing
Guarantor's performance, as set forth in paragraph 1.2, are affected by the
timing of the notice. Except as provided for in paragraph 1.2, neither demand
on, nor the pursuit of any remedies against Borrower, or any guarantor, surety
or insurer of the Obligations or part thereof ("Obligor") shall be required as a
3
condition precedent to, and neither the pendency nor the prior termination of
any action, suit or proceeding against the Borrower or any Obligor (whether for
the same or a different remedy) shall bar or prejudice the making of a demand on
Guarantor by Lender and the commencement against Guarantor after such demand of
any action, suit or proceeding, at law or in equity, for the specific
performance of any covenant, or agreement contained in the Receivables Loan
Documents or for the enforcement of any other appropriate legal or equitable
remedy.
3.2 Guarantor's liability hereunder is primary, direct and immediate.
Guarantor agrees that neither: (a) the exercise or the failure to exercise by
Lender of any rights or remedies conferred on it under the Receivables Loan
Documents; (b) the recovery of a judgment against Borrower or any Obligor; (c)
the commencement of an action at law or the recovery of a judgment at law
against Borrower or any Obligor and the enforcement thereof through levy,
execution or otherwise; (d) the taking or institution of any other action or
proceeding against Borrower or any Obligor; nor (e) any delay in taking,
pursuing or exercising any of the foregoing actions, rights, powers or remedies
(even though requested by Guarantor) by Lender or anyone acting for Lender shall
extinguish or affect the obligations of Guarantor hereunder except as provided
and solely to the extent set forth in paragraph 3.1, but Guarantor shall be and
remain liable for and until all Obligations shall have been fully paid and/or
performed notwithstanding (i) the previous discharge (total or partial) from
further liability of Borrower or any Obligor or (ii) the existence of any bar
(total, partial or temporary) to the pursuit by Guarantor of any right or claim
to indemnity against Borrower or any Obligor or (iii) any right or claim to be
subrogated to the rights or claims of Lender in and to the Collateral or the
Receivables Loan Documents, or except as provided and solely to the extent set
forth in paragraph 3.1 resulting from any action or failure or omission to act
or delay in acting by Lender or anyone entitled to act in its place.
3.3 If Guarantor shall be dissolved or lose its corporate charter by
forfeiture or otherwise or shall become insolvent or admit in writing its
inability to pay its debts as they mature, or apply for, consent to or acquiesce
in an appointment of a trustee, receiver, liquidator, assignee, sequestrator or
other similar official for itself or any of its property; or, in the absence of
such application, consent or acquiescence, a trustee, receiver, liquidator,
assignee, sequestrator or other similar official is appointed for Guarantor or
for a substantial part of its property and is not discharged within sixty (60)
days thereafter; or any bankruptcy, reorganization, debt arrangement or other
proceeding under any bankruptcy, admiralty or insolvency law or at common law or
in equity, or any dissolution or liquidation proceeding is instituted by
Guarantor, or is instituted against Guarantor and remains for sixty (60) days
thereafter undismissed, then, whether any such event occurs at a time when any
of the Obligations are then due and payable or not, the Unpaid Amount shall
thereupon become due and payable in full, Guarantor will pay to Lender forthwith
in its entirety the Unpaid Amount and any other sums properly due and owing to
Lender under the Receivables Loan Documents as if such Unpaid Amount and other
sums were then due and payable and in any such event Lender, irrespective of
whether any demand shall have been made on Guarantor, Borrower or any Obligor,
4
by intervention in or initiation of judicial proceedings relative to Guarantor,
its creditors or its property, may file and prove a claim or claims for such sum
or any portion thereof and for any other sums due under the Receivables Loan
Documents and file such other papers or documents as may be necessary or
advisable in order to have such claim allowed in such judicial proceedings and
to collect and receive any monies or other property payable or deliverable on
any such claim, and to distribute the same; and any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized to make such
payments to Lender.
3.4 The benefits, remedies and rights provided or intended to be provided
hereby for Lender are in addition to and without prejudice to any rights,
benefits, remedies or security to which Lender might otherwise be entitled. No
delay or omission on the part of Lender in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Lender
of any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy; nor shall any modification or waiver of
any of the provisions of this Guarantee be binding on Lender except as expressly
set forth in writing, duly signed and delivered on behalf of Lender. Except as
provided and solely to the extent set forth in paragraph 3.1, no action of
Lender or failure or omission to act permitted hereunder shall in any way affect
or impair the rights of Lender and the obligations of Guarantor under this
Guarantee.
3.5 Anything else contained herein to the contrary notwithstanding, Lender,
from time to time, whether before or after an Event of Default, without notice
to Guarantor, may take all or any of the following actions without in any manner
affecting or impairing the liability of Guarantor hereunder, and without waiving
any rights which Lender may have, unless expressly waived in writing by Lender:
(a) obtain a security interest in any property to secure any of the Obligations
or any obligation hereunder; (b) retain or obtain the primary or secondary
liability of any party or parties, in addition to Guarantor, with respect to any
of the Obligations; (c) extend the time for payment of the Loan or any
installment thereof or the time for performance of any Obligation, in either
case for any period (whether or not longer than the original term therefor); (d)
release or compromise any liability of Guarantor hereunder or any liability of
any nature of any other party or parties with respect to the Obligations; (e)
resort to Guarantor for payment of any Obligations, whether or not Lender shall
proceed against any other party primarily or secondarily liable on any of the
Obligations or against any Collateral; (f) substitute, exchange or release all
or any part of the Collateral; (g) agree to any amendment, modification or
alteration of any of the Receivables Loan Documents and exercise its rights to
consent to any action or nonaction of Borrower which may violate the covenants
and agreements contained in any of the Receivables Loan Documents, with or
without consideration, on such terms and conditions as may be acceptable to it;
or (h) exercise any of its rights confirmed by the Receivables Loan Documents or
by law.
3.6 Guarantor shall not be released or discharged, either in whole or in
part, by Lender's failure or delay to perfect or continue the perfection of any
security interest in any
5
property which secures the Obligations of Borrower or of any Obligor to
Lender, or to protect the property covered by such security interest. Guarantor
waives any rights or defenses which may arise as a result of errors or omissions
in connection with the administration of the Loan by Lender, except for gross
negligence or bad faith.
3.7 Guarantor agrees that if at any time all or any part of any payment
theretofore applied by Lender to any of the Obligations is or must be rescinded
or returned by Lender for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of Borrower) such Obligations, for
the purpose of this Guarantee, to the extent that such payment is or must be
rescinded or returned, shall be deemed to have continued in existence,
notwithstanding such application by Lender, and this Guarantee shall continue to
be effective or be reinstated, as the case may be, as to such Obligations, all
as though such application by Lender had not been made.
3.8 Notwithstanding any payment or performance by Guarantor pursuant to
this Guarantee, Guarantor hereby waives and releases any right of reimbursement
and any right to be subrogated to any rights of Lender against Borrower.
Guarantor acknowledges that the foregoing waiver and release has been
specifically bargained for by Lender and has been relied upon by Lender in
ascribing value to this Guarantee, which reliance was a condition precedent to
Lender's willingness to extend the Loan to Borrower. Guarantor expressly waives
any defenses to the enforcement of this Guarantee, to any rights of Lender
created or granted hereby or to the recovery by Lender against Borrower,
Guarantor or any other Obligor of any deficiency after judicial or nonjudicial
foreclosure or sale, even though such a foreclosure or sale may impair the
subrogation rights of Guarantor or otherwise prevent Guarantor from obtaining
reimbursement or contribution from Borrower or any other Obligor.
3.9 Guarantor hereby expressly waives and relinquishes any duty on the part
of Lender (should any such duty exist) to disclose to Guarantor any matter, fact
or thing related to the business, operations or condition (financial or
otherwise) of Borrower or its affiliates or subsidiaries or their properties,
whether now known or hereafter known by Lender during the life of this
Guarantee. The execution and delivery of this Guarantee is based solely on the
independent investigation of Guarantor and in no part upon any representation or
statement of Lender with respect thereto. Guarantor warrants that he/she/it is
fully aware of the financial condition of Borrower, has adequate means to obtain
such information from Borrower on a continuing basis, and is not relying on
Lender to provide such information either now or in the future, but assumes full
responsibility to obtain such information. This Guarantee shall in no way be
limited or impaired by any change in the business structure of Borrower.
3.10 It is not necessary for Lender to inquire into the powers of Borrower
or its officers, directors, partners or agents purporting to act on its behalf,
and the Obligations are hereby guaranteed notwithstanding the lack of power or
authority on the part of Borrower or anyone acting on its behalf to incur the
Obligations.
6
ARTICLE IV - GUARANTOR'S WARRANTIES AND COVENANTS
4.1 Guarantor represents and warrants to Lender that:
(a) Guarantor is a corporation duly organized and now existing in good
standing under the laws of its state of incorporation as shown on the
signature page hereof and is duly qualified and in good standing and
authorized to do business in all jurisdictions wherein the location and
nature of the properties used or business, as the same is presently or
proposed to be conducted, makes such qualification necessary;
(b) Guarantor wholly owns all of the issued and outstanding shares of stock
in Raintree Resorts Canada, LLC, Raintree Resorts International Canada Ltd.
and Canarias Future, SL; Raintree Resorts Canada, LLC owns Raintree Resorts
Holdings ULC: Raintree Resorts International Canada Ltd. owns Whiski Jack
Resorts Ltd. and Northface Realty Co. Ltd; Whiski Jack Resorts Ltd. owns
Whistler Rental Accommodation Center Ltd.; Canarias Future, SL owns CR
Resorts Parent Nominee Holding, LLC; Canarias Future, SL and CR Resorts
Parent Nominee Holding, LLC own CR Resorts Capital, S. de R.L. de C.V. and
CR Resorts Holding, S. de R.L. de C.V.; CR Resorts Capital, S. de R.L. de
C.V. and CR Resorts Parent Nominee Holding, LLC own CR Resorts Remainder
Company, S. de R.L. de C.V.; CR Resorts Holding, S. de R.L. de C.V. owns
Timeshare Nominee Holding, LLC; CR Resorts Holding, S. de R.L. de C.V. and
Timeshare Nominee Holding, LLC own Top Acquisition Sub, S. de R.L. de C.V.;
Top Acquisition Sub, S. de R.L. de C.V. and Timeshare Nominee Holding, LLC
own Desarollos Turisticos Regina, S. de R.L. de C.V., CR Resorts Cancun, S.
de R.L. de C.V., CR Resorts Cabos, S. de R.L. de C.V.; and CR Resorts
Puerto Vallarta, S. de R.L. de C.V.; CR Resorts Cancun S. de R.L. de C.V.
owns CR Resorts Cancun Timeshare Trust S. de R.L. de C.V.; CR Resort Los
Cabos, S. de R.L. de C.V. owns CR Resorts Cabos Timeshare Trust, S. de R.L.
de C.V.; CR Resorts Puerto Vallarta, S. de R.L. de C.V. owns CR Resorts
Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.; Desarollos Turisticos
Regina, S. de R.L. de C.V. owns Corporacion Mexitur, S. de R.L. de C.V.,
Desarollos Turisticos Integrales Cozumel, S. de R.L. de C.V., 67.85% of
Club Regina, S.A. de C.V., Servicios Turisticos Integrales Cobamex, S. de
R.L. de C.V. and 50% of Corporacion Habitacional Mexicana, S. de R.L. de
C.V.
(c) Guarantor has the corporate power and authority to execute and deliver
this Guarantee and carry on its businesses as currently conducted and the
execution, delivery and performance by Guarantor of this Guarantee have
been duly authorized by all necessary corporate action; no consent of
stockholders is required therefor; and the execution and delivery of, the
consummation of the transactions contemplated in, and compliance by
Guarantor with any of the terms and provisions of, this Guarantee, to the
Knowledge of Guarantor, do not and will not conflict with or contravene any
7
law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court having jurisdiction over Guarantor or
its Affiliates or any of their activities or properties or conflict with,
or result in any default under the Charter or Articles or Certificate of
Incorporation, as amended, or the By-Laws of Guarantor and its Affiliates,
or any material indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, charter, bank loan or credit agreement
(including, but not limiting the generality of the foregoing, that certain
Indenture, dated December 5, 1997 by and among Guarantor (under its former
name "Club Regina Resorts, Inc.", a Nevada corporation), CR Resorts Capital
S de R.L. de C.V., a Mexican variable capital stock limited liability
company, and IBJ Schroder Bank Trust Company, as trustee [the
"Indenture"]), or any other material agreement or instrument of any kind to
which Guarantor or any of its Affiliates is a party or by which Guarantor,
its Affiliates or their properties may be bound or affected, except for
those as to which consents have been obtained by Guarantor and are in full
force and effect;
(d) Neither the execution and delivery by Guarantor of this Guarantee nor
any of the transactions by Guarantor contemplated hereby requires the
consent, approval, order or authorization of, or registration with, or the
giving of notice to, any United States federal or state, or any foreign
(including without limitation, Mexican), governmental authority, except
such consents as have been obtained by Guarantor and are in full force and
effect;
(e) This Guarantee has been duly executed and delivered by Guarantor and
constitutes a legal, valid and binding obligation of Guarantor enforceable
against it in accordance with its terms;
(f) To the Knowledge of Guarantor there is no action, litigation or other
proceeding pending or threatened against Guarantor before any court,
arbitrator or administrative agency which may have a materially adverse
effect on the assets, business, or financial condition of Guarantor or
which would prevent, hinder or jeopardize the performance by Guarantor
under this Guarantee;
(g) Guarantor shall maintain its corporate existence and right to carry on
operations and acquire, maintain and renew all rights, contracts, powers,
privileges, leases, lands, sanctions and franchises necessary or useful in
the conduct of its business operations;
(h) Guarantor is fully familiar with all of the covenants, terms and
conditions of the Receivables Loan Documents;
(i) Guarantor shall not make nor is permitted to make any Distributions
(defined below), except that in the event there exists no Event of Default
8
or Incipient Default, both before and after taking into account the making
of such Distribution, Guarantor shall be permitted to make preferred stock
dividends on Guarantor's preferred stock reflected in Guarantor's balance
sheet delivered to Lender prior to the date hereof and pay reasonable
bonuses, salary, other compensation and fees at normal and customary rates
for services actually rendered, without the prior written consent of
Lender; the term "Distributions" refers to any distribution, advance,
payment or loan to any shareholder, officer, director, member, partner or
Affiliate of Guarantor including, but not limited to cash dividends,
bonuses, salary or other compensation and management fees;
(j) Guarantor shall maintain a Adjusted Net Worth of not less than the
amount set forth below, which shall be subject to a quarterly test by the
Lender; to this end, the Guarantor agrees to provide Lender within time
period and in the form set forth in the Agreement, the financial statements
and other financial information and reports concerning Guarantor; for
purposes of this Agreement the term (i) Adjusted Net Worth shall mean, with
respect to any date of determination, Guarantor's consolidated net worth as
determined in accordance with GAAP, minus noncash currency exchange gains
to the extent that such gains increased net worth and plus noncash currency
exchange losses to the extent that such losses reduced net worth, and (ii)
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States, consistently applied, throughout
the period involved and with the prior periods, which shall include the
official interpretations thereof by the Financial Accounting Standards
Board or any successor thereto.
9
<TABLE>
<CAPTION>
Test Date: Net Worth Covenant at all Times Following the
Closing of Guarantor's Acquisition of River
Club
(In US Dollars)
<S> <C> <C>
3/31/99 9,500,000
6/30/99 4,500,000
9/30/99 7,300,000
12/31/99 2,000,000
3/31/00 9,300,000
6/30/00 7,300,000
9/30/00 12,300,000
12/31/00 9,900,000
3/31/01 and each quarter 13,000,000
thereafter
Test Date: Net Worth Covenant at all Times Prior to the
Closing of Guarantor's Acquisition of River
Club
(In US Dollars)
3/31/99 1,200,000
6/30/99 (1,500,000)
9/30/99 (3,800,000)
12/31/99 (7,114,000)
3/31/00 (2,000,000)
6/30/00 (1,000,000)
9/30/00 1,400,000
12/31/00 2,000,000
3/31/01 and each quarter 7,000,000
thereafter
</TABLE>
For purposes hereof, the River Club shall mean that certain resort known as
River Club located in Telluride, Colorado. It is understood that Guarantor
has no obligation to acquire River Club.
(k) On the final day of each fiscal quarter of Guarantor, commencing with
the fiscal quarter ending March 31, 1999 and on the final day of each
fiscal year of Guarantor, commencing with the fiscal year ending December
31, 1999 the sum of (i) the total of Guarantor's consolidated costs and
expenses for commissions and selling relating to the retail sales of
time-share interests, use rights, memberships and fraction ownership
interests and (ii) the total of Guarantor's consolidated general and
administrative expenses, (the costs and expenses
10
described in clauses (i) and (ii) hereinafter the "SGA Expenses") shall not
exceed the amount set forth below of the gross proceeds of Guarantor's
consolidated processed sales of retail time-share interests, use rights,
memberships and fractional ownership interests for the same period (each net of
cancellations of such sales) ("Net Sales"). The foregoing covenant shall be
tested quarterly based upon Guarantor's total aggregate SGA Expenses and Net
Sales for the immediately preceding three (3) month period and annually based
upon Guarantor's total aggregate SGA Expenses and Net Sales for the immediately
preceding twelve (12) month period.
Test Date: Covenant at all Times Prior to the Closing of Guarantor's
Acquisition of River Club 3/31/99 through 12/31/99 68% 3/31/00 and
thereafter 55%
Test Date: Covenant at all Times Following the Closing of Guarantor's
Acquisition of River Club 3/31/99 and at all times thereafter 55%
(l) Guarantor is not a party to any contract, agreement, indenture or
instrument or subject to any charter or other corporate restriction which
individually or in the aggregate might materially adversely affect its
financial condition, business, or operations or which would in any way
jeopardize the ability of Guarantor to perform under this Guarantee;
(m) Guarantor was not induced to give this Guarantee by the fact that there
are or may be other Obligors; and
(n) Guarantor will promptly notify Lender if any action, litigation or
other proceeding becomes pending or, to Guarantor's Knowledge, threatened
before any arbitration tribunal, court, governmental agency or
administrative body against Borrower, which might materially adversely
affect the business or financial condition of Guarantor, or the ability of
Guarantor to perform its obligations under this Guarantee.
4.2 The provisions of Sections 4.09, 4.11, 4.12, 4.17 and 4.19 of the
Indenture (the foregoing Sections are collectively called the "Financial
Covenants") are by this reference incorporated herein as if fully set forth in
this Agreement. The Guarantor represents, warrants and covenants to the Lender
that Guarantor shall not, and shall not permit any of its Affiliates to,
directly or indirectly, take, or fail to take, any action that would result in a
violation of its Financial Covenants.
11
4.3 The Guarantor on behalf of itself and its Affiliates represents and
warrants to the Lender that the Loan is a Permitted Debt (as defined in the
Indenture) and that as of the date hereof there exists no Default or Event of
Default (as the foregoing two (2) terms are defined in the Indenture) under the
Indenture. Guarantor covenants with Lender that (i) as and when required by the
Indenture, the Guarantor shall cause the Issuers (as defined in the Indenture)
to supply the Lender with true and complete copies of all reports,
certifications, notices or demands given by the Issuers under the Indenture
(including, but not limiting the generality of the foregoing, materials required
by Sections 4.03, 4.04, 4.21, 7.06, and Article 8 of the Indenture), and (ii) it
will not amend or modify the Indenture without the prior written consent of the
Lender and any such amendment or modification to the Indenture made without the
prior written consent of Lender shall not be binding upon Lender or affect the
Financial Covenants. The Financial Covenants shall not be deemed amended by any
amendments or modifications to the Indenture made without the prior written
consent of Lender. Further, the Guarantor agrees to cause the Issuer to promptly
(but in any event within three (3) days after the Issuer's receipt of the same)
supply the Lender with a true and complete copy of any notice sent to the
Issuers under Section 6.01 of the Indenture, or any other notice alleging a
default by the Issuers under the Indenture.
ARTICLE V - MISCELLANEOUS PROVISIONS
5.1 All the covenants, stipulations, promises and agreements contained in
this Guarantee by or on behalf of Guarantor are for the benefit of Lender and
its successors or assigns and shall bind Guarantor and its successors and
assigns. Lender, without notice of any kind, may sell, assign or transfer the
Receivables Loan Documents and/or its interest in all or in part of the
Collateral, and in such event each and every immediate and successive assignee
or transferee thereof shall have the right to enforce this Guarantee, by suit or
otherwise, for the benefit of such assignee or transferee as fully as if such
assignee or transferee were herein by name specifically given such rights,
powers and benefits. Guarantor hereby agrees for the benefit of any such
assignee or transferee that their respective obligations hereunder shall not be
subject to any reduction, abatement, defense, set-off, counterclaim or
recoupment for any reason whatsoever.
5.2 Any notice or demand which by any provision of this Guarantee is
required or permitted to be given by Lender to Guarantor or by Guarantor to
Lender shall be deemed to have been sufficiently given for all purposes upon
personal delivery or three (3) days after mailing by first-class mail, postage
prepaid, to Guarantor or Lender at their respective addresses set forth after
their respective signatures below or at such other address as set forth in a
written notice given pursuant hereto.
5.3 Terms used and not otherwise defined herein shall have the same
meanings given thereto in the Agreement. The term "Knowledge of Guarantor" used
herein, shall mean the actual, current Knowledge of the Chief Executive Officers
of Guarantor.
12
5.4 Guarantor hereby expressly waives: (a) notice of the acceptance by
Lender of this Guarantee; (b) except as provided in paragraph 1.2 notice of the
existence, creation or nonpayment of all or any of the Obligations; (c) except
as provided in paragraph 1.2 presentment, demand, notice or dishonor, protest,
and all other notices whatsoever; (d) all diligence in collection or protection
of or realization on the Obligations or any thereof, any obligation hereunder,
or any security for or guaranty of any of the foregoing; and (e) any and all
suretyship defenses and defenses in the nature thereof, including, without
limitation, the benefits of the provisions of Section 12-1641 et seq. of the
Arizona Revised Statutes and Rule 17(f) of the Arizona Rules of Civil Procedure
and all other laws of similar import.
5.5 THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF ARIZONA. FOR PURPOSES OF THIS SECTION 5.5, THIS
GUARANTEE SHALL BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ARIZONA.
5.6 GUARANTOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY
GUARANTOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTEE SHALL BE
LITIGATED IN THE MARICOPA COUNTY, ARIZONA SUPERIOR COURT, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF ARIZONA. GUARANTOR HEREBY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN ANY OF SUCH COURTS, TO THE EXTENT SUCH COURTS WOULD NOT
HAVE HAD JURISDICTION ABSENT SUCH CONSENT, AND HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES
THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT PURSUANT TO SECTION 5.2. GUARANTOR WAIVES ANY CLAIM
THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD GUARANTOR, AFTER BEING SO SERVED,
FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, GUARANTOR
SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST GUARANTOR AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH IN THIS SECTION
5.6 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE
THE SAME IN ANY OTHER APPROPRIATE
13
JURISDICTION, AND GUARANTOR HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK
ANY SUCH JUDGMENT OR ACTION.
5.7 LENDER AND GUARANTOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS GUARANTEE OR WITH RESPECT TO THE TRANSACTION CONTEMPLATED
HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE
PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
Initials: GUARANTOR /s/ DYB LENDER /s/ RRH
5.8 Any provision of this Guarantee which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
[SIGNATURE PAGE/CORPORATE GUARANTEE AND SUBORDINATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Guarantee as of
the date first hereinabove written, and acknowledge receipt of a copy hereof.
"Guarantor" "Lender"
RAINTREE RESORTS INTERNATIONAL, INC. FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By: /s/ DOUGLAS Y. BECH By: /s/ RANDALL HELLER
Name: Douglas Y. Bech Name: Randall Heller
Title: Chairman Title:Sr. Vice President
X Check here to confirm that Section 5.7 has been initialed.
X Check here to confirm that Section 5.7 has been initialed.
Federal Tax Identification No:
76-0549149
Address: Address:
10000 Memorial Drive 7272 East Indian School Road, Suite 410
Houston, Texas 77024 Scottsdale, Arizona 85251
Attention: /s/ DOUGLAS Y. BECH Attention: Vice President -
International Resort Finance
With a copy to: With a copy to:
Akin,Gump,Strauss,Hauser&Feld L.L.P. 7272 East Indian School Road, Suite 410
1900 Pennzoil Place - South Tower Scottsdale, Arizona 85251
711 Louisiana Street Attention: Vice President - Group
Houston, Texas 77002 Counsel
Attention: Julien R. Smythe, Esq.
15
Exhibit 21.1
Raintree Resorts International, Inc.
Subsidiaries
(formed under the laws of the
United States unless otherwise indicated)
Canaries Future, SL+
CR Resorts Parent Nominee Holding, LLC
CR Resorts Capital, S. de R.L. de C.V. *
CR Resorts Holding, S. de R.L. de C.V. *
Timeshare Nominee Holding, LLC
CR Resorts Remainder Company, S. de R.L. de C.V. *
Top Acquisitions Sub, S. de R.L. de C.V. *
CR Resorts Cancun, S. de R.L. de C.V. *
CR Resorts Cabos, S. de R.L. de C.V. *
CR Resorts Puerto Vallarta, S. de R.L. de C.V.*
Desarrollos Turisticos Regina, S. de R.L. de C.V.*
Corporacion Habitacional Mexicana, S.A. de C.V.*
Desarollos Turisticos Integrales Cozumel, S.A. de C.V.*
Corporacion Mexitur, S.A. de C.V. *
Servicios Turistiscos Integrales Cobamex, S.A. de C.V. *
Club Regina, S.A. de C.V. *
CR Resorts Cancun Timeshare Trust Co., S. de R.L. de C.V. *
CR Resorts Cabos Timeshare Trust Co., S. de R.L. de C.V. *
CR Resorts Puerto Vallarta Timeshare Co., S. de R.L. de C.V. *
Raintree Resorts International Canada Ltd. **
Northface Realty Co. Ltd. **
Whiski Jack Resorts Ltd. **
Whistler Rental Accommodation Center Ltd. **
Raintree Resorts Canada, L.L.C.
Raintree Resorts Holding ULC **
- -----------
+ Formed under the laws of Spain.
* Formed under the laws of the United Mexican States
** Formed under the laws of Canada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
RAINTREE RESORTS INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1998.
</LEGEND>
<CIK> 0001058736
<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
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0
2,078
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</TABLE>
