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, 1999.
[ ] 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, 1999:
Not Applicable.
As of December 31, 1999, the Registrant had 10,766,300 shares of Common
Stock outstanding and Warrants to purchase 2,369,962 shares of Common Stock.
*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 80 pages with the Index to Exhibits
located on pages 38 to 41.
<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"), The Teton Club, LLC, 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 weekly intervals
that provide use by or ownership of weekly intervals ("Weekly Intervals"), and
fractional fee simple property interests typically of two to five week periods
("Fractional Interests"). The Company's resorts are located in popular beach,
mountain and golf destinations, including Cancun, Los Cabos, Puerto Vallarta and
Acapulco in Mexico, Whistler in British Columbia, and Jackson Hole in Wyoming.
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 as well as other locations in the United
States, with focus primarily in the western regions of the United States. The
Mexican resorts operate under the name "Club Regina", the Whistler location
operates under the name "Whiski Jack Resorts" and the Jackson Hole resort is
called "The Teton Club". Unless otherwise noted all resorts are referred to as
"Raintree Resorts".
The Company primarily targets high income consumers of luxury vacation
experiences. The Company markets two types of vacation ownership interests in
resorts the Company owns, controls, or manages: Weekly Intervals in certain
resorts and Fractional Interests (Fractional Interests, together with Weekly
Intervals, "Vacation Intervals"). Weekly Intervals provide Members the assurance
of luxury accommodations in an efficiency, 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 also 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 provide
owners 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.
2
<PAGE>
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". 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 owners and the world-wide web. As the number
of Raintree Resorts increases and allows Members access to more of those
properties, the Company believes that the resultant flexibility of its product
will make its Vacation Intervals more attractive.
The Product
The Company believes that by selling a membership it has created a product
that 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"), and Fractional Interest memberships ("Fractional Memberships") in
one or more Raintree Vacation Clubs.
Weekly Memberships. Weekly Memberships at the Club Regina Resorts allow its
Members to stay at any Resort in Cancun, Los Cabos, Puerto Vallarta and
Acapulco. Whiski Jack Resorts sells a deeded interest in a specific unit to a
specific week. Weekly Memberships range in price from approximately $6,500 for a
studio unit with a maximum occupancy of two, approximately $7,500 to $34,500 for
a one-bedroom unit with a maximum occupancy of four, and approximately $8,000 to
$32,000 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 can be purchased for any one of
three seasons: Holiday, Prime and Select. Holiday Weekly Intervals allow Members
to use the resorts 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. 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
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
<PAGE>
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
3
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 approximately 2.2 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 has investigated 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, and has temporarily postponed such
integration.
Fractional Memberships. The Company's first vacation ownership resort
featuring Fractional Memberships is The Teton Club in Jackson Hole, Wyoming. The
sales office for The Teton Club opened in January 1999 and ground-breaking
occurred in May 1999 with completion expected by late 2000. Memberships
currently range from approximately $48,000 to over $320,000 depending upon the
amount of time, season and size of unit, and reservations totalling
approximately $21 million have been received through March 2000. The average
reservation per membership to date is approximately $110,000. The Company
intends to allow owners of Fractional Memberships to use other Raintree Resorts
on an as available basis. The Teton Club features fully-furnished two- or
three-bedroom units and includes memberships in The Teton Pines Country Club.
Additionally, Fractional Memberships will allow a member to use his or her
Fractional Interest as an interval at any time during the year, subject to
availability and seasonal concentration restrictions. All units offering
Fractional Memberships 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
are located on properties shared with or co-operated luxury hotels that
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 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").
<PAGE>
The Company sells Weekly Intervals through both on-site sales personnel at
each of its Club Regina 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, 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 Club Regina 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 Weekly
4
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. Currently, 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 nine 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-oriented 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 other 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, offering the
right to upgrade in terms of a better season, additional weeks, additional rooms
and larger units. 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.
<PAGE>
Under the laws of the jurisdictions in which the Company sells Vacation
Intervals, each purchaser has a right to rescind a purchase for a period ranging
from 5 to 7 days. During 1999, the Company estimates its rescission rate to be
less than 3% for Weekly Interval sales in Mexico and less than 6% for Weekly
Interval sales in Canada.
Customer Financing
Since an important part of the Company's sales strategy is the
affordability of Vacation Intervals, the Company believes that it will be
required to continue to finance a significant portion of its sales of such
Vacation Intervals. The Company has historically provided financing for
approximately 67% of its Vacation Interval buyers and approximately 33% of all
Vacation 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 its' Owners; however, the Company has begun providing in-house
financing to such purchasers. Sales of Fractional Interests will generally
continue to 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 10 years. For the
year ended December 31, 1999, the average down payment on a financed Vacation
Interval was approximately 17% 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
5
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, l999, the Company had a portfolio of approximately 8,300
Vacation Interval receivables amounting to approximately $64 million in
outstanding principal amount, with a weighted average maturity of approximately
five years, 53% of Vacation Interval receivables were U.S. dollar denominated,
with a weighted average interest rate of approximately 15.0%, 9% of Vacation
Interval receivables were denominated in pesos, with a weighted average interest
rate of approximately 22.6%, 31% of Vacation Interval receivables were
denominated in UDI's with a weighted average interest rate of approximately 8.3%
and 7% of Vacation Interval receivables were Canadian dollar denominated with a
weighted average interest rate of approximately 14.0%.
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
Each of the Club Regina Resorts has 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. 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
<PAGE>
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 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. 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 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 those Members, subject to
availability, to exchange their Weekly Intervals for occupancy at any of the
approximately 3,100 participating resorts. The Company's Fractional Memberships
will also provide exchange for the use of any other Raintree Vacation Club.
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.
6
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 Properties Under Management
Units(1)
--------------------
Date Total
Club Regina Opened Current Planned(2) Units
- ----------- ------ ------- -------- --------
<S> <C> <C> <C> <C>
Los Cabos.................. 1/94 130 134 (3) 264
Puerto Vallarta......... 6/92 204 -- 204
Cancun.................. 3/91 69 -- 69
Acapulco................ 10/98 59 (4) 28 87
Whiski Jack
Whistler, B.C........... (5) 178 36 (6) 214
--- --- ---
Total................ 640 198 838
=== === ===
The Teton Club
Jackson Hole, Wyoming... 37 37
=== ===
<FN>
- ---------
<PAGE>
(1) Units for Weekly Intervals contain one or two bedrooms and a common room
with a kitchen while units for Fractional Interests 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 acquired the Villa Vera in December 1999.
(5) Whiski Jack Resorts, which was acquired in July 1998, has been in the
vacation interval ownership business in Whistler, B.C. since 1978.
(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, 1999, the Company had remaining vacation interval weeks of
5,241 in Mexico and 548 in Canada. The Company believes that the remaining weeks
provide sufficient sales product for slightly more than one year of sales
without any additional acquisitions or development of Vacation Intervals.
<TABLE>
<CAPTION>
Weekly Intervals Sold/Average Price
Year Ended December 31,
------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------- ---------------- ---------------- ---------------- ----------------
Weekly # Sold Price # Sold Price # Sold Price # Sold Price # Sold Price
------ ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <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 3,772 $13,520
Whiski Jack (2) 533 $10,668 957 $12,368
<FN>
- --------------
(1) Includes vacation interval weeks sold by the Predecessor Business until August 17, 1997.
(2) Includes vacation interval weeks sold by the Company only for the periods subsequent to July 27, 1998.
</FN>
</TABLE>
Club Regina Resorts
Cancun. The Club Regina 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 Club Regina 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.
7
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.
<PAGE>
Puerto Vallarta. The Club Regina 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 Club Regina 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 Club Regina 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.
Los Cabos. The Club Regina Resort at Los Cabos has offered Weekly
Memberships since its inception. Javier Sordo Madaleno designed this Club Regina
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 Club Regina Resort
apartments are housed in neighboring two-story structures.
The 130 Club Regina 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 in 1998.
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 Club Regina Resort at Los Cabos ("Cabo
East"). There can be no assurance that such development will occur or that the
number of Weekly Intervals added to the Company's inventory from such
development will equal what is presently contemplated.
Acapulco. The Club Regina Resort at Acapulco, also known as The Villa Vera
Hotel, Spa & Racquet Club, consists of 59 units, suites and villas. The Company
instituted an on-site marketing program in early 1999 targeting non-Member
guests and designated rooms to be made available for Club Regina Resorts Members
with Weekly Memberships prior to its December 1999 acquisition. The Villa Vera
completed a renovation in April 1999, converting units for vacation interval
ownership under the Club Regina program.
The Villa Vera is located on the top of a mountain in the middle of the
Acapulco bay, providing a privileged view complemented with a beautiful
landscape of small white buildings surrounded by palm and fruit tree gardens.
<PAGE>
Amenities include fourteen swimming pools, two paddle courts and two tennis
courts. Consistent with the theme of the resort, the services of an amenity Spa
were offered beginning in 1999, which services are comparable to ones found in
the best Mexican and American Spas. Additional amenities include a gourmet
restaurant, two pool bars, a
8
meeting room and a house for special events. The
resort is built on an approximately 7-acre site, and has approximately 2 acres
of undeveloped land for future expansion.
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 resort. 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.
Whiski Jack
Whistler, British Colombia. The Raintree Resorts at Whistler, 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 early
2000. The Company is also evaluating several other opportunities to acquire
units in Whistler Village during 2000.
Teton Club
Jackson Hole, Wyoming. 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 is developing The Teton Club containing 37 two- and
three-bedroom units. The Teton Club is offering a deeded interest in the real
estate in two or five week intervals and upon sell-out will consist of
aproximately 590 memberships. Membership in Teton Pines Country Club while in
residence at the Teton Club and ski privileges are included in the membership.
Certain Matters Regarding Formation of the Company
Operating Agreements. As of August 18, 1997, the Company and an affiliate
of Starwood Lodging Corporation ("Starwood") entered into an Operating Agreement
for each of the then existing resorts in Cancun, Puerto Vallarta and Los Cabos
("Initial Resorts") and each co-located Westin Hotel, establishing the
day-to-day operating relationship between the Westin Hotels and the Initial
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 Initial Resort. Each Operating Agreement provides that the
applicable Initial 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 Initial 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 Initial Resort. Each Operating
Agreement prohibits the applicable Initial 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 respective Members, and (iv) the
rental of units to vacation ownership operators experiencing overflow in their
facilities. If any Initial 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 40 rooms at Los Cabos and the Company has rented the
"Pink Tower" of the Westin Regina at Cancun.
<PAGE>
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 began recognizing revenue from the Asset Management Agreement in
1999, which amounted to $275,000 based on the partial year 1997 and 1998. The
Company is also entitled to 20% of the net sale proceeds of the Westin Hotels
subject to the priority return to Starwood upon a sale.
9
Trusts. The Initial 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 Company's three operating subsidiaries
("Operating Subsidiaries"), a subsidiary of CR Mexico and Bancomer, as trustee,
pursuant to which title to the 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
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 Vacation 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 Vacation Intervals 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 Vacation 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 Vacation 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 Vacation Intervals.
The Company is required to deliver the offering statement to all new purchasers
of Vacation Intervals, together with certain additional information concerning
the terms of the purchase. Laws in each state where the Company sells Vacation
Intervals grant the purchaser of Vacation 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.
<PAGE>
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 Club Regina Resorts. In order to maintain
registration under the Mexican National Tourism Registry, services such as
restaurants and bars must be provided at the Club Regina Resorts. 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.
10
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 and development activities in Mexico,
Canada and the United States are subject to Mexican, Canadian and U.S. 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 to water, atmospheric pollution, hazardous wastes or substances, in all
jurisdictions in which it currently operates or develops operations. 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.
<PAGE>
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.
Certain Considerations
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 the Company's 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 loans and credit agreements with
Bancomer, FINOVA, and Textron ("Loans and Credit Facilities") 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 to 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 of the
11
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 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.
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
<PAGE>
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 available to existing Members.
There can be no assurance that the Company will be able to implement such
marketing programs 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 -- Growth 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
12
which such hotels would provide services to the Company and to 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.
<PAGE>
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, and updated with
Form 18-K, as amended, filed by the United Mexican States with the Commission on
January 10, 2000. The Company does not warrant the accuracy or completeness of
such information.
Because the Club Regina Resorts are located in Mexico and a significant
percentage of the owners of Weekly Intervals are Mexican nationals
(approximately 45% as of December 31, 1999), 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). 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.
<PAGE>
According to preliminary figures, gross domestic product increased by 3.2%
in real terms in the first nine months of 1999, as compared with the same period
of 1998. Furthermore, inflation during the first eleven months of 1999 was
11.2%, as compared with 15.8% in the same period of 1998. Also, during 1999,
interest rates on 28-day
13
Cetes averaged 21.4% and interest rates on 91-day Cetes averaged 22.4%, as
compared with average rates on 28-day and 91-day Cetes of 24.8% and 26.2%,
respectively, during 1998. The assumptions and targets underlying Mexico's 2000
budget, as embodied in the Criterios Generales de Politica Economica (General
Economic Policy Guidelines) for 2000, provides for real gross domestic product
growth of 4.5%, an average rate on the 28-day Cetes of 16.4%, and an average
exchange rate of 10.4 pesos per US dollar. 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 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 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.
In addition, presidential elections are scheduled to be held on July 2,
2000, which are generally perceived to be the most democratic in the country's
recent history, with a higher chance of an opposing party winning and ending
President Ernesto Zedillo's term. The electoral environment may adversely affect
or slow down the economy and the business of the Company in Mexico, and may also
have an adverse effect on the foreign investment dependent free exchange rate
floating system of Mexico.
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 Company's 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.
<PAGE>
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, 1999, the
Mexican peso depreciated an additional 80.3% to Ps. 9.5 per U.S. dollar at
December 31, 1999 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.10.6. No assurance can be
given that the peso will not further depreciate in value relative to the U.S.
dollar in the future.
14
According to preliminary figures, during the first nine months of 1999,
Mexico's international payments current account registered a deficit of US $9.7
billion, 14.2% less than the deficit of US $11.3 billion registered in the same
period of 1998. At December 30, 1999, Mexico's international reserves totaled US
$30.7 billion, an increase of US $593 million from December 30, 1998.
Also, during 1999, the Foreign Exchange Commission of Mexico maintained the
size limit of its monthly auctions of options to sell dollars to Banco de Mexico
at US $250 million per month. During this period, Banco de Mexico accumulated
international assets totaling US $2.2 billion through this program.
Furthermore, in February 1997, the Foreign Exchange Commission of Mexico
established a program enabling the Banco de Mexico to sell up to US $200 million
to Mexican commercial banks pursuant to an auction mechanism on any day in which
the peso/dollar exchange rate announced by Banco de Mexico and applicable to the
payment of obligations denominated in foreign currencies exceeds the applicable
rate on the preceding business day by more than 2%. Banco de Mexico has not sold
dollars under this program since May 25, 1999.
The Mexican economy has suffered balance of payment deficits and shortages
in foreign exchange reserves in the past. The Mexican government does not
currently restrict the ability of Mexican or foreign persons or entities to
convert pesos to U.S. dollars. As noted in the foregoing, however, it does
exercise some degree of control over foreign currency markets, and 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.
<PAGE>
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
1999 10.60 9.24 9.55 9.53
- ----------
(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 Club 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
15
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.
<PAGE>
Geographic Concentration in Mexico; Concentration of Customers in North
America. Until July 1998, the Company only sold Vacation Intervals in Mexico. At
December 31, 1999 approximately 34% of Members resided 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, 1999, approximately 66% 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.
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., Westin, and Cardinal Cruise
Lines. In addition, other publicly-traded companies in the vacation ownership
industry, such as Sunterra Resorts, Inc., Trendwest Resorts, Inc., Bluegreen
Corp., 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.
16
Employees
At December 31, 1999, the Company employed 401 full-time and 47 part-time
persons, with 261 persons in Mexico, 175 persons in Canada and 12 persons in the
United States. Furthermore, at December 31, 1999, the Company utilized 890
contract persons primarily as independent sales agents. The Company believes
employee relations are good.
<PAGE>
ITEM 3 - 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 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
17
<PAGE>
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 Desarrollos
Turisticos Regina S. de R.L. de C.V. and its subsidiaries ("Predecessor
Business") was 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 ("Club Regina
Resorts") 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.
18
<PAGE>
<TABLE>
<CAPTION>
Summarized Historical Financial Data
Vacation Ownership Segment
of Predecessor Business (1) (2) Company
------------------------------------ ------------------------------------
Seven and
(Unaudited) 1/2 months
Years Ended December 31, Ended Years Ended December 31,
---------------------- August 17, ------------------------------------
1995 1996 1997 1997(4) 1998 1999
-------- -------- -------- -------- -------- --------
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 .................... $ 25,034 $ 37,263 $ 31,479
Less amounts deferred ................... (24,461) (36,435) (30,653)
Plus amounts recognized ................. 1,131 2,039 1,650
-------- -------- --------
Total Vacation Interval revenue ....... 1,704 2,867 2,476 $ 18,098 $ 56,508 $ 62,749
Rental and service fee income .............. 4,105 5,497 7,021 3,896 8,926 8,888
Interest income on Vacation Interval
receivables ........................... 1,839 3,294 3,277 1,557 5,848 7,252
Other income ............................... 690 760 1,329 2,153 2,701 2,514
-------- -------- -------- -------- -------- --------
Total vacation ownership revenues........... 8,338 12,418 14,103 25,704 73,983 81,403
Costs and operating expenses
Cost of Vacation Interval sales ......... 4,569 13,161 17,007
Provision for doubtful accounts ......... 2,318 4,450 5,242
Advertising, sales and marketing
Commissions paid ........................ 4,919 7,108 5,512
Less amount deferred .................. (4,824) (5,807) (5,413)
Plus amount recognized ................ 178 303 313
Advertising, sales and marketing ........ 4,128 3,829 4,899
-------- -------- --------
Total advertising, sales and marketing. 4,401 5,433 5,311 8,576 23,874 29,343
Maintenance and energy .................. 3,183 3,798 4,669 1,938 8,013 11,387
General and administrative .............. 6,637 5,400 4,504 5,417 11,463 10,888
Depreciation (3)......................... -- -- -- 49 620 973
Amortization of goodwill ................ -- -- -- -- 2,885 1,606
-------- -------- -------- -------- -------- --------
Total costs and operating expenses.......... 14,221 14,631 14,484 22,867 64,466 76,446
-------- -------- -------- -------- -------- --------
Operating income (loss) from vacation
ownership operations .................... (5,883) (2,213) (381) 2,837 9,517 4,957
Interest expense, net ................... 3,884 3,108 2,827 3,931 14,947 17,958
Equity in losses on equity investments -- -- -- -- 25 352
Foreign currency exchange (gains) losses,
net ................................... 2,464 (351) 74 1,333 4,274 (801)
-------- -------- -------- -------- -------- --------
Loss from vacation ownership
operations before provision for taxes ... (12,231) (4,970) (3,282) (2,427) (9,729) (12,552)
Foreign income and asset taxes........... 3,356 3,312 1,756 909 672 709
-------- -------- -------- -------- -------- --------
Net loss from vacation ownership operations
before preferred stock dividend ......... (15,587) (8,282) (5,038) (3,336) (10,401) (13,261)
-------- -------- -------- -------- -------- --------
Preferred stock dividends................... -- -- -- 232 711 675
-------- -------- -------- -------- -------- --------
Net loss attributable to common shareholders $(15,587) $ (8,282) $ (5,038) $ (3,568) $(11,112) $(13,936)
======== ======== ======== ======== ======== ========
Net loss from operations per share ......... $ (0.40) $ (1.03) $ (1.29)
======== ======== ========
Basic and diluted weighted average shares .. 8,843,383 10,747,409 10,766,300
========= ========== ==========
Other Historical Financial Data:
EBITDA (5)............................... $ (5,883) $ (2,213) $ (381) $ 2,886 $ 13,022 $ 7,536
======== ======== ======== ======== ======== ========
<PAGE>
<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 segment 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 Club 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 Club 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 Club Regina Resorts only for the period August 18, 1997 through December 31,
1997.
19
(4) Reflects the results of operations of the Company for the twelve months ended December 31, 1997 including operations of the
acquired Club 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.
(5) EBITDA represents net income before interest expense, taxes, depreciation and amortization, and also includes equity in losses
on equity investments, 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The following table reconciles historical EBITDA to historical net loss reported for the vacation ownership segment:
Vacation Ownership Segment
of Predecessor Business Company
------------------------------------ ------------------------------------
Seven and
(Unaudited) 1/2 months
Years Ended December 31, Ended Years Ended December 31,
---------------------- August 17, ------------------------------------
1995 1996 1997 1997 1998 1999
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net loss available to common stockholders .. $(15,587) $ (8,282) $ (5,038) $ (3,568) $(11,112) $(13,936)
Interest expense, net ..................... 3,884 3,108 2,827 3,931 14,947 17,958
Foreign income and asset taxes ............. 3,356 3,312 1,756 909 672 709
Depreciation and amortization ............. -- -- -- 49 3,505 2,579
Equity in losses on equity investments ..... -- -- -- -- 25 352
Foreign currency exchange (gains)
losses, net.............................. 2,464 (351) 74 1,333 4,274 (801)
Preferred stock dividends .................. -- -- -- 232 711 675
-------- -------- -------- -------- -------- --------
EBITDA ..................................... $ (5,883) $ (2,213) $ (381) $ 2,886 $ 13,022 $ 7,536
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Historical Consolidated Balance Sheet Data
Years Ended December 31,
-----------------------------------------
1997 1998 1999
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents .............................................. $ 9,005 $ 2,960 $ 8,311
Vacation Interval receivables and other trade receivables, net ......... 41,915 51,835 61,232
Land held for vacation ownership development ........................... 12,405 22,170 24,119
Facilities and office furniture and equipment........................... 1,542 3,046 5,255
Cost of unsold vacation ownership intervals and related memberships .... 33,178 27,606 23,605
Total assets ........................................................... 119,979 129,667 145,871
Notes payable .......................................................... 1,000 17,135 44,787
Senior Notes, due 2004, net of unamortized original issue discount ..... 90,780 92,093 93,426
Redeemable Preferred Stock ............................................. -- -- 5,143
Shareholders' investment (deficit) ..................................... 13,052 4,943 (14,712)
</TABLE>
20
<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 Club
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 Club Regina Resort properties into three separate trusts held by the
Company's operating subsidiaries that were established for each resort. The
operating subsidiaries have the right (the "Present Interests") to use the Club
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 has the right to indefinitely use the Club 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, and
the Company began selling an extension to these pre-acquisition Vacation
Interval owners.
At June 30, 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. 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.
ACQUISITION OF VILLA VERA
On December 1, 1999, the Company acquired the Villa Vera Hotel, Spa &
Racquet Club ("Villa Vera") for approximately $6.2 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 should be read in conjunction with the preceding
Item 6 "Selected Financial Data" and the Company's Financial Statements and the
notes thereto and other financial data included elsewhere in this Form 10-K. The
following Management's Discussion and Analysis of Financial Conditions and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements.
<PAGE>
Segment Results
General. The Company has only one line of business, which develops, markets
and operates luxury vacation ownership resorts in three geographic areas;
Mexico, Canada and the United States. The United States operations
21
are carried out through a joint venture accounted for on the equity method of
accounting. The Company's reportable segments are based on geographic area. The
reportable segments are managed separately due to their geographic location with
managers focused on improving and expanding each segment's operations. However
resource allocation is not based on individual country results, but based on the
best location for future resorts in order to enhance the Company's overall
ability to sell timeshare under a club concept. Revenues are attributed to
countries based on the location of the vacation ownership resorts. The following
presents segment data in thousands:
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------
Operating
Net Income Capital
Sales % (Loss) % Expenditures %
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
1999 -
Mexico $ 66,955 82.3% $ 7,555 152.4% $ 4,780 75.7%
Canada 14,403 17.7% 381 7.7% 616 9.7%
Corporate and other 45 -- (2,979) (60.1)% 922 14.6%
--------- ------ --------- ------ --------- ------
Total $ 81,403 100.0% $ 4,957 100.0% $ 6,318 100.0%
========= ====== ========= ====== ========= ======
1998 -
Mexico $ 66,036 89.3% $ 13,481 141.7% $ 11,381 97.0%
Canada 6,524 8.8% (1,550) (16.3)% 163 1.4%
Corporate and other 1,423 1.9% (2,414) (25.4)% 190 1.6%
--------- ------ --------- ------ --------- ------
Total $ 73,983 100.0% $ 9,517 100.0% $ 11,734 100.0%
========= ====== ========= ====== ========= ======
1997 -
Mexico $ 24,857 96.7% $ 3,670 129.4% $ 930 94.8%
Corporate and other 847 3.3% (833) (29.4)% 51 5.2%
--------- ------ --------- ------ --------- ------
Total $ 25,704 100.0% $ 2,837 100.0% $ 981 100.0%
========= ====== ========= ====== ========= ======
</TABLE>
Segment Results - Acquisition Periods. The results presented above include
the results of operations of the Canadian segment, Whiski Jack, which was
acquired on July 24, 1998 and for the Mexican segment, Club Regina, which was
acquired on August 18, 1997. The variations in operations between 1999 and 1998
noted for Whiski Jack are due to the reporting of post-acquisition partial-year
results in 1998 for the period subsequent to the date of acquisition, July 24,
1998. The variations in operations between 1998 and 1997 noted for Club Regina
are due to the reporting of post-acquisition partial-year results in 1997 for
the period subsequent to the date of acquisition, August 18, 1997. Additionally,
the Company had no vacation ownership business activity prior to August 18,
1997.
Mexico's Segment Results - 1999 Compared to 1998. Net sales increased
marginally approximately 0.9 million, or 1.4%, during 1999. Operating income
decreased approximately $5.9 million. The decrease in operating income results
from an overall increase in cost of Vacation Interval sales, provision for
doubtful accounts, advertising, sales and marketing and maintenance and energy.
See "Consolidated Results" and "Mexico's Inflation and Currency Changes" for
additional information.
<PAGE>
Mexico's Inflation and Currency Changes
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 was no longer considered a
highly inflationary economy. The financial statements of the Company were
prepared for all periods using the U.S. dollar as the functional currency. The
U.S. dollar is used since the debts are 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 67% of the Company's
customers in Mexico elect to finance their purchase of Vacation Intervals
through the Company. Of those financed, approximately 31.4% of Mexico's Vacation
Interval receivables are denominated in UDI's which
22
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 9.4% of Mexico's 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.
Additionally, management believes that in interpreting the comparisons of
operational results discussed below, two factors are of importance: currency
exchange rates and inflation. Changes in costs between prior year and current
year periods could partially result from increases or decreases in the peso
exchange rate or inflation in Mexico. In particular, the average monthly peso
exchange rate for the twelve months ended December 31, 1999 weakened when
compared to the average monthly peso exchange rate for the twelve months ended
December 31, 1998. The Company estimates that current period costs increased by
approximately 4-5% because of fluctuations in the average peso exchange rate
between periods. In addition, the Company estimates that inflation in Mexico was
approximately 12.3% during 1999. Expenditures in Mexico for advertising, sales
and marketing, maintenance and energy, and for general and administrative
expenses are settled primarily in pesos, and were negatively impacted by the
combined effects of inflation and peso changes.
Consolidated Results
Comparison of the twelve months ended December 31, 1999 to the twelve
months ended December 31, 1998.
The Company believes that the following analysis is helpful to understand
the changes in the activity levels between 1998 and 1999 (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Annual Amounts of
------------------------
Percentage
Increase Increase
1998 1999 (Decrease) (Decrease)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Vacation ownership revenues:
Vacation Interval sales .................. $ 56,508 $ 62,749 $ 6,241 11.0%
Interest Income on Vacation Interval
receivables, rental and service fee
income, and other income ............. 17,475 18,654 1,179 6.7%
-------- -------- --------
Total revenues ...................... 73,983 81,403 7,420 10.0%
======== ======== ========
Operating expenses:
Cost of Vacation Interval sales .......... 13,161 17,007 3,846 29.2%
Provision for doubtful accounts........... 4,450 5,242 792 17.8%
Advertising, sales and marketing.......... 23,874 29,343 5,469 22.9%
Maintenance and energy ................... 8,013 11,387 3,374 42.1%
Depreciation and amortization............. 620 973 353 56.9%
Amortization of goodwill ................. 2,885 1,606 (1,279) (44.3)%
General and administrative ............... 11,463 10,888 (575) 5.0%
-------- -------- --------
Total operating expenses............. $ 64,466 $ 76,446 $ 11,980 18.6%
======== ======== ========
</TABLE>
The discussion of results presented below include the results of operations
of Whiski Jack, which was acquired on July 24, 1998. The variations noted for
Whiski Jack are due to the reporting of post-acquisition partial-year results in
1998 for the period subsequent to the date of acquisition, July 24, 1998.
Total revenues increased approximately $7.4 million, or 10.0%, during 1999.
This increase was primarily due to a 11.0% increase in Vacation Interval sales
and a 24.0% increase in interest income on Vacation Interval receivables.
Vacation Interval sales grew approximately $6.2 million, or 11.0%, during
1999 as a result of the acquisition of Whiski Jack. In Mexico, Vacation Interval
sales for the 12 months ended December 31, 1999 were unchanged from the level of
last year. The actual number of vacation interval weeks sold in Mexico increased
5.9% from 3,563 in 1998 to 3,772 in 1999 while the average price of a vacation
interval week declined 5.4% from $14,287 in 1998 to $13,520 in 1999. The
decrease in the average price per interval sold is a result of a decrease in the
number of higher priced prime and holiday season intervals owned by the Company
for sale.
23
Interest income on Vacation Interval receivables grew by approximately $1.4
million, or 24.0%, during 1999. This increase is due primarily to the
corresponding increase in the interest bearing Vacation Interval receivables,
which increased from $53.6 million to $64.0 million, or 19.4%, during 1999.
Vacation Interval receivables increased due to an overall increase in credit
sales.
Rental and service fee income decreased slightly during 1999. In 1998, the
acquisition of Whiski Jack offset the decrease in total rental and service fee
income by approximately $0.7 million. In Mexico, rental and service fee income
decreased by approximately $0.7 million, or 8.4%, due to the increased usage by
a larger owner base which resulted in fewer unsold units available for rental to
guests of members.
<PAGE>
Cost of Vacation Interval sales increased by approximately $3.8 million, or
29.2%, during 1999. The acquisition of Whiski Jack accounted for approximately
$2.2 million of this increase. In Mexico, cost of vacation interval sales
increased approximately $1.7 million, or 15.0%. This increase in Mexico was
primarily due to the Company's response to market demand for specific unit
types. During the period, the Company did not at all times adequately possess
the type of units for sale that were in demand, and as a result, the Company
packaged certain units together in order to meet such demand. This increased the
related cost of vacation interval sales since the packaged units sell at a
comparatively lower price than the individual units sold separately, therefore,
resulting in a higher allocated cost.
Provision for doubtful accounts increased by approximately $0.8 million, or
17.8% during 1999. The Company makes a provision for doubtful accounts to
maintain a balance sheet reserve of approximately 12% of Vacation Interval
receivables. Additionally, the provision was increased in response to the
increase in the level of credit sales. The Company believes that this reserve
provides adequate coverage of default risk under current market conditions.
Advertising, sales and marketing expenses increased approximately $5.5
million, or 22.9%, during 1999. The acquisition of Whiski Jack contributed
approximately $3.4 million of this increase. In Mexico, the advertising, sales
and marketing expenses increased approximately $2.1 million as a result of
greater overall selling and marketing efforts during 1999. The increased sales
and marketing efforts are primarily due to the relatively lower level of
availability of higher demand, and therefore higher priced, prime and holiday
season interval inventory as compared to the level of unsold inventory
represented by lower demand time periods. Additionally, in 1999, the Company
incurred $0.4 million in costs associated with establishing product branding.
Maintenance and energy expenses increased approximately $3.4 million, or
42.1%, in 1999. The acquisition of Whiski Jack increased maintenance and energy
expenses by approximately $1.2 million. In Mexico, maintenance and energy
expenses increased approximately $2.2 million primarily due to an increase of
approximately 4,300 additional members between the two comparable periods.
Depreciation and amortization expense increased by 56.9% or $0.4 million
during 1999. The acquisition of Whiski Jack contributed $0.1 million of this
increase. In Mexico, the increase relates to full-year depreciation associated
with leasehold improvements relating to the relocation of the Mexico City
headquarters and implementation of new operations software during 1998.
Amortization of goodwill in 1999 relates to the acquisition of Whiski Jack.
The goodwill was fully amortized during 1999 because the number of units
acquired with the July 1998 acquisition of Whiski Jack were all sold by the end
of 1999.
General and administrative expenses decreased by 5.0%, or $0.6 million, in
1999 as compared to 1998. The Company decreased the cost of professional fees in
1999, which was offset by approximately $0.3 million of additional costs related
to Whiski Jack's full year of operations in 1999.
Interest expense increased approximately $3.0 million in 1999 as compared
to 1998, as the Company increased its debt from $117.1 million at December 31,
1998 to $144.8 million at December 31, 1999. The Company capitalized interest of
$1.8 million and $0.8 million in 1998 and 1999, respectively, associated with
the land development in Cozumel and Los Cabos.
Equity in losses on equity investments increased $0.3 million as
development, construction and pre-sales operations commenced during 1999 at the
Teton Club. General, selling and other indirect costs are expensed currently by
the Teton Club and the Company reports its ownership interest of such costs.
24
Foreign currency exchange losses were approximately $4.3 million in 1998
compared to a foreign currency exchange gain of $0.8 in 1999. The value of the
peso increased from 9.865 per U.S. dollar at December 31, 1998 to 9.522 per U.S.
dollar at December 31, 1999, resulting in the 1999 exchange gain. To partially
offset peso devaluation during periods when the peso declines in value, the
Company maintains a portfolio of UDI receivables (receivables denominated in an
alternate Mexican currency that is adjusted for inflation on a daily basis).
<PAGE>
These inflation adjustments should offset the long-term effect of the peso
devaluation. The amount of UDI inflation adjustments, which is included under
interest income on Vacation Interval receivables, was approximately $1.9 million
and $1.7 million for the years ended December 31, 1998 and 1999, respectively.
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 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 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".
After taking into account the above, the comparison of 1998 to combined
1997 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 the Predecessor Business 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 1998 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.
25
<PAGE>
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.
<PAGE>
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 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.
26
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
<PAGE>
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.
27
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, 1999, the Company had $64.0 million of
Vacation Interval receivables with a weighted average maturity of approximately
five years. At such date, approximately (i) 59.2% of all of the Vacation
Interval receivables were U.S. or Canadian dollar denominated (ii) 31.4% of all
Vacation Interval receivables were denominated in UDI's, an obligation
denominated in pesos which is adjusted for Mexican inflation, and (iii) 9.4% of
all Vacation Interval receivables were denominated in pesos.
At December 31, 1999, the Company has outstanding $100 million of 13%
Senior Notes due 2004, $24.9 million outstanding under the FINOVA credit line
("FINOVA"), which at year-end bears interest at 10.6%, $7.1 million outstanding
under the Textron credit line, which at year-end bears interest at 10.5%, $6.8
million outstanding under the Bancomer loan, which at year end-end bears
interest at 12%, $3.4 million of bank debt and other debt bearing interest
ranging from 8.3% to 14.5%, and $0.3 million mortgage notes payable to a bank
that at year-end bore an average interest rate of 8.5%. Approximately $19.6
million of the outstanding debt which has stated repayment amounts is due in
2000. In addition to such debt, the Company has $5.1 million of Redeemable
Preferred Stock and $578,000 of 10% Convertible Preferred Stock outstanding at
December 31, 1999. The Redeemable Preferred Stock is redeemable at any time
before December 1, 2004, at which time the redemption is mandatory. The 10%
Convertible Preferred Stock was fully redeemed during January and February 2000.
With the exception of the $6.5 million semi-annual interest payments due June 1
and December 1 on the Senior Notes, interest is paid monthly on all debt
obligations of the Company.
The Company's borrowing capacity under the FINOVA credit facility currently
includes a $20 million accounts receivable based credit facility and a $16.5
million inventory based non-revolving line of credit; the combined credit
facility provides an aggregate borrowing limit of $34 million. The Company's
borrowing capacity under the Textron credit facility is $10 million. The Company
estimates that based on Vacation Interval receivables not currently pledged,
approximately $6.6 million and $6.5 million at December 31, 1999 and March 14,
2000, respectively, were available for borrowing under the credit facilities.
Additionally, as part of the Teton Club financing arrangement with FINOVA,
the Company is directly obligated for $8.3 million of the construction loan,
$1.9 million of the pre-sale working capital loan and $5 million of the
receivables loan, and is also responsible for any working capital deficits at
the Teton Club. As of December 31, 1999, Teton Club was not in compliance with
one of the loan covenants but obtained a timely waiver for such year-end
non-compliance, and is currently in compliance and expects to be in compliance
during 2000 and thereafter.
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
<PAGE>
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 below. However, the Company is actively pursuing financing for
development of the Los Cabos land. In addition, the Company is evaluating
several strategic partnership opportunities, but it likewise has no firm
agreements relating to any such potential strategic partnership opportunities.
To finance its growth strategy, in addition to accessing its lines of
credit, the Company may from time to time consider issuing debt, equity or other
securities, entering into traditional construction financing or credit
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 Company is required under the credit agreements
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.
28
At December 31, 1999, the Company had an inventory of vacation intervals
weeks of 5,241 in Mexico and 548 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, including
acquiring condominiums in Whistler, British Columbia, including the commitment
to purchase 20 condominiums at an aggregate purchase price of approximately $3.9
million, 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 agreements and anticipated results from operations
will satisfy its currently planned 2000 capital expenditures of approximately
$10.9 million. The 2000 planned expenditures include the development activities
in Los Cabos and the purchase of Vacation Interval inventory in Whistler,
British Columbia. The Los Cabos development will require additional project
financing and the Company is negotiating for such financing with Mexican
financial institutions.
At December 31, 1999, the Company is, and will continue to be, highly
leveraged, with substantial debt service requirements. A significant portion of
the Company's assets are pledged against existing borrowings. The Company has a
shareholder's deficit, has incurred losses since its inception and expects to
incur a net loss for fiscal 2000. To achieve profitable operations, the Company
is dependent on a number of factors, including its ability to reduce its debt
service requirements, to increase its Vacation Interval inventory through
development projects and through the acquisition of existing resort properties,
and its ability to continually sell Vacation Intervals on an economical basis,
taking into account the cost of such intervals and related marketing and selling
expenses. The Company expects that its existing credit capacity combined with
additional credit capacity which must be negotiated during 2000 will be
sufficient to enable the Company to meet its debt service obligations, including
interest payments on its Senior Notes during 2000. The Company also expects to
be able to fund capital requirements from its future operations and from
anticipated capital project financings which have not yet been negotiated.
However, should the Company not achieve the anticipated level of operating
results during 2000 or be able to successfully negotiate future secured credit
capacity, there is no assurance that the Company will be able to meet all of its
2000 debt service payments.
The Company is working to increase liquidity through hypothecation of its
receivables. This will include expanding capacity under its current facilities
and, if necessary, obtaining credit lines from new sources. Emphasis will be
placed on the level of hypothecation of loans from Mexican buyers of Club Regina
Vacation Intervals. These receivables, denominated in US dollars, Mexican pesos
and Mexican UDI's, are good quality and have favorable credit characteristics
comparable to our American source receivables.
<PAGE>
Additionally, the Company is working to reduce its high leverage position.
The Company believes that there are several opportunities that may facilitate a
capital restructuring. While the Company intends to continue to pursue such
opportunities, there can be no assurance that a capital restructuring will occur
during the next year.
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 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 Club 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
Neither the Company nor, to its knowledge, any of its vendors have
experienced any significant disruptions in operations as a result of year 2000
issues. The Company does not anticipate any of these problems in the future. No
material capital purchases of equipment or services were made in direct support
of the Company's year 2000 preparations.
29
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, which the company
does not currently hedge by taking opposite positions in the market in the form
of derivative financial instruments. 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 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, 1999, 76.9% 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.
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 was no longer considered a
highly inflationary economy. The financial statements of the Company were
prepared for all periods using the U.S. dollar as the functional currency. The
U.S. dollar is used since the debts are payable in U.S. dollars and prices are
generally established in U.S. dollars.
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 $59.6 million, and in fixed rate,
long-term U.S. dollar denominated debt that is primarily publicly held, totaling
approximately $102.4 million.
The following table sets forth (in thousands) 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:
<PAGE>
<TABLE>
<CAPTION>
Estimated
Fair Value at
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate long-term debt:
Amount (U.S. dollar) 2,350 -- -- -- 100,000 -- 102,350 --(1)
Average interest rate 10.0% -- -- -- 13.0% -- 12.9%
Amount (Canadian dollar) 849 531 547 543 509 687 3,666 3,666(2)
Average interest rate 10.7% 10.7% 10.7% 10.7% 10.7% 10.7% 10.7%
Amount (Mexican peso) 2,793 2,793 1,164 -- -- -- 6,750 6,750(2)
Average interest rate 12.0% 12.0% 12.0% -- -- -- 12.0%
Variable rate long-term debt:
Amount (U.S. dollar) 13,543 4,809 5,001 3,584 2,441 2,644 32,022 32,022(2)
Average interest rate 10.8% 10.6% 10.4% 10.3% 10.3% 10.3% 10.5%
Fixed rate long-term Receivables:
Amount (U.S. dollar) 9,831 8,671 6,930 4,645 2,086 1,306 33,469 33,469(2)
Average interest rate 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
Amount (Canadian dollar) 598 615 649 679 671 1,107 4,319 4,319(2)
Average interest rate 14.1% 14.1% 14.1% 14.1% 14.1% 14.1% 14.1%
Amount (Mexican peso) 7,643 6,742 5,388 3,611 1,622 1,081 26,087 26,087(2)
Average interest rate 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6%
<FN>
(1) The fair value of the Company's senior notes cannot be determined as none of the senior notes 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 amounts of these instruments approximates
fair value.
</FN>
</TABLE>
30
The following table sets forth changes in market risk exposure between the
years ended December 31, 1998 and 1999:
Increase/
1998 1999 (decrease)
------- ------- -------
Fixed rate long-term debt 108,049 112,766 4,717
Variable rate long-term debt 9,086 32,022 22,936
Fixed rate long-term receivables 53,564 63,875 10,311
Fixed rate long-term debt increased primarily due to a loan obtained from
Bancomer of approximately $6.8 million during 1999, which was used for payment
of the Senior Notes interest. Furthermore, variable rate long-term debt
increased due to additional borrowings under the FINOVA accounts receivable and
inventory lines of credit by approximately $15.8 million, and due to new
borrowings during 1999 under a line of credit loan obtained from Textron
Financial Corporation of approximately $7.1 million.
Fixed rate long-term receivables denominated in U.S. dollars increased
approximately $8.9 million, and in Canadian dollars increased approximately $1.6
million. These increases were due to an overall increase in the Company's
Vacation Interval accounts receivable.
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
None
31
<PAGE>
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
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 54 Chairman and Chief Executive Officer
John McCarthy 44 President and Chief Executive Officer of Club Regina Resorts,
Mexico, and Director
Robert L. Brewton 47 Executive Vice President - Chief Investment Officer
George E. Aldrich 53 Senior Vice President - Finance and Accounting
Bruce S. MacIntire 49 Senior Vice President - Operations
Brian R. Tucker 37 Senior Vice President - Corporate Planning and Development
Christopher W. Allick 46 Director
Christel DeHaan 57 Director
Walker G. Harman 53 Director
Thomas R. Powers 61 Director
Robert M. Werle 43 Director
</TABLE>
Douglas Y. Bech is a founding principal of Raintree Capital Company, LLC,
established in 1994, 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 to 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.
John McCarthy has been the President of the Company and Chief Executive
Officer of Club Regina Resorts - Mexico since August 1997. From 1992 until
August 17, 1997, he served first as Vacation Ownership Director and beginning
1993 as Director General of Bancomer's Tourism Division, with overall executive
responsibility for Club Regina Resorts. 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 a vacation ownership resort in
Ixtapa, Mexico. 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). He is the
Treasurer of Brimex, a charitable foundation funded by the British Government
and members of the British community in Mexico for the poor, the sick and those
who have suffered because of natural disasters. Mr. McCarthy is also a professor
and serves 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 March 1998 when it was sold. Prior to working
at RCA, Mr. Brewton served as the President and Chief Operating Officer of
<PAGE>
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 serves on
the Advisory Committee of the National Multi Housing Council.
32
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 is a licensed C.P.A.
Bruce S. MacIntire joined the Company in October 1998 as Senior Vice
President. In this capacity Mr. MacIntire is responsible for all resort
operations of the Company other than Club Regina. 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 has served in various capacities in the real estate
industry since 1972.
Brian R. Tucker has been with Raintree since August 1997 in various
capacities and is a Senior Vice President responsible for corporate planning and
development. From 1995 through 1997, Mr. Tucker was an associate of Raintree
Capital Company. Prior to joining Raintree Capital Company, 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. Since January 2000, Mr. Allick has been engaged in private investment
banking. Mr. Allick served as a Managing Director of McDonald & Co. Securities,
Inc. from July 1998 to December 1999. 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 Christel House, 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 HFS (now the 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, Dance Kaleidoscope and American United Life
Insurance.
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
<PAGE>
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.
Thomas R. Powers has been a director of the Company since 1997. Mr. Powers
is a founding principal of Raintree Capital Company. 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 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
33
("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 of Jefferies & Company, Inc. and has over 15
years of investment banking experience. Mr. Werle has been engaged in real
estate investment banking for over 10 years with several investment banks
including, prior to joining Jefferies in 1997, Robertson, Stephens & Company and
PaineWebber Incorporated.
Other Key Employees
Ali Ahmed was Vice President - Corporate Affairs of the Company from March
1999 until November 1999, at which time he was made Vice President - Corporate
and Legal Affairs. From 1996 through early 1999, Mr. Ahmed was an independent
Certified Public Accountant, before which time, he held various positions from
Senior Accountant to Divisional Controller at public corporations and a public
accounting firm, including Coopers & Lybrand, where his main focus was SEC
reporting. Mr. Ahmed is a licensed C.P.A. and a member of the State Bar of
Texas.
Victor Cabral is a key officer of Club Regina responsible for all resort
and theme store operations, human resources, and member services reservations
and collections. Prior to joining Club Regina in early 1999, Mr. Cabral was
director of tourism projects and hotel operations in Mexico and internationally
for Grupo ICA, Mexico's largest construction company from 1997 through 1998.
From 1995 to 1997, Mr. Cabral was chief operating officer for Grupo Real, a
Mexican hotel management company. Mr. Cabral has a bachelors degree from the
Universidad Autonoma de Santa Domingo in the Dominican Republic. Mr. Cabral was
also Secretary of State for Tourism for the Dominican Republic from 1978 to
1981.
Patrick D. Hanes joined the Company in November 1998, as Project Director
of the Teton Club. From May until November 1998, Mr. Hanes was the Director of
Marketing for Telluride Venture Group II, developers of the River Club in
Telluride, Colorado. From January 1995 until May 1998, Mr. Hanes served as
Senior Vice President, Director of Operations for Pahio Vacation Ownership, Inc.
(PVIO). PVIO is the largest independent developer of timeshare properties in
Hawaii. In his capacity as Director of Operations, Mr. Hanes oversaw all aspects
of sales and marketing at five PVIO projects and reported directly to the CEO.
Mr. Hanes was awarded the 1998 ARDA GOLD AWARD for New Owner Package
Development.
<PAGE>
Michael W. McGeough is President of Whiski Jack Resorts Ltd., having
assumed this position in October, 1999. Mr. McGeough held a license from the
British Colombia Real Estate Association from 1994 to 1999 with Northface Realty
Co. Ltd. in Whistler, B.C., specializing in acquisitions for Whiski Jack. From
1991 to 1994, he worked as a sales consultant with Whiski Jack. Prior to that,
Mr. Mcgeough worked as a securities trader with First Vancouver Securities and
Yorkton Securities in Vancouver, B.C., and was President of Stealth Marketing,
Inc. Mr. McGeough is currently a director of the Canadian Resort Development
Association. He has passed the Canadian Securities Course, and graduated from
International College in Vancouver.
Mario Muro is a key officer of Club Regina responsible for all marketing
programs. 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.
34
Cheryl C. Okamoto joined the Company as Director of Operations - The Teton
Club in November 1998 and is now Vice President Administration. In this
capacity, Ms. Okamoto is responsible for administrative and accounting
operations of The Teton Club and future U.S. based vacation ownership locations.
Prior to joining the Company, Ms. Okamoto served as chief accounting officer for
Telluride Venture Group II, developers of The River Club in Telluride, Colorado.
From 1994 to 1998, Ms. Okamoto served as controller for Pahio Resorts, Inc., the
largest privately owned vacation ownership development company in Hawaii.
Gustavo Ripol joined the Company in October 1997 and is responsible for
business development in Mexico as well as development of the Raintree Vacation
Club. 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 for Grupo Los Remedios. Mr. Ripol
holds degrees in engineering and finance.
Director Classes and Agreements
The Company's Board of Directors currently consists of seven 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, 2002 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.
<PAGE>
Director Compensation
Directors do not receive compensation for serving as directors. Directors
are 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.
35
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 years 1999 and 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 1999 $ 260,000 --
Chairman and Chief Executive Officer 1998 255,000 100,000
1997 90,000 --
John McCarthy 1999 $ 250,000 --
President 1998 260,000 20,000
1997 87,179 100,000
Robert L. Brewton 1999 $ 242,970 --
Executive Vice President - Chief Investment Officer 1998 178,906 (1) 85,000
George Aldrich 1999 $ 170,000 --
Senior Vice President - Finance and Accounting 1998 21,250 (2) 50,000
Brian Tucker 1999 $ 155,000 --
Senior Vice President - Planning 1998 160,000 35,000
and Development 1997 45,000 --
- ------------------
<FN>
(1) Mr. Brewton's employment with the Company commenced on April 15, 1998.
(2) Mr. Aldrich's employment with the Company commenced on November 15, 1998.
* Includes base salary and bonuses. No bonuses were paid with respect to the year 1999. Also, 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>
<PAGE>
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 1999
compensation determinations were made with respect to the executive officers of
the Company. All fiscal 1999 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."
36
Stock Options Granted
The Company currently has outstanding options to purchase 534,000 shares of
common stock, all of which were granted at $5.00 per share, and 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.
<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 15.8% $ -- $ --
John McCarthy 120,000 18.9% -- 11,249
Robert L. Brewton 85,000 13.4% -- --
George Aldrich 50,000 7.9% -- --
Brian Tucker 35,000 5.5% -- --
- ----------
<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>
<PAGE>
Option Exercises and Option Values
Value of Unexercised
Total In-the-Money Options
Shares Options at Year-End 1999 at Year-End 1999*
------------------------ ------------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas Y. Bech -- -- 40,000 60,000 -- --
John McCarthy -- -- 80,000 40,000 -- --
Robert L. Brewton -- -- 34,000 51,000 -- --
George Aldrich -- -- 20,000 30,000 -- --
Brian Tucker -- -- 14,000 21,000 -- --
----------
<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.
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
37
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 provides 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. Each of the Named Executive Officers is
entitled to certain severance benefits and is subject to a one-year
non-competition agreement with the Company in the event of termination.
Exculpatory Charter Provision; Liability and Indemnification of Officers and
Directors
<PAGE>
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.
38
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 December 31, 1999, 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) 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, and 500,000 shares of Common Stock at $5 per share, or a total
of 13,136,262.
Beneficial Ownership(1)
--------------------------
Shares
Beneficially Percent
Name Owned(1) of Class
------------------------------------ ---------- --------
Douglas Y. Bech (2) 1,961,912 14.9
John McCarthy (2) 215,367 1.6
Robert L. Brewton (2) 120,000 *
George Aldrich (2) 56,000 *
Bruce MacIntire (2) 12,000 *
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 6.0
10 West Market Street, Suite 1990
Indianapolis, IN 46204
Walker G. Harman (4) 1,840,000 14.0
Thomas R. Powers 1,110,213 8.5
Robert Werle (5) 328,345 (6) 2.5
Jefferies & Company, Inc.
11100 Santa Monica Blvd. 10th Floor
Los Angeles, CA 90025
William T. Criswell (7) 1,077,440 8.2
3000 Bent Cypress Drive
Wellington, FL 33414
All directors and officers as a group 6,606,125 50.3 (8)
(12 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 and 500,000 shares for $5 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.
<PAGE>
(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 33,061
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 61.3%.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
39
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)
<PAGE>
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)
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)
40
9.1* -- 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)
<PAGE>
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)
41
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. (incorporated by
reference to Exhibit 10.18 to Registrant's Form 10-K for the year
ended December 31, 1998)
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. (incorporated by reference to Exhibit 10.19 to
Registrant's Form 10-K for the year ended December 31, 1998)
10.20* -- First Amended and Restated Loan and Security Agreement for
$20,000,000 Receivables Loan and $13,500,000 Inventory Loan, dated
April 23, 1999, 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.; CR Resorts
<PAGE>
Cabos Timeshare Trust, S. de R.L. de C.V. and CR Resorts Puerto
Vallarta Timeshare Trust, S. de R.L. de C.V. (incorporated by
reference to Exhibit 10.1 to Registrants' Form 10-Q for the quarter
ended June 30, 1999)
10.21* -- Consent of Guarantor and Amendment No. 1 to Corporate Guarantee
and Subordination Agreement to the Loan and Security Agreement for
$20,000,000 with FINOVA, dated April 23, 1999, by and between FINOVA
Capital Corporation and Raintree Resorts International, Inc.
(incorporated by reference to Exhibit 10.2 to Registrants' Form 10-Q
for the quarter ended June 30, 1999)
10.22* -- Loan and Security Agreement for $33,250,000 Construction Loan,
$7,500,000 Working Capital Loan and $20,000,000 Receivables Loan,
dated June 29, 1999, by and between FINOVA Capital Corporation and The
Teton Club, L.L.C. and Raintree Resorts International, Inc.
(incorporated by reference to Exhibit 10.3 to Registrants' Form 10-Q
for the quarter ended June 30, 1999)
10.23+ -- Amendment No. 1, dated November 30, 1999, to First Amended and
Restated Loan and Security Agreement for $20,000,000 Receivables Loan
and $13,500,000 Inventory Loan 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.; 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.
42
10.24+ -- Consent of Guarantor and Amendment No. 2 to Corporate Guarantee
and Subordination Agreement to the First Amended and Restated Loan and
Security Agreement for $20,000,000 Receivables Loan and $13,500,000
Inventory Loan.
10.25+ -- Loan Agreement, dated November 23, 1999, between Textron
Financial Corporation, 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. de R.L. 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.
10.26+ -- Payment Guaranty and Subordination Agreement, dated November 23,
1999, to Textron Financial Corporation Loan Agreement dated November
23, 1999.
10.27+ -- Loan Agreement, dated November 26, 1999, between Bancomer, S.A.,
Institucion de Banca Multiple, Grupo Financiero, and CR Resorts
Capital, S. de R.L. de C.V.
21.1+ -- List of Subsidiaries of RRI Inc.
27.1+ -- Financial Data Schedule
- ---------------------
* previously filed
+ filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the year ended
December 31, 1999.
(c) The exhibits required by Item 601 of Regulation S-K have been listed above.
(d) Financial statement Schedules
None - Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on March 17, 2000.
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 Exchange Act of 1934, this
report has been below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ DOUGLAS Y. BECH
- -------------------------- Chairman and Chief Executive March 17, 2000
Douglas Y. Bech Officer (principal executive officer)
/s/ JOHN MCCARTHY
- -------------------------- President and Chief Executive Officer March 17, 2000
John McCarthy of Club Regina Resorts, Mexico,
and Director
/s/ GEORGE E. ALDRICH
- -------------------------- Senior Vice President - Finance March 17, 2000
George E. Aldrich and Accounting (principal
financial and accounting officer)
/s/ CHRISTOPHER W. ALLICK
- -------------------------- Director March 17, 2000
Christopher W. Allick
/s/ CHRISTEL DEHAAN
- -------------------------- Director March 17, 2000
Christel DeHaan
/s/ WALKER G. HARMAN
- -------------------------- Director March 17, 2000
Walker G. Harman
/s/ THOMAS R. POWERS
- -------------------------- Director March 17, 2000
Thomas R. Powers
/s/ ROBERT M. WERLE
- -------------------------- Director March 17, 2000
Robert M. Werle
44
<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, 1998 and 1999...........................................................................F-3
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1997, 1998 and 1999.................................................F-4
Consolidated Statements of Shareholder's Investment (Deficit)
for the years ended December 31, 1997, 1998 and 1999.................................................F-5
Consolidated Statements of Cash Flows for the period
for the years ended December 31, 1997, 1998 and 1999.................................................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
Balance Sheets as of December 31, 1998 and 1999..........................................................F-23
Statements of Operations and Accumulated Results
for the period August 18, 1997 through December 31, 1997
and for the years ended December 31, 1998 and 1999...................................................F-24
Statements of Cash Flows for the period
August 18, 1997 through December 31, 1997 and for the years
ended December 31, 1998 and 1999.....................................................................F-25
Notes to 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-30
Consolidated Statement of Operations for the Period
January 1, 1997 through August 17, 1997..............................................................F-31
Consolidated Statement of Cash Flows for the Period
January 1, 1997 through August 17, 1997..............................................................F-32
Notes to Consolidated Financial Statements...............................................................F-33
</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 (collectively, the
Company) as of December 31, 1998, and 1999, and the related consolidated
statements of operations and comprehensive loss, shareholders' investment and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally accepted
in the United States. 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, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 17, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
RAINTREE RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
December 31,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................... $ 2,960 $ 8,311
Vacation Interval receivables and other trade receivables, net........... 51,835 61,232
Inventories ............................................................. 775 896
Refundable Mexican taxes ................................................ 3,488 4,521
Facilities and office furniture and equipment, net ...................... 3,046 5,255
Land held for vacation ownership development ............................ 22,170 24,119
Equity investments....................................................... 2,949 3,532
Cost of unsold vacation ownership intervals and related club memberships. 27,606 23,605
Retained interest in hotel cash flows ................................... 4,000 4,000
Deferred loan costs, net ................................................ 7,413 7,342
Goodwill, net .......................................................... 1,240 --
Prepaid and other assets ............................................... 2,185 3,058
--------- ---------
Total assets ................................................................ $ 129,667 $ 145,871
========= =========
Liabilities and Shareholders' Investment
Liabilities
Accounts payable and accrued liabilities ............................... $ 11,850 $ 14,098
Notes payable .......................................................... 17,135 44,787
Senior Notes, due 2004, net of unamortized original issue
discount of $7,907 and $6,574, respectively .......................... 92,093 93,426
Taxes payable .......................................................... 1,618 1,101
Unearned services fees .................................................. 2,028 2,028
--------- ---------
Total liabilities .......................................................... 124,724 155,440
Commitments and Contingencies
Redeemable Preferred Stock
Parvalue $.001; 5,000,000 shares authorized, 52,250 shares issued
and outstanding at December 31, 1999; $5,225,000 aggregate liquidation
preference at December 31, 1999................................... -- 5,143
Shareholders' Investment (Deficit)
Preferred stock; par value $.001; 5,000,000 shares authorized, 37,500
shares issued and outstanding at December 31, 1998 and none
outstanding at December 31, 1999 ..................................... -- --
Convertible preferred stock; $100 per share liquidation value;
20,775 and 5,775 shares issued and outstanding at December 31, 1998
and 1999, respectively ............................................... 2,078 578
Common stock; par value $.001; 45,000,000 shares authorized, shares
issued and outstanding 10,766,300 at December 31, 1998
and 1999, respectively ............................................... 11 11
Additional paid-in capital .............................................. 7,371 3,621
Warrants to purchase 1,869,962 shares of common stock and 2,369,962
shares of common stock at December 31, 1998 and 1999, respectively.... 9,331 9,331
Accumulated deficit ..................................................... (13,737) (28,383)
Cumulative translation adjustment ....................................... (111) 130
--------- ---------
Total shareholders' investment (deficit) .................................... 4,943 (14,712)
--------- ---------
Total liabilities and shareholders' investment (deficit)..................... $ 129,667 $ 145,871
========= =========
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 LOSS
(in thousands except share and per share data)
Years Ended December 31,
--------------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Statement of Operations
Revenues
Vacation Interval sales ........................... $ 18,098 $ 56,508 $ 62,749
Rental and service fee income ..................... 3,896 8,926 8,888
Interest income on vacation interval receivables .. 1,557 5,848 7,252
Other income ...................................... 2,153 2,701 2,514
--------- --------- ---------
Total revenues ................................. 25,704 73,983 81,403
Costs and Operating Expenses
Cost of Vacation Interval sales ................... 4,569 13,161 17,007
Provision for doubtful accounts ................... 2,318 4,450 5,242
Advertising, sales and marketing .................. 8,576 23,874 29,343
Maintenance and energy ............................ 1,938 8,013 11,387
General and administrative ........................ 5,417 11,463 10,888
Depreciation ...................................... 49 620 973
Amortization of goodwill .......................... -- 2,885 1,606
--------- --------- ---------
Total costs and operating expenses ............. 22,867 64,466 76,446
--------- --------- ---------
Operating income .................................... 2,837 9,517 4,957
Interest expense, net ............................. 3,931 14,947 17,958
Equity in losses on equity investments............. -- 25 352
Foreign currency exchange (gains)/losses, net ..... 1,333 4,274 (801)
--------- --------- ---------
Net loss before taxes ............................... (2,427) (9,729) (12,552)
Foreign income and asset taxes .................... 909 672 709
--------- --------- ---------
Net loss before preferred dividends ................. (3,336) (10,401) (13,261)
Preferred stock dividends ......................... 232 711 675
--------- --------- ---------
Net loss attributable to common shareholders ........ $ (3,568) $ (11,112) $ (13,936)
========= ========= =========
Net loss per share
(Basic and Diluted) ............................... $ (.40) $ (1.03) $ (1.29)
Weighted average number of common shares:
(Basic and Diluted) ............................... 8,843,383 10,747,409 10,766,300
Comprehensive loss
Net loss before preferred stock dividends ........... $ (3,336) $ (10,401) $ (13,261)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment ......... -- (111) 241
--------- --------- ---------
Comprehensive loss .................................. $ (3,336) $ (10,512) $ (13,020)
========= ========= =========
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 (DEFICIT)
(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
December 31, 1998................ (10,401) (10,401)
------ ------- ------- -------- ------- --------- ------- --------
Balance, December 31, 1998........... 11 -- 2,078 7,371 9,331 (13,737) (111) 4,943
------ ------- ------- -------- ------- --------- ------- --------
Purchase of 15,000 shares of
convertible preferred............ (1,500) (1,500)
Class A preferred stock exchanged
for redeemable preferred stock .. -- (3,750) (1,160) (4,910)
Pay-in-kind preferred stock
dividend......................... (225) (225)
Cumulative translation adjustment 241 241
Net loss for the year ended
December 31, 1999................ (13,261) (13,261)
------ ------- ------- -------- ------- --------- ------- --------
Balance, December 31, 1999........... $ 11 $ -- $ 578 $ 3,621 $ 9,331 $ (28,383) $ 130 $(14,712)
====== ======= ======= ======== ======= ========= ======= ========
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 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Operating activities
Net loss .......................................................... $ (3,336) $ (10,401) $ (13,261)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................... 252 6,033 5,279
Provision for doubtful accounts ................................. 2,318 4,450 5,242
Equity in losses on equity investments .......................... -- 25 352
Changes in other operating assets and liabilities:
Vacation Interval receivables and other trade receivables ....... (5,753) (11,383) (14,342)
Inventories ..................................................... (132) 164 (84)
Refundable Mexican taxes......................................... (3,375) 629 (1,033)
Cost of unsold vacation ownership intervals and related club
memberships ................................................... 627 8,515 4,038
Deferred loan costs.............................................. (407) 69 1,296
Prepaid and other assets ........................................ (1,460) (327) (3,424)
Accounts payable and accrued liabilities ....................... 6,681 7 2,092
Taxes payable .................................................. (815) (541) (557)
Unearned services fees .......................................... 1,070 (1,129) (1)
----------- ---------- ----------
Net cash used in operating activities (4,330) (3,889) (14,403)
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) (2,884)
Additions to facilities and office furniture and equipment ........ (813) (1,968) (3,434)
----------- ---------- ----------
Net cash used in investing activities ................................... (86,338) (10,433) (6,318)
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 notes payable .......................................... 1,000 11,575 40,783
Repayment of notes payable ........................................ (84,104) (3,667) (13,330)
Purchase of Company's convertible preferred stock.................. -- -- (1,500)
Issuance of Senior Notes, less related expenses ................... 93,910 -- --
----------- ---------- ----------
Net cash provided by financing activities ............................... 99,673 8,233 25,953
Increase (decrease) in cash and cash equivalents ........................ 9,005 (6,089) 5,232
Effect of exchange rate changes on cash ................................. -- 44 119
Cash and cash equivalents, at beginning of the period ................... -- 9,005 2,960
----------- ---------- ----------
Cash and cash equivalents, at end of the period ......................... $ 9,005 $ 2,960 $ 8,311
=========== ========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for interest .......................... $ 3,252 $ 14,053 $ 15,873
Cash paid during the period for income and asset taxes ............ 183 1,672 1,171
Non-cash investing and financing 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 --
Dividends paid in-kind upon preferred stock exchange .............. -- -- 1,160
Stock dividend issued on redeemable preferred stock ............... -- -- 225
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
DECEMBER 31, 1999 AND 1998
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 (collectively, 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. 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
("Club 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 Club 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 then owned and
operated 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.
Effective July 1, 1998, the Company implemented 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 as a result of a change in Mexican law. 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.
<PAGE>
Acquisition of Whiski Jack Resorts, Ltd.
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,
F-7
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 $4.5
million, and has been amortized pro rata as the individual weeks acquired in the
acquisition were sold. Amortization expense was $2.9 million and $1.6 million
for the years ended December 31, 1998 and 1999, respectively.
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.
Acquisition of Villa Vera Hotel & Racquet Club
The Company acquired the land and facilities of the Villa Vera Hotel &
Racquet Club (the "Villa Vera") for $6.2 million in December 1999. The purchase
price includes the cost of converting certain of the 59 hotel units into
vacation ownership units, and the addition of a restaurant and spa. The purchase
price has been allocated to the assets and liabilities assumed based upon the
fair values at the date of acquisition. The Villa Vera is located in Acapulco,
Mexico. The vacation ownership units acquired increased the Company's inventory
by approximately 3,068 vacation interval weeks.
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 (in thousands except per
share data):
<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.
<PAGE>
Liquidity
In connection with the Purchase Transactions, the Company borrowed
approximately $83 million and replaced such borrowing with its Senior Notes. At
December 31, 1999, the Company is, and will continue to be, highly leveraged,
with substantial debt service requirements. A significant portion of the
Company's assets are pledged against existing borrowings. The Company has a
deficit in shareholder's investment, has incurred losses since its inception and
expects to incur a net loss for fiscal 2000. To achieve profitable operations,
the Company is dependent on a number of factors, including its ability to reduce
its debt service requirements, to increase its Vacation Interval inventory
through development projects and through the acquisition of existing resort
properties, and its ability to continually sell Vacation Intervals on an
economical basis, taking into account the cost of such intervals and related
marketing and selling expenses. The Company expects that its existing credit
capacity combined with additional credit capacity which must be negotiated
during 2000 will be sufficient to enable the Company to meet its debt service
obligations, including interest payments on its Senior Notes during 2000. The
Company also expects to be able to fund capital requirements from its future
operations and from anticipated capital
F-8
project financings which have not yet been negotiated. However, should the
Company not achieve the anticipated level of operating results during 2000 or be
able to successfully negotiate future secured credit capacity, there is no
assurance that the Company will be able to meet all of its 2000 debt service
payments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Raintree
Resorts International, Inc., 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, and its share of the investment
and losses in The Teton Club, LLC, 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.
Investment in the Teton Club
The Teton Club, LLC ("Teton Club"), a joint venture between the Company and
JHSC Properties, Inc. is developing 37 condominium units in Teton Village near
Jackson, Wyoming. The financing for this project was arranged with FINOVA
Capital Corporation and consists of $33.3 million for construction financing,
$7.5 million for pre-sale working capital requirements and $20 million for
receivables financing. The receivable financing is a hypothecation
line-of-credit and will be used to repay the construction and pre-sale working
capital loans and to fund operating expenses. As of December 31, 1999, Teton
Club was not in compliance with one of the loan covenants but obtained a timely
one-time waiver for such year-end non-compliance, and is currently in compliance
and expects to be in compliance during 2000 and thereafter. The Company, as part
of the financing arrangement, is directly obligated for $8.3 million of the
construction loan, $1.9 million of the pre-sale working capital loan and $5
million of the receivables loan. Additionally, the Company is responsible for
working capital deficits. The Company is also required to maintain certain
covenants and ratios, including a specified yearly net worth. As of December 31,
1999, $8.7 million had been drawn on the construction portion of the financing,
and $1.9 million had been drawn on the working capital portion of the financing.
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
<PAGE>
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) and for the year ended December 31, 1998, were
$1,333,000 and $4,299,000, respectively. The Company had a net exchange and
translation gain for the year ended December 31, 1999 of $801,000. These net
losses were primarily related to the decline in the value of the peso to the
U.S. dollar during the years ended December 31, 1997 and 1998, and the net gain
during 1999 was due to marginal recovery of rates during 1999 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
March 31, 1999......................................................... 9.516 = $1.00
June 30, 1999.......................................................... 9.488 = $1.00
September 30, 1999..................................................... 9.358 = $1.00
December 31, 1999...................................................... 9.522 = $1.00
</TABLE>
F-9
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."
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 included $0.8 million and $1.1 million in restricted funds
at December 31, 1998 and 1999, respectively.
<PAGE>
Vacation Interval Receivables and Concentration of Geographic and Credit Risk
As of December 31, 1999, 81.2% of the Company's Vacation Interval sales
entitled the owner upon payment of a service fee a defined right to use vacation
ownership facilities at the Club Regina 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, 1999 and
1998.
The Company estimates that at December 31, 1999, approximately 52.5% of all
of the Vacation Interval receivables were U.S. dollar denominated, 31.4% of all
Vacation Interval receivables were denominated in UDI's, an obligation
denominated in pesos which is adjusted for Mexican inflation ("UDI"), 9.4% of
all Vacation Interval receivables were denominated in Mexican pesos and 6.7% 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
F-10
vacation in the destinations where the Club 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, other trade
receivables and notes payable 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, 1999. 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.
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.
Facilities and Office Furniture and Equipment
The Company currently maintains facilities that include a restaurant and
spa that are complementary to its resort operations, in addition to office
furniture and equipment. These assets are stated at cost, net of accumulated
depreciation of $0.7 million and $1.7 million at December 31, 1998 and 1999,
respectively. 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. Additionally, the restaurant and spa are depreciated using the
straight-line method over the estimated useful lives of 10 years.
<PAGE>
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 not occur prior to 2001 or later.
Land held for vacation ownership development includes the cost of land, and
additionally, development costs and capitalized interest. Interest related to
these developmental properties of $1.8 million and $0.8 million during the years
ended December 31, 1998 and 1999, respectively, was capitalized.
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 Club 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, 1998 and 1999, the Company holds
rights for 6,072 and 5,241 vacation interval weeks, respectively. The Company
also includes in inventory the rights to weeks 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 transfer of 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 and 1999, the Company held
title to properties totaling 585 and 548 vacation interval weeks, respectively.
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
F-11
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 began recognizing revenue under the agreement in 1999, which
amounted to approximately $275,000 based on the partial year 1997 and 1998. 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.
Deferred Loan Costs
The costs incurred in connection with the Senior Notes, various credit
agreements and loans have been deferred and are being amortized over the terms
of the Senior Notes, credit agreements and loans using the effective interest
method. The balance of deferred loan costs was $7,413,000 and $7,342,000 at
December 31, 1998 and 1999, respectively. Amortization expense for the years
ended December 31, 1997, 1998 and 1999 totaled $92,000, $1,215,000 and
$1,367,000, 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 a 10% minimum down payment is
received. For transactions that do not qualify for accrual method of accounting,
all revenue is deferred using the deposit method.
<PAGE>
Advertising Expense
The Company expenses advertising costs as incurred.
Loss Per Share
Basic per share results are computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Since the Company has a net losses for all periods reported, no
conversion is assumed as conversion of the Company's warrants and stock options
would be anti-dilutive.
The following is a reconciliation of the numerator and denominator for
basic and diluted loss per share (in thousands except share and per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C>
Numerator - Basic and Diluted:
Loss available to common shareholders ................. $ (3,568) $ (11,112) $ (13,936)
Denominator:
Basic - weighted average number of common shares 8,843,383 10,747,409 10,766,300
Adjustments:
Warrants associated with Senior Notes .............. -- -- --
Common stock options ............................... -- -- --
Diluted .............................................. 8,843,383 10,747,409 10,766,300
Loss per share
Basic and diluted...................................... $ (.40) $ (1.03) $ (1.29)
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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
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
originally in the year 2000 and updated by SFAS No. 137 to year 2001, will not
materially impact the Company.
3. VACATION INTERVAL RECEIVABLES AND OTHER TRADE RECEIVABLES
Vacation Interval receivables and other trade receivables were as follows
(in thousands):
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Vacation Interval receivables ....................................... $ 53,563 $ 63,875
Service fee receivables ............................................. 1,047 992
Other trade receivables ............................................. 4,787 4,432
Less - allowances for doubtful accounts (7,562) (8,067)
--------- ---------
Total ....................................................... $ 51,835 $ 61,232
========= =========
</TABLE>
At December 31, 1999, the weighted average interest rate earned on Vacation
Interval receivables that were denominated in U.S. dollars was 15.0%, in Mexican
pesos was 22.6%, in UDI's was 8.3% and in Canadian dollars was 14.1%. These
receivables are collected in monthly installments over periods ranging from 1 to
10 years, with a weighted average maturity of approximately five years as of
December 31, 1999 and 1998. The overall weighted average interest rate is 15.7%.
The interest rates range from 8% to 29%.
The following table reflects the principal maturities of Vacation Interval
receivables as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Period ended December 31:
<S> <C>
2000 ............................................................................. $18,072
2001 ............................................................................. 16,028
2002 ............................................................................. 12,966
2003 ............................................................................. 8,934
Thereafter ........................................................................ 7,875
</TABLE>
The activity in the Vacation Interval receivables and other trade
receivables allowance for doubtful accounts for the year ended December 31, 1998
and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Balance, beginning of year .......................................... $ 8,005 $ 7,562
Provision charged to expense ........................................ 4,450 5,242
Cancellation of contracts and receivables charge off ................ (4,893) (4,737)
---------- ----------
Balance, end of year ................................................ $ 7,562 $ 8,067
========== ==========
</TABLE>
F-13
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
$9,331,000 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 ($83 million) was used to repay
the outstanding loans and related accrued interest payable to the Company's
lender bank (Bancomer).
<PAGE>
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. Additional indebtedness includes the ability of the
Company to borrow credit agreement debt up to 90% of its Vacation Interval
receivables. 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 (in thousands) -
December 31,
---------------------------------------
1998 1999
------------------ -----------------
Notes Payable to a Bank ............ $ 276 $ 278
Cabos West Notes Payable ........... 5,000 2,350
Credit Agreement Notes and Loans ... 9,086 38,772
Mortgages Payable .................. 2,773 3,387
--------- ---------
$ 17,135 $ 44,787
========= =========
The current maturities of Senior Notes and notes payable are as follows (in
thousands):
2000 .............................. $ 19,565
2001 .............................. 8,210
2002 .............................. 6,783
2003 .............................. 4,172
2004 .............................. 102,957
Thereafter ......................... 3,100
Notes Payable to a Bank - The notes payable to a bank at December 31, 1998 and
1999 had interest payable at 7.75%, and 8.50%, respectively. The 1998 notes were
paid in 1999, and the 1999 notes are due in full in 2000.
F-14
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 approximately 10% and are due on demand.
<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 a $16.5 million inventory based credit facility that was finalized in
May 1999. The aggregate borrowing limit on these facilities is $34 million, as
amended. The agreement limits the use of proceeds to acquisitions, development,
working capital and repayment of existing obligations. FINOVA will lend 90% on
pledged notes receivable denominated in United States dollars and held by United
States or Canadian residents. These notes 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
receivables loan balance bears interest at a fluctuating base rate plus 175
basis points, which was 9.5% and 10.25% per annum at December 31, 1998 and 1999,
respectively. The outstanding inventory loan balance bears interest at a
fluctuating base rate plus 225 basis points, which at December 31, 1999 was
10.75% per annum. Interest under the notes is due monthly. 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 receivables line of credit matures 84 months from the date of
the last advance made against it, and the inventory based credit facility
matures on June 30, 2001. As of December 31, 1999, the outstanding balance of
the receivables line of credit was $9,760,000 and of the inventory based credit
facility was $15,159,000.
On November 23, 1999, the Company executed a $10 million receivables loan
facility with Textron Financial Corporation. The loan is collateralized by the
Company's notes receivable, with a limit of up to 30% of those notes denominated
in Mexican pesos of which Textron will lend 80% on pledged notes, and the
remainder in U.S. dollars on which Textron will lend 85% on pledged notes. The
pledged notes receivable are collected by a designated lockbox agent and the
proceeds are forwarded to the lender to be applied to this loan. The agreement
limits the use of proceeds to payment of debt, sales, marketing, working
capital, project development and administrative costs, and for future expansion
of timeshare development. Additionally, the entire outstanding loan balance is
to be paid in full on or before December 1, 2004. The loan bears a variable
interest rate of the Chase Manhattan Bank prime rate plus 200 basis points that
is adjusted on the first day of each month with the interest due monthly, and as
of December 31, 1999, was 10.5%. Interest on the loan is due monthly, and as of
December 31, 1999, the outstanding balance of the loan facility was $7,103,000.
The Company also entered into a $7 million loan agreement with Bancomer on
November 26, 1999, that was collateralized by all of the Company's UDI
denominated notes receivable, and is restricted to the timely payment of
interest to holders of the Company's Senior Notes. The loan agreement extends
credit to the Company for a fixed 30-month term from November 29, 1999 to May
29, 2000. Furthermore, the agreement requires the Company to pay back the
principal in UDI's in 30 equal monthly installments plus accrued interest in the
U.S. dollar equivalent amount of approximately $233,000 beginning on December
29, 1999. Also, the loan bears simple interest at a rate of 12% per annum, and
as of December 31, 1999, had an outstanding balance of $6,750,000.
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% during 1998, and prime plus 1.75% to prime plus 8% during
1999, and were payable in monthly installments including interest over periods
ranging from twelve months to ten years during both years. The average interest
rates paid were 11.1% and 10.7% during 1998 and 1999, respectively, and the
prime rate was 6.75% and 6.5% at December 31, 1998 and 1999, respectively.
6. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
General
The Company has only one line of business, which develops, markets and
operates luxury vacation ownership resorts in three geographic areas; Mexico,
Canada and the United States. The United States operations are carried out
through a joint venture accounted for on the equity method of accounting. The
<PAGE>
Company's reportable segments are based on geographic area. The reportable
segments are managed separately due to their geographic location
F-15
with managers focused on improving and expanding each segment's operations.
However resource allocation is not based on individual country results, but
based on the best location for future resorts in order to enhance the Company's
overall ability to sell timeshare under a club concept. Revenues are attributed
to countries based on the location of the vacation ownership resorts.
Segment profit or loss
The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies. Management
evaluates segment performance based on profit or losses before intercompany
interest charges, income taxes and nonrecurring gains and losses. Transfers
between segments are accounted for at market value.
The following table presents segment information (in thousands):
<TABLE>
<CAPTION>
Corporate
Mexico Canada and Other Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
As of and for year ended December 31, 1999:
Revenues from external customers ......................... $ 66,955 $ 14,403 $ 45 $ 81,403
Interest revenue.......................................... 6,755 497 -- 7,252
Interest expense.......................................... 15,999 396 1,563 17,958
Depreciation and amortization............................. 784 1,736 59 2,579
Operating income (loss) .................................. 7,555 381 (2,979) 4,957
Income tax expense........................................ -- 709 -- 709
Total assets ............................................. 126,503 10,827 8,541 145,871
Capital expenditures ..................................... 4,780 616 922 6,318
As of and for year ended December 31, 1998:
Revenues from external customers ......................... $ 66,036 $ 6,524 $ 1,423 $ 73,983
Interest revenue.......................................... 5,725 123 -- 5,848
Interest expense.......................................... 13,207 195 1,545 14,947
Depreciation and amortization............................. 550 2,912 43 3,505
Operating income (loss) .................................. 13,481 (1,550) (2,414) 9,517
Income tax expense........................................ 100 572 -- 672
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
Interest revenue.......................................... 1,557 -- -- 1,557
Interest expense.......................................... 3,616 -- 315 3,931
Depreciation and amortization............................. 49 -- -- 49
Operating income (loss) .................................. 3,670 -- (833) 2,837
Income tax expense........................................ 909 -- -- 909
Total Assets ............................................. 105,051 -- 14,928 119,979
Capital expenditures ..................................... 930 -- 51 981
</TABLE>
Corporate and other
The amounts shown as an operating loss under the column heading "Corporate
and Other" consist primarily of general and administrative costs that are not
allocated to the segments. Also, the U. S. joint venture is included in
corporate operations and had equity losses of $25,000 and $352,000 in 1998 and
1999, respectively.
<PAGE>
7. RELATED PARTY TRANSACTIONS AND AGREEMENTS
Related Party Mortgages Payable
At December 31, 1998 and 1999, the aggregate principal amount of mortgages
payable to related parties was $1,868,000 and $1,014,000, respectively. Interest
accrues on the mortgages at rates ranging from prime plus 3% to prime plus 7.75%
per annum and is payable in monthly installments over periods ranging from
twelve months to ten years.
F-16
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 Club 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 that 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 that 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 July 1, 1999, all 37,500 shares of the Class A Preferred Stock of the
Company were exchanged for 50,000 shares of a new class of Pay-in-Kind
Redeemable Preferred Stock (Redeemable Preferred Stock) plus 500,000 five-year
Warrants to purchase the Company's Common Stock at $5.00 per share. The
Redeemable Preferred Stock requires that annual dividends be paid either in cash
equaling 9% of the Redeemable Preferred Stocks' $100 per share Liquidation
Preference, or in an equivalent number of shares of such Redeemable Preferred
Stock valued at the Liquidation Preference. As of December 31, 1999, the Company
opted to pay a stock dividend of 2,250 shares. Also, the Redeemable Preferred
Stock is redeemable at any time before December 1, 2004, at which time
redemption is mandatory.
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. As of December 31, 1999, 5,775 shares were outstanding. The cumulative
unpaid dividends totaled $0.2 million at December 31, 1999. The Company redeemed
5,000 shares ($0.5 million) on each of April 1, 1999, July 31, 1999 and October
31, 1999. The Company redeemed the remaining outstanding shares during January
and February 2000.
<PAGE>
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.
F-17
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.
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 for the risk-free interest rate for each of the
specified dates of grant:
8/15/97 ............................................. 6.33%
8/18/97 ............................................. 6.28
10/16/97 ............................................. 6.45
1/19/98 ............................................. 5.83
4/1/98 ............................................. 5.95
11/15/98 ............................................. 5.31
12/1/98 ............................................. 5.16
5/1/99 ............................................. 5.83
10/1/99 ............................................. 6.57
Furthermore, dividend yield of 0%, expected market price volatility factor
of 0, and an option life of ten years was assumed for each of the three years
ended December 31, 1997, 1998 and 1999.
The following are pro forma disclosures (in thousands except share and per
share data) 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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Net loss available to common shareholders as reported ............ $ (3,568) $ (11,112) $ (13,936)
Estimated "fair value" of stock options vesting during the periods. -- (192) --
----------- ----------- -----------
Adjusted net loss ................................................ $ (3,568) $ (11,304) $ (13,936)
=========== =========== ===========
Adjusted loss per share - basic and diluted ...................... $ (.40) $ (1.05) $ (1.29)
Number of common shares used in the per share calculations:
Basic and diluted .............................................. 8,843,383 10,747,409 10,766,300
</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 1999
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Options Average Options Average Options Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
------- -------------- ------- --------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of the year ....... -- $ -- 258 $ 3.84 646 $ 4.54
Granted ................................... 263 3.86 450 5.00 27 5.00
Exercised ................................. -- -- -- -- -- --
Forfeited ................................. 5 5.00 62 5.00 39 5.00
Outstanding - end of the year ............ 258 3.84 646 4.54 634 4.53
Exercisable at the end of the year ....... 57 3.67 165 4.09 289 4.22
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
$2 to $5. The weighted-average remaining contractual life of those options is
8.3 years.
F-18
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,
1998 and 1999 in Mexico as well as the United States. Accordingly, no provision
for U.S. or Mexican income taxes was made during 1997, 1998 or 1999. The
Company's Canadian operations, which were acquired in 1998, were taxable for
Canadian tax purposes. The Company plans 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 1999 Canadian taxes, with
no addition for dividend withholding tax or for U.S. federal income tax or
credits on such income.
The Company has approximately $96.7 million of Mexican net operating
losses, which will begin to expire as follows: 2002 -- $5.1 million, 2003 --
$16.9 million, 2004 -- $38.0 million, 2005 -- $10.3 million, 2006 -- $0.9
million, 2007 -- $2.9 million, 2008 -- $19.9 million, and 2009 -- $2.7 million.
For financial statement purposes, a valuation allowance of $23.4 million has
been recognized to offset the estimated $32.9 million of deferred tax assets
related to those carryforwards.
<PAGE>
The Company has approximately $8.3 million of U.S. net operating losses,
which will begin to expire as follows: 2019 -- $4.8 million, 2018 -- $3.0
million, and, 2017 -- $0.5 million. 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 and 1999, 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 gave 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 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 U. S. Mexico Total
- ---------------------------------- -------- -------- --------
<S> <C> <C> <C>
Federal
Current ........................... $ -- $ 909 $ 909
Federal income taxes
Current ........................... $ -- $ 909 $ 909
Deferred .......................... -- -- --
-------- -------- --------
$ -- $ 909 $ 909
======== ======== ========
Income tax expense (recovery) at
the statutory rate................... $ (390) $ (175) $ (565)
Increase (decrease) resulting from
Non-deductible expenses.............. 44 -- 44
Exchange losses net of tax inflation. -- 178 178
Other ............................... 346 906 1,252
-------- -------- --------
$ -- $ 909 $ 909
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998 U.S. Mexico Canada Total
- ---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal income taxes
Current ............................. $ -- $ 100 $ 572 $ 672
Deferred ............................ -- -- -- --
-------- -------- -------- --------
$ -- $ 100 $ 572 $ 672
======== ======== ======== ========
Income tax expense (recovery) at
the statutory rate................... $(1,056) $ 212 $ (531) $ (1,375)
Increase (decrease) resulting from
Non-deductible expenses.............. 160 -- 960 1,120
Exchange losses net of tax inflation. -- (224) -- (224)
Other ............................... 896 112 143 1,151
-------- -------- -------- --------
$ -- $ 100 $ 572 $ 672
======== ======== ======== ========
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999 U.S. Mexico Canada Total
- ---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal income taxes
Current ............................. $ -- $ -- $ 709 $ 709
Deferred ............................ -- -- -- --
-------- -------- -------- --------
$ -- $ -- $ 709 $ 709
======== ======== ======== ========
Income tax expense (recovery) at
the statutory rate................... $ (1,703) $ (3,149) $ (28) $ (4,880)
Increase (decrease) resulting from
Non-deductible expenses.............. -- -- 558 558
Foreign rate differential ........... -- -- 179 179
Valuation allowance ................. -- 3,149 -- 3,149
Other ............................... 1,703 -- -- 1,703
-------- -------- -------- --------
$ -- $ -- $ 709 $ 709
======== ======== ======== ========
</TABLE>
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 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1999
----------------------------------- ------------------------------------
U. S. Mexico Total U. S. Mexico Total
-------- --------- --------- --------- ---------- ---------
Deferred income tax liabilities
<S> <C> <C> <C> <C> <C> <C>
Depreciation ............... $ -- $ (812) $ (812) $ -- $ (1,095) $ (1,095)
Inventories ................ -- (305) (305) -- (350) (350)
Prepaid expenses / fees..... -- (253) (253) -- (461) (461)
Accounts receivable ........ -- (7,566) (7,566) -- (12,304) (12,304)
-------- --------- --------- --------- ---------- ---------
Total -- (8,936) (8,936) -- (14,210) (14,210)
Deferred income tax assets
Depreciation................ -- -- -- 2 -- 2
Accrued liabilities ........ -- -- -- 156 -- 156
Reserves ................... -- 3,517 3,517 -- 3,996 3,996
Unearned service fees ...... -- 700 700 -- 709 709
Asset tax carryovers ....... -- 1,026 1,026 -- -- --
Tax loss (NOL) carryovers .. 1,242 21,838 23,080 2,905 32,900 35,805
Charitable contribution
carryovers ................ -- -- -- 2 -- 2
Foreign tax credits ........ 75 -- 75 74 -- 74
-------- --------- --------- --------- ---------- ---------
Total 1,317 27,081 28,398 3,139 37,605 40,744
Valuation allowance (1,317) (18,145) (19,462) (3,139) (23,395) (26,534)
-------- --------- --------- --------- ---------- ---------
Total $ -- $ -- $ -- $ -- $ -- $ --
======== ========= ========= ========= ========== =========
</TABLE>
<PAGE>
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.
F-20
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, 1998 and 1999 was approximately $317,000,
$1,659,000, and $2,013,000, 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, 1999 (in thousands):
<TABLE>
<S> <C>
2000 ............................................................................. $ 2,171
2001 ............................................................................. 1,360
2002 ............................................................................. 1,238
2003 ............................................................................. 451
2004 ............................................................................. 273
-------
Total ............................................................................ $ 5,493
=======
</TABLE>
Canadian Condominium Acquisitions
The Company has committed to purchase 20 condominium units in Whistler,
British Columbia at an aggregate purchase price of $3.9 million. Deposits of
$0.6 million have been paid, and an additional $2.1 million was paid in March
2000. The balance of $1.2 million is to be paid during 2000, 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 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.
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, 1998 and 1999, and the related translated statements of operations
and accumulated results and cash flows for the period from August 18, 1997
through December 31, 1997, and for the years ended December 31, 1998 and 1999.
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 auditing standards generally accepted
in the United States. 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, 1998 and 1999 and the results of its
operations and its cash flows for the period from August 18, 1997 through
December 31, 1997, and for the years ended December 31, 1998 and 1999 in
conformity with the accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN
March 17, 2000
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,
-------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Assets
Cash ................................................................. $ 24 $ 12
Loans and related accrued interest receivable from affiliates......... 94,751 104,493
Deferred loan costs, net of accumulated amortization of $1,176 and
$2,286 at December 31, 1998 and 1999, respectively................. 6,593 5,483
Other assets.......................................................... 295 1,088
----------- -----------
Total assets ............................................................. $ 101,663 $ 111,076
=========== ===========
Liabilities and Shareholders' Deficit
Accrued expenses ..................................................... $ 1,267 $ 488
Due to Raintree Resorts International, Inc. (Ultimate Parent) ........ 17,116 21,278
Notes payable to a bank .............................................. -- 6,750
Senior Notes due 2004, bearing interest at 13%, net of unamortized
original issue discount of $7,107 and $5,907 at
December 31, 1998 and 1999, respectively........................... 82,893 84,093
Accrued interest payable ............................................. 1,025 1,025
----------- -----------
Total liabilities ........................................................ 102,301 113,634
Shareholders' Deficit
Capital stock......................................................... -- --
Accumulated deficit................................................... (638) (2,558)
----------- -----------
Total shareholders' deficit............................................... (638) (2,558)
----------- -----------
Total liabilities and shareholders' deficit .............................. $ 101,663 $ 111,076
=========== ===========
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 For the
through Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, representing interest and related fees charged to affiliates .. $ 3,778 $ 15,960 $ 14,540
Expenses
Interest expense on bank loans and Senior Notes ..................... 3,623 14,949 14,679
Interest expense on notes payable to the Ultimate Parent ............ 42 889 1,151
General and administrative, including $94, $244 and $369 of
management fees charged by an affiliate for accounting and
administrative services for the periods ended
December 31, 1997, 1998 and 1999, respectively .................... 101 783 614
Translation loss (gain), net ........................................ 11 (22) 16
----------- ----------- -----------
Total expenses.................................................... 3,777 16,599 16,460
----------- ----------- -----------
Income (loss) before income taxes........................ 1 (639) (1,920)
Income taxes......................................................... -- (273) --
Tax loss carryforwards .............................................. -- 273 --
----------- ----------- -----------
Net income (loss) for the period ........................................ 1 (639) (1,920)
Accumulated results at beginning of period .............................. -- 1 (638)
----------- ----------- -----------
Accumulated results at end of period .................................... $ 1 $ (638) $ (2,558)
=========== =========== ===========
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 For the
through Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C>
Operating activities
Net income (loss) for the period .................................... $ 1 $ (639) $ (1,920)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of loan costs and discount .......................... 158 2,379 2,310
Changes in operating assets and liabilities
Other assets ..................................................... (2) (363) (793)
Due to Ultimate Parent ........................................... 620 (615) 4,162
Due from affiliates .............................................. (4,158) (3,889) (9,742)
Accrued expenses and accrued interest ............................ 946 1,346 (779)
----------- ----------- -----------
Net cash used in operating activities ................................... (2,435) (1,781) (6,762)
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 6,750
----------- ----------- -----------
Net cash provided by financing activities ............................... 89,147 1,797 6,750
----------- ----------- -----------
Increase (decrease) in cash ............................................. 8 16 (12)
Cash at beginning of period.............................................. -- 8 24
----------- ----------- -----------
Cash at end of period ................................................... $ 8 $ 24 $ 12
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest ............................ $ 2,913 $ 12,444 $ 12,369
=========== =========== ===========
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
DECEMBER 31, 1998 AND 1999
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 $82,954,000 as
well as other related party loans that were used to make loans to the operating
subsidiaries of the Ultimate Parent.
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 $6,766,000. 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 $9,331,000 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
$8,398,000, on Capital's balance sheet. The original issue discount is being
amortized to expense over the warrant exercise period of 84 months and was
$91,500, $1,200,000 and $1,200,000 for the periods ended December 31, 1997, 1998
and 1999, 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) 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.
<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
F-26
interests of the Ultimate Parent's subsidiaries, or enter into certain mergers
and consolidations. Additional indebtedness includes the ability of the Issuers
to borrow credit agreement debt up to 90% of its Vacation Interval receivables.
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 liquidating damages, 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' deficit 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 (loss) for 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, 1998 and 1999
totaled $67,000, $1,109,000 and $1,110,000 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.
<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.
F-27
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, 1998 and 1999, the Company adjusted its
foreign currency denominated assets and liabilities to the exchange rate of
9.865 and 9.5222 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 13.8% and 16% in 1998 and 1999, respectively. Receivable
balances at December 31, are (in thousands):
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Top Acquisition Sub, S. de R.L. de C.V. $ 27,290 $ 31,942
CR Resorts Puerto Vallarta, S. de R.L. de C.V. 51,722 46,015
CR Resorts Cancun, S. de R.L. de C.V. 9,308 13,407
CR Resorts Los Cabos, S. de R.L. de C.V. 11,951 10,448
Corporacion Mexitur, S. de R.L. de C.V. (5,900) 2,291
Other 380 390
----------- -----------
$ 94,751 $ 104,493
=========== ===========
</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, 1998 and 1999, Capital had $7.55 million and $11.72 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.
<PAGE>
4. NOTES PAYABLE TO A BANK
The Company also entered into a $7 million loan agreement with Bancomer on
November 26, 1999, that was collateralized by Units of Investment (UDI)
denominated notes receivable and certain undeveloped land held by the Company's
affiliates, and is restricted to the timely payment of interest to holders of
the Company's Senior Notes. The loan agreement extends credit to the Company for
a fixed 30-month term from November 29, 1999 to May 29, 2000. Furthermore, the
agreement requires the Company to pay back the loan in UDI's in 30 roughly equal
monthly installments in the U.S. dollar equivalent amount of approximately
$233,000 beginning on December 29, 1999. Also, the loan bears simple interest at
a rate of 12% per annum, and as of December 31, 1999, had an outstanding balance
of 24,060,291 UDI equivalent to $6,750,000.
F-28
The UDI is a unit of account, of a constant real value, which is determined
by Banco de Mexico with respect to legal tender. The value of each UDI is
proportionately adjusted to the Mexican National Consumer Price Index variation.
The UDI value as of December 31, 1999, was $0.28053.
5. LINE OF CREDIT
In July 1998, the Company received approval from Bancomer of a $20 million
line of credit, and the Company borrowed $2 million under this line of credit.
The loan was paid in November 1998 and this line of credit was terminated.
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, 1999 the Company has tax loss carryforwards for income tax
purposes in the restated amount of $383,000 expiring in 2007, which will be
indexed for inflation through the year applied.
7. SHAREHOLDERS' DEFICIT
At December 31, 1997, 1998 and 1999, 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 would amount to 600 Mexican
pesos and could not be distributed to the shareholders during the existence of
the Company, except in form of a stock dividend.
<PAGE>
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-29
<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 auditing standards generally accepted
in the United States. 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-30
<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
Value 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-31
<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-32
<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-33
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.
<PAGE>
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-34
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.
<PAGE>
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-35
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.
<PAGE>
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-36
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.
<PAGE>
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-37
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
Value 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-38
<PAGE>
AMENDMENT NO. 1 TO FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment No. 1 to First Amended and Restated Loan and Security
Agreement (this "Amendment") is entered into as of this 30th day of November,
1999, by and among FINOVA Capital Corporation ("Lender"), a Delaware
corporation, 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. de R.L. 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"), CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V. ("Puerto
Vallarta Sub"), (collectively the "Original Borrowers"), Promotora Villa Vera,
S. de R.L. de C.V. ("Promotora") and Villa Vera Resort, S. de R.L. de C.V.
("Villa Vera" and together with Promotora and the Original Borrowers,
collectively, the "Borrower").
R E C I T A L S :
A. The Original Borrowers and Lender entered into a First Amended and
Restated Loan and Security Agreement dated as of April 23, 1999, (the "Original
Loan Agreement" and together with this Amendment, collectively the "Loan
Agreement"), evidencing certain loan facilities from Lender to the Original
Borrowers.
B. Borrower has asked Lender to modify the Original Loan Agreement and the
other Loan Documents in accordance with the terms of, and subject to the
conditions contained in, this Amendment in order to, among other things, add an
additional resort to the definition of Time-Share Project, increase the Maximum
Inventory Loan Amount, increase the Maximum Loan Amount, extend the Inventory
Loan Borrowing Term Expiration Date, extend the Inventory Loan Maturity Date,
add Promotora and Villa Vera as additional Borrowers and extend the Receivables
Loan Opening Prepayment Date, and Lender is willing to so amend the Loan
Agreement and the other Loan Documents, but only upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of these recitals, the covenants contained
in this Amendment, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Lender and Borrower agree as
follows:
1. Definitions. Capitalized terms used in this Amendment and defined herein
have such meanings. Unless otherwise defined in this Amendment, all capitalized
terms used herein which are defined in the Original Loan Agreement have the same
meaning as set forth in the Original Loan Agreement.
2. Amendments to Loan Agreement. The Original Loan Agreement is hereby
amended as follows:
2.1 Definitions. Article I of the Original Loan Agreement is hereby amended
by adding in their proper alphabetical sequence or substituting, as the case may
be, the following definitions:
"'Acapulco Project' shall mean the property commonly known as the
Villa Vera Hotel & Racquet Club, located in Acapulco, Guerrero, Mexico.
"'Borrower' shall mean individually and collectively, jointly and
severally, the individuals or business organizations signing the First
Amendment as 'Borrower'; and, subject to the restrictions on assignment and
transfer contained in the Loan Agreement, their respective successors and
assigns."
"'Collateral' shall mean the Receivables Loan Collateral and the
collateral pledged to Lender pursuant to the Security Documents and all
products and proceeds thereof, together with all now owned or hereafter
acquired right, title and interest of Borrower in and to all of the
following:
(i) A first priority assignment in any management, marketing or
other use, maintenance or service contracts for the Time-Share
Project;
1
<PAGE>
(ii) A first priority security interest in and to all furniture,
furnishings and fixtures of every kind and description (and all
improvements and accessions thereto, including, without limitation,
all fixtures, furniture, appliances, carpeting, equipment and
furnishings located in the Units or elsewhere within each of the
Time-Share Projects) located in or on or used in connection with the
Time-Share Project;
(iii) To the greatest extent permitted under United States and
Mexican law, easements, leasehold interests (whether as lessor or
lessee), franchises, permits, approvals, licenses, facilities and
amenities on, affecting or appurtenant to each of the Time-Share
Project and rights to occupy, use and enjoy any such facilities or
amenities;
(iv) Any rights inuring to Borrower as an "institutional
mortgagee," an "institutional lender" or a "mortgagee" in connection
with the Time-Share Project;
(v) Extensions, additions, improvements, betterments, renewals,
substitutions and replacements of, for or to any of the Collateral,
wherever located, together with the products, proceeds, issues, rents
and profits thereof, and any replacements, additions or accessions
thereto or substitutions thereof, and all rights in or under insurance
policies and to the proceeds of any insurance policies covering any of
the other Collateral, all rights to unearned or refunded insurance
premiums, and the proceeds of any condemnation awards or any claims
regarding any of the other Collateral;
(vi) A first priority security interest (pledge and deposit), in
and to Borrower's interest in all books, records, reports, computer
tapes, computer disks and software relating to all or any portion of
the Collateral, including, without limitation, Borrower's reservation
system for use of the Time-Share Project;
(vii) A first priority lien (pledge and deposit) in and to the
Personal Property, together with the cash and non-cash proceeds
thereof, with appropriate non-disturbance language relating to common
area equipment, fixtures and furniture;
(viii) To the extent allowed under Mexican law, an absolute and
unconditional first assignment or pledge of any and all leases,
subleases, licenses, concessions, entry fees, or other agreements
which grant a possessory interest in and to, or the right to use the
Time-Share Project or any portion thereof (collectively, the "Tenant
Leases");
(ix) An absolute and unconditional first assignment or pledge of
all of the rents, revenues, income, proceeds, royalties, profits and
other benefits payable for using, leasing, licensing, possessing,
operating from or in, or otherwise enjoying the Time-Share Project
pursuant to the Tenant Leases, including, without limitation, damages
received upon the occurrence of a default under any of the Tenant
Leases and all proceeds payable under any policy of insurance covering
loss of rents with respect thereto;
(x) To the extent allowed under Mexican law, an absolute and
unconditional first assignment or pledge of all other agreements to
which Borrower is or becomes a party or holds any interest therein and
which in any way relate to the use, occupancy, management, marketing,
maintenance or enjoyment of the Time-Share Projects, including, but
not limited to, the Operating Agreement, purchase contracts, and
related documents, building permits, construction contracts,
completion bonds, utility contracts, maintenance agreements, marketing
and sales agreements, management agreements and service contracts, and
any agreement guaranteeing the performance of the obligations
contained in any of the foregoing agreements, and in and to all
related accounts and proceeds and all deposits, letters of credit or
other property pledged or delivered pursuant thereto;
(xi) A first priority security interest in all inventory,
supplies, accounts, chattel paper and general intangibles owned or
hereafter acquired by Borrower, used or useful in connection with, and
placed or to be placed on or under the Time-Share Project and the cash
and non-cash proceeds thereof;
2
<PAGE>
(xii) A first priority security interest in all furniture,
appliances, furnishings, machinery, plumbing, heating, ventilating,
air conditioning systems, fixtures and equipment owned or hereafter
acquired by Borrower, used or useful in connection with, and placed or
to be placed on or under the Time-Share Project, the Units, the
Time-Share Interests and the cash and non-cash proceeds thereof;
(xiii) The first priority assignment of Borrower's interest in
the Declaration, to the greatest extent permitted under Mexican law.
"'Declaration' shall mean, collectively, with respect to the Club
Regina Resort at Puerto Vallarta, the Declaration of Property Regime and
its Regulations, formalized in public deed number 11,924, dated August 8,
1997, recorded in the Public Registry of Property in the City of Puerto
Vallarta, Mexico, with respect to the Club Regina Resort at Los Cabos, the
Declaration of Property Regime and its Regulations, formalized in public
deed number 34708, dated August 12, 1997, recorded in the Public Registry
of Property in the City of San Jose del Cabo, Mexico, with respect to the
Club Regina Resort at Cancun, the Declaration of Property Regime formalized
in public deed number 10973, dated August 11, 1997, recorded in the Public
Registry in the city of Cancun, Mexico, and the Declaration of Property
Regime hereafter created as to the Acapulco Project.
"'First Amendment' shall mean that certain Amendment No. 1 to First
Amended and Restated Loan and Security Agreement by and between Lender and
Borrower, dated as of the First Amendment Closing Date."
"'First Amendment Closing Date' shall mean November 30, 1999."
"'Guaranty Trusts' shall mean collectively (i) with respect to the
Club Regina Resort at Los Cabos, that certain Irrevocable Trust Agreement,
dated as of August 18, 1997, by and between Desarrollos Turisticos
Integrales, S. de R.L. de C.V., a Mexican limited responsibility
corporation with variable capital (predecessor-in-interest to CR Cabos)
both as trustor and beneficiary with respect to the Trust Use Rights, the
Land Trustee, as trustee, and Residual Beneficiary, as beneficiary with
respect to the Trust Residual Interest, as evidenced by Public Instrument
No. 55,929, as amended by that certain Amendment to Irrevocable Trust
Agreement, dated as of November 28, 1997, by and between CR Cabos, Land
Trustee and Residual Beneficiary, as evidenced by Public Instrument No.
51,158, as further amended by that certain Amendment to Irrevocable Trust
Agreement dated as of March 3, 1998 by and between CR Cabos, Land Trustee
and Residual Beneficiary, as evidenced by Public Instrument No. 51,403, and
as further amended by that certain Amendment to Irrevocable Trust Agreement
(Convenio Modificatorio del Contrato de Fideicomiso Irrevocable) dated as
of April 26, 1999, as evidenced by Public Instrument No. 67,620 of Notary
Public Number 103 for the Federal District of Mexico, executed by Land
Trustee, as Trustee, CR Cabos, as beneficiary with respect to the Trust Use
Rights, Lender, as beneficiary in guaranty with respect to the Trust Use
Rights and Residual Beneficiary, as beneficiary with respect to the Trust
Residual Interest, as it may be from time to time renewed, amended,
restated or replaced, (ii) with respect to the Club Regina Resort at
Cancun, that certain Irrevocable Trust Agreement, dated as of August 18,
1997, by and between Promotora Turistica Nizuc, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital
(predecessor-in-interest to CR Cancun) both as trustor and beneficiary with
respect to the Trust Use Rights, the Land Trustee, as trustee, and Residual
Beneficiary as beneficiary with respect to the Trust Residual Interest, as
evidenced by Public Instrument No. 55,928, as amended by that certain
Amendment to Irrevocable Trust Agreement, dated as of November 28, 1997, by
and between CR Cancun, Land Trustee and Residual Beneficiary, as evidenced
by Public Instrument No. 51,162, as further amended by that certain
Amendment to Irrevocable Trust Agreement dated as of March 3, 1998, by and
between CR Cancun, Land Trustee and Residual Beneficiary, as evidenced by
Public Instrument No. 51,404, and as further amended by that certain
Amendment to Irrevocable Trust Agreement (Convenio Modificatorio del
Contrato de Fideicomiso Irrevocable) dated as of April 26, 1999, as
evidenced by Public Instrument No. 67619 of Notary Public Number 103 for
the Federal District of Mexico, executed by Land Trustee, as Trustee, CR
Cancun, as beneficiary with respect to the Trust Use Rights, Lender, as
beneficiary in guaranty with respect to the Trust Use Rights and Residual
Beneficiary, as beneficiary with respect to the Trust Residual Interest, as
it may be from time to time renewed, amended, restated or replaced, (iii)
with respect to the Club Regina Resort at Puerto Vallarta, that certain
Irrevocable Trust Agreement, dated as of August 18, 1997, by and between
3
<PAGE>
Promotora y Desarrolladora Pacifico, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital (predecessor-in-interest
to CR Puerto Vallarta), both as trustor and beneficiary with respect to the
Trust Use Rights, the Land Trustee, as trustee, and Residual Beneficiary,
as beneficiary with respect to the Trust Residual Interest, as evidenced by
Public Instrument No. 55,927, as amended by that certain Amendment to
Irrevocable Trust Agreement, dated as of November 28, 1997, by and between
CR Puerto Vallarta, Land Trustee and Residual Beneficiary as evidenced by
Public Instrument No. 51,159, as further amended by that certain Amendment
to Irrevocable Trust Agreement dated as of March 3, 1998 by and between CR
Puerto Vallarta, Land Trustee and Residual Beneficiary, as evidenced by
Public Instrument No. 51,405, and as further amended by Amendment to
Irrevocable Trust Agreement (Convenio Modificatorio del Contrato de
Fideicomiso Irrevocable) dated as of April 26, 1999, as evidenced by Public
Instrument No. 67,618 of Notary Public Number 103 for the Federal District
of Mexico, executed by Land Trustee, as Trustee, CR Puerto Vallarta, as
beneficiary with respect to the Trust Use Rights, Lender, as beneficiary in
guaranty with respect to the Trust Use Rights, and Residual Beneficiary, as
beneficiary with respect to the Trust Residual Interest, as it may be from
time to time renewed, amended, restated or replaced; and (iv) with respect
to the Acapulco Project, that certain Irrevocable Trust Agreement (El
Contrato de Fideicomiso Irrevocable) dated as of November 30, 1999, as
evidenced by Public Instrument No. ____ of Notary Public Number
________________ for the Federal District of Mexico, executed by Land
Trustee as trustee, Promotora, both as trustor and as beneficiary with
respect to the Trust Use Rights, Lender, as beneficiary in guaranty with
respect to the Trust Use Rights, and Residual Beneficiary, as beneficiary
with respect to the Trust Residual Interest, and Villa Vera, as it may from
time to time be renewed, amended, restated or replace. The term Guaranty
Trust shall mean any of the Guaranty Trusts."
"'Improvements' shall mean any of the Units or any amenities,
improvements, common areas, buildings or other structures which are located
on any of Club Regina Resort at Cancun, Club Regina Resort at Puerto
Vallarta, Club Regina Resort at Los Cabos or the Acapulco Project, or that
constitute either Trust Residual Interest or the Trust Use Rights."
"'Instrument' shall mean a purchase money promissory note which has
arisen out of a sale of a Time-Share Interest by Borrower to a Purchaser,
and is made payable by such Purchaser in favor of one of CR Cabos, CR
Cancun, CR Puerto Vallarta, Promotora, Villa Vera or a predecessor in
interest thereto."
"'Inventory Collateral' shall mean the Trust Use Rights and all other
property and property rights of a Borrower (whether real or personal) which
have been conveyed to Land Trustee for the benefit of Lender as a
beneficiary in guaranty under the Guaranty Trusts."
"'Permitted Encumbrances' shall mean the rights, restrictions,
reservations, encumbrances, easements and liens of record which Lender has
agreed to accept as set forth in Exhibit B of the Original Loan Agreement
and as set forth in Exhibit A of the First Amendment (as to the Acapulco
Project)."
"'Personal Property' all equipment, furniture, furnishings, inventory,
supplies, accounts, chattel paper and general intangibles at any time
located at, arising out of the use of and/or used in connection with the
operation of the Time-Share Project, together with the cash and non-cash
proceeds thereof."
"Pledge Agreement' shall mean individually and collectively, that
certain Security Agreement dated as of November 23, 1998, between
Receivables Trustee and Lender, pursuant to which Receivables Trustee has
granted to Lender a security interest in the Receivables Collateral owned
by Receivables Trustee under the Club Regina Trust I and Club Regina Trust
II, as amended by that certain First Amendment to Security Agreement dated
as of April 23, 1999, between Receivables Trustee and Lender, pursuant to
which Receivables Trustee has granted to Lender a security interest in the
Receivables Collateral owed by Receivables Trustee under the Club Regina
Trust III, and as further amended by that certain Second Amendment to
Security Agreement dated of even date with the First Amendment between
Receivables Trustee and Lender, as security for Borrower's payment and
Performance of the Obligations and as security for Receivables Trustee's
Performance of Receivables Trustee's obligations under such Pledge
Agreement and in form and substance acceptable to Lender in its discretion,
as it may be from time to time renewed, amended, restated or replaced."
4
<PAGE>
"'Resort Property' shall mean, as the context requires, either the
Club Regina Resort at Cancun, the Club Regina Resort at Los Cabos, the Club
Regina Resort at Puerto Vallarta or the Acapulco Project."
"'Title Policy' shall mean a Lender's policy or policies of title
insurance in the amount of Sixteen Million Five Hundred Thousand Dollars
($16,500,000) issued by the Title Insurer and in form and substance and
accompanied by such endorsements (including without limitation, a
"concurrent policy endorsement" and a "last-dollar-out endorsement")
satisfactory to Lender wherein the insured instrument shall be the Guaranty
Trusts, which Title Policy shall assure Lender that the Trust Use Rights
are contained within the applicable Guaranty Trust subject only to the
Permitted Encumbrances and which Title Policy shall further assure the
Lender that it is a beneficiary in guaranty with respect to the Trust Use
Rights under each of the Guaranty Trusts."
2.2 Corporate Status. Paragraph 5.1 of the Original Loan Agreement shall be
amended by adding a subparagraph 5.1.8 and 5.19 thereof reading as follows:
"5.1.8 Corporate Existence. Villa Vera 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,
subject to Borrower's compliance with paragraph 9.1 of the First Amendment,
is authorized to do business in the state of Guerrero, Mexico and in each
jurisdiction where Villa Vera 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. Subject to Borrower's
compliance with paragraph 9.1 of the First Amendment, Villa Vera has full
power and authority to carry on its business and own its property.
5.1.9 Corporate Existence. Promotora 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,
subject to Borrower's compliance with paragraph 9.1 of the First Amendment,
is authorized to do business in the state of Guerrero, Mexico and in each
jurisdiction where Promotora 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. Subject to Borrower's compliance with
paragraph 9.1 of the First Amendment, Promotora has full power and
authority to carry on its business and own its property."
2.3 Assessments and Reserves. Paragraph 5.13 of the Original Loan Agreement
shall be amended by amending and restating subsection (a) thereof to read as
follows:
"5.13 (a) Subject to Borrower's compliance with paragraph 9.1 of the
First Amendment as to the Acapulco Project, CR Cabos, CR Cancun, CR Puerto
Vallarta, Promotora or Villa Vera, as appropriate, has authority to levy
annual assessments to cover the costs of maintaining and operating the
Time-Share Project with respect to the Time Share Project to which it holds
the Trust Use Rights under the corresponding Guaranty Trust."
2.4 Title. Paragraph 5.14 of the Original Loan Agreement shall be amended
and restated in its entirety to read as follows:
"5.14 Title to and Maintenance of Common Areas and Amenities; Other
Title Matters. (a) The Land Trustee will at all times own, under the
applicable Guaranty Trust, 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. CR Cancun is lawfully seized of a good and
marketable title to the Inventory Collateral located at the Club Regina
Resort at Cancun. CR Puerto Vallarta is lawfully seized of a good and
marketable title to the Inventory Collateral located at Club Regina Resort
at Puerto Vallarta. CR Cabos is lawfully seized of a good and marketable
title to the Inventory Collateral located at the Club Regina Resort at Los
Cabos. Promotora is lawfully seized of a good and marketable title to the
5
<PAGE>
Inventory Collateral located at the Acapulco Project. CR Cancun is lawfully
seized of a good and marketable title to any insurance policies
constituting Receivables Collateral located at the Club Regina Resort at
Cancun. CR Puerto Vallarta is lawfully seized of a good and marketable
title to any insurance policies constituting Receivables Collateral located
at the Club Regina Resort at Puerto Vallarta. CR Cabos is lawfully seized
of a good and marketable title to any insurance policies constituting
Receivables Collateral located at the Club Regina Resort at Los Cabos.
Promotora is lawfully seized of a good and marketable title to any
insurance policies constituting the Receivables Collateral located at the
Acapulco Project. Cabos Sub and Puerto Vallarta Sub are lawfully seized of
a good and marketable title to the Receivables Trust Collateral. Puerto
Vallarta Sub, Cabos Sub, Cancun Sub and Promotora are lawfully seized of a
good and marketable title to the balance of the Receivables Collateral.
Borrower is lawfully seized of a good and marketable title to the balance
of the Collateral. The Collateral is free from liens, claims, restrictions
or encumbrances, except the Permitted Encumbrances. Borrower does hereby
warrant and shall forever defend the Collateral against the claims of all
persons whatsoever, subject however to the Permitted Encumbrances."
2.5 Restrictions on Liens or Transfers. Paragraph 6.2(c) of the Original
Loan Agreement, clause (iii) thereof, shall be amended by deleting the words
"section 4.08" and substituting therefor the words "section 4.08 or section
4.10."
2.6 Schedule.
2.6.1. Section S.3 of the Schedule is hereby amended by amending and
restating the following subparagraph as follows:
"(d) 1. Inventory Loan Borrowing Term Expiration Date: December
31, 1999.
(e) 1. Inventory Loan Fee: One Hundred Ten Thousand Dollars
($110,000) paid under the Original Loan Agreement and Thirty Thousand
Dollars ($30,000) paid under the First Amendment.
(f) 1. Inventory Loan Maturity Date: June 30, 2001.
(g) 1. Inventory Loan Opening Prepayment Date: The date which is
twelve (12) months from the First Amendment Closing Date.
(j) 1. Maximum Loan Amount: The lesser of (i) Thirty-Four Million
Dollars ($34,000,000) or (ii) the maximum amount of Indebtedness (as
defined in the Indenture) that Borrower and Guarantor may incur under
the Indenture, taking into account the amount of any other
Indebtedness then owed by Borrower, Guarantor or any Restricted
Subsidiary (as defined in the Indenture), which, by virtue of its
amount or nature, is restricted by the Indenture.
(k) 1. Maximum Inventory Loan Amount: Sixteen Million Five
Hundred Thousand Dollars ($16,500,000).
(q) 1. Receivables Loan Opening Prepayment Date: The date which
is two (2) years from the First Amendment Closing Date.
(v) 1. Time Share Project: Club Regina Resort at Los Cabos, Club
Regina Resort at Puerto Vallarta, Club Regina Resort at Cancun and the
Acapulco Project.
(x) 2.9(a) Payment of Inventory Loan Fee: The Inventory Loan Fee
payable in connection with the Original Loan Agreement was payable in
full in the earlier of April 15, 1999 or concurrently with the first
Advance of the proceeds of the Inventory Loan. The Inventory Loan Fee
payable in connection with the First Amendment shall be payable in
full on the First Amendment Closing Date or, in the event the
transaction is evidenced by the First Amendment fails to close, upon
demand, in consideration of Lender's holding itself ready, willing and
able to amend the Original Loan Agreement upon the terms and
conditions set forth in the First Amendment. The Inventory Loan Fee
due in connection with the First Amendment may be withheld from the
proceeds of any Advance."
2.6.2. Section S.3(ee) of the Schedule shall be amended by adding a
subsection (8) and (9) thereof reading as follows:
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"(8) Villa Vera: A Mexican limited responsibility corporation
with variable capital.
(9) Promotora: A Mexican limited responsibility corporation with
variable capital."
2.6.3. Section S.3(ff) of the Schedule shall be amended by adding a
subsection (8) and (9) thereof reading as follows:
"(8) Villa Vera: Mexico.
(9) Promotora: Mexico."
2.6.4. Sections S.3(gg) and (hh) of the Schedule shall be amended by
adding a subsection (8) and (9) thereof reading
as follows:
"(8) Villa Vera: Boulevard Adolfo Ruiz Cortinez No. 3642 P.B. y
Piso 7 Col. Jardines del Pedregal C.P. 01900, Mexico DF
(9) Promotora: Boulevard Adolfo Ruiz Cortinez No. 3642 P.B. y
Piso 7 Col. Jardines del Pedregal C.P. 01900, Mexico DF"
2.6.5. Section S.4 of the Schedule, before giving affect to this
Amendment, shall be applicable with respect to all Time-Share Interests
sold prior to November 1, 1999. With respect to all Time-Share Interests
sold on or after November 1, 1999, Section S.4 of the Schedule is hereby
amended and restated in its entirety to read as follows:
"S.4 No later than the fifteenth day of each month, Borrower
shall make to Lender a payment (the "Interval Sales Payment") in the
amount of Three Thousand Two Hundred Thirty Four and 30/100 Dollars
($3,234.30) (or One Thousand Six Hundred Seventeen and 15/100 Dollars
$1,617.15) with respect to a particular Time-Share Interest that
entitles a Purchaser to occupy a Unit every other calendar year), for
each Time-Share Interest sold during the immediately previous calendar
month. Lender shall have the right to make a draw upon the Receivables
Loan in order to make such Interval Sales Payments or in order to make
any other payments required under the Inventory Loan Note in the event
such payments are not made by Borrower in a timely fashion. Interval
Sales Payments shall be applied to the unpaid principal balance of the
Inventory Loan. In consideration of the payment by Borrower to Lender
of an Interval Sales Payment with respect to a particular Time-Share
Interest, Lender agrees to grant nondisturbance rights in favor of the
Purchaser of such Time-Share Interest more fully provided in the
Guaranty Trusts.
2.7. Eligibility. Exhibit A (Conditions of Eligible Instrument) to the
Original Loan Agreement shall be amended by amending and restating
subparagraph (l) and by amending and restating the introductory portion of
subparagraph (o) to read as follows:
"(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 Receivables Trustee in
the Receivables Trust. In all other circumstances, the Instrument is
owned by Cancun Sub, Cabos Sub, Puerto Vallarta Sub or Promotora.
(o) The Instruments contained within the Club Regina Trust II
shall contain language substantially similar to the following:"
2.8 Certain Exhibits. Exhibit C (Borrower's Certificate), Exhibit E-1
(Request for Receivables Loan Advance and Certification), Exhibit E-2
(Receivables Assignment) and Exhibit F (Request for Inventory Loan Advance
and Certification) to the Original Loan Agreement shall be amended and
restated in their entirety by substituting in lieu thereof, those forms of
Exhibits B, C, D and E, respectively, attached to this Amendment.
3. Advances. Subject to the satisfaction of all conditions precedent
to the making of Advances set forth in the Original Loan Agreement and in
this First Amendment, including without limitation, the conditions set
forth in paragraph 4.2(b) of the Original Loan Agreement, the proceeds of
the Inventory Loan to be advanced to the Borrower pursuant to this
Amendment shall be advanced to Borrower on the First Amendment Closing
Date. The initial Advance shall be in the amount of Seen Million Fifteen
Thousand Five Hundred Thirty-four and 24/100 United States Dollars (U.S.
$7,015,534.24), calculated in the manner set forth on the spreadsheet
attached hereto as Exhibit F. The sum of One Hundred Twenty Thousand
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Dollars ($120,000) shall be advanced to Borrower after such time as
Borrower demonstrates to Lender that those amounts owed to the contractors
described in the attached Exhibit G have been paid by Borrower,
substantiated by evidence acceptable to Lender, and Lender is otherwise
satisfied that all renovation activity performed by Promotora or its
Affiliates at the Acapulco Project has been completed and all costs
incurred in connection therewith have been paid. The proceeds of such
Advance shall be used by Promotora (i) to complete Promotora's purchase of
the Acapulco Project from Bancomer, S.A., by paying all amounts due and
owing by Promotora to Bancomer, S.A., in connection with such acquisition,
pursuant to that certain Contrato de Promesa de Compraventa Sujeta a
Condicion Resolutoria between Bancomer, S.A., and CR Puerto Vallarta dated
May 4, 1998, as amended by that certain Convenio Modificatorio among
Bancomer, S.A., Promotora and CR Puerto Vallarta dated July 29, 1999, (ii)
to pay loan closing costs, including the Inventory Loan Fee due in
connection with this Amendment, (iii) to establish an interest reserve (in
addition to the interest reserve established under paragraph 2.4 of the
Original Loan Agreement) in the amount of Eight Hundred Eighty Seven
Thousand United States Dollars (U.S. $887,000) and (iv) for acquisitions,
development, working capital and repayment of existing obligations. The
aforementioned interest reserve shall be used by Lender to pay interest on
the Inventory Loan, as and when payable, and shall not accrue interest
until such reserves are drawn upon. Following the exhaustion of said
interest reserve and the interest reserve established under paragraph 2.4
of the Original Loan Agreement, interest on the Inventory Loan shall be
paid by Borrower from Borrower's internally generated cash or from other
sources. Notwithstanding the provisions of paragraph 2.2 of the Original
Loan Agreement which provide in part that Borrower does not have the right
to obtain Advances of the Inventory Loan as to any portion of the Inventory
Loan that has been previously repaid, those payments received by Lender
between August 6, 1999 and the First Amendment Closing Date shall be
available to Borrower to reborrow on the First Amendment Closing Date to
the extent necessary to create sufficient loan proceeds to fully fund the
amount of the Advance described in this paragraph.
[Remainder of Page Intentionally Left Blank]
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4. Assumption. Each of Villa Vera and Promotora has read all of the
Loan Documents and is fully familiar with their contents. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, EACH OF VILLA VERA AND PROMOTORA HAS
REVIEWED THE PROVISION OF PARAGRAPHS 9.11, 9.12 AND 9.13 OF THE ORIGINAL
LOAN AGREEMENT AND, BY INITIALING BELOW, ACKNOWLEDGES THAT THE FOREGOING
PROVISIONS ARE MATERIAL INDUCEMENTS FOR LENDER'S MAKING ADVANCES TO FOR THE
BENEFIT OF PROMOTORA AND VILLA VERA. Villa Vera and Promotora assumes the
obligation to pay and perform and hereby agrees to pay and perform, on a
joint and several basis with each other and the Original Borrowers, all of
the covenants of the Original Borrowers contained in the Loan Documents and
all of the Obligations, as if Villa Vera and Promotora were an original
party to the Loan Documents. In addition, except as otherwise provided in
this Amendment, each of Villa Vera and Promotora adopts, ratifies and makes
as its own (as if Villa Vera and Promotora were an original party to the
Loan Documents) and each Original Borrower hereby remakes and reaffirms,
each representation and warranty of the Original Borrowers contained in the
Loan Documents, each power of attorney appointment contained in the Loan
Documents and each grant of a lien security interest or assignment of
rights or privileges made by the Original Borrowers in the Loan Documents,
all of which shall run to the benefit of Lender. Each Original Borrower
agrees that all of the covenants of Villa Vera and Promotora contained in
the Loan Documents (as amended by this Amendment) and each of the
Obligations of Villa Vera and Promotora shall constitute joint and several
covenants and obligations of each of the entities constituting the Original
Borrowers.
VillaVera's and Promotora's initials
as to paragraphs 9.11 through 9.13 of
the Original Loan Agreement ______
[Remainder of Page Intentionally Left Blank]
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5. Fees and Expenses. Borrower shall pay to Lender on demand all out
pocket costs and expenses incurred or to be incurred by Lender or its
counsel in connection with the initiation, documentation and closing of
this Amendment and the making of Advances hereunder, including, without
limitation, travel costs, all attorneys', notarys' and trustees' fees and
expenses, any brokerage or similar fees, all filing and recording fees, all
charges for consumer credit reports and all revenue and documentary stamp,
intangible or other taxes. The foregoing fees and expenses may be withheld
from the proceeds of any Advance.
6. References. All references in the Loan Agreement to "this
Agreement" shall be deemed to refer to the Original Loan Agreement as
amended through the date hereof, and all references in any other Loan
Document to the Original Loan Agreement shall be deemed to refer to the
Original Loan Agreement as amended through the date hereof.
7. No Other Changes. Except as expressly amended by this Amendment,
all of the terms and conditions of the Original Loan Agreement shall remain
in full force and effect and shall apply to any Advance thereunder.
8. Conditions Precedent. This Amendment will not be effective unless
and until each of the following conditions precedent have been satisfied,
in form, manner and substance satisfactory to Lender prior to the First
Amendment Closing Date:
(a) Loan Documents. Borrower shall have delivered to Lender or
caused to be delivered to Lender the following which shall be duly
executed and delivered and in form and substance satisfactory to
Lender, not later than the First Amendment Closing Date:
(i) this Amendment;
(ii) a First Amended and Restated Receivables Promissory
Note, in the original principal amount of Twenty Million United
States Dollars (U.S. $20,000,000);
(iii) a First Amended and Restated Inventory Promissory
Note, in the original principal amount of Sixteen Million Five
Hundred Thousand United States Dollars (U.S. $16,500,000), which
shall include, among other things, a revised principal
amortization schedule;
(iv) an Environmental Certificate and Indemnity Agreement
with respect to the Acapulco Project;
(iv) a Consent of Guarantor and Amendment No. 2 to Corporate
Guarantee and Subordination Agreement from the Required Guarantor
which shall include, among other things, an amendment of the net
worth covenant contained in the Guaranty;
(v) a commitment from the Title Insurer to issue the Title
Policy, as redefined by this Amendment;
(vi) UCC financing statements for filing and/or recording,
as appropriate, where necessary to perfect the security interests
in the Collateral;
(vii) a favorable opinion or opinions (or at Lender's
election, reaffirmations of the previous opinions delivered to
Lender under the Original Loan Agreement) from each of Andrews &
Kurth; Battle Fowler LLP; Lewis and Roca LLP; Santamarina y Steta
and Creel, Garcia Cuellar y Muggenburg, which opinions shall
cover such matters as Lender may reasonably require;
(viii) a favorable comfort letter from Gallastegui y Lozano;
(ix) those consents which Lender requires the Borrower to
obtain, or which Borrower is contractually or legally obligated
to obtain, from others in connection with the transaction
contemplated by this Amendment;
(x) an amendment to the Guaranty Trusts executed in
connection with the Original Loan Agreement together with an
additional Guaranty Trust with respect to the Acapulco Project;
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(xi) a Second Amendment to Assignment of Contracts and
Intangibles, Licenses and Permits;
(xii) a Second Amendment to Security Agreement;
(xiii) a Second Amendment to Lockbox Agreement;
(xiv) a Second Amendment to Oversight and Agency Agreement;
(xv) a Second Amendment to Servicing Agreement;
(xvi) a Second Amendment to Custodial Agreement; and
(xvi) such other documents as Lender may reasonably require
to effect the intent and purposes of this Amendment;
(b) Organizational, Time-Share Project and Other Due Diligence
Documents. Borrower shall have delivered to Lender prior to the First
Amendment Closing Date:
(i) the Articles of Organization of Villa Vera and Promotora
together with a certification from the appropriate officer of
each of the Original Borrower certifying that the Articles of
Organization delivered to Lender in connection with the Original
Loan Agreement have not been amended in any respect or if
amendments have occurred, certifying as to the accuracy of such
amendments which shall be attached to the Certificate;
(ii) satisfactory evidence that the Required Guarantor is in
compliance with the Indenture after giving effect to the
indebtedness to be incurred pursuant to the Original Loan
Agreement as amended through the date hereof and after giving
effect to the indebtedness which, as of the date hereof, Borrower
is contemplating incurring with Textron Financial Corporation and
Bancomer, S.A.;
(iii) satisfactory evidence that upon the registration of
the Guaranty Trust with respect to the Acapulco Project and
compliance by Borrower with the provisions of paragraph 9.1
hereof, all Units within the Acapulco Project shall have been
converted to time-share use;
(iv) satisfactory evidence that the Required Guarantor will
have sufficient liquidity (either in the form of a funded loan
facility, equity infusion or committed loan facility with
conditions of closing satisfactory to Lender) to enable the
Required Guarantor to timely make the interest payment due on
December 1, 1999 under the Indenture;
(v) satisfactory evidence that all renovation activity
performed by Promotora or its Affiliates at the Acapulco Project,
including the necessary renovations to the spa, have been
completed and that all costs incurred in connection therewith
have been paid. Such evidence shall include a letter from the
contractor performing such renovation activity acknowledging
payment in full of all amounts owed to him in connection with
such activity. As to any renovation costs that have not been
paid, Lender shall be authorized to withhold the amount of such
unpaid costs from Advances made under the Loan Agreement;
(vi) an accounts payable aging schedule dated no later than
ten (10) days prior to the First Amendment Closing Date
demonstrating that Borrower's and Required Guarantor's accounts
payable have not significantly further aged from the September
14, 1999 aging schedule presented to Lender;
(vii) resolutions of each Borrower (or valid effective
powers of attorney), of any and all Required Guarantors and (if
any), of other sureties for the Obligations and, if applicable,
of their respective managers, members and partners, to the extent
any such entity is not a natural person, authorizing the
execution and delivery of the Amendment and the documentation
anticipated hereby, the transactions contemplated hereby and such
other matters as Lender may require;
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(viii) evidence of good standing for Required Guarantor from
the state of its organization and evidence that Borrower and
Required Guarantor have obtained all approvals, consents and
business licenses which are necessary to enable each of them, as
applicable, to execute the Amendment and the documentation
contemplated hereby, consummate the Inventory Loan and
Receivables Loan, contemplated by the Amendment and operate
within Mexico;
(ix) satisfactory evidence that all taxes and assessments on
the Acapulco Project due and payable as of the First Amendment
Closing Date have been paid;
(x) a survey of the Acapulco Project in form and substance
satisfactory to Lender and the Title Insurer;
(xi) all permits, licenses, approvals and certificates for
the occupancy, use and operation of the Acapulco Project for
time-share and other intended uses and for the sale of Time-Share
Interests, including any necessary architectural committee
approvals;
(xii) satisfactory evidence of access to and parking for the
Acapulco Project adequate for time-share and hotel uses;
(xiii) a copy of all marketing contracts, management
contracts, service contracts, operating agreements, equipment
leases, space leases and other agreements pertaining to the
Acapulco Project and which are necessary for the sale, operation
and intended time-share use of the Acapulco Project and are not
otherwise required pursuant to another item in this paragraph;
(xiv) satisfactory evidence that each owner of a Time-Share
Interest in the Acapulco Project 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; and
(xv) satisfactory evidence that upon the initial Advance of
the Inventory Loan made pursuant to this Amendment, Villa Vera
and Promotora will have good and marketable title to the Acapulco
Project and to the balance of the Collateral to be pledged to
Lender by Villa Vera and Promotora. 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 (subject only to the filing of the Guaranty Trusts (or
amendments thereof, as applicable) with the appropriate public
registries) and that there are no other legal charges or security
interests filed against the Collateral.
(xvi) the agreement, in a form satisfactory to Lender,
pursuant to which Promotora has conveyed to CR Puerto Vallarta
the Time-Share Interest arising from the Acapulco Project.
(c) Environmental Conditions. Lender shall be satisfied with the
environmental condition of the Acapulco Project.
(d) Transfer Fees. Lender shall have received in form and
substance satisfactory to Lender, evidence of payment of transfer fees
and taxes (if applicable) assessed by applicable governmental
authorities in connection with the purchase of the Acapulco Project
and the registration of the Guaranty Trusts (or of the amendments
thereof, as applicable).
(e) 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.
A member of Lender's credit committee shall have inspected the
Acapulco Project and shall be satisfied with the results of such
inspection.
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(f) Organizational Structure. Lender shall be satisfied with the
organizational structure of Villa Vera and Promotora.
(g) Broker. If the services of a broker have been utilized by
Borrower to arrange the Receivables Loan or the Inventory Loan to
Promotora and Villa Vera, 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.
(h) Affiliation. Lender has received evidence satisfactory to it
that the Acapulco Project is affiliated with either Resort Condominium
International or Interval International and is in good standing with
such exchange companies.
(i) Marketing Agreements. Lender shall have received and approved
all management and marketing agreements pertinent to the Acapulco
Project (which shall be collaterally assigned to Lender pursuant to
the CILP Assignment) and which agreements shall be terminable at
Lender's option upon an Event of Default.
(j) Time-Share Matters. Lender shall have (i) received and
approved the Time-Share Program Consumer Documents used to sell the
Time-Share Interests at the Acapulco Project, (ii) received legal
opinions in form and substance and from counsel satisfactory to Lender
as to the sufficiency and enforceability of such Time-Share Program
Consumer Documents and as to such other matters concerning such
Time-Share Program Consumer Documents as Lender shall require, (iii)
received evidence that Borrower has obtained the Minimum Required
Time-Share Approvals conditioned solely upon the delivery to PROFECO
of (A) the public deed conveying the Acapulco Project to the
applicable Guaranty Trust and (B) a copy of the insurance policy
evidencing the maintenance by the Borrower of necessary insurance
coverage as to the Acapulco Project.
(k) Lot 16. Lender is satisfied with the agreements that have
been reached between Promotora and Bancomer, S.A. concerning the lot
or lots within the Acapulco Project that were not included within
Bancomer's original adjudication and Lender has the benefit of those
agreements.
(l) Default. There shall not then exist an Incipient Default or
an Event of Default.
(m) Representations and Warranties. All the representations and
warranties of the Borrower and Required Guarantor in the Loan
Documents shall be true and correct, in all material respects, before
and after giving effect to the making of this Amendment.
(n) Costs. Borrower shall have paid all closing costs, recording
fees and taxes, appraisal fees and expenses, travel expenses, fees and
expenses of Lender's counsel, and all other costs and expenses
incurred by Lender in connection with the preparation of, closing of
and disbursement of the advances pursuant to this Amendment, which
costs, fees and expenses may be payable from the first advance made
pursuant to this Amendment.
(o) Material Adverse Change. There has occurred no material
adverse change in the business, operations, profits or prospects of
Borrower or Required Guarantor or on the condition of Borrower's or
Required Guarantor's assets from and after the date of the last
financial statements of Borrower or Required Guarantor submitted to
Lender.
9. Covenants and Representations.
9.1 Borrower agrees to deliver those items listed in paragraph 8(j)
hereof to PROFECO and obtain all necessary time-share approvals from the
State of Guerrero, no later than the earlier of (i) the first Advance of
any proceeds of the Receivables Loan against Eligible Instruments arising
from the Acapulco Project or (ii) January 31, 2000;
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9.2 Borrower agrees to diligently enforce all of the obligations owed
by Bancomer, S.A. to Promotora and Villa Vera as the seller of the Acapulco
Project. At such time as Bancomer, S.A. has acquired title to the Lot 16
(as hereinafter identified), Borrower shall immediately thereafter acquire
the same from Bancomer, S.A. and thereafter convey the same into the
applicable Guaranty Trust. Borrower shall thereafter use its diligent and
best efforts to obtain a perpetual ingress and egress easement over Paso
Privado and shall cause such easement to be conveyed into the applicable
Guaranty Trust. For purposes thereof, "Lot 16" shall mean that parcel of
property between Polygon E and Paso Privado as reflected on the survey of
the Acapulco Project delivered to Lender pursuant to Paragraph 8(b)(x);
9.3 Promptly upon written request, the Borrower shall, and shall
likewise cause Remainder Company and the Land Trustee to execute, further
amendments to those Guaranty Trusts executed in connection with the
Original Loan Agreement so as to include within the text of such Guaranty
Trusts, any language that was contained in the final version of such trusts
but which was not included within the public instrument prepared by the
applicable Notary Public. Borrower shall thereafter promptly cooperate with
Lender in connection with the registration of such amendments. In
connection therewith, Borrower shall cause the Title Policy to be endorsed,
at the sole cost and expense of Borrower, to include such amendments within
Schedule A thereof and to assure Lender that such amendments remain in the
same priority as the original Guaranty Trusts. Promptly upon written
request, Borrower grant in favor of Lender a power of attorney sufficient
in form and substance under Mexican law for purposes of permitting Lender
to exercise all of power of attorney rights granted to Lender under the
Loan Documents. Furthermore, promptly upon written request, Borrower shall
grant in favor of Lender a first priority lien and security interest under
Mexican law on all furniture, furnishings, fixtures, machinery, equipment
and other related personal property, together with all contracts, permits,
licenses and approvals, located in or on or used in connection with the
Time-Share Project, in form and substance satisfactory to Lender. Borrower
shall not execute any documents or instruments relating to its contemplated
loan facilities with Textron Financial Corporation or Bancomer, S.A. in a
form that has not been approved by Lender.
9.4 Borrower agrees not to consent to the making of any amendments to
the loan agreement or other documents executed by Borrower with either of
Textron Financial Corporation or Bancomer, S.A. that would materially and
adversely affect Lender or be contrary to the express provisions of any
intercreditor agreement between Lender and either of the aforementioned
other lenders.
9.5 With respect to the Acapulco Project, Borrower warrants and
represents to Lender as follows, which representations and warranties shall
be deemed made and reaffirmed prior to the making of each Advance:
9.5.1 The Acapulco Project is zoned for time-share and other intended
uses and, subject to the provisions of paragraph 9.1 hereof, all approvals
required for such uses under any covenants, conditions and restrictions
have been obtained. The present use of the Acapulco Project will not
violate any existing bylaws, restrictions, covenants or regulations
affecting the Acapulco Project;
9.5.2 The Acapulco Project is not located within a flood prone area;
and
9.5.3 There exists current and reasonably anticipated continued
availability of utilities necessary to serve the Acapulco Project for
time-share and other intended uses.
10. Indebtedness Acknowledged. Borrower hereby ratifies, reaffirms,
acknowledges and agrees that the Loan Agreement and the other Loan
Documents represent valid, enforceable and collectable obligations of each
Borrower. Borrower acknowledges that the indebtedness evidenced by the Loan
Documents is just and owing and agrees to pay the indebtedness in
accordance with the terms of the Loan Documents. Borrower acknowledges that
as of the date hereof, it has (i) no defense (personal or otherwise),
counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender or as a basis to reduce or eliminate all or any part of
its liability to repay the Receivables Loan or the Inventory Loan and (ii)
no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations of Borrower under the Loan
Agreement or any of the other Loan Documents. Borrower further acknowledges
and represents that no Event of Default or Incipient Default has occurred
either before or after giving effect to this Amendment and the execution
and delivery of the First Amended and Restated Receivables Promissory Note
and the First Amended and Restated Inventory Promissory Note.
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11. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender
each of the representations, warranties, covenants and agreements of
Borrower as set forth in each of the Loan Documents with the same force and
effect as if each were separately stated herein and made as of the date
hereof. Borrower represents and warrants to Lender that, with respect to
the financing transaction herein contemplated, no person or entity is
entitled to any brokerage fee or other commission and Borrower agrees to
indemnify and hold Lender harmless against any and all such claims.
12. Ratification of Terms and Conditions. All terms, conditions and
provisions of the Loan Agreement, and of each of the other Loan Documents,
shall continue in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby or pursuant hereof. In the
event of any conflict between the terms and conditions of this Amendment
and any of the other Loan Documents, the provisions of this Amendment shall
control.
13. Other Writings. Lender and Borrower will execute such other
writings as may be necessary to confirm or carry out the intentions of
Lender and Borrower evidenced by this Amendment.
14. Benefit of this Amendment. The terms and provisions of this
Amendment and the other Loan Documents shall be binding upon and inure to
the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower shall not have any right to assign its rights
under this Amendment or any of the Loan Documents or any interest therein
without the prior written consent of Lender.
15. CHOICE OF LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED THEREIN,
THIS AMENDMENT AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HERETO
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.
16. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents as modified
by this Amendment embody the entire agreement and understanding between
Borrower and Lender, and supersede all prior agreements and understandings
between said parties relating to the subject matter thereof.
17. Counterparts. This Amendment may be executed in any number of
separate counterparts, all of which when taken together shall constitute
one and the same instrument, admissible into evidence, notwithstanding the
fact that all parties have not signed the same counterpart.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by Persons duly authorized on the day and year first
above written.
"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 de R.L. de C.V.,
a Mexican limited responsibility 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:
16
<PAGE>
PROMOTORA VILLA VERA, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
VILLA VERA RESORT, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
"LENDER" FINOVA CAPITAL CORPORATION, a Delaware
corporation
By:
Type/Print Name:
Title:
17
<PAGE>
EXHIBIT A
Permitted Encumbrance - Acapulco Project
1. Taxes which are not yet due and payable.
2. Proceedings by a public agency which may result in Taxes (taxes, interest,
actualization and penalties collectively referred to herein as "Taxes") or
assessments, or notice of such proceedings, including but not limited to
taxes derived out of the mergers and spin-offs associated with this
transaction, unless shown by the records of such agency or by the public
records.
3. No insurance afforded as to the exact square meters and/or acreage
contained in the land described herein.
4. Water rights or claims or title to water.
5. Any rights in favor of the public to use all or a portion of said land for
beach and/or recreational purposes, or any rights, interest or claims which
may exist or arise by reason of a portion of said land being used by the
public for access to and from the adjoining body of water known as the
Pacific Ocean.
6. Any adverse claim based upon the assertion that same portion of said land
is in tide or submerged land, or has been created by artificial means or
has accreted to said portion so created.
7. Survey entitled Levantamiento Topagrafico Hotel Villa Vera, Lomas del Mar
No. 35 Col. Condesa, Acapulco, Gro. Certified on November 17, 1999
pertaining to the real property known as the Hotel Villa Vera, Port-Town of
Acapulco, State of Guerrero, Mexico (the "Survey"). Said Survey shows the
following:
a. Encroachment of stairs along the west side of Lot 38 into
Brisas Del Mar;
b. Encroachment of a wall along the north side of the lot
known of Fraccion II onto the adjoining property;
c. Encroachment of the house, terrace and pool of the "Casa Julio" onto
the adjoining property
(Note: This exception will be omitted upon the successful
Adjudication by Bancomer of Lot 16 and subsequent transfer to owner);
d. Access road and right-of-way of third parties along the west side of
the lot known as "Polygon E"; and
e. Access and right-of-way of third parties over Calle Privada (also
known as the "Unnumbered Lot").
18
<PAGE>
EXHIBIT B
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. de R.L. de C.V., a
Mexican limited responsibility 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, Promotora Villa Vera,
S. de R.L. de C.V., a Mexican limited responsibility corporation with variable
capital and Villa Vera Resort, 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 First
Amended and Restated Loan and Security Agreement between Borrower and Lender
dated as of April 23, 1999, 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 de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
19
<PAGE>
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:
PROMOTORA VILLA VERA, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
VILLA VERA RESORT, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital.
By:
Type/Print Name:
Title:
20
<PAGE>
EXHIBIT C
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 First Amended and Restated
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. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
21
<PAGE>
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:
PROMOTORA VILLA VERA, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
VILLA VERA RESORT, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital.
By:
Type/Print Name:
Title:
22
<PAGE>
EXHIBIT D
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; U.S. Trust Company, National Association, as Trustee of
the Club Regina Trust III; 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. de
R.L. de C.V., a Mexican limited responsibility 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, CR Resorts Puerto Vallarta Timeshare Trust,
S. de R.L. de C.V., a Mexican limited responsibility corporation with variable
capital, Promotora Villa Vera, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital and Villa Vera Resort, 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 First Amended and Restated 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. de R.L. de
C.V., CR Resorts Cancun Timeshare Trust, S. de R.L. de C.V, CR Resorts Puerto
Vallarta Timeshare Trust, S. de R.L. de C.V., CR Resorts Cabos Timeshare Trust,
S. de R.L. de C.V., Promotora Villa Vera, S. de R.L. de C.V. and Villa Vera
Resort, S. de R.L. de C.V. as Borrower and FINOVA Capital Corporation as Lender
dated April 23, 1999, 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 CANCUN, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
23
<PAGE>
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. de R.L. de C.V., a
Mexican limited responsibility 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: PROMOTORA VILLA VERA, S. de R.L. de C.V.,
a Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
24
<PAGE>
WITNESS: VILLA VERA RESORT, 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:
WITNESS: U. S. TRUST COMPANY, NATIONAL ASSOCIATION, as
Trustee of the Club Regina Trust III
By:
Type/Print Name:
Title:
25
<PAGE>
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1999, 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:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1999, 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
________________________, 1999, 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:
26
<PAGE>
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
________________________, 1999, by _______________________________________, the
__________________________ of Corporacion Mexitur, 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
________________________, 1999, 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
____________________, 1999, 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:
27
<PAGE>
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1999, by _______________________________________, the
__________________________ 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.
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
____________________, 1999, by _______________________________________, the
__________________________ of Promotora Villa Vera, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital 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
____________________, 1999, by _______________________________________, the
__________________________ of Villa Vera Resort, 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:
28
<PAGE>
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1999, 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
____________________, 1999, 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:
STATE OF _____________ )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _____ day of
____________________, 1999, by _______________________________________, the
__________________________ of U. S. Trust Company, National Association, as
Trustee of the Club Regina Trust III, 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:
29
<PAGE>
SCHEDULE a
to assignment of instruments
Purchaser
Date
Original Principal
Amount Secured
30
<PAGE>
EXHIBIT E
REQUEST FOR INVENTORY LOAN ADVANCE
AND CERTIFICATION
The undersigned ("Borrower") requests FINOVA CAPITAL CORPORATION ("Lender")
to make an Inventory Loan Advance in the sum of ______________________________
UNITED STATES DOLLARS (U.S. $__________) upon receipt hereof, pursuant to the
First Amended and Restated Loan and Security Agreement between such parties
dated as of ____________________, 19___ (with any amendments, "Agreement").
Borrower hereby certifies to Lender that (i) the total aggregate number of
unsold Time-Share Interests as of the date hereof as __________; (ii) 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; (iii) all representations and
warranties contained in the Agreement are true and correct as of the date
hereof; (iv) neither an Event of Default nor an Incipient Default exists; and
(v) 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 de R.L. de C.V., a
Mexican limited responsibility 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
31
<PAGE>
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:
PROMOTORA VILLA VERA, S. de R.L. de C.V.,
a Mexican limited responsibility corporation
with variable capital
By:
Type/Print Name:
Title:
VILLA VERA RESORT, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital.
By:
Type/Print Name:
Title:
32
<PAGE>
EXHIBIT F
Spread Sheet
33
<PAGE>
EXHIBIT G
Amounts owed to Contractors
34
CONSENT OF GUARANTOR
AND AMENDMENT NO. 2 TO CORPORATE GUARANTEE
AND SUBORDINATION AGREEMENT
The undersigned, RAINTREE RESORTS INTERNATIONAL, INC., a Nevada corporation
("Guarantor"), hereby acknowledges that Guarantor executed and delivered to
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), a Corporate
Guarantee and Subordination Agreement dated as of November 23, 1998 (the
"Original Guarantee"), as amended by that certain Consent of Guarantor and
Amendment No. 1 to Corporate Guarantee and Subordination Agreement (the "First
Amendment" and together with the Original Guarantee, "Guarantee Agreement")
guaranteeing performance of the obligations of 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. de R.L. de C.V., a Mexican limited responsibility
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, "Original Borrower"), to Lender under the Agreement, the Note and the
Receivables Loan Documents (as the terms "Agreement," "Note" and "Receivables
Loan Documents" are defined in the Guarantee Agreement). All terms used herein
with initial capital letters, to the extent not otherwise defined in the
Guarantee Agreement or this Instrument, shall have the meanings given such terms
in the Agreement.
Guarantor hereby acknowledges that pursuant to the terms of that certain
Amendment No. 1 to First Amended and Restated Loan and Security Agreement
("Agreement Amendment No. 1") of even date herewith, Lender proposes to, inter
alia, (i) to increase the amount of the Inventory Loan from Thirteen Million
Five Hundred United States Dollars (U.S. $13,500,000) to Sixteen Million Five
Hundred United States Dollars (U.S. $16,500,000) (the "Increased Inventory
Loan"), (ii) make each of Promotora Villa Vera, S. de R.L. de C.V., a Mexican
limited responsibility corporation with variable capital ("Promotora") and Villa
Vera Resort, S. de R.L. de C.V., a Mexican limited responsibility corporation
with variable capital ("Villa Vera") additional borrowers and obligors under the
Receivables Loan Documents (as that term is redefined in the First Amendment),
(iii) to modify certain covenants contained in the Agreement, which covenants
include the pledging by Promotora and Villa Vera to Lender of certain real
property interests owned by Promotora and Villa Vera, and (iv) to increase the
Maximum Loan Amount from Thirty Two Million United States Dollars (U.S.
$32,000,000) to Thirty Four Million United States Dollars ($34,000,000), subject
to certain limitations imposed by the Indenture.
Guarantor further acknowledges that (i) the Increased Inventory Loan will
be evidenced by an Amended and Restated Inventory Promissory Note (the "Amended
Inventory Loan Note") to be executed and delivered to Lender by Original
Borrower, Promotora and Villa Vera simultaneously with execution of the
Agreement Amendment No. 1, (ii) pursuant to the terms and conditions of the
Agreement Amendment No. 1, Lender and the Original Borrower are modifying and
amending certain of the Receivables Loan Documents (such modifications being
hereinafter referred to as the "Loan Document Modifications"), which Loan
Document Modification shall include, without limitation, the execution by the
Original Borrower, Promotora and Villa Vera of an Amended and Restated
Receivables Promissory Note (the "Amended Receivables Loan Note") and (iii)
further pursuant to the terms and conditions of the Agreement Amendment No. 1,
Promotora and Villa Vera are joining in, jointly and severally with each other
and with each of the entities constituting Original Borrower, as parties to and
borrowers and obligors under the Agreement and all of the other Receivables Loan
Documents.
Guarantor consents to the making and execution by the Original Borrower,
Promotora and Villa Vera of the Agreement Amendment No. 1, the Amended Inventory
Loan Note, the Amended Receivables Loan Note and the other Loan Document
Modifications, consents to the joinder by Promotora and Villa Vera as a party to
the Agreement and the other Receivables Loan Documents, and agrees that (i) the
Guarantee Agreement shall remain in full force and effect, (ii) Guarantor's
liability under the Guarantee Agreement shall continue undiminished by and shall
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include the obligations of the Original Borrower under the Agreement, the
Receivables Loan Documents, the Agreement Amendment No. 1, the Amended Inventory
Loan Note, the Amended Receivables Loan Note, the other Loan Document
Modifications and any other documents and instruments executed by Original
Borrower in connection with the Agreement Amendment No. 1, and shall further
include obligations of each of Promotora and Villa Vera under the Agreement, the
Receivables Loan Documents, the Agreement Amendment No. 1, the Amended Inventory
Loan Note, the Amended Receivables Loan Note and the other Loan Document
Modifications, and (iii) all terms, conditions and provisions set forth in the
Agreement Amendment No. 1, the Amended Inventory Loan Note, the Amended
Receivables Loan Note, the other Loan Document Modifications and all other
documents and instruments executed by Original Borrower and Promotora or Villa
Vera in connection therewith, are hereby ratified, approved and confirmed.
The Guarantor hereby confirms that the Guarantee Agreement, as amended
through the date hereof, remains in full force and effect. Guarantor hereby
reaffirms all of its agreements and covenants contained in the Guarantee
Agreement and reaffirms, as if made on the date hereof, all of its
representations and warranties contained in the Guarantee Agreement, except as
otherwise set forth on Exhibit 1 attached hereto. Guarantor acknowledges that as
of the date hereof, it has (a) no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be asserted
as a basis to seek affirmative relief or damages from Lender or as a basis to
reduce or eliminate all or any part of its liability under the Guarantee
Agreement, and (b) no other claim against Lender with respect to any portion of
the transactions described in the Receivables Loan Documents, as amended through
the date hereof.
The Guarantee Agreement shall be further amended as follows:
(a) The reference in the Original Guarantee the term Borrower shall be
amended to mean the Original Borrower, Promotora and Villa Vera, jointly
and severally.
(b) The provisions of paragraph 4.1(b) of the Original Guarantee
should be amended and restated in its entirety to read as follows:
(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., 99.98% of Promotora Villa Vera, S. de
R.L. de C.V. and 99.98% of Villa Vera Resort, 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., 50%
of Corporacion Habitacional Mexicana, S. de R.L. de C.V., .02% of
Promotora Villa Vera, S. de R.L. de C.V. and .02% of Villa Vera
Resort, S. de R.L. de C.V.
(c) The provisions of paragraph 4.1(j) of the Original Guarantee shall
be amended and restated in its entirety to read as follows:
(j) From and after December 31, 1999, 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,
commencing on the quarter annual period ending December 31, 1999;
to this end, the Guarantor agrees to provide Lender within the
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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.
Test Date: Net Worth Covenant (US Dollars)
12/31/1999 ($ 9,600,000)
3/31/2000 ($11,800,000)
6/30/2000 ($16,900,000)
9/30/2000 ($16,500,000)
12/31/2000 ($19,200,000)
3/31/2001 ($15,700,000)
6/30/2001 ($19,500,000)
9/30/2001 ($22,000,000)
12/31/2001 ($27,000,000)
The Adjusted Net Worth covenant for each succeeding quarter test date
following December 31, 2001, throughout the remaining term of the Agreement
shall equal the Adjusted Net Worth set forth on reasonably prepared financial
projections prepared by Guarantor and approved by Lender reflecting Guarantor's
projected financial performance from December 31, 2001 throughout the remaining
term of the Agreement, which projection shall be delivered to Lender no later
than September 30, 2001. In the event Lender and Guarantor are unable to agree
upon the Adjusted Net Worth covenant for the period following December 31, 2001,
then such Adjusted Net Worth Covenant for all periods following December 31,
2001 shall equal the more positive of Guarantor's actual Adjusted Net Worth on
September 30, 2001 or ($27,000,000).
THIS INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF STATE OF ARIZONA. FOR PURPOSES OF THIS PARAGRAPH, THIS INSTRUMENT SHALL
BE DEEMED TO BE PERFORMED AND MADE IN THE STATE OF ARIZONA.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
[SIGNATURE PAGE TO CONSENT OF GUARANTOR
AND AMENDMENT NO. 2 TO CORPORATE GUARANTEE
AND SUBORDINATION AGREEMENT]
IN WITNESS WHEREOF, Guarantor and Lender have hereunto executed this
instrument as of the _____ day of ____________, 1999.
RAINTREE RESORTS INTERNATIONAL, INC., a Nevada
corporation
By
Name
Title
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By
Name
Title
4
<PAGE>
EXHIBIT 1 TO
CONSENT OF GUARANTOR
Exceptions To Representations And Warranties Reaffirmed
By Guarantor Pursuant To This Consent
NONE
5
LOAN AND SECURITY AGREEMENT
US $10,000,000 Credit Facility
provided by Textron Financial Corporation to:
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. de R.L. 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.
(Collectively, the "Borrower")
As of November 23, 1999
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<TABLE>
<S> <C>
TABLE OF CONTENTS
Section 1. DEFINITION OF TERMS................................................................................... 6
1.1 Definitions............................................................................................... 6
Section 2. THE LOAN.............................................................................................. 27
2.1 Loan...................................................................................................... 27
2.2 Interest Rate............................................................................................. 27
2.3 Payments.................................................................................................. 28
2.4 Prepayments............................................................................................... 28
2.5 Guaranty.................................................................................................. 30
Section 3. COLLATERAL............................................................................................ 30
3.1 Grant of Security Interest................................................................................ 30
3.2 Security Interest in All Pledged Notes Receivable and Interval Lease Contracts............................ 30
3.3 Perfection of Security.................................................................................... 30
3.4 Location of Collateral.................................................................................... 30
3.5 Insurance and Protection of Collateral.................................................................... 30
3.6 Protection of Collateral; Reimbursement................................................................... 31
3.7 Cross-Collateralization and Default....................................................................... 31
Section 4. CONDITIONS PRECEDENT TO THE CLOSING AND FUNDING PROCEDURE............................................. 32
4.1 Conditions Precedent...................................................................................... 32
4.2 Funding Procedure......................................................................................... 41
Section 5. INTENTIONALLY OMITTED................................................................................. 45
Section 6. GENERAL REPRESENTATIONS AND WARRANTIES................................................................ 45
6.1 Organization, Standing, Qualification..................................................................... 45
6.2 Authorization, Enforceability, Etc........................................................................ 46
6.3 Financial Statements and Business Condition............................................................... 48
6.4 Taxes..................................................................................................... 48
6.5 Title to Properties: Prior Liens......................................................................... 48
6.6 Subsidiaries, Affiliates and Capital Structure............................................................ 49
6.7 Litigation, Proceedings, Etc.............................................................................. 49
6.8 Licenses, Permits, Etc.................................................................................... 49
6.9 Environmental Matters..................................................................................... 50
6.10 Full Disclosure.......................................................................................... 50
6.11 Use of Proceeds/Margin Stock............................................................................. 50
6.12 No Defaults.............................................................................................. 51
6.13 Compliance with Law...................................................................................... 51
6.14 Restrictions of Borrower or Guarantors................................................................... 52
6.15 Broker's Fees............................................................................................ 52
6.16 Deferred Compensation Plans.............................................................................. 52
6.17 Labor Relations.......................................................................................... 53
6.18 Resort................................................................................................... 53
6.19 Timeshare Documents and Reports.......................................................................... 55
6.20 Operating Contracts...................................................................................... 55
6.21 Architectural and Environmental Control.................................................................. 56
6.22 Tax Identification/Social Security Numbers............................................................... 56
6.23 Construction............................................................................................. 56
6.24 Continuation and Investigation........................................................................... 57
6.25 Exchange Control......................................................................................... 57
6.26 Year 2000................................................................................................ 57
Section 7. COVENANTS............................................................................................. 58
7.1 Affirmative Covenants..................................................................................... 58
7.2 Construction Covenants................................................................................... 73
7.3 Negative Covenants........................................................................................ 73
Section 8. EVENTS OF DEFAULT..................................................................................... 76
8.1 Nature of Events.......................................................................................... 76
Section 9. REMEDIES.............................................................................................. 80
9.1 Remedies Upon Default..................................................................................... 80
9.2 Notice of Sale............................................................................................ 84
9.3 Application of Collateral; Termination of Agreements...................................................... 85
9.4 Rights of Lender Regarding Collateral..................................................................... 85
9.5 Delegation of Duties and Rights........................................................................... 85
9.6 Lender Not in Control..................................................................................... 85
9.7 Waivers................................................................................................... 85
9.8 Cumulative Rights......................................................................................... 86
9.9 Expenditures by Lender.................................................................................... 86
9.10 Diminution in Value of Collateral........................................................................ 86
Section 10. CERTAIN RIGHTS OF LENDER............................................................................. 86
10.1 Protection of Collateral................................................................................. 86
10.2 Performance by Lender.................................................................................... 87
10.3 No Liability of Lender................................................................................... 87
10.4 Right to Defend Action Affecting Security................................................................ 88
10.5 Expenses................................................................................................. 88
10.6 Lender's Right of Set-Off................................................................................ 88
10.7 No Waiver................................................................................................ 88
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10.8 Right of Lender to Extend Time of Payment, Substitute, Release Security, Etc............................. 89
10.9 Assignment of Lender's Interest.......................................................................... 89
10.10 Notice to Purchaser..................................................................................... 89
10.11 Collection of the Notes................................................................................. 89
10.12 Power of Attorney....................................................................................... 90
10.13 Relief from Automatic Stay, Etc......................................................................... 90
10.14 Investigations and Inquiries............................................................................ 91
10.16 Right of First Refusal.................................................................................. 91
10.17 Withholding Tax......................................................................................... 91
Section 11. TERM OF AGREEMENT.................................................................................... 92
Section 12. MISCELLANEOUS........................................................................................ 92
12.1 Notices.................................................................................................. 92
12.2 Survival................................................................................................. 94
12.3 Governing Law............................................................................................ 94
12.4 Limitation on Interest................................................................................... 94
12.5 Invalid Provisions....................................................................................... 95
12.6 Successors and Assigns................................................................................... 95
12.7 Amendment................................................................................................ 96
12.8 Counterparts; Effectiveness.............................................................................. 96
12.9 Lender Not a Fiduciary................................................................................... 96
12.10 Return of Notes Receivable.............................................................................. 96
12.11 Accounting Principles................................................................................... 97
12.12 Total Agreement......................................................................................... 97
12.13 Litigation.............................................................................................. 97
12.14 Incorporation of Exhibits............................................................................... 98
12.15 Consent to Advertising and Publicity of Timeshare Documents............................................. 98
12.16 Directly or Indirectly.................................................................................. 98
12.17 Headings................................................................................................ 98
12.18 Gender.................................................................................................. 98
12.19 No Duty................................................................................................. 98
12.20 Reimbursement for Taxes................................................................................. 98
12.21 Submissions............................................................................................. 99
12.22 Investigations and Inquiries............................................................................ 99
12.23 Service of Process...................................................................................... 99
</TABLE>
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TABLE OF EXHIBITS
Exhibit A ASSIGNMENT OF PLEDGED NOTES RECEIVABLE AND INTERVAL
LEASE CONTRACTS
Exhibit B PERMITTED LIENS AND ENCUMBRANCES
Exhibit C LEGAL DESCRIPTION OF RESORT PROPERTY
Exhibit D TIMESHARE DOCUMENTS
Exhibit E PENDING LITIGATION
Exhibit F FORM OF REQUEST FOR ADVANCE (RECEIVABLES)
Exhibit G OPERATING CONTRACTS
Exhibit H FORM OF OFFICER'S CERTIFICATE
Exhibit I OWNERSHIP OF BORROWER ENTITIES
Schedule 1 SALES PROJECTIONS
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is made and entered into as of November
23, 1999, by and among CR Resorts Cancun, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital ("CR Cancun"), CR Resorts Los
Cabos, S. de R.L. de C.V., a Mexican limited responsibility corporation with
variable capital ("CR Cabos"), CR Resorts Puerto Vallarta, S. de R.L. de C.V., a
Mexican limited responsibility corporation with variable capital ("CR Puerto
Vallarta"), Corporacion Mexitur, S. de R.L. de C.V., a Mexican limited
responsibility 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, jointly and
severally, the "Borrower"); Raintree Resorts International, Inc., a Nevada
corporation ("Guarantor"), and TEXTRON FINANCIAL CORPORATION, a Delaware
corporation ("Lender").
In consideration of the mutual covenants and agreements contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties to this Agreement, intending to be
legally bound, hereby agree as follows:
Section 1. DEFINITION OF TERMS.
1.1 Definitions. The capitalized terms used in this Agreement are defined
in this Section 1.1. The definitions include the singular and plural forms of
the terms defined.
(a) Advance. A portion of the proceeds of the Loan advanced from time
to time by Lender to Borrower in accordance with the terms of this
Agreement and pursuant to Section 2.1 herein.
(b) Affiliate. Any Person controlled by, controlling or under common
control with Borrower or the Guarantor.
(c) Agreement. This Loan and Security Agreement by and among Borrower,
the Guarantor and Lender (including the exhibits and schedules to it), as
it may be amended from time to time.
(d) Assignment of Interest in Contracts, Permits, Licenses and
Approvals. The properly recorded document executed and delivered by
Borrower securing the Obligations granting Lender an assignment of all of
Borrower's interest in and to all contracts, permits, licenses and
approvals with respect to the Resorts, to the extent recordation of such
document is permissible under applicable United States or Mexican law.
(e) Assignment of Pledged Notes Receivable and Interval Lease
Contracts. A recordable Mexican pledge or assignment executed before a
Mexican Notary made by Borrower in favor of Lender, a specimen form of
which is attached hereto as Exhibit A, evidencing the assignment by
Borrower of all Pledged Notes Receivable and related Interval Lease
Contracts.
(f) Background Documents. Defined in Section 4.1(f) of this Agreement.
(g) Bankruptcy Code. Defined in Section 10.13 of this Agreement.
(h) Borrowing Base. With respect to Eligible Notes Receivable pledged
to Lender in connection with each Advance of the Loan for which at least
one monthly payment has been made, an amount equal to the sum of (i) eighty
percent (80%) of the aggregate remaining principal balance of each Mexican
Nuevos Peso denominated Eligible Note Receivable, plus (ii) eighty-five
percent (85%) of the aggregate remaining principal balance of each U.S.
Dollar denominated Eligible Note Receivable.
(i) Business Day. Each day which is not a Saturday or Sunday or a
legal holiday under the laws of the State of Connecticut, the State of
Rhode Island, the United States of America or the United Mexican States.
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<PAGE>
(j) CERCLA. Defined in Section 1.1(cc) of this Agreement.
(k) Closing Date. The date of this Agreement.
(l) Code. The Uniform Commercial Code in force in any applicable
jurisdiction of the United States, as amended from time to time, and
applicable Mexican law.
(m) Collateral. Collectively, all now owned or hereafter acquired
right, title and interest of Borrower in and to all of the following:
(i) A first priority lien and security interest in and pledge of
the Pledged Notes Receivable generated from the sale of Intervals in
the Resorts, together with all accounts, chattel paper and general
intangibles related thereto and the cash and non-cash proceeds
thereof;
(ii) A first priority assignment of and lien of proceeds from the
Interval Lease Contracts executed by Purchasers in favor of Borrower
encumbering the Intervals financed by the Notes Receivable, including
a first priority assignment of Borrower's rights (exercisable
following the occurrence of, and soley during the continuance of, an
Event of Default hereunder) to cancel such Interval Lease Contracts
and to re-sell (or cause the resale of) the Intervals relating to such
Interval Lease Contracts;
(iii) A first priority assignment of Borrower's right to
foreclose, cancel or resell (or cause the resale of) all Intervals
which are related to Pledged Notes Receivable which are in default or
which are or become ineligible hereunder; provided, however, that the
rights of Lender under such assignment shall be exercisable following
the occurrence of, and solely during the continuance of, an Event of
Default hereunder. Notwithstanding anything to the contrary contained
herein, Lender shall allow Borrower to substitute replacement Eligible
Notes Receivable for Pledged Notes Receivable which are in default or
otherwise ineligible hereunder;
(iv) A first priority assignment, subject to the Permitted FINOVA
Liens, of Borrower's, Guarantor's, and/or any and all Affiliates'
interest in any management, marketing or other use, maintenance or
service contracts for the Resorts;
(v) All Encumbered Intervals related to each Pledged Note
Receivable including, without limitation, the right to cancel or
resell (or cause the resale of) an Interval (exercisable following the
occurrence of an Event of Default hereunder) in the event of default
by a Purchaser pursuant to the terms of the Pledged Note Receivable,
together with all appurtenant rights and interests, including, without
limitation, appurtenant rights and interests in and to the Units and
Facilities, and any easement, license and use rights appurtenant to
such Intervals in and to all facilities and amenities of the Resorts,
all as described and set forth in the Timeshare Documents;
(vi) A first priority security interest in and to all documents,
instruments, accounts, chattel paper, and general intangibles relating
to the Pledged Notes Receivable and the other Collateral (including
the cash and non-cash proceeds thereof);
(vii) A first priority security interest, subject to the
Permitted FINOVA Liens, in and to all furniture, furnishings and
fixtures of every kind and description (and all improvements and
accessions thereto, including, without limitation, the Common
Furnishings) located in or on or used in connection with any Interval;
(viii) To the greatest extent permitted under United States and
Mexican law and subject to the Permitted FINOVA Liens, easements,
leasehold interests (whether as lessor or lessee), franchises,
permits, approvals, licenses, facilities and amenities on, affecting
or appurtenant to each of the Resorts and rights to occupy, use and
enjoy any such facilities or amenities and any Encumbered Intervals;
(ix) All rights in, to and under all Payment Authorization
Agreements signed and delivered by or on behalf of each Purchaser of
an Encumbered Interval and all accounts and proceeds relating thereto
or deriving therefrom;
6
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(x) Subject to the Permitted FINOVA Liens, any rights inuring to
Borrower as an "institutional mortgagee, an "institutional lender" or
a "mortgagee" in connection with any Encumbered Interval as provided
in the Timeshare Documents;
(xi) Extensions, additions, improvements, betterments, renewals,
substitutions and replacements of, for or to any of the Collateral,
wherever located, together with the products, proceeds, issues, rents
and profits thereof, and any replacements, additions or accessions
thereto or substitutions thereof, and all rights in or under insurance
policies and to the proceeds of any insurance policies covering any of
the other Collateral, all rights to unearned or refunded insurance
premiums, and the proceeds of any condemnation awards or any claims
regarding any of the other Collateral;
(xii) A first priority security interest (pledge and deposit),
subject to the Permitted FINOVA Liens, in and to Borrower's interest
in all books, records, reports, computer tapes, computer disks and
software relating to all or any portion of the Collateral, including,
without limitation, Borrower's reservation system for use of the
Resorts;
(xiii) Subject to the Permitted FINOVA Liens, the Textron
Mortgages on the Resort Property and all Improvements constructed or
to be constructed thereon;
(xiv) A first priority lien (pledge and deposit), subject to the
Permitted FINOVA Liens, in and to the Personal Property, together with
the cash and non-cash proceeds thereof, with appropriate
non-disturbance language relating to common area equipment, fixtures
and furniture;
(xv) To the extent allowed under Mexican law and subject to the
Permitted FINOVA Liens, an absolute and unconditional first assignment
or pledge of any and all leases, subleases, licenses, concessions,
entry fees, or other agreements which grant a possessory interest in
and to, or the right to use the Resort Property or any portion
thereof, including any Unsold Intervals (collectively the "Tenant
Leases");
(xvi) Subject to the Permitted FINOVA Liens, an absolute and
unconditional first assignment or pledge of all of the rents,
revenues, income, proceeds, royalties, profits and other benefits
payable for using, leasing, licensing, possessing, operating from or
in, or otherwise enjoying the Resort Property pursuant to the Tenant
Leases, including, without limitation, damages received upon the
occurrence of a default under any of the Tenant Leases and all
proceeds payable under any policy of insurance covering loss of rents
with respect thereto (collectively the "Tenant Income");
(xvii) To the extent allowed under Mexican law and subject to the
Permitted FINOVA Liens, an absolute and unconditional first assignment
or pledge of all other agreements to which Borrower is or becomes a
party or holds any interest therein and which in any way relate to the
use, occupancy, management, marketing, maintenance or enjoyment of the
Resort Property, including, but not limited to, purchase contracts,
and related documents, building permits, construction contracts,
completion bonds, utility contracts, maintenance agreements, marketing
and sales agreements, management agreements and service contracts, and
any agreement guaranteeing the performance of the obligations
contained in any of the foregoing agreements (collectively the
"Property Contracts"), and in and to all related accounts and proceeds
and all deposits, letters of credit or other property pledged or
delivered pursuant thereto;
(xviii) A first priority security interest, subject to the
Permitted FINOVA Liens, in all inventory, supplies, accounts, chattel
paper and general intangibles owned or hereafter acquired by Borrower,
used or useful in connection with, and placed or to be placed on or
under the Resort Property, including but not limited to the Units
contained therein, the Encumbered Intervals and the Unsold Intervals
and the cash and non-cash proceeds thereof;
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(xix) A first priority security interest, subject to the
Permitted FINOVA Liens, in all furniture, appliances, furnishings,
machinery, plumbing, heating, ventilating, air conditioning systems,
fixtures and equipment owned or hereafter acquired by Borrower, used
or useful in connection with, and placed or to be placed on or under
the Resort Property, the Units, the Encumbered Intervals or the Unsold
Intervals and the cash and non-cash proceeds thereof; and
(xx) The first priority assignment of Borrower's interest in the
Declaration, to the greatest extent permitted under Mexican law and
subject to the Permitted FINOVA Liens, as provided under that certain
Assignment of Declarant's Rights.
(n) Commitment. The Loan commitment issued by Lender to Borrower,
dated September 28, 1999, and accepted by Borrower on October 1, 1999.
(o) Commitment Fee. An amount equal to US$100,000.00, which was earned
upon Borrower's acceptance of the Commitment and which has been paid in
full by Borrower to Lender.
(p) CR Cabos. Defined in the Introduction to this Agreement.
(q) CR Cancun. Defined in the Introduction to this Agreement.
(r) CR Capital. CR Resorts Capital, S. de R.L. de C.V., a variable
capital stock limited liability company organized and existing under the
laws of the United Mexican States.
(s) CR Puerto Vallarta. Defined in the Introduction to this Agreement.
(t) CR Remainder. CR Resorts Remainder Company, S. de R.L. de C.V., a
variable capital stock limited liability company organized and existing
under the laws of the United Mexican States.
(u) Common Furnishings. All fixtures, furniture, appliances,
carpeting, equipment and furnishings located in the Units or elsewhere
within each of the Resorts.
(v) Debtor Relief Laws. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or
similar law, proceeding or device providing for the relief of debtors from
time to time in effect and generally affecting the rights of creditors.
(w) Declaration. Collectively, with respect to the Club Regina Resort
at Puerto Vallarta, the Declaration of Property Regime and its Regulations,
formalized in public deed number 11,924, dated August 8, 1997, recorded in
the Public Registry of Property in the City of Puerto Vallarta, Mexico,
with respect to the Club Regina Resort at Los Cabos, the Declaration of
Property Regime and its Regulations, formalized in public deed number
34708, dated August 12, 1997, recorded in the Public Registry of Property
in the City of San Jose del Cabo, Mexico, with respect to the Club Regina
Resort at Cancun, the Declaration of Property Regime formalized in public
deed number 10973, dated August 11, 1997, recorded in the Public Registry
in the city of Cancun, Mexico and its corresponding Regulations.
(x) Default. An event or condition, the occurrence of which
immediately is or, with the lapse of time or the giving of notice or both,
becomes an Event of Default.
(y) Default Rate. The Interest Rate plus two percent (2%) per annum;
provided, however, that the Default Rate shall in no event exceed the
highest interest rate permitted to be charged under applicable usury laws.
(z) Eligible Notes Receivable. Those Pledged Notes Receivable which
satisfy each of the following criteria:
(i) one or more of the entities constituting the Borrower is the
sole payee;
(ii) it arises from a bona fide sale by Borrower of one (1) or
more Intervals in one of the Resorts;
(iii) the Interval sale from which it arises has not been
canceled by the Purchaser, any statutory or other applicable
cancellation or rescission period has expired and the Interval sale is
otherwise in total compliance with the terms and provisions of this
Agreement and all of the other Loan Documents;
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(iv) it is secured by a properly executed and recorded Assignment
of Pledged Notes Receivable and a properly executed Interval Lease
Contract;
(v) principal and interest payments on it are payable to the
Borrower in legal tender of the United States, provided, however, that
up to thirty percent (30%) by number of all Eligible Notes Receivable
may be payable in Mexican Nuevos Pesos;
(vi) payments of principal and interest on it are due in equal
monthly installments (or in such other amounts to cover principal and
interest);
(vii) it shall have an original term of no more than sixty (60)
months, payable in equal monthly installments of principal and
interest; provided, however, that up to twenty-five percent (25%) of
the aggregate outstanding balance of all Eligible Notes Receivable
may, at any time, be comprised of Notes Receivable having an original
term of no more than eighty-four (84) months;
(viii) a cash down payment and/or other cash payments have been
received from the Purchaser in an amount equal to at least fifteen
percent (15%) of the original purchase price of the related Interval,
and the Purchaser thereafter shall have received no cash or other
rebates of any kind which would cause the down payment to be less than
fifteen percent (15%) of the total purchase price;
(ix) no monthly installment due with respect to the Pledged Note
Receivable is more than thirty (30) days contractually past due as of
the date of funding of the Initial Advance with respect to such
Pledged Note Receivable, or more than sixty (60) days contractually
past due thereafter;
(x) the weighted average interest rate of all Eligible Notes
Receivable payable in legal tender of the United States at any time
shall be not less than twelve percent (12.0%) per annum;
(xi) the weighted average interest rate of all Eligible Notes
Receivable payable in Mexican Nuevos Pesos at any time shall be not
less than twenty two percent (22.0%) per annum;
(xii) the Purchaser of the related Interval has immediate access
to a Unit of the type specified in such Purchaser's Interval Lease
Contract, which Interval and related Unit have been completed,
developed and furnished in accordance with the specifications provided
in the Purchaser's Interval Lease Contract, the public offering
statement (if any) and the other Timeshare Documents; and the
Purchaser has, subject to the terms of the Declaration, Interval Lease
Contract and other Timeshare Documents, complete and unrestricted
access to the related Interval, Unit, Facilities and the Resorts;
(xiii) neither the Purchaser of the related Interval nor any
other maker of the Note Receivable is an Affiliate of, personally
related to or employed by Borrower;
(xiv) the Purchaser or other obligor has no claim against
Borrower or any Affiliate of Borrower, and no defense, set-off or
counterclaim exists with respect to the Note Receivable;
(xv) the maximum outstanding principal balance of such Note
Receivable does not exceed US$25,000.00 (or the then equivalent in
Mexican Nuevos Pesos), and total principal balance of all Notes
Receivable executed by any one (1) obligor will not exceed
US$25,000.00 (or the then equivalent in Mexican Nuevos Pesos), without
the prior written approval of Lender;
(xvi) the Note Receivable is executed by a Mexican resident;
(xvii) the original of the Note Receivable and all related
consumer documents have been endorsed in the manner prescribed by
Lender and delivered to Lender or its approved agent (the "Agent") as
provided in this Agreement, and the terms thereof and all instruments
related thereto shall comply in all respects with all applicable
federal and state statutes, ordinances, rules and regulations;
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(xviii) the Unit in which the Interval being financed by the Note
Receivable is located shall not be subject to any Lien which has not
previously been consented to in writing by Lender other than the
Permitted FINOVA Liens;
(xix) the form of promissory note, federal truth-in-lending
disclosure statement, if any, or other applicable disclosure, purchase
contract and all other documents and instruments corresponding to the
Interval purchase transaction giving rise to such Note Receivable has
been approved in advance by Lender in writing;
(xx) the Purchaser (a) is entitled to fifty (50) consecutive
years of use (commencing in 1997) in a specific Unit type during a
specified season at one of the three locations of the Resorts each
year expiring in the year 2047, which right shall be exercised for a
seven (7) day period each year for such fifty (50) year term, or (b)
is entitled to twenty-five (25) biennual years of use (commencing in
1997) in a specific Unit type during a specified season at one of the
three locations of the Resorts expiring in the year 2047, which shall
be exercised for a seven (7) day period every alternate year for such
term;
(xxi) the Purchaser may not accelerate their usage in the Resorts
(provided, however, that certain Purchasers may accelerate their usage
by a maximum of one (1) week per year, provided that such Purchasers
pay all additional maintenance fees and any and all other fees related
to such accelerated usage);
(xxii) the Note Receivable is originated in connection with an
Interval Lease Contract and Borrower has provided and/or caused all
interest or lienholders which have mortgages encumbering the Resorts
or other agreements or amendments to their respective security
documents which expressly state to Lender's satisfaction that such
interest or lienholder may not disturb the use rights of any Purchaser
pursuant to such Purchaser's Interval Lease Contract for so long as
Purchaser is not in default pursuant to the terms of such Interval
Lease Contract;
(xxiii) Lender is in possession of the executed original Notes
Receivable endorsed by Borrower to Lender, along with the executed
original Interval Lease Contracts corresponding to such Notes
Receivable;
(xxiv) the Note Receivable is originated in connection with a
related Interval Lease Contract whereby Land Trustee under a Mexican
guaranty trust satisfactory to Lender holds legal title to each of the
Resorts on behalf of CR Cabos, CR Cancun, or CR Puerto Vallarta,
together with CR Remainder (as to the remainder interest in each of
the Resorts commencing under the FINOVA Mortgages in the year 2047)
and whereby non-disturbance provisions for the continued use and
enjoyment by the Interval Purchasers of the Resorts and Facilities are
in a form and substance acceptable to Lender; and
(xxv) any and all release payments required under the inventory
component of the FINOVA Loan pertaining to the Interval related to
such Note Receivable, specifically including the "Interval Sales
Payment" as such term is defined in the FINOVA Loan Agreement, have
been paid in full by Borrower.
(aa) Encumbered Intervals. The Intervals that are subject to the
Pledged Notes Receivable.
(bb) Environmental Inspection. An engineering report or reports
covering each of the Resorts and/or Units, as specified below, confirming:
(i) that soil conditions are sufficient to support the existing
Units and any contemplated improvements to the Units;
(ii) the absence of toxic or hazardous substances at each of the
Resorts;
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(iii) that in accordance with any and all applicable Mexican
laws, the engineering firm has obtained, reviewed and included within
its report statements from information as Lender may reasonably
require, all of which information shall confirm that there is no known
or suspected toxic or hazardous waste site located at the Resorts or
in such proximity thereto as to create a material risk of
contamination of the Collateral.
(cc) Environmental Laws. Any and all comparable principles of Federal
and local pollution control, environmental protection or regulation or
Hazardous Materials statutes or ordinances applicable in Mexico or the
States of Baja California Sur, Jalisco and Quintana Roo, Mexico comparable
to the following laws of the United States of America: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
from time to time ("CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended from time to time ("RCRA"), the Superfund Amendments and
Reauthorization Act of 1986, as amended, the federal Clean Air Act, the
federal Clean Water Act, the federal Safe Drinking Water Act, the federal
Toxic Substances Control Act, the federal Hazardous Materials
Transportation Act, the federal Emergency Planning and Community Right to
Know Act of 1986, the federal Endangered Species Act, the federal
Occupational Safety and Health Act of 1970, the federal Water Pollution
Control Act, as all of the foregoing laws may be amended from time to time,
and any rules or regulations promulgated pursuant to the foregoing;
together with any similar local, state or federal statutes, ordinances,
rules or regulations, either in existence as of the date hereof or enacted
or promulgated after the date of this Agreement, that concern the
management, control, storage, discharge, treatment, containment, removal
and/or transport of Hazardous Materials or other substances that are or may
become a threat to public health or the environment; together with any
common law theory involving Hazardous Materials or substances which are (or
alleged to be) hazardous to human health or the environment, based on
nuisance, trespass, negligence, strict liability or other tortious conduct,
or any other federal, state or local statute, regulation, rule, policy, or
determination pertaining to health, hygiene, the environment or
environmental conditions.
(dd) EPA. Defined in Section 4.1(f)(v)(C) of this Agreement.
(ee) Event of Default. Defined in Section 8.1 of this Agreement.
(ff) Exchange Company. Resort Condominiums, International de Mexico,
S. de R.L. de C.V.
(gg) Facilities. Any amenities, recreational facilities, services,
improvements, real property, improved or unimproved, or personal property
at the Resorts which are part of the Resorts, other than the Units, or
which are made available to Purchasers, and including those common areas
and facilities of the three (3) separate Westin Regina Hotels located
adjacent to each of the three (3) separate locations of the Resorts in
Cancun, Puerto Vallarta and Los Cabos, Mexico available pursuant to the
terms of those certain three (3) separate Operating Agreements executed by
and between Starwood Cancun, S. de R.L. de C.V., Bancomer, S.A., CR Cancun,
and CR Remainder as to the Cancun Resort, Starwood Puerto Vallarta, S. de
R.L. de C.V., Bancomer S.A., CR Puerto Vallarta and CR Remainder as to the
Puerto Vallarta Resort, and Starwood Los Cabos, S. de R.L. de C.V.,
Bancomer, S.A., CR Cabos, and CR Remainder as to the Los Cabos Resort
(Collectively, the "Operating Agreements").
(hh) Financial Statements. The tax returns, balance sheets and
statements of income and expense of Borrower and Guarantor and the related
notes and schedules delivered by Borrower prior to the Closing Date and
provided for in Section 6.3 of this Agreement; and the financial statements
and reports of the Guarantor delivered to Lender prior to the Closing Date;
and the monthly, quarterly and annual financial statements and reports
required to be provided to Lender pursuant to Sections 7.1(h) of this
Agreement.
(ii) Financing Statements. Defined in Section 3.3 of this Agreement.
(jj) FINOVA. FINOVA Capital Corporation, a Delaware corporation,
together with its successors and assigns.
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(kk) FINOVA Loan. Collectively, a receivables loan from FINOVA to
Borrower up to the present maximum amount of Twenty Million Dollars
(US$20,000,000.00) and an inventory loan from FINOVA to Borrower up to the
present maximum amount of Thirteen Million Five Hundred Thousand Dollars
(US$13,500,000.00) as provided in the FINOVA Loan Agreement, and as
evidenced by a Receivables Promissory Note dated as of November 23, 1998,
as amended from time to time, executed by Borrower and payable to FINOVA in
the present principal amount of Twenty Million Dollars (US$20,000,000.00)
and by an Inventory Promissory Note dated as of April 23, 1999, as amended
from time to time, executed by Borrower and payable to FINOVA in the
present principal amount of Thirteen Million Five Hundred Thousand Dollars
(US$13,500,000.00).
(ll) FINOVA Loan Agreement. That certain First Amended and Restated
Loan and Security Agreement dated as of April 23, 1999 by and between
FINOVA and Borrower, as amended from time to time.
(mm) FINOVA Mortgages. As security for the FINOVA Loan, the Trust
Agreements executed by Borrower in favor of FINOVA registered in the
appropriate property records in the location of each of the Resorts, and
encumbering the Resorts with a first priority mortgage lien in favor of
FINOVA by appointing FINOVA as first beneficiary in guaranty with respect
to the trust use rights (derechos fideicomisarios de uso) at each of the
Resorts, as amended from time to time.
(nn) GAAP. Generally accepted accounting principles, applied on a
consistent basis, as described in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board which are applicable
in the circumstances as of the date in question. Notwithstanding anything
to the contrary provided in this Agreement, Lender shall allow Borrower to
comply, at Borrower's option, with the Mexican equivalent of the United
States' GAAP until such possible time when Lender, in its reasonable
discretion, requests compliance with United States' GAAP.
(oo) Governmental Agency. Defined in Section 7.1(w) of this Agreement.
(pp) Guarantor. Raintree Resorts International, Inc., a Nevada
corporation.
(qq) Guaranty. A Payment Guaranty and Subordination Agreement executed
by the Guarantor and delivered to Lender concurrently with this Agreement.
The Guaranty shall be the absolute and unconditional guaranty of payment
and performance of the Loan and all amounts secured by or under the Loan
Documents, as more fully set forth herein.
(rr) Hazardous Materials. "Hazardous substances," "hazardous waste,"
or "hazardous constituents," "toxic substances" or "solid waste," as
defined in the Environmental Laws, and any other contaminant or any
material, waste or substance which is petroleum or petroleum based,
asbestos, polychlorinated biphenyls, flammable explosives or radioactive
materials.
(ss) ILSA. Defined in Section 6.13(b) of this Agreement.
(tt) Improvements. All Units, Facilities and other buildings,
structures, recreational facilities and appurtenances now located on, or to
be constructed on the Resort Property.
(uu) Indemnified Lender Parties. Defined in Section 7.1(w) of this
Agreement.
(vv) Indenture. That certain Indenture, dated as of December 5, 1997,
by and between Guarantor, CR Capital, and IBJ Schroder Bank and Trust
Company.
(ww) Intercreditor Agreement. That certain agreement entered as of
November 23, 1999 by and between Lender, FINOVA, Borrower and Guarantor
relating to this Agreement, the Textron Mortgages, the FINOVA Loan and the
FINOVA Mortgages.
(xx) Interest Rate. A variable rate, adjusted as of the first day of
each calendar month, equal to the sum of the Prime Rate as of the first day
of each calendar month, plus two percent (2.00%) per annum.
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(yy) Initial Advance. The first Advance under the Loan.
(zz) Interval Lease Contract. A purchase contract or membership
agreement whereby a Purchaser purchases an Interval in one of the Resorts.
(aaa) Interval. As more specifically described in the Timeshare
Documents and pursuant to the Declaration, a right-to-use interest in one
of the Resorts that allows a Purchaser to (i) occupy a specific Unit type
during a specified season at one of the three locations of the Resorts each
year on a recurring annual basis over a period of fifty (50) consecutive
years, as set forth in each Purchaser's Interval Lease Contract, together
with all related membership rights to use the Facilities and Common
Furnishings, or (ii) occupy a specific Unit type during a specified season
at one of the three locations of the Resorts on a recurring alternate year
basis for (25) biennual years of use, as set forth in each Purchaser's
Interval Lease Contract, together with all related membership rights to use
the Facilities and Common Furnishings.
(bbb) Land Trustee. Bancomer, S.A., Institucion de Banca Mulitple,
Grupo Financiero, Direccion Fiduciaria, a Mexican banking corporation
acceptable to Lender, as trustee of the three separate Mexican land trusts
(Fideicomisos) established pursuant to the Trust Agreements and holding
legal title to the Resort Property.
(ccc) Lien. Any interest in property securing an obligation owed to, a
perfected security interest in favor of, or valid claim by, a Person other
than the owner of such property, whether such interest arises in equity or
is based on common law, statute or contract.
(ddd) Loan. The maximum US$10,000,000.00 credit facility, as described
in this Agreement.
(eee) Loan Documents. Collectively, the following documents and
instruments, as each may be amended, renewed, extended, restated or
supplemented from time to time:
(i) This Agreement;
(ii) the Note;
(iii) the Textron Mortgages;
(iv) the Assignment of Pledged Notes Receivable and Interval
Lease Contracts;
(v) the Lockbox Agreement;
(vi) the Servicing Agreement;
(vii) the Environmental Indemnity Agreement;
(viii) the Assignment of Interest in Contracts, Permits, Licenses
and Approvals;
(ix) the Guaranty;
(x) the Assignment of Borrower's beneficial interest in any
guaranteed trust;
(xi) the UCC-1 financing statements (or Mexican equivalent)
covering the Collateral, to be recorded with the Nevada Secretary of
State, the Texas Secretary of State, and in Harris County, Texas;
(xii) the Assignment of Declarant's Rights;
(xiii) the Assignment of Interest in Servicing Agreement;
(xiv) Intercreditor Agreement; and
(xv) such other agreements, documents, instruments, certificates
and materials as Lender may request to evidence or secure the
Obligations, to evidence and perfect the rights and Liens and security
interests of Lender contemplated by the Loan Documents and to
effectuate the transactions contemplated herein.
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(fff) Loan Year. The period from the date of the Initial Advance
through the last day of the next full twelve (12) calendar month period and
each twelve (12) calendar month period thereafter.
(ggg) Lockbox Agent. A financial institution duly licensed in its
jurisdiction of operation as may be approved by Lender in writing from time
to time in Lender's sole discretion. Lockbox Agent shall act as Lender's
exclusive agent for the collection of all payments made on the Pledged
Notes Receivable, at Borrower's expense.
(hhh) Lockbox Agreement. A Lockbox Agreement or Blocked Account
Agreement among Borrower, Lender and Lockbox Agent, pursuant to which
Lockbox Agent agrees to provide for the receipt and deposit of payments on
the Notes Receivable and disbursement of such payments to Lender, as well
as certain financial reporting services.
(iii) Management Contract. Defined in Section 4.1(w) of this
Agreement.
(jjj) Mandatory Prepayment. Any prepayment of the Loan required by
Section 2.4(b) of this Agreement.
(kkk) Material Party. Defined in Section 4.1(i) of this Agreement.
(lll) Mirror Notes. Those Certain promissory notes totaling, in the
aggregate, Eighty-Three Million Three Hundred Forty-Six Thousand Three
Hundred Seventy-Two and 70/100 United States Dollars (U.S.$83,346,372.70)
issued by CR Cancun, CR Cabos, and/or CR Puerto Vallarta, in favor of CR
Capital.
(mmm) Note. The Note Receivable Promissory Note.
(nnn) Note Receivable. A promissory note made and executed by a
Purchaser in favor of Borrower in connection with such Purchaser's
acquisition of an Interval.
(ooo) Note Receivable Promissory Note. The promissory note evidencing
the Loan, dated as of the Closing Date and made and executed by Borrower
and delivered to Lender concurrently with this Agreement.
(ppp) Obligations. All indebtedness, liabilities, obligations, and
responsibilities, both financial and otherwise, to which Borrower is
subject under any of the Loan Documents, including but not limited to all
amounts due or becoming due to Lender with respect to the Loan or any of
the Loan Documents, including principal, interest, prepayment premiums,
contributions, taxes, insurance premiums, loan charges, custodial fees,
attorneys' and paralegals' fees and expenses and other fees or expenses
incurred by Lender or advanced to or on behalf of Borrower by Lender
pursuant to any of the Loan Documents, and the prompt and complete payment
and performance by Borrower and Guarantor, of all obligations, indebtedness
and liabilities pursuant to this Agreement, or any of the other Loan
Documents or otherwise.
(qqq) Operating Contract. As defined in Section 6.20 of this
Agreement.
(rrr) Payment Authorization Agreement. The pre-authorized electronic
debit agreement by a Purchaser which provides for payment of a Note
Receivable addressed to the Lockbox Agent.
(sss) Pension Reform Act. Defined in Section 6.16 of this Agreement.
(ttt) Permitted Debt. This term shall mean, collectively, (i) short
term accounts payable incurred in connection with the operation of the
Resorts in the ordinary course of business, (ii) the financing of
time-share receivables denominated in Mexican Unidades de Inversion, (iii)
the Mirror Notes, and (iv) the FINOVA Loan.
(uuu) Permitted FINOVA Liens . Those certain Liens encumbering the
Resort Property and certain of the remaining Collateral, specifically
including the FINOVA Mortgages, perfected in favor of FINOVA pursuant to
the FINOVA Loan.
(vvv) Permitted Liens and Encumbrances. Those liens and encumbrances
affecting all or a portion of one or more of the Resorts to which Lender
consents, as set forth on Exhibit B attached hereto and incorporated herein
by this reference, and specifically including the Permitted FINOVA Liens.
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(www) Person. An individual, partnership, corporation, limited
liability company, trust, unincorporated organization, other entity or a
government or agency or political subdivision thereof.
(xxx) Personal Property. All equipment, furniture, furnishings,
inventory, supplies, accounts, chattel paper and general intangibles at any
time located at, arising out of the use of and/or used in connection with
the operation of the Resort Property, together with the cash and non-cash
proceeds thereof.
(yyy) Plan. Defined in Section 6.16 of this Agreement.
(zzz) Pledged Note Receivable. Any Eligible Note Receivable which at
any time has been pledged to Lender by Borrower, pursuant to this Agreement
or any of the other Loan Documents.
(aaaa) Prime Rate. The prime rate of interest as announced or
published from time to time by Chase Manhattan Bank.
(bbbb) Power of Attorney. Defined in Section 10.12 of this Agreement.
(cccc) Preparer. Defined in Section 12.21(b) of this Agreement.
(dddd) Property Contracts. Defined in Section 1.1(m)(xvii) of this
Agreement.
(eeee) Purchase Price. The total purchase price of an Interval, as set
forth in the Interval Lease Contract and the Note Receivable relating to
the purchase of such Interval.
(ffff) Purchaser. Any Person who purchases one (1) or more Intervals
and is the maker of one (1) or more Pledged Notes Receivable.
(gggg) RCRA. Defined in Section 1.1(cc) of this Agreement.
(hhhh) Resorts. Collectively, the three separate timeshare projects
consisting of, among other things, the Resort Property, commonly known as
Club Regina Resort at Cancun (located in Cancun, Mexico), Club Regina
Resort at Puerto Vallarta (located in Puerto Vallarta, Mexico) and Club
Regina Resort at Los Cabos (located in Los Cabos, Mexico), which presently
consist of an aggregate of four hundred two (402) Units, and the Intervals
now existing or hereafter added in one (1) or more phases, and all related
Facilities, Common Furnishings and other appurtenances.
(iiii) Resort Property. Collectively, that certain real property of
approximately Ten Thousand Two Hundred Seventy-Six and Ninety-Six One
Hundredths (10,276.96) square meters located in Cancun Mexico, that certain
real property of approximately Twenty-Four Thousand Nine Hundred Thirty-Six
and Eight Hundred Nineteen One Thousandths (24,936.819) square meters
located in Puerto Vallarta, Mexico, and that certain real property of
approximately Thirty-Eight Thousand Five Hundred Seventy and Nine One
Thousandths (38,570.009) square meters located in Los Cabos, Mexico, all as
more fully described in Exhibit C, attached hereto and incorporated herein
by this reference together with all related and appurtenant property, both
real and personal, amenities, facilities, furniture, furnishings,
equipment, appliances, fixtures, easements, licenses, rights and interests
as established by and more fully described in the Declaration and the other
Timeshare Documents, as the same may be amended from time to time.
(jjjj) RESPA. Defined in Section 6.13(b) of this Agreement.
(kkkk) Revolving Credit Period. Defined in Section 2.1 of this
Agreement.
(llll) Security. Shall have the same meaning as that ascribed to it in
Section 2(1) of the Securities Act of 1933, as amended.
(mmmm) Service of Process Agent. Defined in Section 12.23 of this
Agreement.
(nnnn) Servicing Agent. Corporacion Mexitur, S. de R.L. de C.V., an
affiliate of Borrower and Guarantor, or other Person expressly designated
from time to time by Lender, in Lender's sole and absolute discretion, to
provide reports pursuant to the Servicing Agreement, at Borrower's expense
(at a current market rate as agreed to by Borrower and TBS Business
15
<PAGE>
Services, Inc. in advance of the Closing Date). Lender shall have the
right, in its sole and absolute discretion, to remove any Servicing Agent
appointed by Borrower and require that Borrower appoint a replacement
Servicing Agent that is satisfactory to Lender, in its sole and absolute
discretion. For so long as Servicing Agent is Corporacion Mexitur, S. de
R.L. de C.V., or is affiliated in any way with Borrower or Guarantor, such
Servicing Agent shall provide to Lender fidelity insurance and any other
insurance policies deemed necessary by Lender, in its sole and absolute
discretion. Under no circumstances shall Borrower or an Affiliate of
Borrower be the Servicing Agent during any period of time in which an
uncured Event of Default hereunder exists.
(oooo) Servicing Agreement. The Servicing Agreement which has been
executed or which shall be executed prior to the Initial Advance, by and
among Lender, Borrower and Servicing Agent, providing for servicing of
Pledged Notes Receivable and providing certain required reports.
(pppp) Submissions. Defined in Section 12.21(a) of this Agreement.
(qqqq) Survey. As Lender may require, perimeter, as-built surveys of
each of the Resorts and the Units, as of a date no earlier than ninety (90)
days prior to the Closing Date, with signature and seal of a registered
engineer or surveyor affixed thereto showing all easements affecting the
Resort Property and other matters apparent thereon, the relation of the
Resort Property to public thoroughfares for access purposes and the
location of the proposed Improvements on the Resort Property and certifying
that the Resort Property is not in a flood hazard area (if applicable in
Mexico), together with a legal description of the Resort Property
compatible with said survey and sufficient for purposes of the Textron
Mortgages. The survey shall be certified to Lender, as Lender may require.
(rrrr) Tenant Income. Defined in Section 1.1(m)(xvi) of this
Agreement.
(ssss) Tenant Leases. Defined in Section 1.1(m)(xv) of this Agreement.
(tttt) Term. A period of sixty (60) calendar months from the Closing
Date, plus the number of days from the Closing Date to the end of the month
in which the Closing Date occurs.
(uuuu) Textron Mortgages. Collectively, three separate properly
recorded and perfected mortgages delivered by Borrower in favor of Lender
securing the Loan and encumbering the Resort Property and all Improvements
(including the Units, all Interval Lease Contracts and, to the greatest
extent permitted under United States and Mexican law, all Unsold Intervals)
constructed or to be constructed thereon, subject only to the Permitted
Liens and Encumbrances. The Textron Mortgages shall be of a second priority
and exclusive (with the exception of the FINOVA Mortgages) as to the Resort
Property (including all possible future phases, all amenities, improvements
and fixtures now or hereafter located on the Resort Property, and all
easements and other rights appurtenant to the Resort Property now existing
or to be constructed or renovated) and the Improvements. In accordance with
Mexican law, Textron's Mortgages shall be perfected by recording amendments
to the existing guaranty Trust Agreements which establish the FINOVA
Mortgages in order to add Lender as the second beneficiary in guaranty as
to each of the Resorts, with FINOVA remaining as the first beneficiary in
guaranty as to each of the Resorts. The documents establishing the guaranty
Trust Agreements shall be amended under terms acceptable to Lender, the
trustee of the guaranty Trust Agreements (the "Land Trustee") shall be a
bank acceptable to Lender, and the Trust Agreements shall be recorded with
the Public Registries of Property in the location of each of the Resorts.
Each of the three separate Trust Agreements establishing the Textron
Mortgages shall be in the amount of US$10,000,000.00. The Trust Agreements
shall each include an acknowledgement by Borrower and FINOVA to Lender's
rights in and to the Resort Property and to Lender's rights to the Notes
Receivable and related Interval Lease Contracts and Intervals to be
financed by Lender pursuant to the terms of this Agreement.
(vvvv) Timeshare Act. Any and all applicable Mexican laws, rules and
regulations governing the creation and sale of timeshare, specifically
including NOM-029-SCFI-1998 Commercial Information - Normative Elements for
Time Sharing Services.
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(wwww) Timeshare Documents. All documents listed on Exhibit D relating
to the Resorts and the creation, marketing and sale of Intervals, which
shall consist of, but not be limited to, the following:
(i) The public offering statements, if any, and any other reports
or registrations, together with all exhibits and schedules thereto,
with evidence of approvals thereof from the applicable Mexican
regulatory authorities related to the establishment and operation of
each of the Resorts and the sale of Intervals by Borrower in Mexico
and in each other jurisdiction in which sales of Intervals are made,
to the extent such public offering statements and other reports,
registrations, or approvals are required by applicable law. With
respect to the marketing and sale of Intervals in jurisdictions other
than Mexico for which Borrower claims that no registration is
required, Borrower shall deliver to Lender:
(A) written statements from the applicable governmental
authorities confirming that no such registration is required
where such applicable governmental authorities exist;
(B) opinions of counsel licensed to practice in such
jurisdictions stating that no such registration is necessary; or
(C) such other evidence of compliance with such
jurisdictions' statutes, ordinances, rules and regulations as
Lender may request.
(ii) with respect to each of the Resorts, the Declaration and all
amendments thereto, any site plan and any easements or other
instruments, establishing and describing the status of the Units and
the Intervals, and all amenities, facilities, services, and common
areas and elements related or appurtenant thereto;
(iii) other registrations, approvals and permits for the creation
and sale of Intervals and the operation of each of the Resorts,
including, without limitation, the Borrower's occupational and other
business licenses relating to the Borrower or the Resorts, samples of
all advertising, gift, prize and promotional materials, and evidence
of any required approvals thereof by the applicable Mexican regulatory
authorities, as well as copies of any agreements with the Exchange
Company and a list of all salespeople and sales managers in connection
with the sale of Intervals, together with evidence that each is
properly licensed in accordance with applicable law; and
(iv) all agreements entered into by or on behalf of the Borrower
including, without limitation, agreements regarding Purchasers' rights
to use the Facilities and Common Furnishings, and any agreements with
any Affiliate or third party related to management, operations and
maintenance of the Resorts, and any such agreements with Purchasers;
(v) the form of all documents used to market and sell Intervals
or Encumbered Intervals or that govern the rights of Purchasers,
including without limitation, purchase contracts, advertising and
solicitation materials, Notes Receivable, truth-in-lending disclosure
statements or other applicable disclosure, disclosures, documents,
acknowledgments, exchange club agreements, reservation agreements, and
management agreements.
Each Timeshare Document shall be in form and content acceptable
to Lender, in its sole discretion. Lender shall have received and
approved true, correct and complete copies of the Timeshare Documents
as a condition precedent to any Advances hereunder.
(xxxx) Trust Agreements. Collectively (i) with respect to the Club
Regina Resort at Los Cabos, that certain Irrevocable Trust Agreement dated
as of August 18, 1997, by and between Desarrollos Turisticos Integrales, S.
de R.L. de C.V., a Mexican limited responsibility corporation with variable
capital (predecessor-in-interest to CR Cabos) both as trustor and
beneficiary with respect to the Trust Use Rights, the Land Trustee, as
trustee, and Residual Beneficiary, as beneficiary with respect to the Trust
Residual Interest, as evidenced by Public Instrument No. 55, 929, as
amended by that certain Amendment to Irrevocable Trust Agreement, dated as
of November 28, 1997, by and between CR Cabos, Land Trustee and Residual
Beneficiary, as evidenced by Public Instrument No. 51,158, as further
amended by that certain Amendment to Irrevocable Trust Agreement dated as
of March 3, 1998 by and between CR Cabos, Land Trustee and Residual
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Beneficiary, as evidenced by Public Instrument No. 51,403, and as further
amended by that certain Amendment to Irrevocable Trust Agreement (Convenio
Modificatorio del Contracto de Fideicomiso Irrevocable) dated as of April
26, 1999 evidenced by Public Instrument No. 67,620 of Notary Public Number
103 for the Federal District of Mexico, executed by Land Trustee, as
Trustee, CR Cabos, as beneficiary with respect to the Trust Use Rights,
FINOVA, as beneficiary in guaranty with respect to the Trust Use Rights and
Residual Beneficiary, as beneficiary with respect to the Trust Residual
Interest, as it may be from time to time renewed, amended, restated or
replaced, (ii) with respect to the Club Regina Resort at Cancun, that
certain Irrevocable Trust Agreement, dated as of August 18, 1997, by and
between Promotora Turistica Nizuc, S. de R.L. de C.V. a Mexican limited
responsibility corporation with variable capital (predecessor-in-interest
to CR Cancun) both as trustor and beneficiary with respect to the Trust Use
Rights, the Land Trustee, as trustee, and Residual Beneficiary as
beneficiary with respect to the Trust Residual Interest, as evidenced by
Public Instrument No. 55,928, as amended by that certain Amendment to
Irrevocable Trust Agreement, dated as of November 28, 1997, by and between
CR Cancun, Land Trustee and Residual Beneficiary, as evidenced by Public
Instrument No. 51,162, as further amended by that certain Amendment to
Irrevocable Trust Agreement dated as of March 3, 1998 by and between CR
Cancun, Land Trustee and Residual Beneficiary, as evidenced by Public
Instrument No. 51,404, and as further amended by that certain Amendment to
Irrevocable Trust Agreement (Convenio Modificatorio del Contracto de
Fideicomiso Irrevocable) dated as of April 26, 1999 evidenced by Public
Instrument No. 67619 of Notary Public Number 103 for the Federal District
of Mexico, executed by Land Trustee, as Trustee, CR Cancun, as beneficiary
with respect to the Trust Use Rights, FINOVA, as beneficiary in guaranty
with respect to the Trust Use Rights and Residual Beneficiary, as
beneficiary with respect to the Trust Residual Interest, as it may be from
time to time renewed, amended, restated or replaced, and (iii) with respect
to the Club Regina Resort at Puerto Vallarta, that certain Irrevocable
Trust Agreement, dated as of August 18, 1997, by and between Promotora y
Desarrolladora Pacifico, S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable capital (predecessor-in-interest
to CR Puerto Vallarta), both as trustor and beneficiary with respect to the
Trust Use Rights, the Land Trustee, as trustee, and Residual Beneficiary,
as beneficiary with respect to the Trust Residual Interest, as evidenced by
Public Instrument No. 55,927, as amended by that certain Amendment to
Irrevocable Trust Agreement, dated as of November 28, 1997, by and between
CR Puerto Vallarta, Land Trustee and Residual Beneficiary as evidenced by
Public Instrument No. 51,159, as further amended by that certain Amendment
to Irrevocable Trust Agreement dated as of March 3, 1998 by and between CR
Puerto Vallarta, Land Trustee and Residual Beneficiary, as evidenced by
Public Instrument No. 51,405, and as further amended by Amendment to
Irrevocable Trust Agreement (Convenio Modificatorio del Contracto de
Fideicomiso Irrevocable) dated as of April 26, 1999 evidenced by Public
Instrument No. 67,618 of Notary Public Number 103 for the Federal District
of Mexico, executed Land Trustee, as Trustee, CR Puerto Vallarta, as
beneficiary with respect to the Trust Use Rights, FINOVA, as beneficiary in
guaranty with respect to the Trust Use Rights, and Residual Beneficiary, as
beneficiary with respect to the Trust Residual Interest, as it may be form
time to time renewed, amended, restated or replaced. The term Trust
Agreement shall mean any of the Trust Agreements.
(yyyy) Unit. The individual living units in a building in each of the
Resorts, together with all related or appurtenant interests in services,
easements, rights of access or other rights or benefits, as described in
the Timeshare Documents. The Resorts presently consist of an aggregate of
four hundred two (402) Units.
(zzzz) Unsold Intervals. All Intervals owned by Borrower at any
particular time within the Resorts and for sale in the ordinary course of
business.
(aaaaa) Voluntary Prepayment. Any voluntary prepayment of the Loan
permitted to be made by Borrower under the terms of this Agreement.
Section 2. THE LOAN.
2.1 Loan. Except as may be expressly set forth herein to the contrary, all
amounts of money set forth herein and in the Loan Documents shall be in U.S.
Dollars. Upon the terms and subject to the conditions set forth in this
Agreement, Lender shall advance to Borrower, and Borrower may borrow, repay and
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reborrow, principal under the Loan to be funded in a series of Advances during
the initial full twelve (12) month period following the Closing Date (the
"Revolving Credit Period") not to exceed an outstanding balance of the lesser of
US$10,000,000 or the Borrowing Base. In accordance with the provisions of
Section 4.2(c)(v) and Section 4.2(c)(vi) of this Agreement, Advances would be
made in increments of at least US$50,000 but not more often than twice a month.
As provided in Section 6.11 herein, the proceeds of the Loan will be disbursed
by Lender solely to pay for Loan Costs (as such term is defined in the
Commitment), to Borrower for amortization (principal or interest) of mortgage
and non-mortgage debt owed by Borrower or by any Affiliates of Borrower and for
sales, marketing, working capital, project development and administrative
expenses incurred in the operations for the Resorts, and for future expansion of
timeshare development in accordance with plans and projections acceptable to
Lender (provided, however, that the use of the proceeds of the Loan for such
expansion shall not adversely affect the operations of any of the Resorts).
The maximum Loan amount (exclusive of accrued but unpaid interest) which
may be outstanding at any time under this Agreement shall not exceed
US$10,000,000.00, and Lender shall have no obligation whatsoever to make any
Advance which would cause the aggregate outstanding principal balances of the
Loan to exceed US$10,000,000.00. In the event that the proceeds of the Loan and
any other amounts required to be paid by Borrower hereunder are insufficient to
fully pay all costs as contemplated hereunder such proceeds will be applied, or
if the use of the Loan proceeds varies materially (as determined reasonably and
in good faith by Lender) from the uses described herein, then Lender shall have
no obligation to fund (or continue funding) the Loan or any portion thereof;
provided, however, that, Borrower shall be permitted to provide from its own
funds an amount sufficient to cover that portion of the Loan proceeds used for
uses materially varying from the uses described herein.
2.2 Interest Rate. The aggregate principal amount of all Advances of the
Loan which are outstanding from time to time shall bear interest at a rate equal
to the Interest Rate. The average monthly outstanding principal balance of the
Loan shall bear interest in arrears as of Lender's wiring of funds through its
receipt of repayment of the Loan (if received by Lender later than 12 noon,
Eastern Standard Time, then interest accrual shall be through the next Business
Day following such receipt). Immediately upon the occurrence, but solely during
the continuance, of an Event of Default and after the Note Maturity Date) (if
the Loan is not paid in full on the Note Maturity Date), at Lender's election,
in its sole discretion, the Loan shall bear interest at the Default Rate.
2.3 Payments. Borrower agrees punctually to pay or cause to be paid to
Lender all principal and interest due under the Note or otherwise with respect
to the Loan. The Borrower shall make the following payments on the Loan:
(a) Monthly Payments. Borrower shall direct or otherwise cause the
makers of all Pledged Notes Receivable to pay all monies due thereunder to
the Lockbox Agent for deposit in the lockbox account established pursuant
to the Lockbox Agreement, or as otherwise required by Lender. All funds
from the Pledged Notes Receivable shall be paid by Purchasers directly to
the Lockbox Agent. Lockbox Agent shall disburse proceeds pursuant to the
terms of the Lockbox Agreement. At least one (1) time per week, one hundred
percent (100%) of the cleared funds collected from the Pledged Notes
Receivable, if any, will be paid to Lender by the Lockbox Agent, pursuant
to the Lockbox Agreement, and will be applied by Lender in the following
order: (A) to the payment of costs or expenses incurred by Lender pursuant
to this Agreement in creating, maintaining, protecting or enforcing its
Liens in and to the Collateral and in collecting any amounts due to Lender
in connection with the Loan; (B) to any interest accrued at the Default
Rate; (C) to the payment of accrued and unpaid interest at the Interest
Rate; and (D) to the reduction of the principal balance of the Loan. If the
amount of the funds received by Lender from the Lockbox Agent with respect
to any month is insufficient to pay in full the amounts provided for in
clauses (A), (B), and (C) of the preceding sentence for such month, without
notice or demand, Borrower shall pay the difference to Lender on or before
last day of the month following interest accrual. In the event Borrower
receives any payments on any of the Pledged Notes Receivable directly from
or on behalf of the maker or makers thereof, Borrower shall receive all
such payments in trust for the sole and exclusive benefit of Lender; and
Borrower shall deliver to the Lockbox Agent all such payments (in the form
so received by Borrower) as and when received by Borrower, unless Lender
shall have notified Borrower to deliver directly to Lender all payments
with respect to the Pledged Notes Receivable which may be received by
Borrower, in which event all such payments (in the form received) shall be
endorsed by Borrower to Lender and delivered to Lender promptly upon
Borrower's receipt thereof.
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(b) Final Payment. The entire outstanding principal balance of the
Loan, together with all other Obligations, shall be paid in full on or
before the first day of the sixty-first (61st) month following the end of
the month in which the Closing Date occurs (the "Note Maturity Date").
2.4 Prepayments.
(a) Voluntary Prepayments. Subject to the terms of this Agreement and
the payment of the applicable prepayment premium set forth in Section
2.4(c) below, Borrower may prepay the Loan, in whole but not in part, at
any time after the end of the first Loan Year, upon thirty (30) days prior
written notice to Lender. In the event that Borrower elects to prepay the
Loan in full, such prepayment must include all outstanding principal,
accrued but unpaid interest, and all other Obligations, including the
applicable prepayment premium provided in Section 2.4(c) below. The Loan
may not be prepaid before the end of the first Loan Year.
(b) Mandatory Prepayments. If at any time and for any reason, the
outstanding unpaid principal balance of the Loan exceeds the aggregate
amount of the Borrowing Base, and Borrower has not replaced ineligible
Notes Receivable with Eligible Notes Receivable, then, within ten (10) days
following Borrower's receipt of telecopied notice from Lender of the
occurrence of such excess over Borrowing Base, or, absent such telecopied
notice, within fifteen (15) days after the end of the calendar month in
which such excess first occurred, Borrower shall either (A) prepay the
principal balance of the Loan in an amount equal to the difference between
the aggregate principal balance of the Loan and the amount of the Borrowing
Base; or (B) increase the aggregate principal amount of Eligible Notes
Receivable pledged to Lender so that the amount of Borrowing Base equals or
exceeds the aggregate outstanding principal balance of the Loan. The pledge
and delivery to Lender of additional Eligible Notes Receivable shall comply
with the document delivery and recordation requirements set forth in
Section 4.2 of this Agreement and shall be accompanied by a written
certification of Borrower to the effect that such additional Pledged Notes
Receivable are Eligible Notes Receivable and that, giving effect to the
pledge to Lender of such Eligible Note Receivable, the outstanding unpaid
principal balance of the Loan is equal to or less than the aggregate amount
of the Borrowing Base. If Borrower elects to prepay the excess principal
balance of the Loan pursuant to this Section 2.4(b), no prepayment premium
shall be due Lender in connection with such prepayment.
(c) Prepayment Premiums. Any prepayment of the Loan pursuant to
Section 2.4(a) above must be accompanied by a prepayment premium
calculated, as of the date of such prepayment, as follows:
Date of Prepayment Premium
Loan Year Two Three percent (3%) of the then
outstanding balance of the Loan
Loan Year Three Two percent (2%) of the then
outstanding balance of the Loan
Loan Year Four One percent (1%) of the then
outstanding balance of the Loan
Thereafter Zero (0)
No prepayment premium shall be payable, and there shall be no
prepayment prohibition at any time, in connection with (i) any prepayment
of the principal balance of the Loan which arises from the prepayment of
one or more Eligible Notes Receivable by its maker or makers, or (ii) any
prepayment of the principal balance of the Loan which arises from the
casualty or condemnation at one or more of the Resorts where the Borrower
is not required to rebuild.
2.5 Guaranty. Payment and performance by Borrower of one hundred percent
(100%) of all of the Obligations (including one hundred percent [100%] of the
outstanding principal, plus one hundred percent [100%] of all accrued interest,
late charges, attorneys' fees, and other charges arising under the Loan) shall
be unconditionally guaranteed by the Guarantor, in accordance with the terms of
this Agreement, the Note and the Guaranty.
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Section 3. COLLATERAL.
3.1 Grant of Security Interest. To secure the payment and performance of
the Obligations, for value received, Borrower unconditionally and irrevocably
assigns, pledges and grants to Lender a continuing first priority security
interest in and to the Collateral, subject to the Permitted FINOVA Liens.
3.2 Security Interest in All Pledged Notes Receivable and Interval Lease
Contracts. Notwithstanding that Lender may be obligated, subject to the terms
and conditions set forth in the Loan Documents, to make Advances only with
respect to Eligible Notes Receivable, Lender shall have a continuing security
interest in all of the Pledged Notes Receivable and related Interval Lease
Contracts relating to such Pledged Notes Receivable and may collect all payments
made under or with respect to all Pledged Notes Receivable and related Interval
Lease Contracts, including Eligible Notes Receivable that may become ineligible,
until any of the same may be released by Lender, if at all, pursuant to Section
12.10 below.
3.3 Perfection of Security. Borrower agrees, at its own expense, to execute
the financing statements or applicable security agreements under United States
or applicable Mexican law, if any, provided for by the Code ("Financing
Statements"), together with any and all other instruments or documents, and to
take such other action as may be required to perfect and to continue the
perfection of Lender's security interests in the Collateral and, unless
prohibited by law, Borrower hereby authorizes Lender to execute and file any
such Financing Statements on Borrower's behalf. Borrower further agrees, at its
own expense, to execute any and all instruments or documents and to take such
other action as may be required to perfect and to continue the perfection of
Lender's security interests in the Collateral under Mexican law and under
applicable laws of the United States.
3.4 Location of Collateral. All tangible Collateral (other than Collateral
delivered to Lender or the Lockbox Agent) which is personal property is to
remain, at all times, within the Resorts, and Borrower may not transfer the
Collateral from such premises without the prior written approval of Lender.
3.5 Insurance and Protection of Collateral. Borrower agrees to maintain and
pay for insurance upon all Collateral wherever located (whether in storage or in
transit) covering risks in such amounts and with such insurance companies as is
provided in Section 7.1(d) hereof.
3.6 Protection of Collateral; Reimbursement. The portion of the Collateral
consisting of (i) the original Pledged Notes Receivable; (ii) the original
Interval Lease Contracts (including any addenda thereto) related to such Pledged
Notes Receivable; and (iii) originals or true copies of the related
truth-in-lending disclosure statements, if any, or other applicable disclosure,
and if required by Lender, loan applications, the related Purchaser's
acknowledgments, receipts, the Payment Authorization Agreements and the Exchange
Company applications and disclosures, shall be delivered, at Borrower's expense,
to Lender at its East Hartford, Connecticut office and held in Lender's
possession and control until the Obligations are fully satisfied. Borrower shall
pay to Lender, at the time of each Advance, a one-time custodial fee of US$10.00
for each Pledged Note Receivable (and related Collateral) delivered into
Lender's physical possession. The portion of the Collateral delivered to Lender
as described above shall be segregated by Lender and stored in a fire-resistant
filing cabinet. Borrower and the Guarantor agree that such storage is and shall
be deemed to constitute reasonable care by Lender with respect to such
Collateral. All insurance expenses and all expenses of protecting the Collateral
including without limitation, storing, warehousing, insuring, handling,
maintaining and shipping the Collateral, and any and all excise, property,
intangibles, sales and use taxes imposed by any state, federal or local
authority on any of the Collateral or with respect to the sale thereof shall be
paid by Lender from the custodial fee referenced above. Any and all other sums
for which Borrower may become liable hereunder and all costs and expenses
(including attorneys' and paralegals' fees, legal expenses and court costs)
which Lender may incur in enforcing or protecting its Lien on, or rights and
interest in, the Collateral or any of its rights or remedies under this
Agreement or any other Loan Document or with respect to any of the transactions
to be had hereunder or thereunder, until paid by Borrower to Lender with
interest at the Default Rate, shall be included among the Obligations and, as
such, shall be secured by all of the Collateral. Provided that Lender retains
the original Pledged Notes Receivable and originals or copies of the related
Timeshare Documents delivered to it in a fire-resistant filing cabinet as
provided above, Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto or for
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any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, the Lockbox Agent, Servicing Agent or
any other Person whomsoever, excluding damages or losses that occur as a result
of Lender's gross negligence or willful misconduct.
3.7 Cross-Collateralization and Default. The Collateral shall secure all of
the Obligations. All Liens, pledges, assignments, mortgages, security interests
and collateral granted by Borrower to or for the benefit of Lender pursuant
hereto or any other related documents or instruments shall also secure the
Obligations. In addition, all other loans of any type made by Lender to Borrower
and any Affiliate of Borrower shall be cross-collateralized and cross-defaulted.
Section 4. CONDITIONS PRECEDENT TO THE CLOSING AND FUNDING PROCEDURE.
4.1 Conditions Precedent. The obligation of Lender to enter into this
Agreement and to fund the Loan shall be subject to the satisfaction of each of
the conditions precedent set forth in the Commitment, in addition to all of the
conditions precedent set forth below and elsewhere in the Loan Documents on or
before the Closing Date:
(a) Loan Documents. On or prior to the Closing Date, Borrower and the
Guarantor shall execute and deliver (or cause to be executed and delivered,
as the case may be) to Lender, the Loan Documents.
(b) Title. To the extent available, a title insurance policy in form
acceptable to Lender, or to the extent such a title insurance policy is not
available, a satisfactory legal opinion or certification issued by
qualified real estate counsel or Mexican notary acceptable to Lender which
confirms that satisfactory security documents, specifically including the
Textron Mortgages, are recorded in the appropriate registry, and that such
security documents create a first priority lien, subject to the FINOVA
Mortgages, in and to the Resort Property in the amount of the Loan, subject
only to such exceptions and conditions to title which are listed in Exhibit
B to this Agreement (the "Permitted Liens and Encumbrances"). Each of the
Resorts shall be placed in a Mexican land trust (fideicomiso) subject to
the Trust Agreements in form and substance that are acceptable to Lender
and which are subject to the rights of Interval Purchasers pursuant to the
Declaration and the Timeshare Documents. The condition of title must be
satisfactory to Lender in all respects. An updated opinion or certification
may be required prior to any subsequent Advance. Title certification issued
by a notary shall be in a form acceptable to Lender.
(c) Opinions of Counsel. Lender shall have received from counsel for
Borrower and the Guarantor, licensed in the United Mexican States of the
United States of America, as appropriate, and acceptable to Lender, closing
opinions in form and substance satisfactory to Lender, dated as of the
Closing Date, covering such items as may be required by Lender, including
without limitation, (i) that the Loan Documents are valid, binding and
enforceable in accordance with their terms and that they do not violate any
applicable usury (if any) or other applicable laws, the procedures and
requirements which must be satisfied by Borrower in connection with the
making of withholding payments to the Mexican taxing authorities, that the
Borrower and the Resorts and the Resorts' intended uses comply with all
timeshare and other applicable statutes, ordinances, rules and regulations,
that each of the Resorts and the Resort Property are in compliance with all
applicable Environmental Laws, that Borrower and the Resort Property are in
compliance with all applicable statutes, ordinances, rules and regulations
governing the marketing and sale of timeshare Intervals (confirming that
each of the Resorts has been properly registered with the appropriate
Mexican governmental authorities) and that the Timeshare Documents comply
with all applicable statutes, ordinances, rules and regulations and have
been properly recorded as required under the applicable laws of the United
Mexican States, (ii) that Guarantor is duly established under the laws of
Nevada and is authorized to execute this Agreement and the remaining Loan
Documents, and (iii) that the Loan is "Permitted Debt" (as such term is
defined in the Indenture) and is otherwise allowed pursuant to the terms of
the Indenture.
(d) Representations, Warranties, Covenants and Agreements. The
representations and warranties contained in the Loan Documents and in any
certificates delivered to Lender in connection with the closing shall be
true and correct in all material respects, and all covenants and agreements
to have been complied with and performed by Borrower as of the Closing Date
shall have been fully complied with and performed to the satisfaction of
Lender.
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(e) No Prohibitions. Neither Borrower nor the Guarantor shall have
taken any action or permitted any condition to exist, the result of which
action or condition continues to exist as of the Closing Date and, would
have been prohibited by any provision of this Agreement or the Commitment.
(f) Background Documents. Borrower shall have delivered to Lender and
Lender shall have approved each of the following (collectively, the
"Background Documents"):
(i) Borrower's Organizational Documents. Copies of Borrower's
organizational and corporate documents, including but not limited to
its articles of organization and bylaws, partnership certificates and
agreements, together with any amendments thereto and evidence of
filing of appropriate documentation with the appropriate Public
Registries in Mexico, certified to be true and complete by Borrower's
secretary;
(ii) Good Standing Certificate. Current good standing
certificates or mercantile folio certificates issued for Borrower by
the government of Mexico and by the Public Registry of Property and
Commerce in any state in which Borrower is qualified to do business,
to the extent available in Mexico;
(iii) Resolutions. Certified resolutions of Borrower's board of
directors authorizing the execution of all Loan Documents and the
performance of all Obligations thereunder, to the extent required
under Mexican law and by the bylaws of Borrower;
(iv) Survey. Three (3) original copies of perimeter as-built
surveys of the Resort Property, dated within ninety (90) days prior to
the Closing Date, satisfactory to Lender and prepared by a licensed
surveyor satisfactory to Lender and in accordance with Lender's
requirements, with the signature and seal of a registered engineer or
surveyor affixed thereto, showing the location and dimensions of all
Units, foundation perimeters, Facilities and other Improvements
thereon and indicating the location of proposed improvements (if any),
the routes of ingress and egress for public access to each of the
Resorts, all utility lines, walks, drives, recorded or visible
easements and rights-of-way on the Resort Property, and showing that
there are no encroachments, improvements, projections or easements
(recorded or unrecorded) on the property lines. The survey shall
certify the surface area of the Resort Property and shall indicate
whether the Resort Property is located within any flood hazard area.
The survey must be prepared in accordance with the standards set forth
by ALTA/ACSM and those of any and all Mexico Surveyors' bureaus or
associations as well as any and all regulations or applicable local,
state and federal law and must be certified to Lender. The surveyor's
certificate placed on the survey shall include a legal description of
the Resort Property compatible with the Survey and sufficient for
purposes of the Textron Mortgages, and shall include any other
information required by Lender. Similar surveys shall be furnished
from time to time upon the reasonable request of Lender, but not more
often than once per year, which shall show the actual locations of the
Improvements on the Resort Property. A final as-built survey shall be
furnished to Lender after all future Improvements are completed (if
any);
(v) Environmental Report. Lender reserves the right to require in
its discretion an Environmental Inspection or reports covering each of
the Resorts prepared by an engineering firm acceptable to Lender,
including all real property and personal property intended to be
subject to the Timeshare Documents, confirming:
(A) that soil conditions are sufficient to support existing
improvements and any contemplated Improvements to the Resort
Property, and confirming the absence of sinkholes;
(B) the absence of Hazardous Materials on, under or
affecting the Resort Property or any other real property or
personal property comprising the Resorts;
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(C) that the engineering or environmental consulting firm
has obtained, reviewed and included within its report a CERCLIS
printout from the Environmental Protection Agency (the "EPA") or
equivalent Mexican authority, if such authority and such report
exist, statements from the EPA or equivalent Mexican authority
and other applicable state and local authorities and such other
information as Lender may reasonably require, all of which
information shall confirm that there are no known or suspected
Hazardous Materials located at or used or stored on or
transported to or from, the Resorts or in such proximity thereto
as to create a material risk of contamination of the Collateral;
(D) the absence of radon gas at the each of the Resorts,
including all of the Units, or, if radon gas is found to be
present in any part of the Resorts or the Units, that such
presence is of a nature or magnitude so as to be fully in
compliance with applicable standards under the Environmental Laws
and all other laws or standards applicable to the Resorts; and
(E) the absence of asbestos within the Units, Facilities or
elsewhere at each of the Resorts, or, if asbestos is found to be
present in any part of the Resorts, that such presence is of a
nature or magnitude which is able to be removed by a licensed
removal contractor for a guaranteed maximum sum satisfactory to
Lender. The costs of all inspections and corrective procedures
shall be borne by the Borrower.
(vi) Soil Tests. Lender reserves the right to require in its
discretion a report as to soil and compaction condition and analysis
made at the Resort Property by a soil testing firm satisfactory to
Lender. The number and location of such borings shall be in accordance
with the recommendations of the soil testing firm and must also be
satisfactory to Lender and also shall include a sinkhole analysis of
each of the Resorts. The report shall include the recommendations of
the soil testing firm as to the preparation of the soil needed in
order to adequately support the Improvements. During the course of
construction, Borrower shall also provide such reports as to concrete
tests and such additional soil tests as Lender reasonably may require;
(vii) Physical Inspection. An independently prepared structural
and mechanical engineering report prepared by an engineering firm
acceptable to Lender covering each of the Resorts and the Units
confirming that the Units and the remainder of the Resorts are
mechanically and structurally sound. If Borrower shall be unable to
satisfy the requirements of this paragraph within one hundred eighty
(180) days following the date of receipt by Borrower of the
aforementioned structural and mechanical engineering report, Lender
shall have the right to terminate the Loan or, alternatively, to
require corrective procedures satisfactory to it. The cost of all
inspections, reports and corrective procedures with respect to the
mechanical and structural condition of the Resorts and the Units shall
be borne entirely by Borrower.
(g) Evidence of Insurance. Lender shall have received certified copies
of all insurance policies and endorsements thereto or other evidence
satisfactory to Lender, in its sole discretion, that Borrower has obtained
and is maintaining all policies of insurance required by and in accordance
with Section 7.1(d) hereof, including but not limited to copies of the most
current paid insurance premium invoices for such policies.
(h) Applicable Laws. Lender shall have received evidence satisfactory
to Lender that all existing and contemplated Improvements at each of the
Resorts are and will be in compliance with all applicable zoning, building
and other Mexican laws, if any, in connection with the construction,
development, establishment and operation of the Resorts and the sale, use,
marketing and occupancy of Units and Intervals; provided, however, that the
approval of the Timeshare Documents and Borrower's sales and marketing
efforts in respect thereof shall have been obtained from the appropriate
Mexican governmental authority prior to the sale of any Interval. In
addition, on or before the Closing Date, Lender shall have received
evidence satisfactory to Lender that all existing and contemplated
Improvements are and will be in compliance with all applicable zoning,
building and other Mexican laws, if any, in connection with the
construction, development, establishment and operation of the Resorts and
the sale, use marketing and occupancy of Units and Intervals. Borrower
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shall provide evidence satisfactory to Lender confirming that all
approvals, consents, licenses and permits necessary to create the Intervals
and to provide time-share services in compliance with Mexican law and to
operate, use and market Intervals at the Resorts under the time-share
system have been obtained, including, but not limited to, permits issued by
the Mexican Consumer Protection Agency and the Mexican Ministry of Commerce
and Industrial Development.
(i) Litigation. Other than those particular matters described in
Exhibit E hereto, there shall be no bankruptcy, suspension of payments,
foreclosure action or other material litigation or judgments pending or
outstanding against any of the Resorts, the Units, any portion of the
Collateral, the Borrower, any general partner or shareholder of the
Borrower, Guarantor, any general partner or shareholder of Guarantor, the
managing agent for each of the Resorts or the Affiliates of any of the
foregoing (each a "Material Party"). The term "other material litigation"
as used herein shall not include matters in which (i) a Material Party is
plaintiff and no counterclaim is pending; or (ii) Lender determines, in its
sole discretion, that such litigation is immaterial due to settlement,
insurance coverage, frivolity or amount or nature of claim. Lender (or
Borrower, upon the request of Lender) shall have obtained an independent
search, at Borrower's expense, confirming that no such bankruptcy,
foreclosure action or other material litigation or judgment exists.
(j) Loan Documents. On or prior to the Closing Date, Borrower and
Guarantor shall execute and deliver (or cause to be executed and delivered,
as the case may be) to Lender, the Loan Documents.
(k) UCC/Other Searches. Lender shall have obtained such searches of
the applicable public records as it deems necessary under Mexican and other
applicable laws to verify that Lender shall have a first and prior
perfected Lien and security interest covering all of the Collateral,
subject to the Permitted FINOVA Liens. Lender shall not be obligated to
fund any Advance if Lender determines that it does not have a first and
prior perfected lien and security interest covering any portion of the
Collateral, subject to the Permitted FINOVA Liens. Notwithstanding anything
to the contrary as provided in this Section 4.1(k), Lender acknowledges and
understands that the Textron Mortgages serve as second priority mortgages
on the Resort Property, subject to the first priority FINOVA Mortgages.
(l) Taxes and Assessments. Lender shall have received copies of the
most current tax bills related to the Units, the Intervals, the Resort
Property and the remainder of each of the Resorts, together with evidence
satisfactory to it that all taxes and assessments either owed by Borrower,
or for the collection of which Borrower is responsible have been paid, or
will be paid out of closing proceeds, which taxes and assessments include,
without limitation, sales taxes, room occupancy taxes, payroll taxes,
personal property taxes, excise taxes, intangible taxes, real property
taxes, income taxes, and any assessments related to the Resorts or the
Units. Lender shall also have received information satisfactory to Lender
disclosing the tax identification numbers, tax rates, estimated tax values,
assessment ratios and estimated assessment values or amounts with respect
to each of the Resorts and the Resort Property and the identities of the
taxing authorities having jurisdiction over the Resort Property and Resorts
as well as the instrumentalities and entities having the power and
jurisdiction to impose assessments against the Resort Property or the
Resorts, and evidence satisfactory to Lender to demonstrate that the Units
and Intervals, if applicable, have been segregated from all other property
on the applicable municipal tax rolls and assessment rolls.
(m) Financial Statements. Lender shall have received and approved the
Financial Statements required pursuant hereto and the Commitment to be
delivered to Lender on or before the Closing Date, or otherwise required by
Lender, for Borrower and the Guarantor, all in form and substance
satisfactory to Lender, specifically including certified financial
statements for the year ending 1998 for the Borrower and the Guarantor.
(n) Preclosing Inspections. Lender shall have conducted and approved
due diligence investigations of Borrower, the Guarantor, the Timeshare
Documents and each of the Resorts.
(o) Proceedings Satisfactory. All actions taken in connection with the
execution or delivery of the Loan Documents, and all documents and papers
relating thereto, shall be reasonably satisfactory to Lender and its
counsel. Lender and its counsel shall have received copies of such
documents and papers as Lender or such counsel may reasonably request in
connection therewith, all in form and substance satisfactory to Lender and
its counsel.
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(p) Expenses. Borrower shall have paid all fees, expenses and other
amounts required to be paid prior to or at closing, pursuant to this
Agreement; provided, however, that Borrower shall be permitted to pay such
fees, expenses and other amounts from the proceeds of the Initial Advance.
(q) Intentionally omitted.
(r) Credit References. Borrower shall have caused such creditors as
requested by Lender to furnish Lender directly (by mail) with independent
credit references for Borrower, the Guarantor, the principals of Borrower
and Guarantor, and any other Material Party in form and content
satisfactory to Lender, in its sole discretion. Lender reserves the right
to request additional credit references on any Material Party as Lender
deems necessary in its sole discretion.
(s) Utilities. Letters addressed to Lender or other evidence
reasonably acceptable to Lender demonstrating the availability and
sufficiency of water, sewer, electric, telephone and natural gas utility
services to satisfactorily service each of the Resorts.
(t) Permits and Approvals. Building permit(s) and satisfactory
evidence that the Resort Property and the Improvements and the intended
uses of the Resorts are in compliance with any and all applicable laws,
regulations and ordinances, including, without limitation: (i)
Environmental Laws; (ii) erosion control ordinances; (iii) doing-business
and/or licensing laws; (iv) laws protecting disabled or handicapped
persons; and (v) any zoning laws (in this regard, the evidence submitted
should include (A) the zoning designation made for the Resort Property
(where available or applicable by local Mexican laws and regulations); (B)
zoning requirements as to parking, lot size, ingress and egress and
building setbacks, and (C) the length of time of the validity of all such
approvals, variances and permits). Such evidence may include letters,
licenses, permits, certificates and other correspondence from the
appropriate governmental authorities, opinions of Borrower's attorney or
other attorneys and opinions or certifications from Borrower's architect,
as Lender may determine, letters from utility companies, governmental
entities or other Persons, or certification by Borrower or other
confirmation acceptable to Lender, confirming that water, sewer (sanitary
and storm), electricity, gas, solid waste disposal, telephone, police, fire
and rescue services are being provided to each of the Resorts. Borrower
shall have furnished Lender with satisfactory evidence that it has obtained
all applicable governmental and utility permits, approvals, consents,
licenses and certificates for the use and occupancy of each of the Resorts.
The foregoing shall include, but not be limited to any environmental
approvals of the Mexican federal, state or local government authorities of
Mexico, all approvals for water, sewer and other utilities; and all
approvals required for compliance with local laws and regulations. All such
approvals shall continue to be legally valid and shall remain in full force
and effect for so long as the Loan is outstanding.
(u) Lien Waivers. A certificate or affidavit of Borrower (or the
Mexican equivalent) certifying that within the past ninety (90) days, no
work has been performed on any of the Resorts for which payment has not
been made in full and for which a lien could be filed (to the extent
possible under Mexican law), together with waivers of lien from each and
every contractor, subcontractor, laborer or material supplier performing
services or supplying material to any of the Resorts within the past ninety
(90) days and an affidavit listing all of said entities and certifying that
no work has been performed and no material have been supplied for which the
costs remain unpaid prior to closing; provided, however, that no such lien
waiver need be delivered by any subcontractor, laborer or material supplier
performing services or supplying material with a value of less than Five
Thousand Dollars (US$5,000.00) until such time as the aggregate value of
labor or materials supplied or services performed by such subcontractors,
laborers or suppliers exceeds Fifty Thousand Dollars (US$50,000.00).
(v) Timeshare Documents. Borrower shall have prepared and filed such
documents as are necessary or appropriate to receive the approval of the
Mexican Federal Consumer Protection Agency and any and all other federal,
state or local Mexican authorities in connection with the creation,
marketing and sale of Intervals in each of the Resorts to the general
public. Upon the approval of Borrower's registration application, Borrower
shall promptly provide Lender with written evidence of such approval,
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together with a written opinion of counsel acceptable to Lender confirming
Borrower's compliance with all applicable statues, ordinances, rules and
regulations in connection with the creation, marketing and sale of
Intervals. No sale or pre-sale of Intervals may occur until final approval
of the registration by the Mexican Federal Consumer Protection Agency. Any
and all documentation establishing each of the Resorts and the Units as a
timeshare project of public record shall be in form and content reasonably
satisfactory to Lender.
(w) Management and Property Contract. Borrower shall deliver to Lender
a copy of the management contract for each of the Resorts (collectively,
the "Management Contract"), and Lender shall have determined to its
reasonable satisfaction that the Resorts are managed by a professional
management company reasonably acceptable to Lender. Borrower shall deliver
to Lender copies of all Property Contracts, and Lender reserves the right
to review and approve any Property Contracts which affect in any way the
Trust Agreements.
(x) Lien Documents. Copies of all existing lien and mortgage documents
for the Permitted Liens and Encumbrances in form and content satisfactory
to Lender and copies of the existing liens registered at the Public
Registry of Property and Commerce. The Trust Agreements establishing the
Resorts must be acceptable to Lender in its sole discretion, and must
include appropriate non-disturbance terms with respect to the use and
enjoyment of the Resorts and Facilities by Interval Purchasers in
accordance with the Declaration and the Timeshare Documents.
(y) Note Receivable Documents. The form of Interval Lease Contract and
all purchase documents used in connection with the Notes Receivable shall
be satisfactory to Lender and to the Mexican Consumer Protection Agency.
The form of Interval Lease Contract and Note Receivable shall be translated
to English at Borrower's expense and be reasonably acceptable to Lender's
Mexican counsel.
(z) Tenant Estoppel. If requested by Lender, Borrower shall deliver to
Lender estoppel certificates from any commercial tenants in each of the
Resorts, dated no earlier than thirty (30) days prior to the Closing Date,
in a form reasonably acceptable to Lender. Each estoppel certificate shall
make certain certifications to Lender including, but not limited to the
following: (i) that the lease or contract is in full force and effect and
is unmodified or, if modified, a certification as to the modification
thereto; (ii) that Borrower has performed its obligations under the lease
or contract and there exists no right of setoff or counterclaim against
Borrower; (iii) that there has been no prepayment of any rents or other
sums not yet due under the lease or contract in excess of the amount of one
(1) month's rental; (iv) confirmation of the amounts paid as of November 1,
1999, for expense reimbursement; and (v) any other certification as Lender
shall reasonably request. In addition, each commercial tenant shall agree
with Lender in writing: (i) as to the assignment or pledge to Lender of
Borrower's rights under the applicable contract or lease; (ii) that the
contract or lease may not be modified or terminated during the Term of the
Loan without the prior written consent of Lender; (iii) that the contract
or lease is subordinate to the Loan Documents; (iv) that should an Event of
Default occur under any of the Loan Documents, all amounts due and payable
shall be subordinate to amounts due and payable to Lender under the Loan
Documents; (v) that upon the occurrence of an event of default by Borrower
under a contract or lease, Lender shall receive notice of such default and
a reasonable opportunity to cure; (vi) that in the event Lender succeeds to
all or part of Borrower's interest in the Resorts, tenants should fully and
completely attorn to Lender or Lender's nominee and each party shall
execute such instrument with certification of such attornment as Lender
shall reasonably request; (vii) such party shall not assert any offset
rights of liability with Borrower against Lender; and (viii) any other
agreements as Lender shall reasonably request.
(aa) Estoppel From Existing Lender. Borrower shall have delivered to
Lender an estoppel certificate(s) from FINOVA in conformance with the terms
of the Intercreditor Agreement. Borrower shall deliver to Lender an
estoppel certificate from any other lenders of Borrower confirming the good
standing and current dollars outstanding, if any, to such lender.
(bb) Certification by Borrower and Guarantor. On or before the Closing
Date, Borrower shall provide Lender with a written certification as to all
material facts pertinent to the Loan and pertinent to the legal opinions
described above in Section 4.1(c) of this Agreement, executed by Borrower
and Guarantor.
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(cc) Facilities Access. Evidence satisfactory to Lender, in its sole
and absolute discretion, ensuring that all Interval Purchasers shall have
perpetual, unlimited and undisturbed recorded access rights to all
Facilities of the Resorts, whether such Facilities are owned by Borrower,
Guarantor or other related party.
(dd) Power of Attorney. The Lender shall have received (i) a copy of a
notarized power of attorney from the Borrower and Guarantor in favor of the
Service of Process Agent referred to in Section 12.23 hereof, in form
satisfactory to special Mexican counsel to the Lender, (ii) evidence of the
Process Agent's acceptance of its appointment, and (iii) a copy of a
notarized power of attorney from the Borrower in favor of Lender referred
to in Section 10.12 hereof, in form satisfactory to special Mexican counsel
to the Lender, empowering the Lender to act 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 sole discretion, in the
manner contemplated in said Section 10.12 and Sections 10.11 and 9.1(e)
hereof. The powers and agency 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.
(ee) Tax Consequences. Lender is satisfied, in its sole discretion,
that Lender will incur no adverse foreign tax consequences as a result of
the making of Advances and the performance of its obligations under this
Agreement and the remaining Loan Documents. Lender shall be further
satisfied, in its sole discretion, that the principal and interest payments
being made to Lender with respect to the Loan, and any other monies payable
to Lender under this Agreement or the remaining Loan Documents will not be
subject to withholding or subject Lender to a withholding requirement, with
the exception of Mexican Income Tax Withholdings made by Borrower pursuant
to Mexican Income Tax laws and International Treaties executed between
Mexico and the United States, as provided under Section 10.17 herein.
(ff) Miscellaneous. Such other matters, insurance or documents as
Lender shall require.
4.2 Funding Procedure. The obligation of Lender to make any Advance shall
be subject to the satisfaction of all of the following conditions precedent:
(a) Requests for Advances. Each request for an Advance under the Loan
shall be completed on the appropriate form attached hereto as Exhibit F,
attached hereto and incorporated herein by this reference, and shall:
(i) be in writing and shall certify the amount of the
then-current Borrowing Base, specify the principal amount of the
Advance requested and designate the account to which the proceeds of
such Advance are to be transferred;
(ii) state that the representations and warranties of Borrower
contained in this Agreement, as amended from time to time, and any
closing or funding related certifications are true and correct as of
the date of the request and, after giving effect to the making of such
requested Advance, will be true and correct as of the date on which
the requested Advance is to be made;
(iii) state that no Default or Event of Default exists as of the
date of the request and, after giving effect to the making of such
requested Advance, no Default or Event of Default would exist as of
the date on which the requested Advance is to be made;
(iv) be delivered to the office of Lender in East Hartford
Connecticut (or elsewhere upon written notice) within the Term of the
Loan and at least ten (10) Business Days prior to the date of the
requested Advance;
(v) be signed by a principal financial officer of Borrower;
(vi) certify that Borrower has no knowledge of any asserted or
threatened defense, offset, counterclaim, discount or allowance with
respect to each Note Receivable to be pledged in connection with such
requested Advance, or with respect to any of the Pledged Notes
Receivable;
(vii) contain an aging report on the Pledged Notes Receivable;
identifying, among other things, which among them are Eligible Notes
Receivable for the subject Advance; and
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(viii) contain a delinquency report which shall be in form and
substance satisfactory to the Lender and shall show which of such
Notes Receivable for the subject Advance are delinquent and the
duration of each such delinquency, and which of such Pledged Notes
Receivable is not an Eligible Note Receivable, respectively.
(b) Loan Documents/Collateral. Not less than ten (10) Business Days
prior to the date of any Advance under the Loan, the Borrower shall have:
(i) delivered to Lender a list of all Eligible Notes Receivable
which are to be the subject of such requested Advance, indicating the
unpaid principal balance owing on each of the Pledged Notes Receivable
deemed to be an Eligible Note Receivable, together with such
additional information as Lender may reasonably request;
(ii) delivered to Lender (or, if Lender shall so instruct, a
designee appointed by Lender in writing) (i) the original of each
Pledged Note Receivable (duly endorsed by Borrower with the words
"Douglas Y. Bech, en mi caracter de apoderado de la sociedad CR
Resorts Puerto Vallarta, S. de R.L. de C.V., endoso en prenda con
recurso este pagare suscrito por el Sr. ______________, a favor de la
sociedad Textron Financial Corporation, cuyo domicilio es 40
Westminster Street, Providence, Rhode Island 02940, Estados Unidos de
America"); (ii) the original or, if not yet received, a true copy of
each purchase contract (including addenda) relating to the Pledged
Notes Receivable and the Interval Lease Contracts; (iii) originals or
true copies of the related truth-in-lending disclosures or other
applicable disclosure, if any, and, if required by Lender, loan
applications, Payment Authorization Agreements, the related
Purchaser's acknowledgments, receipts, consents to closing, and
Exchange Company applications, disclosures and materials and (iv)
evidence that proper notice of Borrower's pledge and assignment to
Lender of the Pledged Notes Receivable and related Interval Lease
Contracts has been delivered to and acknowledged by each consumer
obligor (Borrower shall use its best efforts to obtain within sixty
(60) days from the date of the Initial Advance evidence that the
consumer obligor(s) of each Note Receivable pledged to Lender with
respect to the Initial Advance has acknowledged and accepted
Borrower's pledge and assignment of such Note Receivable to Lender;
thereafter, Borrower shall provide Lender with such evidence of
acknowledgement with each request for Advance under the Loan);
(iii) delivered to Lender (or if Lender shall so instruct, a
designee appointed by Lender in writing) an Assignment of Pledged
Notes Receivable and Interval Lease Contracts, duly executed and in
proper form for recording, assigning to Lender all of Borrower's
right, title and interest in and to each such Pledged Note Receivable
and the related Interval Lease Contract;
(iv) delivered to Lender, with respect to each Encumbered
Interval, a notary's opinion confirming that the Interval Lease
Contract with respect to such Interval has been assigned to Lender and
insuring in favor of Lender a valid and first priority assignment of
and security interest in such Interval Lease Contract;
(v) for the Initial Advance only, delivered to Lender, the
original UCC financing statements or Mexican equivalent covering the
Collateral, recorded, to the extent permitted under applicable Mexican
laws, in the Public Registry of Properties in the location of each of
the Resorts. The assignments of the Interval Purchase Contracts and
the UCC financing statements or Mexican equivalent, if required, shall
each have been duly recorded, to the extent permitted under applicable
Mexican laws, in the Public Registry of Properties of in the location
of each of the Resorts.
All Pledged Notes Receivable assigned to Lender must have evidence
thereon of payment of all required documentary stamps and intangible taxes,
if any are required. The funding of the requested Advance, delivery of the
Collateral and recording of the assignments or pledges, or any releases and
the UCC financing statements, if any, may, in Lender's discretion, be
effected by way of an escrow arrangement with the Mexican notary who issues
the title report or certificate required under Section 4.1(b) of this
Agreement or other fiduciary selected by Lender, the form and substance of
which shall be satisfactory to Lender.
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(c) Other Conditions. In addition to the other conditions set forth in
this Agreement, the making of the initial or any requested Advance under
the Loan shall be subject to the satisfaction of the following conditions:
(i) there shall not have occurred and remain uncured, at any
time, an Event of Default hereunder, no Default or Event of Default
shall exist immediately prior to the making of such requested Advance
or, after giving effect thereto, immediately after the making of such
requested Advance;
(ii) each agreement required to have been executed and delivered
by Borrower in connection with any prior Advance shall be consistent
with the terms of this Agreement and shall be in full force and
effect;
(iii) the date on which such requested Advance is to be made
shall be a Business Day;
(iv) Borrower shall have delivered to Lender a certification
showing the dollar amount of the requested Advance based on the
Eligible Notes Receivable pledged to Lender, and the Notes Receivable
being pledged contemporaneously with each requested Advance in the
form of Exhibit F, attached hereto and incorporated herein by this
reference;
(v) not more than two (2) Advances under the Loan shall have
previously been made in the same calendar month in which such
requested Advance is to be made, unless Lender, in its sole
discretion, agrees to make an additional such Advance during such
calendar month;
(vi) such requested Advance shall be in a principal amount of not
less than US$50,000, unless Lender, in its sole discretion, agrees to
make an Advance in an amount less than US$50,000;
(vii) Lender shall have determined that the requested Advance,
when added to the aggregate outstanding principal amount of all
previous Advances, if any, does not exceed the total amount of the
Borrowing Base, based on the Eligible Notes Receivable that have been
or will be duly pledged in favor of Lender;
(viii) Lender shall have received evidence satisfactory to it
that:
(a) Borrower has obtained any applicable approvals or
permits from the appropriate federal, state or local Mexican
governmental authorities necessary to create the Intervals in
compliance with Mexican law and offer the Intervals for sale to
the general public;
(b) Borrower has completed all contemplated upgrades and
refurbishments to the Units which correspond to the subject
Interval sales;
(c) the applicable Units and Intervals have been accepted by
the Exchange Company into its reciprocal exchange program;
(d) with respect to the applicable Units and Intervals,
Borrower has obtained all required approvals, consents, permits,
licenses and certificates necessary to create and occupy such
Units and Intervals for their intended use, to operate the
Resorts and to market and sell the Intervals;
(e) all documents establishing the Units as part of the
Resorts must be completed in form and in content satisfactory to
Lender, and the form of consumer promissory note, Interval Lease
Contract, and all remaining purchase documentation utilized by
Borrower in connection with the Eligible Notes Receivable shall
be satisfactory to Lender;
(f) Borrower has delivered to Lender or established an
escrow arrangement satisfactory to Lender for delivery of the
documents required pursuant to Section 4.2(b)(ii) of this
Agreement; and
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(g) within ten (10) days following the end of each calendar
month, Borrower shall provide Lender with a monthly sales and
cancellations report on all Notes Receivable.
(ix) During the term of each Pledged Note Receivable, title to
the respective Interval shall be held by Lender, if it so elects in
its sole and absolute discretion.
(x) Prior to making the Initial Advance, a release or
nondisturbance procedure shall be established pursuant to the terms of
the Intercreditor Agreement which is satisfactory to Lender.
(d) Expenses. Borrower shall have paid all fees and expenses required
to be paid pursuant to this Agreement in connection with such requested
Advance or any conditions related thereto.
(e) Proceedings Satisfactory. All actions taken in connection with
such requested Advance and all documents and papers relating thereto shall
be satisfactory to Lender and its counsel. Lender and its counsel shall
have received copies of such documents and papers as Lender or such counsel
may reasonably request in connection with such requested Advance, all in
form and substance reasonably satisfactory to Lender and its counsel.
Section 5. INTENTIONALLY OMITTED.
Section 6. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower and the Guarantor, jointly and severally, hereby represent and
warrant to Lender as follows:
6.1 Organization, Standing, Qualification. Each of the respective Borrower
entities (a) are Mexican variable capital stock limited liability companies duly
organized, validly existing and in good standing under the laws of Mexico and as
foreign corporations under the laws of each jurisdiction in which the character
or location of the properties owned or the business transacted requires
licensing and qualifications; and (b) have all requisite power, to conduct their
business and to execute and deliver, and to perform their obligations under, the
Loan Documents to which each is a party; (c) the individuals executing this Loan
Agreement and the remaining Loan Documents have the proper authority to do so,
pursuant to an appropriate power of attorney; and (d) have a financial interest
in one or more of the Resorts and will derive financial benefit from its
execution of this Agreement and the remaining Loan Documents. Each of the
entities comprising Borrower acknowledges that Lender would not make the Loan
contemplated by this Agreement unless each of the entities comprising the
Borrower (i) became a party to this Agreement and the remaining Loan Documents,
(ii) became jointly and severally liable for the payment and performance of all
of the Obligations, and (iii) granted to Lender a security interest, subject to
the Permitted Liens and Encumbrances (and specifically including the Permitted
FINOVA Liens), 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 by Lender under this
Agreement and the remaining Loan Documents.
Guarantor is permitted by its bylaws to execute, deliver and perform its
obligations under each of the Loan Documents to which it is a party; Guarantor
has a financial interest in Borrower and will derive financial benefit from its
execution of the Guaranty.
6.2 Authorization, Enforceability, Etc.
(a) The execution, delivery and performance by Borrower of the Loan
Documents has been duly authorized by all necessary corporate actions by
Borrower and does not and will not (i) violate any provision of Borrower's
articles of organization ("estatutos"), operating agreements or any
agreement, law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect to which Borrower is a
party or is subject; (ii) result in, or require the creation or imposition
of, any Lien upon or with respect to any asset of Borrower or Guarantor
other than Liens in favor of Lender; or (iii) result in a breach of, or
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constitute a default by Borrower or Guarantor under, any indenture, loan or
credit agreement or any other agreement, document, instrument or
certificate to which Borrower or Guarantor is a party or by which they or
it or any of their or its assets are bound or affected.
(b) No approval, authorization, order, license, permit, franchise or
consent of, or registration (with the exception of the registration of the
Textron Mortgages), declaration, qualification or filing with, any
governmental authority or other Person, including without limitation, any
applicable regulatory authorities is required in connection with the
execution, delivery and performance by Borrower or Guarantor of any of the
Loan Documents.
(c) The Loan Documents constitute legal, valid and binding obligations
of Borrower and Guarantor, enforceable against Borrower and Guarantor in
accordance with their respective terms.
(d) Borrower has good and marketable title to all of the Collateral,
free and clear of any Lien, security interest, charge or encumbrance except
for the Liens or security interests created by this Agreement or any Loan
Document or otherwise created in favor of Lender or those Permitted Liens
and Encumbrances as set forth on Exhibit B. No financing statement or other
instrument similar in effect covering all or any part of the Collateral is
on file in any recording office, except such as may have been filed in
favor of Lender or in favor of FINOVA with respect to the Permitted FINOVA
Liens.
(e) The execution and delivery of the Loan Documents, the delivery and
endorsement to Lender of the Pledged Notes Receivable, the filing of the
UCC-1 financing statements, or Mexican equivalent, with the Public
Registries of Property in the location of each of the Resorts, recordation
of the Assignment of Pledged Notes Receivable and Interval Lease Contracts,
the Assignment of Interest in Contracts, Permits, Licenses and Approvals,
and the Textron Mortgages in the Public Registries of Property in the
location of each of the Resorts, create in favor of Lender a valid and
perfected continuing first priority liens and security interests in and to
all of the Collateral, subject to the Permitted FINOVA Liens. The
Collateral shall secure the full payment and performance of the
Obligations.
(f) To the best of the Borrower's knowledge, none of the Pledged Notes
Receivable is forged or has affixed thereto any unauthorized signatures or
has been entered into by any Person without the required legal capacity;
and during the term of the Agreement, none will be forged, or will have
affixed thereto, any unauthorized signatures.
(g) There have been no modifications or amendments whatsoever to the
Pledged Notes Receivable or the related Interval Lease Contracts which
modifications or amendments are not evidenced by appropriate documentation,
duly executed, forming a part thereof.
(h) To the best of Borrower's knowledge, the makers of the Eligible
Notes Receivable have no defenses, offsets, counterclaims or claims
relating to the Eligible Notes Receivable or the Interval Lease Contracts.
(i) The Pledged Notes Receivable and the related Interval Lease
Contracts were executed and delivered by Purchasers in favor of Borrower in
connection with the purchase of the related Encumbered Intervals.
(j) The Pledged Notes Receivable and the related Interval Lease
Contracts are and shall remain in full force and effect, and, once endorsed
in favor of Lender, will be valid and binding obligations of the respective
makers in favor of Lender, as holder; and Borrower further warrants and
guarantees the value, quantity, sound condition, grade and quality of the
Encumbered Intervals and all rights, properties, easements and interests
appurtenant or related thereto.
(k) The grant of the security interests described herein has not
affected and will not affect the validity or enforceability of the
obligations of the respective makers of the Pledged Notes Receivable under
such Notes Receivable or the related Interval Lease Contracts.
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(l) Lender is not and shall not be required to take any steps, and
Borrower has taken any and all required steps, to protect Lender's security
interests in the Collateral (other than maintaining possession of the
portion of the Collateral constituting instruments and timely filing
continuation statements for the Financing Statements); and Lender is not
and shall not be required to collect or realize upon the Collateral or any
distribution of interest or principal, nor shall loss of, or damage to, the
Collateral release Borrower (or the Guarantor) from any of the Obligations.
6.3 Financial Statements and Business Condition. The Financial Statements
submitted by Borrower and Guarantor pursuant to the requirements set forth
herein, fairly present the respective financial conditions and results of
operations of Borrower and the Guarantor as of the date or dates thereof and for
the periods covered thereby. There are no material liabilities, direct or
indirect, fixed or contingent, of Borrower or the Guarantor as of the dates of
such Financial Statements which are not reflected therein or in the notes
thereto, which have not otherwise been disclosed to Lender in writing. Except
for any such changes heretofore expressly disclosed in writing to Lender, there
has been no material adverse change in the respective financial conditions of
Borrower or the Guarantor from the financial conditions shown in its or their
respective Financial Statements, nor have Borrower or the Guarantor incurred any
material liabilities, direct or indirect, fixed or contingent, which are not
shown in their respective Financial Statements. Borrower and the Guarantor,
respectively, are able to pay all of their respective debts as they become due,
and Borrower and the Guarantor, as the case may be, shall maintain such solvent
financial condition, giving effect to the Obligations, as long as Borrower or
the Guarantor are obligated to Lender under the Agreement, or with respect to
the Guarantor, the Guaranty, or in any other manner whatsoever. Borrower's or
the Guarantor's Obligations under this Agreement and under the Loan Documents
will not render Borrower or the Guarantor unable to pay its or their debts as
they become due. The present fair market value of Borrower's or the Guarantor's
assets are greater than the amount required to pay its or their respective total
liabilities.
6.4 Taxes. Borrower represents and warrants that Borrower has paid in full
all ad valorem taxes, if any, and other taxes and assessments to be levied
against the Collateral owned by it and due and payable as of the date hereof,
and Borrower knows of no basis for any additional taxes or assessments against
any of the Resorts or the Collateral owned by it, other than periodic taxes
currently paid by Borrower or Guarantor from time to time with respect to the
Collateral. Borrower has filed all tax returns required to have been filed by it
and has paid or will pay, prior to delinquency, all taxes shown to be due and
payable on such returns, including interest and penalties, and all other taxes
which are payable by it or them, to the extent the same have become due and
payable. Borrower shall pay all applicable sales, rental, occupancy and other
taxes with regard to the sale or rental of any Intervals related to the
Collateral owned by it hereunder. To the best of Borrower's knowledge, no tax
audit is pending or is threatened with respect to Borrower or the Guarantor.
6.5 Title to Properties: Prior Liens. Borrower has good and marketable
title (or holds a first beneficial interest in trust use rights as to all
Collateral pursuant to the Trust Agreements) to all of the Collateral and to all
Unsold Intervals, Encumbered Intervals and all rights, properties and benefits
appurtenant or related thereto. Borrower's sole business involves the operation
of the Resorts and the marketing, sale and financing of Intervals at the
Resorts, and the Resorts are the sole real estate asset of Borrower. Borrower is
not in default under any of the documents evidencing or securing any
indebtedness which is secured, wholly or in part, by all or any portion of the
Collateral, and no event has occurred which with the giving of notice, the
passage of time or both, would constitute a default under any of the documents
evidencing or securing any such indebtedness. Other than the Liens granted in
favor of Lender and the Permitted FINOVA Liens, there are no Liens or
encumbrances against all or any portion of the Collateral, except for the
Permitted Liens and Encumbrances.
6.6 Subsidiaries, Affiliates and Capital Structure. Borrower has no
subsidiaries or Affiliates which have any involvement or interest in the Resorts
in any way, with the sole exceptions of (a) Club Regina, S.A. de C.V., which
collects memberships fees and makes payment of maintenance fees under the
Operating Agreements, and (b) Servicios Turisticos Integrales Cobamex, S. de R.
L. de C.V., which provides administrative services to certain of the Borrower
entities. The Guarantor is involved, directly or through its subsidiaries, in
the business operations of and derives financial benefit from Borrower. Except
as set forth in Section 7.1(c), for so long as Borrower is obligated to Lender
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under any of the Loan Documents, there shall be no change of ownership of the
shares of stock in Borrower without the prior written consent of Lender. None of
the Affiliates of Borrower nor Guarantor is a party to any proxies, voting
trusts, shareholders agreements or similar arrangements pursuant to which voting
authority, rights or discretion with respect to Borrower or Guarantor is vested
in any other Person.
6.7 Litigation, Proceedings, Etc. Except as set forth in Exhibit E, there
are no actions, suits, proceedings, orders or injunctions pending or threatened
against or affecting Borrower, any Affiliate of Borrower, the Guarantor or any
of the Resorts, at law or in equity, or before or by any governmental authority
or other tribunal, which (a) could have a material adverse effect on Borrower,
any Affiliate of Borrower or the Guarantor; or (b) relate to the Loan or which
could have a material adverse effect on the Collateral or the Resorts. Exhibit
E, attached hereto and incorporated herein by this reference, describes all
currently pending litigation against Borrower and the Guarantor. Borrower has
received no notice from any court, governmental authority or other tribunal
alleging that Borrower or any of the Resorts have violated the Timeshare Act,
any other applicable statute, ordinance, rule or regulation governing the
marketing and sale of Intervals, the Declaration, the other Timeshare Documents
or any other applicable laws, agreements or arrangements that could have any
material adverse effect on the Loan, the Collateral or the Resorts. Borrower
shall provide to Lender prompt written notice of any action commenced against
any of the foregoing Persons.
6.8 Licenses, Permits, Etc. Borrower, each of the Resorts and all other
Persons involved in the management or operations of the Resorts, possess and
will at all times continue to possess all requisite franchises, certificates of
convenience and necessity, operating rights, approvals, licenses, permits,
consents, authorizations, exemptions and orders as are necessary to carry on its
or their business as now being conducted, without any known conflict with the
rights of others and, with respect to Borrower and the Collateral in each case
subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security
interest, title retention agreement or option other than the Permitted FINOVA
Liens and other than as provided for by this Agreement. All such licenses and
permits are presently in full force and effect, and there is no action currently
pending or threatened to revoke or modify any such license or permit.
6.9 Environmental Matters. The Resorts do not contain and will not contain
any Hazardous Materials in violation of applicable law, and no Hazardous
Materials, other than such items, by way of example and not by way of
limitation, as cleaning supplies, are used or stored at or transported to or
from the Resorts. Neither Borrower, the Resorts, nor any manager thereof have
received notice from any governmental agency, entity or other Person with regard
to Hazardous Materials on, under or affecting the Collateral, and neither
Borrower nor the Collateral, nor any portion thereof, nor to Borrower's
knowledge after diligent inquiry, the Resorts or any manager thereof are in
violation of any Environmental Laws. Borrower hereby represents to Lender that
the Resorts are located on or near a Mexican Federal Maritime and Terrestrial
Zone such that Borrower is or has in the past, been required to secure from the
Mexican Federal Government (a) an Environmental Construction License or impact
analysis, or (b) to the extent required under local or Federal Mexican law, a
concession granted by the Mexican Federal Government with respect to the
occupancy of a Federal Maritime and Terrestrial Zone.
6.10 Full Disclosure. No information, exhibit or written report or the
content of any schedule furnished by Borrower or Guarantor to Lender in
connection with the Loan, the Resorts or the Collateral, and no representation
or statement made by Borrower or Guarantor in any Loan Document, contains any
material misstatement of fact or omits the statement of a material fact
necessary to make the statement contained herein or therein not misleading.
Borrower and the Guarantor know of no fact or condition which could prevent or
delay the sale of Intervals to Purchasers or prevent or impede the operation of
the Resorts in accordance with the Declaration, the remaining Timeshare
Documents and related public offering statement or other disclosure documents,
and in accordance with applicable law, or prevent Borrower's or Guarantor's
performance of its Obligations pursuant to the Loan Documents.
6.11 Use of Proceeds/Margin Stock. The proceeds of the Loan will be
disbursed only for the following purposes:
(a) Payment of the Loan Costs (as defined in the Commitment) and those
amounts set forth in Section 7.1(v) hereof;
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(b) Payment of all indebtedness secured by any prior and subordinate
liens and mortgages encumbering all or any portion of the Collateral,
except the Declaration, the remaining Timeshare Documents and the Security
Documents (as defined in the Commitment); and
(c) To Borrower:
(i) To pay marketing, project development, sales and
administrative expenses incurred in connection with the marketing and
sale of Encumbered Intervals and in connection with the operations for
the Resort, for working capital, for future expansion of timeshare
development in accordance with plans and projections acceptable to
Lender (provided, however, that the use of the proceeds of the Loan
for such expansion shall not adversely affect the operations of any of
the Resorts), and as provided for under Section 2.1 of this Agreement.
If the proceeds of any Advance and other monies paid by Borrower to
Lender are insufficient to satisfy the costs and liens with respect to
Collateral against which an Advance is to be made, or the use of proceeds
of the Loan or any Advance varies materially, as determined by Lender in
its sole discretion, from the uses described above, Lender shall have no
obligation to fund the remainder of the Loan or any further Advances.
6.12 No Defaults. No Default or Event of Default exists, and there is no
violation in any material respect of any term of any agreement, charter
instrument, bylaw or other instrument to which Borrower, Guarantor or any
Affiliate thereof is a party or by which it may be bound, specifically including
the FINOVA Loan, the Indenture and the Mirror Notes.
6.13 Compliance with Law. Borrower:
(a) is not in violation, nor are any of the Resorts or the business
operations with respect to the Resorts in violation of the Timeshare Act,
the Mexican Federal Law of Consumer Protection, all Federal and local laws
applicable in Mexico and the States of Baja California Sur, Jalisco and
Quintana Roo, Mexico, or any other statues, ordinances, rules or
regulations of any other jurisdiction to which Borrower, the Encumbered
Intervals, the Unsold Intervals or the business operations conducted with
respect to the Resorts are subject; and
(b) has not failed, nor have any of the Resorts failed, to obtain any
consents or joinders, or any approvals, licenses, permits, franchises or
other governmental authorizations, or to make or cause to be made any
filings, submissions, registrations or declarations with any government or
agency or department thereof, necessary to the establishment, ownership or
operation of the Unsold Intervals, the Encumbered Intervals or any of
Borrower's properties, or to the conduct of Borrower's business, including,
without limitation, the previous offer and sale of Intervals or the sale,
or offering for sale, of Unsold or Encumbered Intervals at the Resorts;
which violation or failure to obtain or register materially adversely
affects Borrower, the Unsold Intervals, the Encumbered Intervals or the
business, prospects, profits, properties or condition (financial or
otherwise) of Borrower, the Guarantor or any of the Resorts. Borrower has,
to the extent required by its activities and businesses, fully complied
with the following laws and regulations (i) at such possible time as
Borrower markets or sells Intervals in any of the Resorts within the
borders of the United States, all of the applicable provisions of (A) the
Consumer Credit Protection Act; (B) Regulation Z of the Federal Reserve
Board; (C) the Equal Credit Opportunity Act; (D) Regulation B of the
Federal Reserve Board; (E) the Federal Trade Commission's 3-day cooling-off
Rule for Door-to-Door Sales; (F) Section 5 of the Federal Trade Commission
Act; (G) the Interstate Land Sales Full Disclosure Act ("ILSA"); (H) the
federal postal laws; (I) all applicable state and federal securities laws;
(J) all applicable usury laws; (K) all applicable trade practices, home and
telephone solicitation, sweepstakes, anti-lottery and consumer credit and
protection laws; (L) all applicable real estate sales licensing,
disclosure, reporting and escrow laws; (M) the Americans With Disabilities
Act and related accessibility guidelines ("ADA"); (N) the Real Estate
Settlement Procedures Act ("RESPA"); (O) all amendments to and rules and
regulations promulgated under the foregoing acts or laws; and (P) all other
applicable federal statutes and the rules and regulations promulgated
thereunder; and (ii) all of the applicable provisions of the Timeshare Act
and any other applicable Mexican law or the law of any other state having
jurisdiction (and the rules and regulations promulgated thereunder)
relating to timeshare ownership, the establishment of any of the Resorts,
or the sale, offering for sale, marketing or financing of Intervals
therein.
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6.14 Restrictions of Borrower or Guarantor. Neither Borrower, Guarantor,
any of the Resorts, the Unsold Intervals nor the Encumbered Intervals is/are a
party to any contract or agreement, or subject to any Lien, charge or corporate
restriction, which materially and adversely affects its or their business.
Except for the FINOVA Loan Agreement and the documents related thereto, and the
Indenture, which is indirectly binding on Borrower by reason of its relationship
with Guarantor, and except as otherwise may be approved by Lender in accordance
herewith, Borrower will not be, on or after the Closing Date, a party to any
contract or agreement which restricts its right or ability to incur indebtedness
or prohibits Borrower's execution of, or compliance with the terms of, this
Agreement or the other Loan Documents. Borrower has not agreed or consented to
cause or permit in the future (upon the happening of a contingency or otherwise)
any of the Collateral, whether now owned or hereafter acquired, to be subject to
a Lien except in favor of Lender as provided hereunder and except in favor of
FINOVA with respect to the Permitted FINOVA Liens.
6.15 Broker's Fees. Lender and Borrower represent to each other that
neither of them has made any commitment or taken any action which could result
in a claim for any broker's, finder's or other similar fees or commissions with
respect to any of the transactions contemplated by this Agreement. Borrower
agrees to indemnify Lender and save and hold Lender harmless from and against
any and all claims of any Person for any broker's or finder's fee, commission,
taxes or similar compensation or amount arising in connection with the Loan, and
this indemnity shall include reasonable attorneys' fees and legal expenses.
6.16 Deferred Compensation Plans. Borrower has no pension, profit sharing
or other compensatory or similar plan (herein called a "Plan") providing for a
program of deferred compensation for any employee or officer, with the exception
of Borrower's profit sharing plan as is required under Mexican Labor Law (under
which Borrower is not in default in payment of (i) any wages or salaries to its
employees; or (ii) any assessments payable by Borrower under any Federal or
state act). As provided under the comparable local and Federal Mexican laws, no
fact or situation, including but not limited to, any "Reportable Event," as that
term is defined in Section 4043 of the United States Federal Employee Retirement
Income Security Act of 1974 as the same may be amended from time to time
("Pension Reform Act") exists or will exist in connection with any Plan of
Borrower which might constitute grounds for termination of any Plan by any
Mexican equivalent of the Pension Benefit Guaranty Corporation or cause the
appointment by the appropriate United States District Court of a Trustee or the
appropriate Mexican Court to administer any such Plan. As provided under the
comparable local and Federal Mexican laws, no "Prohibited Transaction" within
the meaning of Section 406 of the Pension Reform Act exists or will exist upon
the execution and delivery of the Agreement or the performance by the parties
hereto of their respective duties and obligations hereunder. Borrower will (a)
at all times make prompt payment of contributions required to meet the minimum
funding standards set forth in the Mexican equivalent of Sections 302 through
305 of the Pension Reform Act with respect to each of its Plans; (b) promptly,
after the filing thereof, furnish to Lender copies of each annual report
required to be filed pursuant to the Mexican equivalent of Section 103 of the
Pension Reform Act in connection with each Plan for each Plan Year, including
any certified financial statements or actuarial statements required pursuant to
the Mexican equivalent of said Section 103; (c) notify Lender immediately of any
fact, including, but not limited to, any Reportable Event arising in connection
with any Plan which might constitute grounds for termination thereof by the
Mexican equivalent of the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a Trustee or
appropriate Mexican Court to administer the Plan; and (d) notify Lender of any
"Prohibited Transaction," as that term is defined in the Mexican equivalent of
Section 406 of the Pension Reform Act. Borrower will not (a) engage in any
Prohibited Transaction; or (b) terminate any such Plan in a manner which could
result in the imposition of a Lien on any asset of Borrower pursuant, to the
Mexican equivalent of Section 4068 of the Pension Reform Act.
6.17 Labor Relations. The employees of Borrower are not parties to any
collective bargaining agreement with Borrower and, to the best of Borrower's
knowledge, there are no material grievances, disputes or controversies with any
union or any other organization of Borrower's employees, or threats of strikes,
work stoppages or any asserted pending demands for collective bargaining by any
union or organization of which any employees of Borrower are members.
6.18 Resorts.
(a) Timeshare Plan. Each of the Resorts have been established,
dedicated and to Borrower's knowledge, are and will remain, timeshare plans
and projects in full compliance with all applicable laws and regulations,
including without limitation, the Timeshare Act, and the Resort Property,
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all Units, all Improvements thereon, the Facilities, the Common Furnishings
and all related real and personal property have been and will continue to
be duly submitted to the provisions of the Declaration. Borrower will not
amend the Timeshare Documents, specifically including the Declaration, in
any material respect without the prior written approval of Lender, unless
it is ordered mandatory by the appropriate Mexican governmental authorities
upon prior written notice to Lender.
(b) Access. The Resort Property (including all Units and Facilities)
have direct access to publicly dedicated roads, and all roadways located on
the Resort Property are subject to an access and use easement or other
dedication or provision that benefits and will continue to benefit all
Purchasers.
(c) Utilities. Electric, gas, sanitary and stormwater sewer,
telephone, water facilities and other necessary utilities are available
and, to the best of Borrower's knowledge after diligent inquiry, there is
sufficient capacity to service each of the Resorts and all Units,
Facilities and Common Furnishings. Any easements necessary to the
furnishing of such utility services have been obtained, duly recorded and
inure to the benefit of the Resort Property.
(d) Amenities. Each Purchaser of an Interval, for so long as
he/she/they fulfill each and all of the obligations of Purchaser under the
Note Receivable, the Interval Lease Contract and any and all other
documents evidencing the purchase of said Purchaser's Interval, including
without limitation, the obligation to pay assessments, has and will have
access to and the full use and enjoyment of all of the Facilities, Common
Furnishings and public utilities of the Resorts, all in accordance with the
Declaration and the other Timeshare Documents.
(e) Construction. All costs arising from Borrower's construction or
acquisition of any Units and any other improvements and the purchase of any
furniture, fixtures, equipment, inventory, furnishings or other personalty
related to the Collateral hereunder have been paid or will be paid when
due.
(f) Sale of Intervals. The marketing, sale, offering for sale, rental,
solicitation of Purchasers or, if applicable, lessees, and financing of
Intervals by Borrower at the Resorts (i) do not constitute the sale, or the
offering of sale, of securities subject to the registration or other
requirements of the Securities Act of 1933, as amended, or any applicable
United States or Mexican securities law; (ii) do not violate the Timeshare
Act or any other statute, ordinance, rule or regulation of Mexico or any
other state or jurisdiction in which a Purchaser resides or in which sales
or solicitation activities occur; and (iii) do not violate any consumer
credit or usury statute of Mexico, the United States or any other state or
jurisdiction in which a Purchaser resides or in which sales or solicitation
activities occur. All Interval marketing and sales activities are performed
by Borrower (or by a sales and marketing organization, acceptable to
Lender, contracted with or employed by Borrower), who is and shall remain
properly licensed in accordance with Mexican and United States law and any
other applicable laws. Borrower has registered each of the Resorts to
permit Interval sales pursuant to applicable Mexican registration laws, and
Borrower has complied with all laws of these jurisdictions governing its
conduct. Before Borrower markets, offers for sale or sells Intervals in any
other jurisdictions, Borrower will promptly notify Lender and provide
Lender with evidence satisfactory to Lender that Borrower has complied with
all laws of such jurisdiction governing its proposed conduct.
Notwithstanding anything to the contrary provided in this Section 6.18(f),
the laws of the United States concerning the sale of Intervals shall be
applicable only at such possible time as Borrower markets or sells
Intervals within the borders of the United States.
(g) Tangible Property. Except for specific items which may be owned by
independent contractors, the machinery, equipment, fixtures, tools and
supplies used in connection with the Resorts, including without limitation,
with respect to the operations and maintenance of the Facilities and Common
Furnishings, are owned by the Borrower or by the Land Trustee on behalf of
Borrower.
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(h) Units at the Resorts. The Resorts presently includes aggregate of
four hundred two (402) timeshare Units which are part of the Resorts, with
sixty-nine (69) Units located at the Resort in Cancun, Mexico, two hundred
three (203) Units located at the Resort in Puerto Vallarta, Mexico, and one
hundred thirty (130) Units located at the Resort in Los Cabos, Mexico. Each
Unit is fully furnished and ready for use and occupancy by Purchasers. All
Common Furnishings (including appliances) within Units in which Borrower
has sold Intervals have been fully paid for and are free and clear of any
liens or other interests of any third party (subject to the Permitted
FINOVA Liens), including any lessor or other lender.
(i) Assessments. As the operator of the Resorts, the Borrower levies
annual assessments to cover the costs of maintaining and operating the
Resorts. The currently levied assessments upon Purchasers will be adequate
to cover the reasonably foreseeable costs of maintaining and operating the
Resorts and to establish and maintain a reasonable reserve for deferred
maintenance and capital improvements. There are no events which currently
exist or could reasonably be foreseen by Borrower which could give rise to
a material increase in such costs. Borrower shall maintain the reserves
described above.
6.19 Timeshare Documents and Reports. The Borrower has furnished to the
Lender true and correct copies of the Timeshare Documents listed on Exhibit D
hereto which consist of all those placed on file by the Borrower with the
applicable Mexico regulatory authorities or any other appropriate federal, state
or local regulatory or recording agencies, offices or departments, if required.
All such filings and/or recordations and all joinders and consents, necessary in
order to establish the plan with respect to the Unsold Intervals and Encumbered
Intervals, including, without limitation, the Units, Intervals, and all
appurtenant Facilities, Common Furnishings, and all related use and access
rights have been made or obtained, and all statutes, ordinances, rules and
regulations, and all agreements or arrangements in connection therewith have
been complied with.
6.20 Operating Contracts. The contracts, agreements and arrangements listed
and described in Exhibit G comprise all of the agreements and arrangements
relating to the operation of the Resorts to which Borrower is a party or in
which Borrower holds any interest in and which in any way relate to the use,
occupancy, maintenance or enjoyment of the Unsold Intervals or the Encumbered
Intervals, including, without limitation, with respect to utilities,
maintenance, management, services, marketing and sales (collectively, the
"Operating Contracts"). All of the Operating Contracts are and shall (unless
Lender shall otherwise consent in advance in writing) remain unmodified, in full
force and effect, and free and clear of any Lien except the Lien in favor of
FINOVA.
6.21 Architectural and Environmental Control. All Units, Facilities, Common
Furnishings and other real or personal property at, upon or appurtenant to the
Resorts are and will continue to be in compliance with the design, use,
architectural and environmental control provisions, if any, set forth in the
Timeshare Documents.
6.22 Tax Identification/Social Security Numbers. The Borrower's and
Guarantor's respective federal taxpayer's identification numbers, or social
security numbers, are as follows:
Borrower: Not Applicable
Guarantor: 76-0549149
6.23 Improvements.
(a) Zoning Ordinances and Similar Laws. The Improvements and the use
of each of the Resorts has been approved by all appropriate governmental
and quasi-governmental authorities (if any), and accordingly, comply and
will continue to comply with all applicable United States and Mexican
governmental and quasi-governmental statutes, ordinances, rules,
regulations and standard requirements, including, but not limited to, any
Mexican equivalent of the United States Federal Fair Housing Act of 1968,
as amended, and any Mexican equivalent of the United States Federal
Americans with Disabilities Act of 1990.
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(b) Availability of Utilities. All utility services necessary for the
operation of the Resorts have been available in the past and, to the best
of Borrower's knowledge after diligent inquiry, all utility services
necessary for the operation of the Improvements for their intended purposes
shall continue to be available, including water supply, storm and sanitary
sewer facilities, electric and telephone facilities.
(c) Condition of Resorts. The Resorts are not now damaged as a result
of any fire, explosion, accident, flood or other casualty.
(d) Access. The rights-of-way for all roads necessary for the full
utilization of each of the Resorts, for its intended purposes, have either
been acquired by the appropriate governmental authority or have been
dedicated to public use and accepted by such governmental authority, and
all such roads shall have been completed, or all necessary steps shall have
been taken by Borrower and such governmental authority to assure the
complete construction and installation thereof prior to the date upon which
access to the Resorts via such road will be reasonably necessary. All curb
cuts and traffic signals, if any, are existing or have been fully approved
by all necessary governmental authorities.
6.24 Continuation and Investigation. The representations and warranties
contained herein shall be and remain true and correct so long as any of
Borrower's Obligations hereunder have not been fully satisfied, or so long as
any part of the Loan shall remain outstanding, and each request by Borrower for
an Advance under the Loan shall constitute an affirmation that all of the
foregoing representations and warranties remain true and correct as of the date
thereof. All representations, warranties, covenants and agreements made herein
or in any certificate or other document delivered to Lender by or on behalf of
Borrower, pursuant to or in connection with this Agreement, shall be deemed to
have been relied upon by Lender, notwithstanding any investigation heretofore or
hereafter conducted by or on behalf of Lender and shall survive the making of
any or all Advances and payments contemplated hereby.
6.25 Exchange Control. Borrower is in compliance with all applicable United
States and Mexican exchange control statutes and regulations, and has paid all
fees required thereunder.
6.26 Year 2000.
(a) Year 2000 Compliant. Borrower has (i) begun analyzing the
operations of Borrower and its subsidiaries and affiliates that could be
adversely affected by failure to become Year 2000 compliant (that is, that
computer applications, imbedded microchips and other systems will be able
to perform date-sensitive functions prior to and after December 31, 1999,
including, without limitation, the function of completing reservations at
the Resorts) and; (ii) developed a plan for becoming Year 2000 compliant in
a timely manner, the implementation of which is on schedule in all material
respects. Borrower reasonably believes that it will become Year 2000
compliant for its operations and for those of its subsidiaries and
affiliates on a timely basis except to the extent that a failure to do so
could not reasonably be expected to have a material adverse effect upon the
financial condition of the Borrower.
(b) Suppliers, Vendors, Subsidiaries and Affiliates. Borrower
reasonably believes any suppliers and vendors that are material to the
operations of Borrower or its subsidiaries and affiliates will be Year 2000
compliant for their own computer applications except to the extent that a
failure to do so could not reasonably be expected to have a material
adverse effect upon the financial condition of Borrower.
(c) Notice. Borrower will promptly notify Lender in the event Borrower
determines that any computer application which is material to the
operations of Borrower, its subsidiaries or any of its material vendors or
suppliers will not be fully Year 2000 compliant on a timely basis, except
to the extent that such failure could not reasonably be expected to have a
material adverse effect upon the financial condition of Borrower.
6.27 FINOVA Loan and the Indenture. The execution, delivery and performance
of this Agreement does not and will not violate any provision of law or
administrative regulation, any order of any court or other agency of government,
any provision of any indenture, agreement or other instrument to which Borrower
or Guarantor is a party (specifically including the FINOVA Loan Agreement, the
Indenture and the Mirror Notes), or by which Borrower or Guarantor or any of the
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Borrower's or Guarantor's properties or assets are bound, and is not and will
not be in conflict with, result in a breach of or constitute (with due notice
and/or lapse of time) a default under any such indenture, agreement or other
instrument (specifically including the FINOVA Loan Agreement, the Indenture and
the Mirror Notes), and is not and will not result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of Borrower or Guarantor except as expressly provided in
this Agreement. Neither Borrower nor Guarantor is in default in any material
respect under any agreement or other instrument to which it is a party or by
which it may be bound, specifically including the FINOVA Loan Agreement, the
Indenture and the Mirror Notes. The Loan is "Permitted Debt", as such term is
defined in Section 4.09(b) of the Indenture. As provided in the Guaranty,
Guarantor covenants with Lender that (a) as and when required by the Indenture,
the Guarantor shall cause the Issuers (as such term is 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 (b) it
will not amend or modify the Indenture without the prior written consent of
Lender and any such amendment or modification to the Indenture made without the
prior written consent of Lender shall not be binding upon Lender. As provided in
the Guaranty, Guarantor further agrees to cause Issuers to promptly (but in any
event within three (3) days after Issuer's receipt of same) supply Lender with a
true and complete copy of any notice sent to Issuers under Section 6.01 of the
Indenture, or any other notice alleging a default by the Issuer under the
Indenture.
Section 7. COVENANTS.
7.1 Affirmative Covenants. So long as any portion of the Obligations
remains unsatisfied, Borrower hereby covenants and agrees with Lender as
follows:
(a) Payment and Performance of Obligations. Borrower shall repay all
of the Loan and all related amounts when and as the same become due and
payable, and Borrower shall strictly observe and perform all of the
Obligations, including without limitation, all covenants, agreements,
terms, conditions and limitations contained in the Loan Documents, and will
do all things necessary which are not prohibited by law to prevent the
occurrence of any Event of Default hereunder; and, pursuant to Section
12.23 of this Agreement, Borrower will maintain an office or agency in the
State of Texas where notices, presentations and demands with respect to the
Loan Documents may be made upon Borrower, such address being: c/o Raintree
Resorts International, Inc., 10000 Memorial Drive, Suite 480, Houston,
Texas 77024. The books and records of Borrower shall be maintained at the
Resorts until such time as Borrower shall notify Lender, in writing, of any
change of location of such office or agency.
(b) Maintenance of Existence, Qualification and Assets. Borrower shall
at all times (i) maintain its legal existence, (ii) maintain its
qualification, where required, to transact business in good standing in
Mexico and in any other jurisdiction where it conducts business in
connection with the Resorts, and (iii) comply or cause compliance with all
applicable statutes, ordinances, rules and regulations applicable to the
Unsold Intervals or the Encumbered Intervals, Borrower or its business,
including, without limitation, the Timeshare Act and all other applicable
timeshare and consumer protection acts and regulations.
(c) Consolidation and Merger. Unless Borrower shall have first
obtained Lender's prior written approval, which may be granted, withheld or
conditioned in Lender's sole discretion, Borrower will not consolidate with
or merge into any other Person or permit any other Person to consolidate
with or merge into it, provided, however, that the foregoing restriction
shall not apply to Borrower if one or more of the Persons constituting
Borrower is consolidated with or merged into another entity controlled
directly or indirectly by Guarantor and such resulting entity has a net
worth not less than that of the consolidated or merged entity.
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(d) Maintenance of Insurance. Borrower shall maintain at all times
during the term of this Agreement, policies of insurance with premiums
therefor being paid when due, and shall deliver to Lender certified copies
of insurance policies issued by insurance companies (together with paid
premium invoices in respect thereof), in amounts, in form and in substance,
and with expiration dates, all acceptable to Lender and containing waivers
of subrogation rights by the insuring company, non-contributory standard
mortgagee benefit clauses or their equivalents and mortgagee loss payable
endorsements in favor of and satisfactory to Lender and breach of warranty
coverage, providing the following types of insurance on and with respect to
Borrower and each of the Resorts:
(i) As to all the Improvements that have already been completed
as of the date hereof, "All Risk Special Form" insurance coverage
(including fire, lightning, hurricane, tornado, wind and water damage,
earthquake, vandalism and malicious mischief coverage) covering all
real and personal property which comprise the Resorts, in an amount
not less than the full replacement value of such improvements and
personal property, and said policy of insurance shall provide for a
deductible acceptable to Lender, breach of warranty coverage,
replacement cost endorsements satisfactory to Lender, and shall not
permit co-insurance. All insurance shall specifically cover architect
and engineering fees necessary to repair or replace any insured
portion of the Resorts and shall cover debris removal;
(ii) Public liability and property damage insurance covering the
Resorts in amounts and on terms satisfactory to Lender;
(iii) Such other insurance on the Resorts or any replacements or
substitutions therefor, including, without limitation, rent loss,
business interruption, flood insurance (if any of the Resorts are or
become located in an area which is considered a flood risk by any
Mexican equivalent of the U.S. Federal Emergency Management Agency,
pursuant to the National Flood Insurance program or pursuant to
Mexican programs), in such amounts and upon such terms as may from
time to time be reasonably required by Lender; and
Lender shall expressly be named an insured and loss payee in each
insurance policy described in this Section 7.1(d). To the extent any
"institutional mortgagee," "institutional lender" or "mortgagee" (as
defined or used in the Declaration or the remaining Timeshare
Documents) other than Lender has any rights to approve the form of
insurance policies with respect to the Resorts, the amounts of
coverage thereunder, the insurers under such policies or the
designation of an attorney-in-fact for purposes of dealing with damage
to any part of the Resorts or insurance claims or matters related
thereto or any successor to such attorney-in-fact or any changes with
respect to any of the foregoing, Borrower shall take all steps as may
be necessary to ensure that Lender shall at all times have a co-equal
right with such other "institutional mortgagee," "institutional
lender" or other "mortgagee" (including, without limitation, Borrower
or any third-party lender), to approve all such matters and any
proposed changes in respect thereof; and Borrower shall not cause, and
shall use its best efforts to prohibit, any changes with respect to
any insurance policies, insurers, coverage, attorney-in-fact or
insurance trustees, if any, without Lender's prior written approval.
Subject to the provisions of the Intercreditor Agreement, in the
event of any insured loss or claim with respect to all or any portion
of the Resorts, the Unsold Intervals, the Encumbered Intervals or any
Units which relate to such Intervals, Borrower shall apply all
proceeds of such insurance policies in a manner consistent with the
Timeshare Documents, the Timeshare Act and all other applicable
statutes, ordinances, rules and regulations.
All insurance policies required pursuant to this Agreement (or
the Timeshare Documents or the Timeshare Act) shall provide that the
coverage afforded thereby shall not expire or be amended, canceled,
modified or terminated without at least thirty (30) days prior written
notice to Lender and contain a provision affirming Lender's rights and
benefits thereunder despite any violation of the applicable policy
terms by Borrower or any other Person. At least thirty (30) days prior
to the expiration date of each policy maintained pursuant to this
Section 7.1(d), a renewal or replacement thereof satisfactory to
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Lender shall be delivered to Lender. Borrower shall deliver to Lender
receipts evidencing the payment of all premiums for all such insurance
policies and renewals or replacements. The delivery of any insurance
policies hereunder shall constitute an assignment of all unearned
premiums as further security for the Obligations. In the event that
Borrower shall fail to make all required premium payments for all such
insurance policies at least thirty (30) days prior to the expiration
date of each policy maintained pursuant to Section 7.1(d), Borrower
shall immediately notify Lender in writing of such failure to timely
pay the required insurance premiums. Borrower shall have thirty (30)
days from receipt of a written request from Lender to cause the
required insurance premiums to be paid. If the required insurance
premiums are not paid within such thirty (30) day period, Lender may,
in its sole discretion, without any obligation to do so, choose to pay
such required insurance premiums on behalf of Borrower, in which case
Borrower shall pay Lender interest at the Default Rate for any amounts
so advanced until such sums are repaid to Lender. Lender may also, in
its sole discretion, in the event the required insurance premiums are
not paid when due, establish an insurance escrow account from which
Lender may make insurance payments on behalf of Borrower when
insurance premiums shall become due. If the required insurance
premiums are not paid as required and Lender elects not to pay such
insurance premiums or establish an escrow account for payment thereof,
such failure shall constitute an Event of Default hereunder.
In the event of any fire or other casualty to or with respect to
all or any portion of the Resorts, Borrower covenants that it shall
promptly restore, repair or replace the damaged portion(s) of the
Resorts and repair or replace any other personal property to the same
condition as immediately prior to such fire or other casualty and,
with respect to the real and personal property comprising the Resorts,
in accordance with the terms of the Timeshare Documents, the Timeshare
Act and all other applicable statutes, ordinances, rules and
regulations. The insufficiency of any net insurance proceeds shall in
no way relieve Borrower of its obligations as set forth herein.
Borrower covenants that it shall comply promptly and cause compliance
with the provisions of the Declaration and the other Timeshare
Documents, and of the Timeshare Act and all other applicable statutes,
ordinances, rules and regulations relating to such restoration, repair
or replacement. In Lender's sole discretion (but subject to the terms
of the Intercreditor Agreement), all insurance proceeds payable to or
received by Lender pursuant to the Declaration or the applicable
insurance policies may be applied to the payment of the Obligations,
whether or not due and in whatever order Lender elects, consistent
with the terms of the applicable insurance policy and the Declaration.
Borrower shall in good faith cooperate with Lender in obtaining
for Lender the benefits of any insurance or other proceeds lawfully or
equitably payable to Borrower or Lender in connection with the
transactions contemplated hereby and in paying any Obligation
(including the payment by Borrower of the expense of an independent
appraisal on behalf of Lender in case of a fire or other casualty
affecting the Resorts).
(e) Maintenance of Security. Borrower shall execute and deliver (or
cause to be executed and delivered) to Lender all security agreements,
financing statements, assignments and such other agreements, documents,
instruments and certificates, and all supplements and amendments thereto,
and take such other actions, as Lender deems necessary or appropriate in
order to maintain as valid, enforceable and perfected first priority liens
and security interests (subject to the Permitted FINOVA Liens), all Liens
and security interests in the Collateral granted to Lender to secure the
Obligations. Borrower shall not grant extensions of time for the payment
of, or compromise for less than the full face value or release in whole or
in part, any Purchaser or other Person liable for the payment of, or allow
any credit whatsoever except for the amount of cash to be paid upon, any
Collateral or any instrument, chattel paper or document representing the
Collateral.
(f) Payment of Taxes and Claims. Borrower shall pay, when due, all
taxes imposed on or with respect to the Loan or any of the Loan Documents,
the Collateral, the Unsold Intervals, the Encumbered Intervals or on or
with respect to Borrower or any income, property or profits of Borrower and
shall pay all other charges and assessments against Borrower, the
Collateral, the Unsold Intervals and the Encumbered Intervals before any
claim (including, without limitation, claims for labor, services, materials
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and supplies) arises for sums which have become due and payable. Borrower
covenants that Borrower shall pay when due, all taxes imposed upon each of
the Resorts, or any of its assets or with respect to any of its franchises,
businesses, income or profits. Borrower shall make good faith inquiry on a
regular basis to determine if the required taxes have been paid. Borrower
shall immediately notify Lender in writing of any failure to timely pay all
taxes when due. In the event that Lender determines (through notice from
Borrower or otherwise) that such taxes have not been paid when due,
Borrower shall have thirty (30) days from receipt of a written request for
payment from Lender to cause the required taxes with respect to the Resorts
to be paid. If such required taxes (and any applicable late charges, etc.)
are not paid within such thirty (30) day period, Lender may, in its sole
discretion, without any obligation to do so, choose to pay such taxes on
behalf of Borrower, in which case Borrower shall pay Lender interest at the
Default Rate for any sums so advanced until such sums are repaid to Lender;
Lender may also, in its discretion (but subject to the terms of the
Intercreditor Agreement), in the event the required taxes with respect to
each of the Resorts are not paid when due, establish a tax escrow account
from which Lender may, make tax payments on behalf of Borrower when taxes
shall become due. In the event Lender elects not to pay the required taxes
or establish a tax escrow account, and the required taxes for the Resorts
are not paid as set forth above, such failure shall constitute an Event of
Default hereunder. Borrower shall pay, where applicable, all other charges
and assessments levied against Borrower, the Collateral or the Resorts
before any claim (including, without limitation, claims for labor,
services, materials and supplies) arises for amounts which have become due
and payable. Except for the Liens in favor of Lender granted pursuant to
the Loan Documents, and except as otherwise specifically provided for
herein, Borrower covenants that in the event that any statutory or other
Liens whatsoever (including, without limitation, mechanics', materialmen's,
judgment or tax liens) attach to any of the Collateral (except for the
Permitted Liens and Encumbrances which include, without limitation, the
lien for taxes not yet due and payable), Borrower shall, within thirty (30)
days after any such Lien attaches, either (i) cause such Lien to be
released of record; or (ii) provide Lender with a bond in accordance with
the applicable laws of Mexico, issued by a corporate surety acceptable to
Lender, in an amount and form acceptable to Lender.
(g) Inspections. Borrower shall, at any time, and from time to time,
upon reasonable notice and at the expense of Borrower, including but not
limited to the reasonable travel expenses of Lender's agents, permit Lender
or its agents or representatives to inspect each of the Resorts, the
Collateral and any of Borrower's, Guarantor's, any Material Party's, or
Lockbox Agent's assets, including, but not limited to, all documents, bank
statements, and other records within Borrower's possession, custody or
control, and to examine and make copies of and abstracts from such
materials and to discuss its affairs, finances and accounts with any of its
officers, employees, Affiliates, contractors or independent certified
public accountants (and by this provision, Borrower authorizes said
accountants to discuss with Lender, its agents or representatives, the
affairs, finances and accounts of Borrower). Lender agrees to use
reasonable efforts not to unreasonably interfere with Borrower's business
operations in connection with any such inspections. Without limiting the
foregoing, Lender shall have the right to make such credit investigations
as Lender may deem appropriate in connection with its review of Notes
Receivable pledged or to be pledged to Lender, and Borrower shall make
available to Lender all credit information in Borrower's possession or
under its control or to which it may have access, with respect to
Purchasers or other obligors under such Notes Receivable as Lender may
request.
(h) Reporting Requirements. So long as any portion of the Obligations
remains unsatisfied, Borrower shall furnish (or use its best efforts to
cause to be furnished, as the case may be) to Lender, in each case
certified in writing by Borrower and the Guarantor as true and correct ,
the following:
(i) Monthly Financial Reports. As soon as available and in any
event within ten (10) days after the end of each calendar month, a
report showing (i) the trial balance of the Pledged Notes Receivable;
(ii) a current aging report on the Pledged Notes Receivable; (iii) a
report detailing the collections on each of the Pledged Notes
Receivable; (iv) a delinquency report on all Pledged Notes Receivable;
(v) a Borrowing Base report; (vi) monthly reports from the Lockbox
Agent required pursuant to the Lockbox Agreement; and (vii) monthly
reports from the Servicing Agent required pursuant to the Servicing
Agreement;
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(ii) Quarterly Financial Reports. As soon as available and in any
event within forty-five (45) days following the end of each calendar
quarter, unaudited statements of income and expense of Borrower and
for each of the Resorts for the preceding quarterly period in question
and balance sheets of Borrower and for the Resorts as of the last day
of such preceding calendar quarter, all in such detail and scope as
may be reasonably required by Lender, prepared in accordance with GAAP
and on a basis consistent with prior accounting periods and certified
as true and correct by Borrower's chief financial officer, as
appropriate;
(iii) Annual Financial Reports. As soon as available and in any
event within one hundred twenty (120) days after the end of each
fiscal year as may be applicable with respect to Borrower and the
Resorts (a "Fiscal Year"), statements of income and expense of
Borrower and of the Resorts for the annual period ended as of the end
of such Fiscal Year, and balance sheets of Borrower and of the Resorts
as of the end of such Fiscal Year, all in such detail and scope as may
be reasonably required by Lender and prepared and reviewed by an
independent certified Mexican public accounting firm acceptable to
Lender in accordance with GAAP and on a basis consistent with prior
accounting periods. Each annual financial statement of Borrower and of
the Resorts shall be certified by Borrower and the Guarantor to be
true, correct and complete, and shall otherwise be in form acceptable
to Lender;
(iv) Guarantor's Financial Statements. Contemporaneously with
Borrower's submission to Lender of the annual financial reports
described in SubSection (iii) immediately above, Guarantor shall
deliver to Lender its Financial Statements. The Guarantor's Financial
Statements shall be in such detail and scope as may reasonably be
required by Lender and prepared by an independent certified public
accounting firm acceptable to Lender in accordance with GAAP on a
basis consistent with prior accounting periods. The Guarantor's
Financial Statements shall be dated as of the end of the immediately
preceding calendar year or fiscal year as applicable to each such
Guarantor and shall be certified as being true, correct and complete
by each such Guarantor;
(v) Officer's Certificate. Each set of annual Financial
Statements or reports delivered to the Lender pursuant to Sections
7.1(h)(i), (ii) (iii) and (iv) of this Agreement shall be accompanied
by a certificate of the President or the Treasurer of Borrower in the
form attached hereto as Exhibit H, setting forth that the signers have
reviewed the relevant terms of this Agreement (and all other
agreements and exhibits between the relevant parties), have made, or
caused to be made, under their supervision, a review of the
transactions and conditions of Borrower from the beginning of the
period covered by the Financial Statements or reports being delivered
therewith to the date of the certificate and that such review has not
disclosed the existence during such period of any condition or event
which constitutes a Default or Event of Default or, if any such
condition or event existed or exists or will exist, specifying the
nature and period of existence thereof and what action Borrower has
taken or proposes to take with respect thereto;
(vi) Sales Reports. Within ten (10) days after the end of each
month and each Fiscal Year quarter ("Fiscal Quarter"), and within
ninety (90) days after the end of each Fiscal Year, Borrower shall
deliver to Lender, monthly, quarterly and annually, as appropriate, a
monthly, quarterly or annual sales report, detailing the sales of all
Unsold Intervals and Encumbered Intervals for the period covered
thereby, together with all Interval sales made by Borrower which have
been canceled during such period. Such monthly and quarterly reports
shall be certified by Borrower, and such annual reports shall be
certified by Borrower and the Guarantor to be true, correct and
complete and otherwise in a form approved by Lender;
(vii) Audit Reports. Within thirty (30) days of receipt thereof
by Borrower, one (1) copy of each other report submitted to Borrower
by independent public accountants or other Persons in connection with
any annual, interim or special audit made by them of the books of
Borrower;
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(viii) Notice of Default or Event of Default. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Borrower is taking or proposes to take with respect thereto;
(ix) Notice of Claimed Default. Immediately upon becoming aware
that the holder of any material obligation or of any evidence of
material indebtedness of Borrower has given notice or taken any other
action with respect to a claimed default or event of default
thereunder, a written notice specifying the notice given or action
taken by such holder and the nature of the claimed default or event of
default and what action Borrower is taking or proposes to take with
respect thereto;
(x) Material Adverse Developments. Immediately upon becoming
aware of any claim, action, proceeding, development or other
information which may materially and adversely affect Borrower, the
Guarantor, any of the Collateral, all or any portion of one or more of
the Resorts, or the business, prospects, profits or condition
(financial or otherwise) of Borrower, an event of default under the
FINOVA Loan, the Indenture or the Mirror Notes or a fact or
circumstance which, upon the lapse of time, will lead to an event of
default under the FINOVA Loan, the Indenture or the Mirror Notes, or
the ability of Borrower to perform its Obligations under the
Agreement, Borrower shall provide Lender with telephonic or
telegraphic notice, followed by telecopied and mailed written
confirmation, specifying the nature of such development or information
and the anticipated effect thereof;
(xi) Other Information. Borrower will promptly deliver to Lender
any other information related to the Loan, the Collateral, the
Resorts, Borrower or the Guarantor as Lender may in good faith request
including, without limitation, annually, federal call reports relating
to Lockbox Agent, if any. In addition, concurrently with the financial
statements described in Section 7.1(h) above, Borrower and the
Guarantor shall cause to be furnished to Lender the Financial
Statements as described and provided in the Guaranty from time to
time;
(xii) Hazardous Materials. Borrower shall promptly notify Lender
of any change in the nature or extent of any Hazardous Materials
maintained on, or under the Resort Property or used in connection
therewith, and will deliver to Lender copies of any citation, orders,
notices or other material governmental or other communication received
with respect to any other Hazardous Materials, or other
environmentally regulated substances affecting any of the Resorts.
Lender shall have the right to require Borrower to periodically
perform (at Borrower's expense) an environmental audit and, if deemed
reasonably necessary by Lender, an environmental risk assessment, each
of which must be satisfactory to Lender, in its sole discretion, of
the Resort Property. Such audit and/or risk assessment must be
conducted by a licensed environmental consultant. All costs and
expenses incurred by Lender in the exercise of such rights shall bear
interest at the Default Rate set forth in the Note until paid, shall
be secured by the Collateral and shall be payable by Borrower upon
demand or charged to Borrower's Loan balance in the discretion of
Lender;
(xiii) Quarterly Purchaser Reports. As soon as available and in
any event within forty-five (45) days following the end of each
calendar quarter, an updated listing of the name, address, and phone
number of the consumer obligor(s) for each Note Receivable which has
been pledged and assigned to Lender pursuant to the terms of this
Agreement.
(i) Records. Borrower shall keep adequate records and books of account
in accordance with GAAP reflecting all financial transactions of Borrower
with respect to the Resort. In addition, Borrower shall keep, and shall
promptly deliver to Lender upon Lender's request therefor, complete, timely
and accurate records of all sales of Intervals and all payments made with
respect to Pledged Notes Receivable.
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(j) Marketing and Management. Borrower and the Guarantor shall use
their best efforts to keep, Borrower or a sales and marketing organization
contracted with or employed by Borrower, engaged in the active marketing
and sales of the Resorts, and Starwood Cancun, S. de R.L. de C.V., Starwood
Los Cabos, S. de R.L. de C.V., and Starwood Puerto Vallarta, S. de R.L. de
C.V., engaged in the management of the Resorts so that each of these
companies continues to perform duties substantially similar to those
presently performed, as provided in the marketing, sales and management
agreement relating to the Resorts. In the event of the resignation or
termination of any of the respective entities referenced herein, Borrower
and the Guarantor shall use their best efforts to engage or cause to be
engaged within three (3) months after the date of any such event, as
marketing and sales agent or manager of the Resorts, a Person or Persons
who have substantially equivalent experience, background and demonstrated
ability to perform services, in accordance with new marketing and
management agreements, respectively, performed at the time of the Closing
Date by the above-referenced companies. Lender shall provide Borrower with
its prior written consent to any change in the above-referenced entities.
(k) Employee Deductions. Borrower shall furnish to Lender, within
forty-five (45) days after the expiration of each calendar quarter, proof
satisfactory to Lender that Borrower's obligations to make all required
employee deductions or withholdings at source for income tax, contributions
to the Mexican Social Security Institute, Borrower's pension plan under
Mexican Labor Law and, if applicable, unemployment insurance have been
satisfied.
(l) Operating Contracts. No Operating Contract to which Borrower is a
party or as to which Borrower's consent or joinder is required, shall be
modified, extended, terminated by Borrower or entered into, without the
prior written approval of Lender.
(m) Guarantor. Absent the prior written consent of Lender, which may
be granted or withheld in Lender's sole discretion, Guarantor, through
certain subsidiaries in which Guarantor holds a majority ownership interest
(as set forth in Exhibit I attached hereto), shall, subject to the terms of
Section 7.1(c) hereof, continue to own a majority ownership interest in
each of the Borrower entities. Borrower shall not enter into proxies,
voting trusts, shareholders agreements or similar arrangements for the
purpose of vesting voting rights, authority or discretion in any other
Person.
(n) Notices. Borrower shall notify Lender within five (5) Business
Days of the occurrence of any event (i) as a result of which any
representation or warranty of Borrower contained in any Loan Documents
would be incorrect or materially misleading if made at that time; or (ii)
as a result of which Borrower is not in full compliance with all of its
covenants and agreements contained in this Agreement or any Loan Document;
or (iii) which constitutes or, with the passage of time, notice or a
determination by Lender would constitute, an Event of Default.
(o) Maintenance. Borrower shall use its best efforts to maintain, or
cause to be maintained, each of the Resorts in good repair, working order
and condition and to make all necessary replacements and improvements to
the Resorts so that the value and operating efficiency of the Resorts will
be maintained at all times and so that the Resorts remains in compliance in
all respects with the Timeshare Act, the Timeshare Documents and all other
applicable statutes, ordinances, rules and regulations.
(p) Claims. Upon receiving notice thereof, Borrower shall promptly
notify Lender of any claim, action or proceeding affecting any of the
Resorts or the Collateral, or any part thereof, or any of the security
interests or rights granted in favor of Lender hereunder or under any of
the other Loan Documents. At the request of Lender, Borrower shall appear
in and defend in favor of Lender, at Borrower's sole expense, with regard
to any such claim, action or proceeding which might materially adversely
affect the value of all or any part of the Collateral or the rights and
remedies of Lender under this Agreement or any of the other Loan Documents.
(q) Registration and Regulations.
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(i) Local Legal Compliance. The Borrower will comply, and will
use its best efforts to cause each of the Resorts to comply, with all
applicable servitudes, restrictive covenants, all applicable planning,
zoning and land use ordinances and building codes, all applicable
health and Environmental Laws and regulations, and all other
applicable statutes, ordinances, rules, regulations, court orders,
agreements and arrangements. All inspections, licenses and permits
required to be made or issued with respect to the buildings and other
improvements in which the Units related to the Unsold Intervals and
the Encumbered Intervals are located have been made or issued by the
appropriate governmental authorities, and the use and occupancy of
such buildings for their intended purposes is lawful under all
applicable statutes, ordinances, rules and regulations. Final
certificates of occupancy have been issued and are currently in effect
for all completed Units. The timeshare use and occupancy of Unsold or
Encumbered Intervals will not violate or constitute a non-conforming
use under any private covenant or restriction or any zoning, use or
similar statutes, ordinances, rules or regulations affecting the use
or occupancy of the such Unsold Intervals. All inspections, licenses
and certificates required to be made or issued with respect to any
buildings, improvements or amenities which are related to the Unsold
Intervals or the Encumbered Intervals and with respect to the use or
occupancy thereof, including but not limited to certificates of
occupancy, have been made or issued by the appropriate authorities and
the use or occupancy of all such buildings, improvements and amenities
for their respective intended purposes are lawful under all applicable
statutes, ordinances, rules, and regulations;
(ii) Registration Compliance. Borrower shall at all times
maintain or cause to be maintained all necessary registrations,
current filings, consents, franchises, approvals, and exemption
certificates, and Borrower will make or pay, or cause to be made or
paid, all registrations, declarations or fees with the applicable
Mexican regulatory authorities and any other governmental agencies or
departments thereof, whether in Mexico or another jurisdiction,
required in connection with the Unsold Intervals and Encumbered
Intervals and the occupancy, use and operation thereof, the
incorporation of Units into the timeshare plan established pursuant to
the Declaration and the other Timeshare Documents, and the sale,
advertising, marketing, and offering for sale of Unsold Intervals and
Encumbered Intervals. All such registrations, filings and reports will
be truthfully completed, and true and complete copies of such
registrations, applications, consents, licenses, permits, franchises,
approvals, exemption certificates, filings and reports will be
delivered to the Lender upon request. Borrower shall advise Lender of
any material changes with respect to its marketing or sales programs
in any jurisdiction, including jurisdictions other than Mexico, and at
Lender's request from time to time, Borrower shall deliver to Lender
(A) written statements by the applicable governmental authorities, in
form reasonably acceptable to Lender stating that no registration is
necessary for the sale of Intervals in the particular state; (B) an
opinion of counsel in form reasonably acceptable to Lender and
rendered by counsel reasonably acceptable to Lender, stating that no
such registration is necessary; or (C) such other evidence of
compliance with applicable laws as Lender may require; and
(iii) Other Compliance. The Borrower will continue to comply, in
all material respects, with all statutes, ordinances, rules and
regulations of the United States (at such possible time as Borrower
markets or sells Intervals in the Resorts within the borders of the
United States), Mexico, and any other applicable federal, state and
local statutes, ordinances, rules and regulations including, to the
extent applicable, but not limited to: (A) the Land Sales Full
Disclosure Act; (B) the Condominium Act; (C) Regulation Z of the
Federal Reserve Board; (D) the Equal Credit Opportunity Act; (E)
Regulation B of the Federal Reserve Board; (F) the Federal Trade
Commission's 3-day cooling-off rule for Door-to-Door Sales; (G)
Section 5 of the Federal Trade Commission Act; (H) ILSA; (I) the
federal postal laws; (J) all applicable state and federal securities
laws; (K) all applicable usury laws; (L) all applicable trade
practices, home and telephone solicitation, sweepstakes, anti-lottery
and consumer credit and protection laws; (M) all applicable real
estate sales licensing, disclosure, reporting and escrow laws; (N) the
ADA; (O) RESPA; (P) all amendments to and rules and regulations
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promulgated under the foregoing acts or laws; (Q) all other applicable
federal statutes and the rules and regulations promulgated thereunder;
and (R) any Mexican law, statute, rule or regulation, or the law of
any other jurisdiction (and the rules and regulations promulgated
thereunder) relating to ownership, establishment or operation of the
Collateral, or the sale, offering for sale, marketing or financing of
Intervals.
(r) Other Documents. Borrower will maintain to the satisfaction of
Lender, and make available to Lender, accurate and complete files relating
to the Encumbered Intervals, the Pledged Notes Receivable, and all of the
other Collateral, and such files will contain true copies of each Pledged
Note Receivable, as amended from time to time, copies of all relevant
credit memoranda relating to such Notes Receivable and all collection
information and correspondence relating thereto.
(s) Further Assurances. Borrower will execute and deliver, or cause to
be executed and delivered, such other and further agreements, documents,
instruments, certificates and assurances as, in the judgment of Lender
exercised in good faith, may be necessary or appropriate to more
effectively evidence or secure, and to ensure the performance of, the
Obligations. In addition, Borrower shall deliver to Lender from time to
time, upon request by Lender, such documents, instruments and other matters
or items as Lender may reasonably require to evidence Borrower's compliance
with the covenants set forth in this Section 7.1.
(t) Utilities. Borrower will use its best efforts to ensure that the
manager of each of the Resorts will cause electric, gas, sanitary and
stormwater sewer, water facilities, drainage facilities, solid waste
disposal, telephone and other necessary utilities to be available to the
Resorts in sufficient capacity to service the Resorts, including all Units,
Facilities and Common Furnishings.
(u) Amenities. Borrower will use its best efforts to ensure that the
manager of each of the Resorts will cause the Resorts to be maintained in
good condition and repair, and in accordance with the provisions of the
applicable Timeshare Documents, and Borrower will use its best efforts to
cause each Purchaser of an Unsold Interval or Encumbered Interval at the
Resorts to have continuing access to, and the use of during the period of
any occupancy of the Units, all of the Facilities, Common Furnishings and
related or appurtenant services, rights and benefits, all as provided in
the Declaration and the other Timeshare Documents.
(v) Expenses and Closing Fees. Whether or not the transactions
contemplated hereunder are consummated, Borrower shall pay all expenses of
Lender relating to negotiating, preparing, documenting, closing and
enforcing this Agreement and the other Loan Documents, including, but not
limited to:
(i) the cost of preparing, reproducing and binding this
Agreement, the other Loan Documents and all exhibits and schedules
thereto;
(ii) the fees and disbursements of Lender's and Borrower's
counsel;
(iii) Lender's out-of-pocket expenses;
(iv) all fees and expenses (including fees and expenses of
Lender's counsel) relating to any amendments, waivers, consents or
subsequent closings or other transactions pursuant to the provisions
hereof;
(v) all costs, outlays, legal fees and expenses of every kind and
character had or incurred in: (A) the interpretation or enforcement of
any of the provisions of, or the creation, preservation or exercise of
rights and remedies under, any of the Loan Documents including the
costs of appeal; (B) the preparation for, negotiations regarding,
consultations concerning, or the defense or prosecution of legal
proceedings involving any claim or claims made or threatened against
the Lender arising out of this transaction or the protection of the
Collateral securing the Loan or Advances made hereunder, expressly
including, without limitation, the defense by Lender of any legal
proceedings instituted or threatened by any Person to seek to recover
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or set aside any payment or set off theretofore received or applied by
the Lender with respect to the Obligations, and any and all appeals
thereof; and (C) the advancement of any expenses provided for under
any of the Loan Documents;
(vi) all expenses relating to the maintenance and administration
of the Lockbox and Lockbox Account by the Lockbox Agent and all fees
and expenses of the Servicing Agent and any escrow by any title
insurance company, any Mexican Notary, or any other escrow agent;
(vii) the custodial fees payable to Lender with respect to the
original Pledged Notes Receivable and related Collateral;
(viii) all costs and expenses incurred by Lender under the Note,
and all late charges payable under the Note; and
(ix) all real and personal property taxes and assessments,
documentary stamp and intangible taxes, sales taxes, recording fees,
title insurance premiums and other title charges, document copying,
transmittal and binding costs, appraisal fees, lien and judgment
search costs, both Borrower's and Lender's attorneys' fees, fees of
architects, engineers, environmental consultants, surveyors and any
special consultants, construction inspection fees, brokers fees,
escrow fees, wire transfer fees, and all travel and out-of-pocket
expenses of Lender to conduct inspections or audits. Without limiting
any of the foregoing, Borrower shall pay the costs of UCC (or Mexican
equivalent) and other searches, UCC (or Mexican equivalent) and other
Loan Document recording and filing fees and applicable taxes and
premiums on each mortgagee policy of title insurance delivered to
Lender pursuant to this Agreement.
(w) Indemnification of Lender. In addition to (and not in lieu of) any
other provisions of any Loan Document providing for indemnification in
favor of Lender, Borrower hereby defends, indemnifies and holds harmless
Lender, its subsidiaries, Affiliates, officers, directors, agents,
employees, representatives, consultants, contractors, servants, and
attorneys, as well as the respective heirs, personal representatives,
successors and assigns of any or all of them (hereinafter collectively the
"Indemnified Lender Parties"), from and against, and agrees promptly to pay
on demand or reimburse each of them with respect to, any and all
liabilities, claims, demands, losses, damages, costs and expenses
(including without limitation, reasonable attorneys' and paralegals' fees
and costs), actions or causes of action of any and every kind or nature
whatsoever asserted against or incurred by any of them by reason of or
arising out of or in any way related or attributable to: (i) this
Agreement, the other Loan Documents, the Commitment or the Collateral; (ii)
the transactions contemplated under any of the Loan Documents or any of the
Timeshare Documents, including without limitation, those in any way
relating to or arising out of the violation of any applicable United States
or Mexican federal, state or local statutes, ordinances, rules or
regulations; (iii) any breach of any covenant or agreement or the
incorrectness or inaccuracy of any representation or warranty of the
Borrower contained in this Agreement or any of the Loan Documents
(including without limitation any certification of the Borrower delivered
to the Lender; (iv) any and all taxes, including real estate, personal
property, sales, mortgage, excise, intangible or transfer taxes, and any
and all fees or charges, including, without limitation, those arising under
the Timeshare Act, which may at any time arise or become due prior to the
payment, performance and discharge in full of the Obligations; (v) the
breach of any representation or warranty as set forth herein regarding any
Environmental Laws; (vi) the failure of Borrower to perform any obligation
or covenant herein required to be performed pursuant to any Environmental
Laws; (vii) the use, generation, storage, release, threatened release,
discharge, disposal or presence on, under or about any of the Resorts of
any Hazardous Materials in violation of applicable Environmental Laws;
(viii) the removal or remediation of any Hazardous Materials from any of
the Resorts required to be performed pursuant to any Environmental Laws or
as a result of recommendations of any environmental consultant or as
required by Lender; (ix) claims asserted by any Person (including, without
limitation, any governmental or quasi-governmental agency, commission,
department, instrumentality or body, court, arbitrator or administrative
board [hereinafter collectively, a "Governmental Agency"]), in connection
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with or any in any way arising out of the presence, use, storage, disposal,
generation, transportation, release, or treatment of any Hazardous
Materials on, in, under or affecting any of the Resorts; (x) the violation
or claimed violation of any Environmental Laws in regard to any of the
Resorts; or (xi) the preparation of an environmental audit or report on the
Resorts not to exceed one (1) per calendar year and premised upon the
Lender's reasonable belief of the existence of a violation of Environmental
Laws, whether conducted by Lender, Borrower or a third party, or the
implementation of environmental audit recommendations. Such indemnification
shall not give Borrower or the Guarantor any right to participate in the
selection of counsel for Lender or the conduct or settlement of any dispute
or proceeding for which indemnification may be claimed. Lender agrees to
give Borrower written notice of the assertion of any claim or the
commencement of any action or lawsuit covered by this Section. It is the
express intention of the parties hereto that the indemnity provided for in
this Section, as well as the disclaimers of liability referred to in this
Agreement, are intended to and shall protect and indemnify Lender from the
consequences of Lender's own negligence, whether or not that negligence is
the sole or concurring cause of any liability, obligation, loss, damage,
penalty, action, judgment, suit, claim, cost, expense or disbursement but
not from the consequences of Lender's own gross negligence or willful
misconduct. The provisions of this Section shall survive the full payment,
performance and discharge of the Obligations and the termination of this
Agreement, and shall continue thereafter in full force and effect.
(x) No Amounts Due. Borrower shall deliver a statement to Lender at
the end of each calendar year, commencing in the present calendar year and
continuing throughout the Term of the Loan, indicating any amounts due and
payable to Borrower from the Guarantor or any Affiliate of Borrower and
further indicating that all taxes and insurance premiums payable by the
Borrower have been paid when due. Borrower hereby covenants that, as of the
date of this Agreement, except as set forth on the financial statements
heretofore delivered by Borrower to Lender, no amounts are due and payable
to the Borrower from the Guarantor or any Affiliate of Borrower. Borrower
agrees to submit annually to Lender, within thirty (30) days after it is
available, the proposed annual maintenance and operating budget of each of
the Resorts, certified by the manager thereof.
(y) Loan Servicing. The Servicing Agent and Servicing Agreement shall
be in form and content satisfactory to Lender and shall be reasonably
acceptable to Borrower. Borrower may not terminate the Servicing Agreement
without Lender's prior written approval. The Servicing Agreement shall be
cancelable by Lender immediately following the occurrence of an Event of
Default. If the Servicing Agent is Borrower or an Affiliate of Borrower, no
servicing fees shall be paid during or with respect to any period of time
in which an uncured Event of Default exists.
(z) Use of Borrower's Name. Upon Borrower's prior written consent,
Borrower shall at all times during the term of the Loan permit Lender to
use the name of Borrower, any of its Affiliates, Guarantor and the Resorts
in any press release, advertisement or other promotional materials issued
regarding the Loan.
(aa) 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 United States Federal Internal Revenue Code or any
successor statutes. Without limiting the generality of the foregoing,
Borrower hereby agrees, for so long as any of the Obligations remain
outstanding not to engage in a United States trade or business, as that
term is interpreted under the United States Federal Internal Revenue Code.
In that regard, but without limiting the 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 arm's-length pricing and terms,
and be evidenced by a written agreement 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 have, in the past, performed similar businesses and
services with and on behalf of persons or entitles other than Borrower;
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7.2 Covenants of Borrower and Guarantor. Borrower and the Guarantor hereby
covenant and agree with Lender as follows:
(a) Ad Valorem and Real Estate Taxes. Subject to the provisions of any
of the other Loan Documents, Borrower shall submit evidence in form and
content acceptable to Lender, on an annual basis, that all applicable ad
valorem, if any, and other real property taxes due with respect to each of
the Resorts have been timely paid.
(b) Application of Loan Proceeds. Borrower shall use the proceeds of
the Loan solely for the purpose set forth herein and for no other purpose.
(c) Sign Regarding Financing. If requested by Lender, Borrower shall,
at Lender's cost (to be pre-approved by Lender), promptly erect and
maintain, at each of the Resorts, on a site suitable to Lender, and in
accordance with applicable law, a sign indicating that Lender is providing
financing for the Resorts, all to Lender's reasonable satisfaction, and
Borrower shall use its best efforts to prevent the destruction or removal
of said sign without Lender's prior written approval.
(d) Notification of Claims by Subcontractors and Materialmen. Borrower
shall advise Lender promptly in writing if Borrower receives any notice,
written or oral, from any laborer, subcontractor or materialman in
connection with any labor or materials furnished in the construction of any
improvements on the Resort Property.
7.3 Negative Covenants. So long as any portion of the Obligations remains
unsatisfied, Borrower hereby covenants and agrees with Lender as follows:
(a) Limitation on Other Debt/Further Encumbrances. Except for the
Permitted Debt and except as may be expressly provided for in the
Intercreditor Agreement, Borrower will not obtain financing or grant liens
with respect to the Collateral, any Units, Unsold Intervals, Encumbered
Intervals, Notes Receivable or other accounts receivable (whether now
existing or created hereafter) other than those in favor of Lender, without
the prior written consent of Lender, which may be granted, withheld or
conditioned, in Lender's sole discretion.
(b) Restrictions on Transfers. Borrower shall not, without obtaining
the prior written consent of Lender (which consent may be given, withheld
or conditioned by Lender, in Lender's sole discretion), whether voluntarily
or involuntarily, by operation of law or otherwise (except to the extent
that such transfers constitute or would constitute Permitted FINOVA Liens):
(i) transfer, sell, pledge, convey, hypothecate, factor or assign all or
any portion of any of the Resorts or the Collateral, or contract to do any
of the foregoing, including, without limitation, pursuant to options to
purchase and so-called "installment sales contracts," "land contracts," or
"contracts for deed" (except that Borrower shall have the right to sell
Intervals to Purchasers in arms-length transactions in the ordinary course
of Borrower's business); (ii) lease or license any portion of the
Collateral, or change the legal or actual possession or use thereof (except
rental of Intervals in the ordinary course of Borrower's business); (iii)
permit the dilution, transfer, pledge, hypothecation or encumbrance of any
of the Intervals of Borrower except to Borrower's Affiliates or for estate
planning purposes (except with respect to the sale of Intervals to
Purchasers in arms length transactions in the ordinary course of business
and except to the extent that such transfers constitute or would constitute
Permitted FINOVA Liens); (iv) permit the assignment, transfer, delegation,
change, modification or diminution of the duties or responsibilities of
Borrower or the Guarantor; or (v) to the extent within the control of
Borrower, cause or permit the assignment, pledge or other encumbrance of
any of the Operating Contracts or all or any portion of Borrower's right,
title or interest in the Declaration or the remaining Timeshare Documents.
Without limiting the generality of the preceding sentence, and subject to
the terms of this Agreement, the prior written consent of Lender shall be
required for (A) any transfer of the Collateral or any part thereof (except
with respect to the sale of Intervals to Purchasers in arms length
transactions in the ordinary course of business and except to the extent
that such transfers constitute or would constitute Permitted FINOVA Liens)
made to a subsidiary or other Affiliate of Borrower or otherwise; (B) any
transfer of all or any part of the Collateral by Borrower to its
shareholders or Affiliates or vice versa; (C) any corporate merger or
consolidation, disposition or other reorganization except in accordance
with Section 7.1(c) of this Agreement; (D) any change in the ownership or
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management responsibility of Borrower or a material adverse change in the
business or financial condition of Borrower; and (E) any transfer of or
change in the status of Guarantor (through certain subsidiaries in which
Guarantor holds a majority ownership interest, as set forth in Exhibit I
attached hereto) as the majority ownership interest holder in each of the
Borrower entities, except as expressly provided in Section 7.1(c) hereof.
In the event that Lender, in Lender's sole discretion, is willing to
consent to a transfer which would otherwise be prohibited by this Section
7.3(b) Lender may condition its consent on such terms as it desires,
including, without limitation, an increase in the Interest Rates and the
requirement that Borrower pay a transfer fee, together with any expenses
incurred by Lender in connection with the granting of such consent
(including, without limitation, attorneys' fees and expenses). If Borrower
violates the terms of this Section 7.3(b), in addition to any other rights
or remedies which Lender may have hereunder, in any other Loan Document, or
at law or in equity, Lender may, by written notice to Borrower, increase,
effective immediately as of the date of such violation, the Interest Rate
to the Default Rate. Notwithstanding anything to the contrary in this
Section 7.3(b), this Section 7.3(b) shall not be any more restrictive to
Borrower than is permitted by Section 4.08 of the Indenture.
(c) Use of Lender's Name. Borrower will not, and will use its best
efforts not to permit any Affiliate to, without the prior written consent
of Lender, use the name of Lender or the name of any affiliate of Lender in
connection with any of their respective businesses or activities, except in
connection with internal business matters and as required in dealings with
governmental agencies.
(d) Transactions with Affiliates. Without the prior written consent of
Lender, Borrower shall not enter into any transaction with any Affiliate in
connection with the Collateral, including, without limitation, relating to
the purchase, sale or exchange any assets or properties or the rendering of
any service, except in the ordinary course of, and pursuant to the
reasonable requirements of, the operations of the Resorts and upon fair and
reasonable terms.
(e) Restrictive Covenants. Borrower will not, without Lender's prior
written consent, seek, consent to, or otherwise acquiesce in, any change in
any private restrictive covenant, planning or zoning law or other public or
private restriction, which would limit or alter the use of the Units, the
Unsold Intervals or the Encumbered Intervals.
(f) Subordinated Obligations. Borrower will not, directly or
indirectly: (i) permit any payment to be made with respect to any
indebtedness, liabilities or obligations, direct or contingent, including
without limitation, the Subordinated Indebtedness (as defined in the
Guaranty) to any of its shareholders or their Affiliates or the Guarantor
which are subordinated by the terms thereof or by separate instrument to
the payment of principal of, and interest on, the Note, except in
accordance with the terms of such subordination; provided, however, that
the restrictions of this subsection 7.3(f)(i) shall not apply to any
payments required to be made by Borrower under the Mirror Notes, and
provided further that, so long as no Default or Event of Default exists
with respect to the Loan and payment of any such Subordinated Indebtedness
does not render Borrower insolvent, such Subordinated Indebtedness may be
repaid under such regularly scheduled payment terms as are approved in
writing by Lender; (ii) permit the amendment, rescission or other
modification of any such subordination provisions of any of Borrower's
subordinated obligations in such a manner as to affect adversely the
Lender's Lien in and to the Collateral or Lender's senior priority position
and entitlement as to payment and rights with respect to the Note and the
Obligations; or (iii) permit the prepayment or redemption, except for
mandatory prepayments, of all or any part of Borrower's obligations to its
shareholders or their Affiliates, or of any subordinated obligations of
Borrower except in accordance with the terms of such subordination.
Notwithstanding the foregoing, any and all such subordinations of
indebtedness required by this Section 7.3(f) shall be subject to the
provisions of Section 4.08 of the Indenture.
(g) Timeshare Regime. Without Lender's prior written consent, Borrower
shall not amend, modify or terminate the Declaration or any other Timeshare
Document, or any other restrictive covenants, agreements or easements
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regarding the Collateral; nor shall Borrower assign its rights as
"developer" or "declarant", if any, under the Declaration or other
Timeshare Documents (except to the extent that such actions constitute or
would constitute Permitted FINOVA Liens), or file or permit to be filed any
additional covenants, conditions, easements or restrictions against or
affecting any of the Resorts (or any portion thereof) without Lender's
prior written consent, except as to those changes required by the Mexican
Consumer Protection Agency (upon prior written notice to Lender).
(h) Name Change. Without Lender's prior written consent, Borrower
shall not change its name, its chief executive office or the locations at
which it does business.
(i) Collateral. Neither Borrower nor Guarantor shall take any action
(or permit or consent to the taking of any action) which might impair the
value of all or any portion of the Collateral or any of the rights of
Lender with respect to the Collateral, nor shall Borrower nor Guarantor
cause or permit any amendment to or modification of the form or terms of
any of the Pledged Notes Receivable, Interval Lease Contracts or other
Timeshare Documents.
(j) Marketing/Sales. Borrower shall not market, attempt to sell or
sell or permit or justify any sales or attempted sales of any Intervals
except in compliance with all applicable statutes, ordinances, rules and
regulations enacted or promulgated in Mexico and any other jurisdictions
where marketing, sales or solicitation activities occur.
(k) Consolidation and Merger. Without the prior written consent of
Lender, Borrower shall not consolidate with or merge into any other Person
or permit any other Person to consolidate or merge into it. Borrower shall
not enter into any reorganization or reclassify any capital stock without
Lender's prior written approval.
Section 8. EVENTS OF DEFAULT.
8.1 Nature of Events. An "Event of Default" shall exist if any of the
following occur:
(a) Payments. If Borrower fails to make, as and when due, any payment
or mandatory prepayment of principal, interest, or other fees or amounts
with respect to the Loan.
(b) Covenant Defaults. If Borrower fails to perform or observe any
non-monetary covenant, agreement or warranty contained in this Agreement or
in any of the other Loan Documents and such failure continues for a period
of ten (10) days after notice of such failure is furnished by Lender;
provided, however, that if Borrower commences to cure such failure within
such ten (10) day period but, because of the nature of such failure, cure
cannot be completed within ten (10) days, notwithstanding Borrower's
diligent good faith efforts to do so, then, provided Borrower diligently
seeks to complete such cure, an Event of Default shall not result unless
such failure continues for a total of thirty (30) days after notice of such
failure is provided by Lender.
(c) Warranties or Representations. If any representation or other
statement made by or on behalf of Borrower or Guarantor in this Agreement,
in any of the other Loan Documents or in any instrument furnished in
compliance with or in reference to the Loan Documents, is false, misleading
or incorrect in any material respect as of the date made or reaffirmed.
(d) Enforceability of Liens. If any Lien or security interest granted
by Borrower to Lender in connection with the Loan is or becomes invalid or
unenforceable or is not, or ceases to be, a perfected first priority lien
or security interest (subject to the Permitted FINOVA Liens) in favor of
Lender encumbering the asset to which it is intended to encumber, and
Borrower fails to cause such Lien or security interest to become a valid,
enforceable, first and prior Lien or security interest (subject to the
Permitted FINOVA Liens) in a manner satisfactory to Lender, in its sole
discretion, within ten (10) days after Lender delivers written notice
thereof to Borrower.
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(e) Involuntary Proceedings. If a case is commenced or a petition is
filed against Borrower or Guarantor under any Debtor Relief Law or under
the Ley de Quiebras y Suspension de Pagos of Mexico and the same is not
dismissed or discharged within forty-five (45) days thereafter; a receiver,
liquidator or trustee of Borrower or Guarantor or of any material asset of
Borrower or the Guarantor is appointed by court order and such order
remains in effect for more than forty-five (45) days; or if any material
asset of Borrower or Guarantor is sequestered by court order and such order
remains in effect for more than forty-five (45) days.
(f) Proceedings. If Borrower or Guarantor voluntarily seeks, consents
to or acquiesces in the benefit of any provision of any Debtor Relief Law
or under the Ley de Quiebras y Suspension de Pagos of Mexico, whether now
or hereafter in effect; consents to the filing of any petition against it
under such law; makes an assignment for the benefit of its creditors;
admits in writing its inability to pay its debts generally as they become
due; or consents to or suffers the appointment of a receiver, trustee,
liquidator or conservator for it or any part of its assets.
(g) Attachment; Judgment; Tax Liens. The issuance, filing, levy or
seizure against the Collateral, or, with respect to the Obligations,
against Borrower or Guarantor, of one or more attachments, injunctions,
executions, tax liens or judgments for the payment of money cumulatively in
excess of US$10,000 which is not discharged in full or stayed within thirty
(30) days after issuance or filing. The issuance, filing, levy or seizure
against any of the Resorts of one or more attachments, injunctions,
executions, tax liens or judgments for the payment of money cumulatively in
excess of US$25,000, which is not discharged in full or stayed within sixty
(60) days after issuance or filing.
(h) Failure to Deposit Proceeds. If Borrower shall fail to deliver
payments made to Borrower under the Pledged Notes Receivable directly to
Lender or Lockbox Agent, as required hereunder, or if Borrower shall take
any other act which Lender shall deem to be a conversion of all or any
portion the Collateral or fraudulent with respect to Lender.
(i) Timeshare Documents. If the Declaration, the remaining Timeshare
Documents, any of the other documents creating or governing the Resorts,
its timeshare regime, or any restrictive covenants with respect to the
Resorts, shall be terminated without Lender's prior written consent.
(j) Removal of Collateral. If Borrower conceals, removes, transfers,
conveys, assigns or permits to be concealed, removed, transferred, conveyed
or assigned, any of the Collateral in violation of the terms of any of the
Loan Documents or with the intent to hinder, delay or defraud its creditors
or any of them, including, without limitation, Lender.
(k) Other Defaults. If a material default occurs in connection with
any other loans or financing arrangements which Borrower, Guarantor, or any
of their respective Affiliates may have with Lender and such default
remains uncured beyond any applicable cure or grace period.
(l) Material Adverse Change. Any material adverse change in the
financial condition of Borrower, Guarantor, or in the condition of the
Collateral.
(m) Default of Guarantor. Any default under the Guaranty or the
revocation or attempted revocation or repudiation thereof, in whole or
part, by Guarantor.
(n) Default by Borrower in Other Agreements. Any default by Borrower
(i) in the payment of any indebtedness to Lender; (ii) in the payment or
performance of other indebtedness for borrowed money or obligations in
excess of US$50,000 secured by all or any portion of the Collateral; or
(iii) in the payment or performance of any other material indebtedness or
obligations of Borrower.
(o) Loss of License. The suspension, loss, revocation or failure to
renew or file for renewal of any registration, approval (if required),
license, permit or franchise now held or hereafter acquired by Borrower or
with respect to the Unsold Intervals or the Encumbered Intervals, or the
failure to pay any fee, which is necessary for the continued operation of
the Unsold Intervals, Encumbered Intervals or Borrower's business in the
same manner as it is being conducted at the time of such loss, revocation,
failure to renew or failure to pay.
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(p) Suspension of Sales. The issuance of any stay order, cease and
desist order, injunction, temporary restraining order or other judicial or
nonjudicial sanction limiting or materially affecting any Interval
marketing or sales activities, or the enforcement of Lender's remedies,
which order or sanction is not terminated or dissolved within thirty (30)
days after issuance.
(q) Violation of Negative Covenants. Borrower or Guarantor violates
any negative covenant set forth in Section 7.3 hereof.
(r) Insolvency. Borrower or Guarantor becomes insolvent or otherwise
generally unable to pay its or his respective debts as and when they become
due or payable.
(s) Default under FINOVA Loan or the Indenture. An event of default
exists under the FINOVA Loan, the Indenture or the Mirror Notes, a fact or
circumstance which, upon the lapse of time, will lead to an event of
default under the FINOVA Loan, the Indenture or the Mirror Notes, or the
exercise by FINOVA (or its successors or assigns) of foreclosure
proceedings or any other remedy available under the FINOVA Loan Agreement
with respect to the Resort Property or any other real or personal property
that serves as Collateral under this Agreement.
(t) Transfer of Property. Except for the sale of Intervals in the
ordinary course of business in accordance with the terms hereof, and except
for transfers due to involuntary condemnation which do not render the
Resorts useless for its intended purpose as contemplated hereby, if
Borrower shall, without Lender's prior written consent, sell, convey or
further encumber all or any part of its interest in any of the Resorts or
in any of the personalty located thereon or used or intended to be used in
connection therewith (except to the extent that such transfers constitute
or would constitute Permitted FINOVA Liens). For purposes of this
paragraph, an assignment, sale or transfer shall also include the transfer
of any stock of Borrower other than to an existing shareholder thereof.
(u) Lien Against Resorts. Except as otherwise specifically provided
herein to the contrary, if Borrower grants any mortgages, lien or other
encumbrance upon any of the Resorts other than in favor of Lender in
connection with the Loan and other than the Permitted FINOVA Liens, unless
approved by Lender in writing, in its sole and absolute discretion.
(v) Encroachments and Permits. Except as described in Exhibit B
hereof, if all or any portion of the Improvements encroach upon any street
or road, setback or easement or upon any adjoining property, or violate any
ordinance, regulation, rule or direction of any federal or state agency, or
of any governmental or quasi-governmental authority, or any zoning setback
line; or if the building permit(s) shall be revoked or suspended or shall
lapse, or if any building or other permit or license shall be conditional
in nature and Borrower fails to punctually satisfy the conditions so as to
prevent its invalidity.
(w) Unauthorized Work. If Borrower, without Lender's prior written
consent, undertakes or contracts for work on any of the Resorts, except
during an emergency situation at one or more of the Resorts where the
giving of notice to Lender would reasonably risk material adverse
consequences for any one or more of the Resorts.
(x) Breach. If any violation or breach shall occur in any agreement,
covenant or restriction affecting title to all or any portion of any of the
Resorts, including but not limited to any Permitted Liens and Encumbrances.
(y) Payment of Withholding Tax and Exchange Control Appraisal Fees. If
Borrower does not pay when due any required withholding taxes or exchange
control appraisal fees or payments.
Section 9. REMEDIES.
9.1 Remedies Upon Default. Should an Event of Default occur, Lender may
take any one or more of the actions described in this Section 9, all without
notice to Borrower or Guarantor (but subject to the provisions of the
Intercreditor Agreement):
(a) Acceleration. Without demand or notice of any nature whatsoever,
declare the unpaid balance of the Loan, or any part thereof, immediately
due and payable, whereupon the same shall be due and payable.
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(b) Termination of Obligation to Advance. Terminate any commitment of
Lender to lend under this Agreement in its entirety, or any portion of any
such commitment, and/or terminate Lender's further performance under this
Agreement or any other document or instrument to which Lender and Borrower
or Guarantor are parties, without further liability or obligation to
Borrower or Guarantor, to the extent Lender shall deem appropriate, all
without notice to Borrower or Guarantor.
(c) Judgment. Reduce Lender's claim to judgment, foreclose or
otherwise enforce the Textron Mortgages and/or any other lien or security
interest in all or any part of the Collateral by any available judicial or
other procedure under law. Lender's right to sue and recover a judgment,
either before, after or during the pendency of any proceeding for the
enforcement of the Textron Mortgages and the right of Lender to recover
such judgment shall not be affected by any taking, possession or
foreclosure sale hereunder or by the exercise of any other right, power or
remedy for the enforcement of the terms of the Textron Mortgages or the
foreclosure of the lien thereof.
(d) Foreclosure. Whether or not Lender takes possession of the
Collateral, Lender may proceed to foreclose the Textron Mortgages and to
sell the Collateral in its entirety or in separate increments under the
judgment of decree of a court or courts of competent jurisdiction and to
pursue any other remedy available to it, all as Lender shall deem
appropriate. Upon the commencement of suit or foreclosure proceedings with
respect to the Textron Mortgages the unpaid principal balance of each Note,
if not previously accelerated and declared due, together with the interest
accrued thereon and all other Obligations, shall immediately be due and
payable. Upon any foreclosure sale pursuant to judicial proceedings, Lender
may bid for and purchase all or any portion of the Collateral and, upon
compliance with the terms of sale, may hold, retain and possess and dispose
of the Collateral.
In the case of a foreclosure sale of all or any portion of the
Collateral and the application of the proceeds of sale to the payment of
the debt secured by the Textron Mortgages, Lender shall be entitled to
enforce payment of and to receive all amounts then remaining due and unpaid
upon the Note, and Lender shall be entitled to recover judgment for any
portion of the debt remaining unpaid, with interest.
Borrower agrees, to the full extent that it may lawfully so agree,
that no recovery of any such judgment by Lender and no attachment or levy
of any execution upon any such judgment upon any of the Resorts or upon any
other property shall in any manner or to any extent affect the lien of the
Textron Mortgages on the Collateral or any part thereof of any lien,
rights, powers or remedies of Lender hereunder, and such lien, rights,
powers and remedies shall continue unimpaired.
(e) Lender's Right to Take Possession, Operate and Apply Income.
(i) Upon Lender's demand, Borrower shall forthwith surrender to
Lender the actual possession of the Resorts and, to the extent
permitted by law, Lender may enter and take possession of the Resorts
and may exclude Borrower and its employees and other agents wholly
therefrom and may have joint access with Borrower to Borrower's books,
papers and accounts. If Borrower fails to surrender or deliver all or
any portion of the Resorts to Lender upon demand, Lender may obtain a
judgment or decree conferring upon Lender the right to immediate
possession or requiring Borrower to deliver immediate possession of
all or part of the Resorts to Lender, and Borrower hereby specifically
consents to the entry of such a judgment or decree.
(ii) Upon every such entering upon or taking of possession,
Lender may hold, store, use, operate, manage and control the Resorts
and conduct Borrower's business on the Resorts and, from time to time,
do any of the following things as Lender may from time to time deem
necessary, appropriate or desirable:
(A) perform all maintenance, repairs, renewals,
replacements, additions and improvements necessary and proper to
the Resorts and purchase or otherwise acquire additional
fixtures, personalty and other property;
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(B) insure, manage and operate the Resorts and exercise all
of the rights and powers of Borrower (in Lender's name or
otherwise) with respect to the insurance, management and
operation of the Resorts; and
(C) enter into any and all agreements with respect to the
exercise by others of any of the powers herein granted to Lender.
(iii) Lender may collect and receive all of the income, revenues,
rents, issues and profits of the Resorts, including those past due as
well as those accruing thereafter. Lender shall apply such amounts
received by Lender first to the payment of accrued interest and then
to the payment of principal and all other sums or indebtedness that
may be due hereunder, after deducting therefrom:
(A) All expenses of taking, holding, managing and operating
the Resorts (including compensation for the services of all
persons employed for such purposes);
(B) The cost of all such maintenance, repairs, renewals,
replacements, additions, betterments, improvements, purchases and
acquisitions;
(C) The cost of insurance;
(D) Such taxes, assessments and other charges prior to the
lien of the Textron Mortgages as Lender may determine to pay;
(E) Other proper charges upon the Resorts or any part
thereof; and
(F) The reasonable compensation, expenses and disbursements
of the attorneys and other agents of Lender, including attorneys'
fees and court costs.
(iv) If an Event of Default giving rise to pursuit of the
foregoing remedy shall have been cured, Lender may, at its option,
surrender possession of the Resorts to Borrower, its successors or
assigns; provided, however, that Lender's right to take possession and
to pursue any other remedies hereunder or under any of the other Loan
Documents shall exist if any subsequent Event of Default shall occur.
(f) Sale of Collateral. After notification, if any, provided for in
Section 9.2 below, Lender may direct the Land Trustee to sell or otherwise
dispose of, at the office of the Land Trustee, or elsewhere, as chosen by
Lender, all or any part of the Collateral, and any such sale or other
disposition may be as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the
sale of any part of the Collateral shall not exhaust Lender's power of
sale, but sales may be made from time to time until all of the Collateral
has been sold or until the Obligations have been paid in full and fully
performed), and at any such sale it shall not be necessary to exhibit the
Collateral. Borrower and the Guarantor hereby acknowledge and agree that a
private sale or sales of the Collateral, after notification as provided for
in Section 9.2, shall constitute a commercially reasonable disposition of
the Collateral sold at any such sale or sales, and otherwise, commercially
reasonable action on the part of the Lender.
(g) Retention of Collateral. At its discretion, retain such portion of
the Collateral as shall aggregate in value to an amount equal to the total
amount owed by the Borrower pursuant to the Loan Documents, in satisfaction
of the Obligations, whenever the circumstances are such that Lender is
entitled and elects to do so under applicable law.
(h) Receiver. Apply by appropriate procedures to the Land Trustee for
the appointment of a receiver who shall have the authority to enter upon
and take possession of the Resorts, collect the rents and profits therefrom
and apply the same as the court may direct. Borrower hereby consents to any
such appointment. The receiver shall have all of the rights and powers
permitted under the laws of Mexico. All costs and expenses (including
receiver's fees, attorneys' fees and costs, and other amounts) incurred in
connection with the appointment of a receiver shall be secured by the
Textron Mortgages.
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(i) Purchase of Collateral. Buy all or any part of the Collateral at
any public or private sale.
(j) Exercise of Other Rights. Lender shall have all the rights and
remedies of a secured party under the Code and other legal and equitable
rights to which it may be entitled, including, without limitation, and
without notice to Borrower, the right to continue to collect all payments
made on the Pledged Notes Receivable, and to apply such payments to the
Obligations, and to sue in its own name the maker of any defaulted Pledged
Notes Receivable. Lender may also exercise any and all other rights or
remedies afforded by any other applicable laws or by the Loan Documents as
Lender shall deem appropriate, at law, in equity or otherwise, including,
but not limited to, the right to bring suit or other proceeding, either for
specific performance of any covenant or condition contained in the Loan
Documents or in aid of the exercise of any right or remedy granted to
Lender in the Loan Documents. Lender shall also have the right to require
the Borrower to assemble any of the Collateral not in Lender's possession,
at Borrower's expense, and make it available to Lender at a place to be
determined by Lender which is reasonably convenient to both parties, and
Lender shall have the right to take immediate possession of all of the
Collateral, and may enter the Resorts or any of the premises of Borrower or
wherever the Collateral shall be located, with or without process of law
wherever the Collateral may be, and, to the extent such premises are not
the property of Lender, to keep and store the same on said premises until
sold (and if said premises be the property of Borrower, Borrower agrees not
to charge Lender for use and occupancy, rent, or storage of the Collateral,
for a period of at least ninety (90) days after sale or disposition of the
Collateral).
(k) Escrow Account. Require that an escrow account be established by
Lender or an escrow agent acceptable to Lender to collect any and all taxes
that may be payable by Borrower.
9.2 Notice of Sale. Reasonable notification of the time and place of any
public sale of the Collateral or reasonable notification of the time after which
any private sale or other intended disposition of the Collateral is to be made
shall be sent to Borrower and to any other Person entitled to notice under the
Code or other applicable law; provided, however, that if the Collateral
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Lender may, subject to any applicable local laws, sell or
otherwise dispose of the Collateral without notification, advertisement or other
notice of any kind. It is agreed that notice sent not less than ten (10)
calendar days prior to the taking of the action to which such notice relates is
reasonable notification and notice for the purposes of this Section 9.2. Lender
shall have the right to bid at any public or private sale on its own behalf. Out
of money arising from any such sale, Lender shall retain an amount equal to all
costs and charges, including attorneys' fees, for advice, counsel or other legal
services or for pursuing, reclaiming, seeking to reclaim, taking, keeping,
removing, storing and advertising such Collateral for sale, selling same and any
and all other charges and expenses in connection therewith and in satisfying any
prior Liens thereon. Any balance shall be applied upon the Obligations, and in
the event of deficiency, Borrower shall remain liable to Lender. In the event of
any surplus, such surplus shall be paid to Borrower or to such other Persons as
may be legally entitled to such surplus. If, by reason of any suit or proceeding
of any kind, nature or description against Borrower, or by Borrower or any other
party against Lender, which in Lender's sole discretion makes it advisable for
Lender to seek counsel for the protection and preservation of its security
interest, or to defend its own interest, such expenses and counsel fees shall be
allowed to Lender and the same shall be made a further charge and Lien upon the
Collateral.
In view of the fact that federal and state securities laws may impose
certain restrictions on the methods by which a sale of Collateral comprised of
Securities may be effected after an Event of Default, Borrower agrees that upon
the occurrence or existence of an Event of Default, Lender may, from time to
time, attempt to sell all or any part of such Collateral by means of a private
placement restricting the bidding and prospective purchasers who will represent
and agree that they are purchasing for investment only and not for, or with a
view to, distribution. In so doing, Lender may solicit offers to buy such
Collateral, or any part of it for cash, from a limited number of investors
deemed by Lender, in its reasonable judgment, to be responsible parties who
might be interested in purchasing the Collateral, and if Lender solicits such
offers from not less than three (3) such investors, then the acceptance by
Lender of the highest offer obtained therefrom shall be deemed to be a
commercially reasonable method of disposition of such Collateral.
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9.3 Application of Collateral; Termination of Agreements. Upon the
occurrence of any Event of Default, Lender may, with or without proceeding with
such sale or foreclosure or demanding payment or performance of the Obligations,
without notice, terminate Lender's further performance under this Agreement or
any other agreement or agreements between Lender and Borrower or any Affiliate
of Borrower, without further liability or obligation by Lender, and may also, at
any time, appropriate and apply on any Obligations any and all Collateral in its
(or the Lockbox Agent's) possession, any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to Borrower held
by Lender hereunder or under any other financing agreement or otherwise, whether
accrued or not. Neither such termination, nor the termination of this Agreement
by lapse of time, the giving of notice or otherwise, shall absolve, release or
otherwise affect the liability of Borrower with respect to transactions prior to
such termination, or affect any of the Liens, security interests, rights, powers
and remedies of Lender, but they shall, in all events, continue until all of the
Obligations are satisfied.
9.4 Rights of Lender Regarding Collateral. In addition to all other rights
possessed by Lender, Lender, at its option, may from time to time after there
shall have occurred an Event of Default, and so long as such Event of Default
remains uncured, at its sole discretion and subject to applicable law, take the
following actions:
(a) Transfer all or any part of the Collateral into the name of Lender
or its nominee;
(b) Take control of any proceeds of any of the Collateral;
(c) Extend or renew the Loan and grant releases, compromises or
indulgences with respect to the Obligations, any portion thereof, any
extension or renewal thereof, or any security therefor, to any obligor
hereunder or thereunder; and
(d) Exchange certificates or instruments representing or evidencing
the Collateral for certificates or instruments of smaller or larger
denominations for any purpose consistent with the terms of this Agreement.
9.5 Delegation of Duties and Rights. Lender may execute any of its duties
and/or exercise any of its rights or remedies under the Loan Documents by or
through its officers, directors, employees, attorneys, agents or other
representatives.
9.6 Lender Not in Control. None of the covenants or other provisions
contained in this Agreement or in any other Loan Document shall give Lender the
right or power to exercise control over the affairs and/or management of
Borrower.
9.7 Waivers. The acceptance by Lender at any time and from time to time of
partial payments of the Loan or performance of the Obligations shall not be
deemed to be a waiver of any Event of Default then existing. No waiver by Lender
of any Event of Default shall be deemed to be a waiver of any other or
subsequent Event of Default. No delay or omission by Lender in exercising any
right or remedy under the Loan Documents shall impair such right or remedy or be
construed as a waiver thereof or an acquiescence therein, nor shall any single
or partial exercise of any such right or remedy preclude other or further
exercises thereof, or the exercise of any other right or remedy under the Loan
Documents or otherwise. Further, except as otherwise expressly provided in this
Agreement or by applicable law, Borrower and each and every surety, endorser,
guarantor and other party liable for the payment or performance of all or any
portion of the Obligations, severally waive notice of the occurrence of any
Event of Default, presentment and demand for payment, protest, and notice of
protest, notice of intention to accelerate, acceleration and nonpayment, and
agree that their liability shall not be affected by any renewal or extension in
the time of payment of the Loan, or by any release or change in any security for
the payment or performance of the Loan, regardless of the number of such
renewals, extensions, releases or changes.
9.8 Cumulative Rights. All rights and remedies available to Lender under
the Loan Documents shall be cumulative of and in addition to all other rights
and remedies granted to Lender under any of the Loan Documents, at law or in
equity, whether or not the Loan is due and payable and whether or not Lender
shall have instituted any suit for collection or other action in connection with
the Loan Documents.
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9.9 Expenditures by Lender. Any sums reasonably expended by or on behalf of
Lender pursuant to the exercise of any right or remedy provided herein shall
become part of the Obligations and shall bear interest at the Default Rate, from
the date of such expenditure until the date repaid.
9.10 Diminution in Value of Collateral. Lender shall not have any liability
or responsibility whatsoever for any diminution or loss in value of any of the
Collateral, specifically including that which may arise from Lender's negligence
or inadvertence, whether such negligence or inadvertence is the sole or
concurring cause of any damage, but specifically excluding any diminution or
loss in value which is actually and proximately caused by Lender's failure to
retain the Pledged Notes Receivable in a fire-resistant filing cabinet as
provided in Section 3.6 above.
Section 10. CERTAIN RIGHTS OF LENDER
10.1 Protection of Collateral. Lender may, at any time and from time to
time, take such actions as Lender deems necessary or appropriate to protect
Lender's Liens and security interests in and to preserve the Collateral, and to
establish, maintain and protect the enforceability of Lender's rights with
respect thereto, all at the expense of Borrower. Borrower agrees to cooperate
fully with all of Lender's efforts to preserve the Collateral and Lender's
Liens, security interests and rights and will take such actions to preserve the
Collateral and Lender's Liens, security interests and rights as Lender may
direct, including, without limitation, by promptly paying upon Lender's demand
therefor, all documentary stamp taxes, withholding taxes, exchange fees, notary
fees, registration fees or other taxes or fees that may be or may become due
with respect to any of the Collateral. All of Lender's expenses of preserving
the Collateral and its Liens and security interests and rights therein shall be
added to the principal amount of the Loan and secured by the Collateral.
10.2 Performance by Lender. If Borrower fails to perform any agreement
contained herein, Lender may itself perform, or cause the performance of, such
agreement, and the expenses of Lender incurred in connection therewith shall be
payable by Borrower under Section 10.5 below. In no event, however, shall Lender
have any obligation or duty whatsoever to perform any covenant or agreement of
Borrower contained herein or in any of the other Loan Documents, Timeshare
Documents or Operating Contracts, and any such performance by Lender shall be
wholly discretionary with Lender. The performance by Lender of any agreement or
covenant of Borrower on any occasion shall not give rise to any duty on the part
of Lender to perform any such agreements or covenants on any other occasion or
at any time. In addition, Borrower acknowledges that Lender shall not at any
time or under any circumstances whatsoever have any duty to Borrower or to any
third party to exercise any of Lender's rights or remedies hereunder.
10.3 No Liability of Lender. Neither the acceptance of this Agreement by
Lender, nor the exercise of any rights hereunder by Lender, shall be construed
in any way as an assumption by Lender of any obligations, responsibilities or
duties of Borrower arising in connection with the Resorts or under the Timeshare
Documents, any applicable statutes, ordinances, rules or regulations, under any
of the Operating Contracts, or in connection with any other business of Borrower
or the Collateral, or otherwise bind Lender to the performance of any
obligations with respect to the Resorts or the Collateral; it being expressly
understood that Lender shall not be obligated to perform, observe or discharge
any obligation, responsibility, duty, or liability of Borrower with respect to
the Resorts or any of the Collateral, or under any of the Timeshare Documents,
any applicable statutes, ordinances, rules or regulations, or under any of the
Operating Contracts, including, but not limited to, appearing in or defending
any action, expending any money or incurring any expense in connection
therewith. Without limitation of the foregoing, neither this Agreement, any
action or actions on the part of Lender taken hereunder, nor the acquisition of
the Pledged Notes Receivable and the related Interval Lease Contracts by Lender
prior to or following the occurrence of an Event of Default shall constitute an
assumption by Lender of any Obligations of Borrower with respect to the Resorts
or the Pledged Notes Receivable, the related Interval Lease Contracts or any
documents or instruments executed in connection therewith, and Borrower shall
continue to be liable for all of its obligations thereunder or with respect
thereto. Borrower and Guarantor, jointly and severally, hereby agree to
indemnify, protect, defend and hold Lender harmless from and against any and all
claims, demands, causes of action, losses, damages, liabilities, suits, costs
and expenses, including, without limitation, attorneys' fees and court costs,
asserted against or incurred by Lender by reason of, arising out of, or
connected in any way with (i) any failure or alleged failure of Borrower to
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perform any of its covenants or obligations with respect to the Resorts or to
the Purchasers of any of the Intervals; (ii) a breach of any certification,
representation, warranty or covenant of Borrower set forth in any of the Loan
Documents; (iii) the ownership of the Pledged Notes Receivable, the Interval
Lease Contracts and the rights, titles and interests assigned hereby, or
intended so to be; (iv) the debtor-creditor relationships between Borrower on
the one hand, and the Purchasers or Lender, as the case may be, on the other; or
(v) the Pledged Notes Receivable, the Interval Lease Contracts or the operation
of the Resorts. The obligations of Borrower to indemnify, protect, defend and
hold Lender harmless as provided in this Agreement are absolute, unconditional,
present and continuing, and shall not be dependent upon or affected by the
genuineness, validity, regularity or enforceability of any claim, demand or suit
from which Lender is indemnified. The indemnity provisions in this Section 10.3
shall survive the satisfaction of the Obligations and termination of this
Agreement, and remain binding and enforceable against Borrower, together with
its successors and assigns. Borrower hereby waives all notices with respect to
any losses, damages, liabilities, suits, costs and expenses, and all other
demands whatsoever hereby indemnified, and agrees that its obligations under
this Agreement shall not be affected by any circumstances, whether or not
referred to above, which might otherwise constitute legal or equitable
discharges of its obligations hereunder. If a court of competent jurisdiction
should determine that Borrower is entitled to recover damages from Lender for
any reason or upon any cause, claim or counterclaim, in connection with the Loan
or the transactions provided for or contemplated pursuant to this Agreement or
the other Loan Documents, Borrower stipulates and agrees that any such damages
or awards shall be limited to the amount of the Commitment Fees or any portion
thereof actually paid by Borrower to Lender.
10.4 Right to Defend Action Affecting Security. Lender may, at Borrower's
expense, appear in and defend any action or proceeding, at law or in equity,
which Lender in good faith believes may affect the Liens or security interests
granted under this Agreement, including without limitation, with respect to
Pledged Notes Receivable, the Textron Mortgages, the value of the Collateral, or
Lender's rights under any of the Loan Documents.
10.5 Expenses. All expenses payable by Borrower under any provision of this
Agreement shall be an Obligation of Borrower, and if paid by Lender, shall be
repaid by Borrower to Lender, upon demand, and shall bear interest at the
Default Rate from the date of payment of such expense(s) by Lender until repaid
by Borrower.
10.6 Lender's Right of Set-Off. Lender shall have the right to set-off
against any or all of the Collateral any Obligations then due and unpaid by
Borrower.
10.7 No Waiver. No failure or delay on the part of Lender in exercising any
right, remedy or power under this Agreement or in giving or insisting upon
strict performance by Borrower hereunder or in giving notice hereunder shall
operate as a waiver of the same or any other power or right, and no single or
partial exercise of any such power or right shall preclude any other or further
exercise thereof or the exercise of any other such power or right. Lender,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by Borrower of any and all of the terms and provisions of
this Agreement to be performed by Borrower. The collection and application of
proceeds, the entering and taking possession of the Collateral, and the exercise
of the rights of Lender contained in this Agreement and the other Loan Documents
shall not cure or waive any Default, or affect any Default or affect any notice
of Default, or invalidate any acts done pursuant to such notice. No waiver by
Lender of any breach or Default of or by any party hereunder shall be deemed to
alter or affect Lender's rights hereunder with respect to any prior or
subsequent Default.
10.8 Right of Lender to Extend Time of Payment, Substitute, Release
Security, Etc. Without affecting the liability of any Person or entity,
including, without limitation, any Purchasers, for the payment of any of the
Obligations and without affecting or impairing Lender's Lien on the Collateral,
or the remainder thereof, as security for the full amount of the Loan unpaid and
the Obligations, Lender may from time to time, without notice: (a) release any
Person liable for the payment of the Loan; (b) extend the time or otherwise
alter the terms of payment of the Loan; (c) accept additional security for the
Obligations of any kind, including deeds of trust or mortgages and security
agreements; (d) alter, substitute or release any property securing the
Obligations; (e) realize upon any Collateral for the payment of all or any
portion of the Loan in such order and manner as it may deem fit; or (f) join in
any subordination or other agreement affecting this Agreement or the lien or
charge thereof.
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10.9 Assignment of Lender's Interest. Lender shall have the right to assign
the Loan and all or any portion of its rights in or pursuant to this Agreement
or any of the Loan Documents to any subsequent holder or holders of the Note or
the Obligations.
10.10 Notice to Purchaser. Borrower authorizes any of Lender, the Lockbox
Agent or Servicing Agent (but neither Lender, the Lockbox Agent nor the
Servicing Agent shall be obligated) to communicate at any time and from time to
time with any Purchaser or any other Person primarily or secondarily liable
under a Pledged Note Receivable with regard to the Lien of the Lender thereon
and any other matter relating thereto, and by no later than the Closing Date,
Borrower shall deliver to Lender a notification to the Purchasers executed in
blank by Borrower and in form acceptable to Lender, pursuant to which the
Purchasers (or other obligors) may be directed to remit all payments with
respect to the Collateral as Lender may require.
10.11 Collection of the Notes. Borrower hereby directs and authorizes each
Person liable for the payment of any Pledged Note Receivable, and promptly after
the Closing Date, itself shall direct, in writing, each such Person, to pay each
installment thereon to the Lockbox Agent, pursuant to the Lockbox Agreement,
unless and until directed otherwise by written notice from Lender or, at
Lender's direction, from Borrower, after which such parties are and shall be
directed to make all further payments on the Pledged Notes Receivable in
accordance with the directions of Lender. Borrower shall have no rights to such
installment payments. Lockbox Agent shall have no right of setoff with respect
to the monies held by Lockbox Agent pursuant to the Lockbox Agreement. Borrower
shall be responsible for all costs and expenses related to the Lockbox Agreement
and the Lockbox Agent. Following the occurrence of an Event of Default, Lender
shall have the right to require that all payments becoming due under the Pledged
Notes Receivable (if any) be paid directly to Lender, and Lender is hereby
authorized to receive, collect, hold and apply the same in accordance with the
provisions of this Agreement. In the event that following the occurrence of an
Event of Default, Lender or Lockbox Agent does not receive any installment of
principal or interest due and payable under any of the Pledged Notes Receivable
on or prior to the date upon which such installment becomes due, Lender may, at
its election (but without any obligation to do so), give or cause Lockbox Agent
to give notice of such event of default to the defaulting party or parties, and
Lender shall have the right (but not the obligation), subject to the terms of
such Notes, to accelerate payment of the unpaid balance of any of the Pledged
Notes Receivable in default, and to enforce any other remedies available to the
holder of such Pledged Notes Receivable with respect to such Event of Default.
Borrower hereby further authorizes, directs and empowers Lender (and Lockbox
Agent or any other Person as may be designated by Lender in writing) to collect
and receive all checks and drafts evidencing such payments and to endorse such
checks or drafts in the name of Borrower and upon such endorsements, to collect
and receive the money therefor. The right to endorse checks and drafts granted
pursuant to the preceding sentence is irrevocable by Borrower, and the banks or
banks paying such checks or drafts upon such endorsements, as well as the
signers of the same, shall be as fully protected as though the checks or drafts
had been endorsed by Borrower.
10.12 Power of Attorney. Borrower does hereby irrevocably constitute and
appoint Lender as Borrower's true and lawful agent and attorney-in-fact, with
full power of substitution, for Borrower and in Borrower's name, place and
stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in
the name of Borrower and in favor of Lender as provided in Section 10.11 above;
(b) to demand and receive from time to time any and all property, rights,
titles, interests and liens hereby sold, assigned and transferred, or intended
so to be, and to give receipts for same; (c) upon an Event of Default, to
collect all rent, revenues and income, pursuant to the terms of the Textron
Mortgages, subject however to the provisions of the Intercreditor Agreement; (d)
from time to time, to institute and prosecute, in Lender's own name, any and all
proceedings at law, in equity, or otherwise, that Lender may deem proper in
order to collect, assert or enforce any claim, right or title, of any kind, in
and to the property, rights, titles, interests and liens hereby sold, assigned
or transferred, or intended so to be, and to defend and compromise any and all
actions, suits or proceedings with respect to any of the said property, rights,
titles, interests and liens; (e) with respect to Pledged Notes Receivable, upon
an Event of Default, to change the Borrower's post office mailing address; and
(f) generally to do all and any such acts and things in relation to the
Collateral as Lender shall in good faith deem advisable. Borrower hereby
declares that the appointment made and the powers granted pursuant to this
Section 10.12 are coupled with an interest and are and shall be irrevocable by
Borrower in any manner, or for any reason, unless and until a release of the
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same is executed by Lender and, to the extent permissible under Mexican law,
duly recorded in the appropriate public records of the location of each of the
Resorts. For purposes of effectuating Borrower's grant of an irrevocable power
of attorney to Lender, contemporaneous herewith Borrower has executed that
certain power of attorney in favor of Lender which has been or which shall be
recorded in the Public Registry of Commerce ("Power of Attorney").
10.13 Relief from Automatic Stay, Etc. To the fullest extent permitted by
law, in the event the Borrower or Guarantor shall make application for or seek
relief or protection under the United States federal bankruptcy code
("Bankruptcy Code") or other United States or Mexican Debtor Relief Laws, or in
the event that any involuntary petition is filed against the Borrower or
Guarantor under such Code or other Debtor Relief Laws, and not dismissed with
prejudice within forty-five (45) days, the automatic stay provisions of Section
362 of the Bankruptcy Code are hereby modified as to Lender to the extent
necessary to implement the provisions hereof permitting set-off and the filing
of financing statements or other instruments or documents; and Lender shall
automatically and without demand or notice (each of which is hereby waived) be
entitled to immediate relief from any automatic stay imposed by Section 362 of
the Bankruptcy Code or otherwise, on or against the exercise of the rights and
remedies otherwise available to Lender as provided in the Loan Documents. In
addition, in the event relief is sought by or against Guarantor under the
Bankruptcy Code, such Guarantor agrees not to seek, directly or indirectly, in
any ensuing bankruptcy proceeding, any extension of the exclusivity period
otherwise available to a debtor under the Bankruptcy Code, including, without
limitation, the exclusivity period provided for under Section 1121(b) of the
Bankruptcy Code. Guarantor agrees not to contest the validity or enforceability
of this Section.
10.14 Investigations and Inquiries. Borrower hereby authorizes Lender to
conduct such investigations and inquiries as to credit, operations, the
Guarantor, the Resorts and the Collateral as Lender shall, in its sole
discretion, deem necessary or desirable in connection with monitoring the Loan,
and all such Persons of whom Lender may make such inquiry are empowered to
cooperate with, and to provide requested information to, Lender.
10.15 Right of First Refusal. Subject to the right of first refusal set
forth in the FINOVA Loan Agreement, Lender shall have the unconditional right
and option (but not the obligation), in its sole discretion, and right of first
refusal to commit to provide and subsequently provide any and all future
receivables financing to Borrower or any Affiliate of Borrower in connection
with said Person's sale of one (1) or more future phases of Units and Intervals
or other timeshare interests of any type at the Resorts, on substantially the
same terms as those set forth herein.
10.17 Withholding Tax. Any and all payments by the Borrower hereunder or
under the Note shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto. If the Borrower shall be
required by law to deduct any taxes from or with respect to any sum payable
hereunder or under the Note (i) the sum payable shall be increased or "grossed
up" as may be necessary so that after making all required deductions the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall pay the full amount of any sums
deducted to the relevant taxing authority or other authority in accordance with
applicable law. Lender and Borrower shall enter into an arrangement whereby
Borrower will provide to Lender evidence satisfactory to Lender in its sole
discretion of the payment of withholding taxes required pursuant to Article 154
of the Mexican Income Tax Law and the Treaty to Avoid Double Taxation between
the United States and Mexico dated as of November 8, 1992 (or successor
provisions, as applicable). If permissible under applicable laws, Borrower shall
allow Lender to take tax credits for such withholding tax payments made by
Borrower and, after Lender's receipt of evidence satisfactory to Lender in
Lender's sole discretion of Borrower's payment of such withholding tax payments,
Lender will remit to Borrower an amount equal to such tax credits to the extent
actually enjoyed by Lender, taking into account, at Lender's sole discretion,
tax credit or other limitations, but in no event greater than the amount of the
withholding tax payments actually paid by Borrower with respect to the Note.
10.18 Intercreditor Agreement. Borrower, Guarantor and Lender each
acknowledge and confirm that the provisions of this Loan Agreement, the Textron
Mortgages, and the remaining Loan Documents shall be subject to the terms of the
Intercreditor Agreement.
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Section 11. TERM OF AGREEMENT. This Agreement shall continue in full force and
effect, and the security interests granted hereby and the duties, covenants and
liabilities of Borrower hereunder and all the terms, conditions and provisions
hereof relating thereto shall continue to be fully operative until all of the
Obligations have been satisfied in full. Borrower expressly agrees that if
either Borrower or Guarantor makes a payment to Lender, which payment or any
part thereof is subsequently invalidated, declared to be fraudulent or
preferential, or otherwise required to be repaid to a trustee, receiver or any
other party under any Debtor Relief Laws, state or federal law, common law or
equitable cause, then to the extent of such repayment, the Obligations or any
part thereof intended to be satisfied and the Liens provided for hereunder
securing the same shall be revived and continued in full force and effect as if
said payment had not been made.
Section 12. MISCELLANEOUS
12.1 Notices. All notices, requests and other communications to either
party hereunder shall be in writing and shall be given to such party at its
address set forth below or at such other address as such party may hereafter
specify for the purpose of notice to Lender or Borrower. Each such notice,
request or other communication shall be effective (a) if given by mail, when
such notice is deposited in the United States or Mexican mail with first class
postage prepaid, and addressed as aforesaid, provided that such mailing is by
registered or certified mail, return receipt requested; (b) if given by
overnight delivery, two (2) days following the date that such notice is
deposited with an internationally recognized overnight delivery service such as
Federal Express or Airborne, with all fees and charges prepaid, addressed as
provided below; or (c) if given by any other means, when delivered at the
address specified in this Section 12.1:
If to Borrower: c/o Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attn: Douglas Y. Bech, Esq.
And a Copy (which
copy shall not
constitute notice) to: Richard F. Davis, Esq.
Battle Fowler, LLP
Suite 2350
2049 Century Park East
Los Angeles, California 90067
If to Lender: Textron Financial Corporation
40 Westminster Street
Providence, Rhode Island 02940
Attention: Legal
With a Copy to: Textron Financial Corporation
333 East River Drive
First Floor #104
East Hartford, Connecticut 06108
Attention: Vice President
If to Guarantor: c/o Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attn: Douglas Y. Bech, Esq.
And a Copy
which copy shall
not constitute
notice) to: Richard F. Davis, Esq.
Battle Fowler, LLP
Suite 2350
2049 Century Park East
Los Angeles, California 90067
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Notwithstanding the foregoing, copies of the requests or notices from
Borrower to Lender which are specified in Sections 2.4(a), 4.2(a) and 12.10
of this Agreement shall not be delivered to Providence, Rhode Island as
provided above, but rather shall be delivered in accordance with this
Section 12.1 only to Textron Financial Corporation, 333 East River Drive,
Suite 305, East Hartford, Connecticut 06108, Attention: Richard Mitterling.
In addition, all documents, instruments and other items to be delivered to
Lender from time to time pursuant to this Agreement shall be delivered to
Lender's office at 333 East River Drive, Suite 305, East Hartford,
Connecticut 06108.
12.2 Survival. All representations, warranties, covenants and agreements
made by Borrower herein, in the other Loan Documents or in any other agreement,
document, instrument or certificate delivered by or on behalf of Borrower under
or pursuant to the Loan Documents shall be considered to have been relied upon
by Lender and shall survive the delivery to Lender of such Loan Documents (and
each part thereof), regardless of any investigation made by or on behalf of
Lender.
12.3 Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS
MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF
ITS CHOICE OF LAWS PRINCIPLES. BORROWER AND THE GUARANTOR HEREBY AGREE TO ACCEPT
THE FEDERAL AND STATE COURTS LOCATED IN PROVIDENCE COUNTY, RHODE ISLAND AS
HAVING PROPER JURISDICTION AND BEING THE PROPER VENUE FOR ANY LEGAL PROCEEDINGS
ARISING OUT OF THE LOAN DOCUMENTS AND EACH PARTY HERETO HEREBY EXPRESSLY SUBMITS
TO THE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH LEGAL PROCEEDINGS
AND EXPRESSLY WAIVES FOR SUCH PURPOSE ANY OTHER PREFERENTIAL JURISDICTION BY
REASON OF ITS PRESENT OR FUTURE DOMICILE OR OTHERWISE. NOTWITHSTANDING ANYTHING
TO THE CONTRARY PROVIDED HEREIN, BORROWER AND GUARANTOR EXPRESSLY WAIVE ANY AND
ALL CLAIMS TO JURISDICTION IN MEXICO. NOTWITHSTANDING ANYTHING TO THE CONTRARY
PROVIDED HEREIN, THERE SHALL BE NO PROHIBITION BY LAW, RULE OR REGULATION OF
MEXICO OR ANY POLITICAL SUBDIVISION THEREOF AS TO THE LENDER'S PROVIDING THE
LOAN TO BORROWER AND LENDER'S COLLECTION OF PAYMENTS OF PRINCIPAL AND INTEREST
PURSUANT TO THE LOAN TOGETHER WITH LENDER'S COLLECTION OF ANY AND ALL COSTS
RELATING TO THE LOAN OR EXERCISE OF RIGHTS AS TO THE COLLATERAL. ALL COLLATERAL
WILL BE PERFECTED IN ACCORDANCE WITH THE LAWS OF MEXICO, THE STATE OF RHODE
ISLAND, AND THE LOCATION OF THE COMPANY PROVIDING SERVICES AND MANAGEMENT TO THE
RESORTS.
12.4 Limitation on Interest. Lender and Borrower intend to comply at all
times with all applicable usury laws. All agreements between Lender and
Borrower, whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no contingency, whether by reason of demand or
acceleration of the maturity of the Note or otherwise, shall the interest
contracted for, charged, received, paid or agreed to be paid to Lender exceed
the highest lawful rate permissible under applicable usury laws. If, from any
circumstance whatsoever, fulfillment of any provision hereof, of the Note or of
any other Loan Documents shall involve transcending the limit of such validity
prescribed by any law which a court of competent jurisdiction may deem
applicable hereto, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if from any circumstance Lender shall
ever receive anything of value deemed interest by applicable law which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal of the Loan and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal of the Loan, such excess shall be refunded to Borrower. All interest
paid or agreed to be paid to Lender shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full period
until payment in full of the principal so that the interest on the Loan for such
full period shall not exceed the highest lawful rate. Borrower agrees that in
determining whether or not any interest payment under the Loan Documents exceeds
the highest lawful rate, any non-principal payment (except payments specifically
described in the Loan Documents as "interest") including without limitation,
prepayment fees and late charges, shall to the maximum extent not prohibited by
law, be an expense, fee, premium or penalty rather than interest. Lender hereby
expressly disclaims any intent to contract for, charge or receive interest in an
amount which exceeds the highest lawful rate. The provisions of the Note, this
Agreement, and all other Loan Documents are hereby modified to the extent
necessary to conform with the limitations and provisions of this Section, and
this Section shall govern over all other provisions in any document or agreement
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now or hereafter existing. This Section shall never be superseded or waived
unless there is a written document executed by the Lender and Borrower,
expressly declaring the usury limitation of this Agreement to be null and void,
and no other method or language shall be effective to supersede or waive this
paragraph.
12.5 Invalid Provisions. If any provision of this Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement and/or
the other Loan Documents (as the case may be) a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
12.6 Successors and Assigns. This Agreement and the other Loan Documents
shall be binding upon and inure to the benefit of Borrower, the Guarantor and
Lender and their respective successors and assigns; provided that neither
Borrower nor Guarantor may transfer or assign any of its rights or obligations
under this Agreement, the Commitment or the other Loan Documents without the
prior written consent of Lender. This Agreement and the transactions provided
for or contemplated hereunder or under any of the Loan Documents are intended
solely for the benefit of the parties hereto. No third party shall have any
rights or derive any benefits under or with respect to this Agreement, the
Commitment or the other Loan Documents except as specifically set forth herein
or otherwise provided in a written document signed by Borrower and Lender. No
person other than Borrower shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that Lender
will refuse to make advances in the absence of strict compliance with any or all
thereof, and no other Person, other than Borrower, under any circumstances
whatsoever, shall be deemed to be a beneficiary of such conditions, any or all
of which Lender freely may waive in whole or in part, at any time if, in its
sole discretion, it deems it desirable to do so. In particular, Lender makes no
representation and assumes no obligation as to third parties concerning the
quality of the construction of the Improvements by Borrower or the absence
therefrom of defects. In this connection, Borrower agrees to and shall indemnify
Lender from any liability, claim or loss, together with attorneys' fees and
costs, resulting from the disbursement of the Loan proceeds or from the
condition of the Property, whether related to the quality of construction or
otherwise and whether arising during or after the term of the Loan. This
provision shall survive the repayment of the Loan and shall continue in full
force and effect so long as the possibility of such liability or claim exists.
12.7 Amendment. This Agreement (including all exhibits and schedules
hereto) may not be amended or modified, and no term or provision hereof may be
waived, except by a written instrument signed by all of the parties hereto.
12.8 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Lender's receipt of one or more
counterparts hereof signed by Borrower, the Guarantor and Lender.
12.9 Lender Not a Fiduciary. The relationship between Borrower and Lender
is solely that of debtor and creditor, and Lender has no fiduciary or other
special relationship with Borrower or Guarantor, and no term or provision of any
of the Loan Documents shall be construed so as to deem the relationship between
Borrower, the Guarantor and Lender to be other than that of debtor and creditor.
12.10 Return of Pledged Notes Receivable.
(a) In the event Borrower complies with its Obligations under Section
2.4(b) of this Agreement with respect to Pledged Notes Receivable that
cease to be Eligible Notes Receivable and Borrower thereafter desires to
enforce such ineligible Pledged Note Receivable against the Purchaser
thereof, then provided that no Event of Default has occurred which has not
been cured to Lender's satisfaction (as evidenced by a written acceptance
of such cure executed by Lender), and no event has occurred which with
notice, the passage of time or both, would constitute an Event of Default,
then within thirty (30) days after its receipt of a written request from
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Borrower, Lender shall release and/or cancel the endorsement in pledge
previously effected by Borrower in favor of Lender, without recourse,
(liberacion y/o cancelacion del endoso en prenda, sin responsabilidad para
el Acreedor) and thereafter deliver such ineligible Note Receivable to
Borrower;
(b) In the event that all Obligations hereunder are fully satisfied
then, within a reasonable time thereafter, Lender shall release and/or
cancel the endorsement in pledge previously effected by Borrower in favor
of Lender, without recourse, (liberacion y/o cancelacion del endoso en
prenda, sin responsabilidad para el Acreedor) and thereafter deliver such
Pledged Notes Receivable to Borrower, together with any other nonrecourse
Collateral reassignment documents requested and prepared by Borrower, at
Borrower's sole cost and expense.
12.11 Accounting Principles. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be determined or made in accordance
with GAAP consistently applied at the time in effect, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement.
12.12 Total Agreement. This Agreement and the other Loan Documents,
including the exhibits and schedules thereto, comprise the entire agreement
between the parties relating to the subject matter hereof and supersede all
prior agreements and understandings, both oral and written, between the parties
hereto relating to the subject matter hereof (including but not limited to the
Commitment, except as otherwise expressly provided herein), cannot be changed or
terminated orally or by course of conduct, and shall be deemed effective as of
the date it is accepted by Lender at the offices set forth above.
12.13 Litigation. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF BORROWER, THE GUARANTOR AND LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY
ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN,
WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF BORROWER, THE GUARANTOR AND LENDER
FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL
CANNOT OR HAS NOT BEEN WAIVED. FURTHER, BORROWER AND THE GUARANTOR HEREBY
CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LENDER, INCLUDING LENDER'S COUNSEL,
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF
SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
BORROWER AND THE GUARANTOR ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION ARE A
MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
The waiver and stipulations of Borrower, the Guarantor and Lender in this
Section 12.13 shall survive the final payment or performance of all of the
Obligations and the resulting termination of this Agreement.
12.14 Incorporation of Exhibits. This Agreement, together with all exhibits
and schedules hereto, constitute one document and agreement which is referred to
herein by the use of the defined term "Agreement." Such exhibits and schedules
are incorporated herein as though fully set out in this Agreement. The
definitions contained in any part of this Agreement shall apply to all parts of
this Agreement.
12.15 Consent to Advertising and Publicity of Timeshare Documents. Borrower
hereby consents that the Lender may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, consisting of the name and address of Borrower, the Loan's amount,
and the Collateral therefor.
12.16 Directly or Indirectly. Where any provision in the Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provisions shall be applicable, whether such action is taken
directly or indirectly by such Person.
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12.17 Headings. Section headings have been inserted in the Agreement as a
matter of convenience of reference only; such Section headings are not a part of
the Agreement and shall not be used in the interpretation of this Agreement.
12.18 Gender. Words of any gender in this Agreement shall include each
other gender where appropriate.
12.19 No Duty. All attorneys, accountants, appraisers, consultants,
custodians and other professionals retained by Lender shall have the right to
act exclusively in the interest of Lender and shall have no duty of disclosure,
duty of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to Borrower, the Guarantor or any other Person.
12.20 Reimbursement for Taxes. Borrower will promptly, upon written demand
of Lender, reimburse Lender for any taxes assessed against Lender by the
Government of Mexico or any subdivision thereof (with the exception of income
taxes payable by Lender which are imposed on the net income of Lender) which is
on account of or measured by the interest income received by Lender under the
Pledged Notes Receivable and Interval Lease Contracts assigned to Lender
pursuant to this Agreement or in any way imposed upon Lender in connection with
the transactions contemplated hereunder, including, without limitation, any
general intangible tax or documentary tax.
12.21 Submissions.
(a) All documents, agreements, reports, surveys, appraisals, insurance
policies, references, financial information and other submissions required
to be furnished by Borrower or Guarantor to Lender hereunder or pursuant to
any of the other Loan Documents (collectively "Submissions") shall be in
form and content satisfactory to Lender, in its reasonable discretion, and
prepared at Borrower's expense.
(b) Lender shall have the prior right of approval of any Person
responsible for preparing a Submission (a "Preparer") and may reject any
Submission if Lender, in its reasonable discretion, believes that the
experience, skill or reputation of the applicable Preparer is
unsatisfactory in any respect whatsoever.
(c) All reports and appraisals required to be furnished by Borrower or
Guarantor to Lender hereunder or pursuant to any of the other Loan
documents shall specifically be addressed to Lender and include the
following statement:
THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL
CORPORATION IS RELYING ON THE WITHIN INFORMATION IN
CONNECTION WITH ITS ADVANCES TO BORROWER ON THE
SUBJECT RESORTS.
12.22 Investigations and Inquiries. Borrower hereby authorizes Lender to
conduct all such investigations and inquiries as to credit, operations,
Borrower, any Affiliate of Borrower, Guarantor, any Material Party, the Resorts
and the Collateral as shall be necessary or desirable, in Lender's sole
discretion, in connection with its monitoring of the Loan. By this
authorization, individuals of whom Lender may make any such inquiry are
empowered to cooperate with and supply all requested information and
documentation to Lender.
12.23 Service of Process. Borrower and Guarantor have appointed Raintree
Resorts International, Inc., with an address of 10000 Memorial Drive, Suite 480,
Houston, Texas 77024, as their agent for service of process ("Service of Process
Agent") who shall be responsible for accepting service of process within the
United States on behalf of Borrower and Guarantor.
12.24 Joint and Several Liability. All of the Obligations, covenants,
representations and warranties of Borrower in this Agreement and in any of the
remaining Loan Documents shall be the joint and several Obligations, covenants,
representations and warranties of each entity constituting Borrower, except to
the extent as may be expressly set forth herein 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 Loan Documents may be determined to secure indebtedness of any Borrower
for which any other Borrower is not primarily liable, each Borrower entity
expressly waives the benefit of any and all defenses available to a guarantor,
surety, endorser or accommodation party dependant on an obligor's character as
such.
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IN WITNESS WHEREOF, Borrower, Lender and the Guarantor have caused this
Agreement to be duly executed and delivered effective as of the date first above
written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURES BEGIN ON FOLLOWING PAGE]
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BORROWER:
WITNESS: CR Resorts Cancun, S. de R.L. de C.V., a
Mexican limited responsibility corporation
with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
WITNESS: CR Resorts Los Cabos, S. de R.L. de C.V.,
a Mexican limited responsibility
corporation with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
WITNESS: CR Resorts Puerto Vallarta, S.de R.L.de C.V.,
a Mexican limited responsibility corporation
with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
WITNESS: Corporacion Mexitur, S. de R.L. de C.V.,
a Mexican limited responsibility corporation
with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
WITNESS: CR Resorts Cancun Timeshare Trust, S. de R.L.
de C.V., a Mexican limited responsibility
corporation with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
WITNESSS: CR Resorts Cabos Timeshare Trust, S. de R.L.
de C.V., a Mexican limited responsibility
corporation with variable capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
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WITNESS: CR Resorts Puerto Vallarta Timeshare Trust
S. de R.L. de C.V., a Mexican limited
responsibility corporation with variable
capital
____________________________ By:__________________________________
Witness Name:
Its:
[SEAL]
LENDER:
TEXTRON FINANCIAL CORPORATION,
a Delaware corporation
____________________________ By: ________________________________
Witness Name:
Its:
[SEAL]
GUARANTOR:
Raintree Resorts International, Inc.,
a Nevada corporation
____________________________ By: _______________________________
Witness Name:
Its:
[SEAL]
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EXHIBIT A
ASSIGNMENT Of PLEDGED NOTES RECEIVABLE
AND INTERVAL LEASE CONTRACTS
72
<PAGE>
EXHIBIT B
PERMITTED LIENS AND ENCUMBRANCES
[TO BE COMPLETED UPON RECEIPT OF TITLE INFORMATION]
73
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EXHIBIT C
LEGAL DESCRIPTION OF RESORT PROPERTY
[TO COMPLETE UPON RECEIPT OF FINAL TITLE POLICIES]
74
<PAGE>
EXHIBIT D
TIMESHARE DOCUMENTS
[TO BE COMPLETED UPON RECEIPT OF DOCUMENTATION]
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<PAGE>
EXHIBIT E
PENDING LITIGATION
NONE.
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EXHIBIT F
FORM OF REQUEST FOR ADVANCE (RECEIVABLES)
77
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EXHIBIT G
OPERATING CONTRACTS
78
<PAGE>
Exhibit H
FORM OF OFFICER'S CERTIFICATE
79
<PAGE>
EXHIBIT I
OWNERSHIP OF BORROWER ENTITIES
80
<PAGE>
SCHEDULE 1
SALES PROJECTIONS
81
PAYMENT GUARANTY AND SUBORDINATION AGREEMENT
PAYMENT GUARANTY AND SUBORDINATION AGREEMENT (as amended from time to time,
this "Guaranty Agreement") dated as of November 23, 1999, is made by Raintree
Resorts International, Inc., a Nevada corporation ("Guarantor"), in favor of
TEXTRON FINANCIAL CORPORATION, a Delaware corporation ("Lender").
PRELIMINARY STATEMENT
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. de R.L. de C.V., a
Mexican limited responsibility 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, jointly and
severally, the "Borrower"), having an address at c/o Raintree Resorts
International, Inc., 10000 Memorial Drive, Suite 480, Houston, Texas 77024, and
Lender have entered into a certain Loan and Security Agreement dated as of
November 23, 1999, as amended from time to time (the "Loan Agreement"). Pursuant
to the terms and subject to the conditions of the Loan Agreement and the other
Loan Documents, Lender has agreed to lend to the Borrower up to $10,000,000.00
(the "Loan").
Guarantor, through certain of its subsidiaries in which Guarantor holds a
majority ownership interest, owns a majority ownership interest in each of the
Borrower entities, and Guarantor is involved in overseeing the business
operations of the Borrower and the Resorts, and derives material benefit from
such operations.
Lender's agreement to enter into the Loan Agreement and make any Advance is
conditioned, among other things, upon the execution and delivery by Guarantor of
this Guaranty Agreement pursuant to which the Guarantor unconditionally
guaranties payment and performance of the Obligations of Borrower to Lender. The
Guarantor will materially benefit from Lender's making available to the Borrower
the Loan, and has agreed to execute and deliver this Guaranty Agreement, and to
perform in accordance with its terms.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to enter into the Loan Documents and to make any Advances, and to secure
the performance and observance by the Guarantor of Borrower's Obligations,
whether now existing or hereafter arising, Guarantor has executed and delivered
this Guaranty Agreement and does hereby agree as follows:
1. Definitions, Etc. The above Preliminary Statement is true and correct
and is incorporated within and made a part of this Guaranty Agreement.
Capitalized terms used herein which are defined in the Loan Agreement shall have
the meanings assigned to them therein, unless the context otherwise requires or
unless otherwise defined herein. Any references to this "Agreement" shall mean
this Guaranty Agreement including all amendments, modifications and supplements
and any exhibits or schedules to any of the foregoing, and shall refer to this
Guaranty Agreement as the same may be in effect at the time such reference
becomes operative. Any references to "Guarantor" shall mean Raintree Resorts
International, Inc., a Nevada corporation.
2. The Guaranty. The Guarantor covenants and agrees as follows:
(a) Guarantor hereby unconditionally and irrevocably guaranties to Lender,
its successors and assigns, the due and punctual payment by Borrower
of all principal, interest, prepayment premiums, late charges, loan
expenses, and all other amounts payable under the Note or the other
Loan Documents, and all Obligations at any time owing under the Loan,
and all costs of collecting amounts due from the Guarantor, including
without limitation reasonable attorneys' and paralegals' fees and
disbursements, when the same shall become due and payable, whether at
maturity, by acceleration or otherwise, including any portion of such
Obligations nominally held by Lender on behalf of those who have
participations or interests therein granted or created by Lender
(collectively, the "Guaranteed Obligations").
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(b) Guarantor agrees that the guaranty given hereby is a guaranty of
payment and not of collection, and that its obligations hereunder
shall be primary, absolute and unconditional, irrespective of, and
unaffected by, the Borrower's performance or failure to perform or
satisfy all of its Obligations arising out of the Note and other Loan
Documents, and Guarantor irrevocably waives and agrees not to assert
or take advantage of:
(i) the genuineness, validity, legality, regularity, enforceability
or any future amendment of, or change in, this Guaranty
Agreement, any of the other Loan Documents or any other
agreement, document or instrument to which the Borrower or
Guarantor, or any other guarantors of the Obligations, is or may
be a party;
(ii) the absence of any action to enforce this Guaranty Agreement, any
of the other Loan Documents or any other agreement, document or
instrument to which the Borrower or Guarantor, or any other
guarantors of the Obligations, is a party;
(iii)any right at law, or in equity or otherwise, to require Lender
to institute suit or proceed against the Borrower, any other
guarantors or any other Person, or the Collateral, or to exhaust
any security held by Lender, or to pursue any other remedy in
Lender's power, before proceeding against Guarantor;
(iv) any defense arising by virtue of any statute of limitations, or
based on lack of authority, dissolution or ultra vires action;
(v) notice of the existence, creation or incurring of any new or
additional indebtedness or obligations on the part of the
Borrower;
(vi) the waiver, release, surrender, discharge, indulgence, extension,
modification, renewal, delay, consent, or other action, inaction
or omission by Lender with respect to any of the provisions
hereof or thereof, or with respect to the Borrower, any of the
Obligations or any of the Collateral, whether or not the
Guarantor shall have had notice or knowledge of any of the
foregoing and whether or not Guarantor shall have consented
thereto;
(vii)the existence, value or condition of, or failure of the Lender
to perfect its Lien against, any Collateral, or any action, or
the absence of any action, by the Lender in respect thereof
(including, without limitation, the failure to enforce any Lien
or realize upon all or any portion of the Collateral, or the
release of any Collateral);
(viii) the validity or enforceability of the guaranty of Guarantor or
any other guarantor or surety with respect to the Obligations;
(ix) any claim or defense that the Loan does not constitute a
"Permitted Debt" or that the Loan is otherwise not allowed
pursuant to the provisions of that certain December 5, 1997
Indenture entered by Guarantor (the "Indenture");
(x) any claim or defense that the Loan is not permitted or allowed
pursuant to the provisions of the FINOVA Loan Agreement (as such
term is defined in the Loan Agreement); or
(xi) any other action or circumstance which might otherwise constitute
a legal or equitable discharge or defense of a surety or
guarantor.
(c) To the extent Borrower, Guarantor, or any other Person primarily or
secondarily liable for the Obligations, makes a payment or payments to
Lender, all or any portion of which is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required, for
any of the foregoing reasons or for any other reason, to be waived,
repaid or paid over to a trustee, receiver or any other party under
any bankruptcy or other Debtor Relief Laws, other state or federal
law, common law or rule of equity, then the Guaranteed Obligations or
part thereof that were intended to be satisfied by such payment or
payments shall, to the full extent of all of such payments required to
be waived, repaid, restored or paid over, automatically be revived,
reinstated and continued in full force and effect as if said payment
or payments had not been made, and Guarantor shall again be primarily
liable therefor. The Guarantor's obligations under this Guaranty
Agreement shall not be discharged until the passage of at least
thirteen (13) calendar months from the last date on which occurs the
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full, final and indefeasible payment and performance of the Guaranteed
Obligations; provided, however, that this Guaranty Agreement, and
Guarantor's obligations hereunder, shall continue to be effective or
be reinstated, as the case may be, if at any time payment or
performance of any of the Obligations or Guaranteed Obligations, or
any part thereof, is rescinded or waived or must otherwise be restored
by Lender upon the bankruptcy or other proceeding under any Debtor
Relief Laws of or affecting the Borrower or Guarantor, and shall
continue in full force and effect as long as there exists a right to
rescind, or to compel restoration or waiver, of any payment or
performance of any of the Obligations or Guaranteed Obligations. This
provision shall survive full payment and performance of the Guaranteed
Obligations and remain enforceable by Lender.
(d) If Lender, under applicable law, proceeds to realize its benefits
under any of the Loan Documents giving Lender a Lien upon any
Collateral, whether owned by Borrower or by any other Person, either
by judicial foreclosure or by non-judicial sale or enforcement, Lender
may, at its sole option, determine which of its remedies or rights it
may pursue without affecting any of its rights and remedies under this
Guaranty Agreement. If, in the exercise of any of its rights or
remedies, Lender shall forfeit or lose any of its rights or remedies,
including its right to enter a deficiency judgment against Borrower or
any other Person, whether because of any applicable laws pertaining to
"election of remedies" or the like, Guarantor hereby consents to such
action by Lender and waives any claim based upon any election of
remedies, even if a remedy asserted or action taken by Lender shall
result in a full or partial loss of rights of subrogation, if any,
which Guarantor might otherwise have had. Any election of remedies
which results in the denial or impairment of the right of Lender to
seek a deficiency judgment against Borrower shall not impair
Guarantor's obligation to pay the full amount of the Guaranteed
Obligations to Lender and to perform its obligations under this
Guaranty Agreement.
(e) Guarantor has reviewed, with counsel of its choice, and consents to
the Loan Documents. Guarantor shall be regarded, and shall be in the
same position, as principal debtor with respect to all of the
Guaranteed Obligations.
(f) This Guaranty Agreement shall remain in full force and effect without
regard to future changes and conditions, including change of law or
any invalidity or irregularity with respect to any of the Obligations
or with respect to the execution and delivery or performance of any of
the Loan Documents; and any attempted revocation of this Guaranty
Agreement by Guarantor shall be ineffective, unless otherwise
expressly provided by law, and, if applicable law provides that any
such revocation is effective, such revocation shall be effective only
if made in writing and only as to Advances thereafter made by Lender
and shall not affect the continuing liability hereunder of the
Guarantor for all of the Guaranteed Obligations theretofore incurred
by, accrued on account of or arising with respect to the Borrower.
This Guaranty Agreement is in addition to, and not in substitution
for, or in reduction of any other guarantees in favor of Lender.
(g) The Guarantor is fully aware of the financial and other condition of
the Borrower and the Resorts. The Guarantor is executing and
delivering this Guaranty Agreement based solely upon its own
independent investigation and in no part upon any representation or
statement of Lender or any agent or representative thereof with
respect thereto. The Guarantor is in a position to obtain and hereby
assumes whole responsibility for obtaining any additional information
concerning Borrower's or the Resorts' financial or other condition as
the Guarantor may deem material to its obligations hereunder, and the
Guarantor is not relying upon, nor expecting the Lender to furnish,
any information concerning the Borrower's or the Resorts' financial or
other condition. The Guarantor hereby knowingly accepts the full range
of risk encompassed within a contract of "continuing guarantees",
which risk includes, without limitation, the possibility that the
Borrower will contract additional indebtedness for which the Guarantor
will be liable hereunder after the Borrower's financial condition or
ability to pay when due its lawful debts has deteriorated.
(h) Guarantor acknowledges receipt of good, valuable and sufficient
consideration for its entering into and performing under this Guaranty
Agreement. Guarantor has an independent obligation hereunder given in
consideration of Lender's agreements pursuant to the Loan Documents,
from which the Guarantor derives continuing material value and
benefit. The Guarantor subjects its separate property to its
obligations hereunder, and agree that recourse may be had against such
separate property to enforce the Guarantor's obligations hereunder.
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3. Certain Waivers by Guarantor. The Guarantor irrevocably waives, to the
fullest extent permitted by law: (a) notice of acceptance hereof, notice of the
extension of credit or the making of Advances from time to time, and of the
creation, existence or acquisition of any of the Guaranteed Obligations; (b)
notice of the amount of the Guaranteed Obligations, or any other indebtedness of
the Borrower to the Lender from time to time outstanding; subject, however, to
Guarantor's right to make written inquiry of the Lender to ascertain the amount
of the Guaranteed Obligations or such other indebtedness from time to time; (c)
notice of adverse change in the Borrower's financial condition or any other fact
which might increase Guarantor's risk; (d) presentment, demand and protest and
notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all of the Loan Documents, or any
other instrument, document or agreement; (e) notice of default and all other
notices to which Guarantor might otherwise be entitled; (f) all rights to notice
and a hearing prior to the taking of possession or control by Lender of, or to
Lender's replevy, attachment or levy upon the Collateral or any bond or security
which might be required by any court prior to allowing Lender to exercise any of
its remedies; (g) the benefit of all valuation, appraisal and exemption laws;
(h) the benefit of all provisions of law which are or might be in conflict with
the terms of this Guaranty Agreement or any of the other Loan Documents; and (i)
any defense arising by reason of the cessation from any cause whatsoever of any
of the Obligations of Borrower.
Guarantor agrees that any notice or directive given at any time to the
Lender which is inconsistent with the waivers contained in this Section shall be
void and may be ignored by the Lender, and, in addition, may not be pleaded or
introduced as evidence in any litigation relating to this Guaranty Agreement for
the reason that such pleading or introduction would be at variance with the
written terms of this Guaranty Agreement, unless Lender has specifically agreed
otherwise in writing.
For purposes of the provisions contained herein, Guarantor hereby expressly
waives the benefits of "orden, excusion y division" and of prior judgement,
levy, execution and other rights provided for in Articles 2814, 2815, 2817,
2818, 2820, 2821, 2823, 2827 and 2836 of the Civil Code of the Federal District
of Mexico, and the corresponding articles of the Civil Code of the States of
Quintana Roo, Jalisco, and Baja California Sur or of the other states of Mexico,
which articles are not reproduced herein by express declaration of Guarantor
that the contents of said articles are known to it. Guarantor also hereby
irrevocably and expressly waives its rights under the benefits of Articles 2846,
2847, 2848 and 2849 of the Civil Code for the Federal District of Mexico, and
the corresponding articles of the Civil Code of the States of Quintana Roo,
Jalisco, and Baja California Sur or of the other states of Mexico, which
articles are not reproduced herein by express declaration of Guarantor that the
contents of said articles are known to it.
4. Waiver of Subrogation, Reimbursement, Etc.
(a) In addition to other waivers contained herein, the Guarantor
irrevocably waives all rights it may have at law or in equity
(including without limitation any law subrogating the Guarantor to the
rights of Lender) to seek contribution, subrogation, indemnification
or any other form of reimbursement from the Borrower, any other
guarantor, or any other Person now or hereafter primarily or
secondarily liable for any of the Obligations, and all claims or
potential claims related thereto, in a bankruptcy proceeding, or other
proceeding under any of the Debtor Relief Laws, or otherwise, for or
in connection with any disbursement made by the Guarantor under or in
connection with this Guaranty Agreement, or otherwise; and Guarantor
further agrees not to contest such waiver in any proceeding; provided,
however, that if and to the extent, if any, that a court of competent
jurisdiction would deem the Guarantor to retain any such rights of
contribution, indemnification, subrogation or reimbursement
notwithstanding such express waiver, all such rights and all claims
based thereon, now or hereafter in existence and however incurred or
acquired, shall be junior and subordinate in right of payment to the
prior and full indefeasible payment and performance in favor of Lender
of the Obligations, and Guarantor agrees that all such rights and all
claims based thereon shall be inchoate, and shall not vest in the
Guarantor or be exercisable until the date which is at least thirteen
(13) calendar months from the last date on which all of the Guaranteed
Obligations shall have been paid in full to Lender and finally
discharged. If any payment shall be made to Guarantor on account of
such reimbursement, contribution, indemnification or subrogation
rights, if any, at any time before the passage of at least thirteen
(13) calendar months from the last date on which all of the Guaranteed
Obligations are paid in full and finally discharged, each amount so
paid shall be received and held by Guarantor in trust for Lender, and
shall forthwith be paid to Lender to be credited and applied against
the Obligations, whether matured or unmatured.
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(b) To the extent, if any, that notwithstanding the waiver of subrogation
contained in Section 4, Guarantor acquires or is deemed to hold by way
of subrogation any rights of Lender against Borrower, any other
guarantor, or any other Person, the rights of Lender to which
Guarantor may be subrogated, if any, shall be accepted by Guarantor
"as is" and without any representation or warranty of any kind by
Lender, express or implied, with respect to the legality, value,
validity or enforceability of any of such rights, or the existence,
availability, value, merchantability or fitness for any particular
purpose of any Collateral, and shall be without recourse to Lender.
5. Demand by Lender. Upon an Event of Default under any of the Loan
Documents, all of the Guaranteed Obligations shall be due and payable by the
Guarantor to Lender, immediately upon Lender's written demand therefor. Payment
by Guarantor shall be made to Lender in immediately available funds at 40
Westminster Street, Providence, Rhode Island 02940; Attention: Collections, or
at any other address in Providence, Rhode Island, Hartford, Connecticut, or
otherwise that may be specified in writing from time to time by Lender. If
acceleration of the time for payment of the Obligations is stayed, or demand for
payment thereof is precluded upon injunction or the bankruptcy, insolvency or
reorganization of Borrower or Lender is otherwise stayed, enjoined or precluded
from exercising its rights and remedies pursuant to the Loan Documents, then,
the entire amount of the Guaranteed Obligations shall nevertheless be due and
payable by Guarantor to Lender on demand by Lender. If payment in full of the
Guaranteed Obligations is not made to Lender within ten (10) days after demand,
the entire amount of the outstanding Guaranteed Obligations shall bear interest
at the Default Rate specified in the Note Receivable Promissory Note; provided,
however, that notwithstanding any provision hereof or in any other Loan Document
to the contrary, the parties intend that any interest for which the Guarantor is
charged or is obligated to pay shall not exceed the maximum rate or amount of
interest permitted under applicable law.
6. Enforcement of Guaranty. In no event shall Lender have any obligation to
proceed against Borrower, any other guarantor, or any other Person, or any
Collateral before seeking satisfaction from Guarantor. Lender may proceed, prior
or subsequent to, or simultaneously with, the enforcement of Lender's rights
hereunder, to exercise any right or remedy which it may have against any
Collateral as a result of any Lien it may have as security for the Obligations,
or any other right it may have under the Loan Documents, or against any other
guarantor of the Obligations, for all or any portion of the Guaranteed
Obligations.
7. Benefit of Guaranty. The provisions of this Guaranty Agreement are for
the benefit of Lender and its successors and assigns, and nothing herein
contained shall impair, as between Borrower, on the one hand, and Lender, on the
other hand, the Obligations of Borrower under the Loan Documents. Nothing shall
discharge or satisfy the liability of the Guarantor hereunder except the full,
final and indefeasible payment and performance of the Guaranteed Obligations.
8. Modification of Loans, etc. At any time and from time to time, without
the consent of, or notice to Guarantor, without incurring any liability to
Guarantor and without impairing, limiting or releasing the obligations of
Guarantor under this Agreement, Lender may by action or inaction:
(a) compromise, settle, change or extend the manner, place or terms of
payment of, or renew or alter all or any portion of, any Obligations;
(b) take any action under or with respect to the Loan Documents in the
exercise of any remedy, power or privilege contained therein or
available to Lender at law, equity or otherwise, or waive or refrain
from exercising any such remedies, powers or privileges;
(c) amend or modify in any manner whatsoever any of the Loan Documents
(except this Guaranty Agreement) notwithstanding that such amendment
or modification may result in the Obligations exceeding the aggregate
principal sums set forth in the Loan Documents;
(d) extend, release or waive the Borrower's or any other Person's
performance of, or compliance with, any term, covenant or agreement on
its part to be performed or observed under the Loan Documents, or
waive such performance or compliance or consent to a failure of, or
departure from, such performance or compliance;
(e) sell, retain, exchange, release, dispose of, or otherwise deal with,
any Collateral securing any Obligations;
(f) refuse or fail to enforce any rights or remedies under any Loan
Documents or other instrument or agreement evidencing or securing the
Obligations or waive or modify the obligations of, or extend the time
for performance of, or release, any Person (other than Guarantor) who
may be liable in any manner for the payment or collection of any
amounts owed by Borrower to Lender; or
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(g) apply any sums by whomever paid or however realized to any amounts
owing by Borrower or Guarantor to Lender in such manner as Lender
shall determine in its discretion.
9. Grant of Lien. As security for the payment and performance of the
Guaranteed Obligations, for value received, the Guarantor grants to Lender a
Lien upon, security interest in, and, where applicable, right of set-off
against, any and all deposits, credits, and any and all other property of
Guarantor, now or at any time with or in the possession of or in transit to
Lender.
10. No Marshalling. Guarantor specifically consents and agrees that Lender
shall be under no obligation to Marshall any assets in favor of Guarantor or
against or in payment of any or all of the Guaranteed Obligations.
11. Subordination. The Guarantor hereby agrees that, to the extent
permitted by Section 4.08 of the Indenture, effective immediately and without
notice upon the occurrence of an Event of Default, any and all present and
future debts and obligations of the Borrower to Guarantor, or of Guarantor to
any other guarantor, and any liens, security interests, claims and rights
related thereto (collectively, the "Subordinated Indebtedness"), shall
automatically and without the need for any further action by Lender, Borrower or
Guarantor, be waived and postponed in favor of and subordinated to the full,
final and indefeasible payment of the Obligations. As additional security for
this Guaranty Agreement and Guarantor's obligations hereunder, but only to the
extent permitted by Section 4.08 of the Indenture, Guarantor, for value
received, hereby unconditionally assigns to Lender and grants to Lender a
security interest in all of Guarantor's right, title, and interest in and with
respect to the Subordinated Indebtedness. Notwithstanding the foregoing, for so
long as no Event of Default then exists or would result from the making or
receipt of the Subordinated Indebtedness, and for so long as the maker of any
payments with respect to the Subordinated Indebtedness is not then insolvent or
would not be rendered insolvent as a result of making such payment, the
Guarantor may make or receive, as the case may be, payments with respect to the
Subordinated Indebtedness pursuant to regularly scheduled payment terms as may
be approved in advance by Lender in writing.
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 covenant 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
Guaranty Agreement; 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.
12. Representations and Warranties. Guarantor represents and warrants to
Lender as follows:
(a) that Guarantor shall, through certain of its subsidiaries in which
Guarantor holds a majority ownership interest, continue to own a
majority ownership interest in each of the Borrower entities,
(b) This Guaranty Agreement has been executed and delivered by Guarantor
and constitutes a legal, valid and binding obligation of Guarantor,
enforceable in accordance with its terms;
(c) The execution, delivery and performance of this Guaranty Agreement
does not and will not violate any provision of law or administrative
regulation, any order of any court or other agency of government, any
provision of any indenture, agreement or other instrument to which
Guarantor is a party (specifically including the FINOVA Loan Agreement
and the Indenture), or by which Guarantor or any of the Guarantor's
properties or assets is bound, and is not and will not be in conflict
with, result in a breach of or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or other
instrument, and is not and will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of Guarantor except as expressly
provided in this Guaranty Agreement;
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(d) Except as disclosed on Exhibit A hereto, there are no actions, suits
or proceedings at law or in equity or by or before the Mexican
regulatory authorities or any other governmental or administrative
instrumentality or arbitration board or other agency or any
investigation of any of Guarantor's affairs or any of the Guarantor's
properties or rights which involve the possibility of materially and
adversely affecting the Resorts, or all or any portion of the
Collateral, or other properties, businesses, profits, prospects or
conditions of Guarantor, or if adversely determined, which would
materially affect Guarantor's ability to perform its obligations under
this Guaranty Agreement;
(e) No Default or Event of Default exists under any Loan Document, and
Guarantor is not in default in any material respect under any
agreement or other instrument to which it is a party or by which it
may be bound, specifically including the FINOVA Loan Agreement and the
Indenture;
(f) Guarantor does not require, nor does the identity or nature of
Guarantor's businesses or properties, or any relationship between
Guarantor and the Borrower or any other Person or any circumstance in
connection with the execution, delivery or performance of this
Guaranty Agreement, require, any consent, approval or authorization
of, or filing, registration or qualification, with, any governmental
or administrative authority on the part of Guarantor, as a condition
to the execution, delivery or performance of this Guaranty Agreement;
(g) All tax returns required to be filed as of the date hereof by
Guarantor in any jurisdiction have been filed, and all taxes,
assessments, fees and other governmental charges against Guarantor or
upon any of its property, income or franchises, which are due and
payable as of the date hereof, have been paid;
(h) As of the date of this Guaranty Agreement and after giving effect
hereto and to the full potential Obligations which the Borrower could
incur under the Loan Documents, and the full potential extent of the
Guaranteed Obligations, the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting current liabilities as
they mature, Guarantor has sufficient capital invested in the Resorts
and any other business in which it is engaging, and Guarantor has not
incurred debts beyond its ability to pay same as they mature;
(i) The financial statements of Guarantor previously delivered to the
Lender are true and correct in all material respects, fairly present
Guarantor's financial condition, and no material adverse change has
occurred in the financial conditions reflected therein since the
respective dates thereof;
(j) As of the date of this Guaranty Agreement, the Guarantor's obligations
hereunder are not subject to any claims, counterclaims, offsets or
defenses against Lender or Borrower; and
(k) The Guarantor, on behalf of itself and its Affiliates, represents and
warrants to Lender that the Loan is "Permitted Debt" (as such term is
defined in the Indenture) and that as of the date hereof there exists
no Default or Event of Default (as the foregoing two terms are defined
in the Indenture) under the Indenture. Guarantor covenants with Lender
that (a) as and when required by the Indenture, the Guarantor shall
cause the Issuers (as such term is 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 (b) it will not amend or modify the
Indenture without the prior written consent of Lender and any such
amendment or modification to the Indenture made without the prior
written consent of Lender shall not be binding upon Lender. Guarantor
further agrees to cause Issuer to promptly (but in any event within
three (3) days after Issuer's receipt of same) supply Lender with a
true and complete copy of any notice sent to Issuers under Section
6.01 of the Indenture, or any other notice alleging a default by the
Issuer under the Indenture.
13. Certain Financial Matters.
(a) Guarantor shall immediately give Lender written notice of any material
adverse change in its financial condition, including but not limited
to, litigation commenced, tax liens filed, defaults claimed under any
indebtedness or borrowed money, or proceedings commenced pursuant to
any Debtor Relief Laws with respect to Guarantor, or an event of
default under either the FINOVA Loan or the Indenture.
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(b) Until payment in full of all the Guaranteed Obligations, Guarantor
will, at its expense, within one hundred twenty (120) days after the
end of each calendar year, furnish Lender with copies of federal (and
if applicable, state) tax returns (or, if not filed within such one
hundred twenty (120) day period, then, when filed) and personal
financial statements, prepared in accordance with United States
generally accepted accounting principles on a basis consistently
applied or in a manner acceptable to Lender. Additionally, Guarantor
will, at its expense, execute, acknowledge and deliver all such
instruments and take all such action as Lender from time to time may
reasonably request in order to ensure to Lender the benefits of this
Guaranty Agreement; provided any such instruments and actions do not
impose any material obligations on Guarantor not otherwise
contemplated herein.
14. No Waiver. No forbearance or delay on Lender's part in declaring any
default, in giving any notice or making any demand, or in exercising or
enforcing any right hereunder or under any Loan Document, shall constitute or
give rise to a waiver or release by Lender, or limit or impair Lender's right to
declare any default, give any notice or make any demand, or exercise or enforce
any right or remedy hereunder or under any of the Loan Documents, without notice
or demand, or prejudice Lender's rights as against Guarantor in any respect.
15. Assignment. Lender may assign, participate or transfer any of its
rights under this Guaranty Agreement and any instrument evidencing all or any
part of the Obligations, and the holder of such rights or instruments shall
nevertheless be entitled to the benefits of this Guaranty Agreement. No such
assignment shall increase or diminish Guarantor's obligations hereunder. The
consent of Guarantor shall not be required for any such assignment and failure
to give notice shall not affect the validity or enforceability of any assignment
of this Guaranty Agreement or Lender's rights, or subject Lender to any
liability. If Lender shall elect to effectuate an assignment, participation or
transfer as contemplated herein, then Guarantor shall not be obligated to pay
any expense in connection with any such assignment, participation or transfer.
16. Miscellaneous.
(a) This Guaranty Agreement shall be binding upon Guarantor and its heirs,
successors and assigns, and shall inure to the benefit of, and be
enforceable by, Lender and its successors and assigns. None of the
terms or provisions of this Agreement may be waived, altered, modified
or amended, except by a written instrument duly signed for and on
behalf of Lender and Guarantor.
(b) This Guaranty Agreement may be executed in any number of separate
counterparts, each of which shall, collectively and separately,
constitute one agreement.
(c) The use of any gender herein shall include all genders. The singular
shall include the plural and vice versa.
(d) All notices or demands hereunder shall be in writing and shall be sent
by registered or certified mail, return receipt requested, or by a
nationally recognized overnight courier service. Notices shall be
deemed received when deposited in a United States post office mail box
or with such nationally recognized courier service, postage prepaid,
properly addressed to the Guarantor, or the Lender, as the case may
be, at the respective mailing addresses set forth in the Loan
Agreement, or to such other addresses as the Guarantor or the Lender
may from time to time specify in writing.
(e) The section titles contained in this Guaranty Agreement are intended
only to provide convenient reference and shall be without substantive
meaning or content of any kind whatsoever.
17. Material Inducement. Guarantor and Lender acknowledge and agree that
the Guarantor's waivers and consents contained in this Guaranty Agreement are a
material inducement to Lender to make the Loan and to engage in the transactions
contemplated by the Loan Documents, and that, but for this Guaranty Agreement
and such waivers and consents, Lender would decline to make the Loan.
18. Expenses. Guarantor agrees to pay all expenses incurred by Lender in
connection with the evaluation, protection, assertion, or enforcement of its
rights under this Guaranty Agreement, including, without limitation, court
costs, audit expenses, collection charges, and attorneys' and paralegals' fees
and disbursements, including, but not limited to costs of any appeal.
19. Relief from Automatic Stay, etc. To the fullest extent permitted by
law, in the event the Borrower or Guarantor shall make application for or seek
relief or protection under the United States federal bankruptcy code
("Bankruptcy Code") or any other United States or Mexican Debtor Relief Laws, or
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<PAGE>
in the event that any involuntary petition is filed against the Borrower or
Guarantor under such Code or other Debtor Relief Laws, and not dismissed with
prejudice within forty-five (45) days, the automatic stay provisions of Section
362 of the Bankruptcy Code are hereby modified as to Lender to the extent
necessary to implement the provisions hereof permitting set-off and the filing
of financing statements or other instruments or documents; and Lender shall
automatically and without demand or notice (each of which is hereby waived) be
entitled to immediate relief from any automatic stay imposed by Section 362 of
the Bankruptcy Code or otherwise, on or against the exercise of the rights and
remedies otherwise available to Lender as provided in the Loan Documents. In
addition, in the event relief is sought by or against Guarantor under the
Bankruptcy Code, Guarantor agrees not to seek, directly or indirectly, in any
ensuing bankruptcy proceeding, any extension of the exclusivity period otherwise
available to a debtor under the Bankruptcy Code, including, without limitation,
the exclusivity period provided for under Section 1121(b) of the Bankruptcy
Code. Guarantor agrees not to contest the validity or enforceability of this
Section.
20. Waiver of Jury Trial. TO THE FULLEST EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT,
POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS GUARANTY AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN,
WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A JUDGE AND NOT BEFORE A JURY. THE GUARANTOR FURTHER WAIVES ANY RIGHT TO
SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED
WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
FURTHER, GUARANTOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER,
INCLUDING LENDER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER
WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT
TO JURY TRIAL PROVISION. THE GUARANTOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS
SECTION ARE A MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF THIS GUARANTY
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
21. Governing Law. This Guaranty Agreement and the obligations arising
hereunder shall be governed by, and construed in accordance with, the laws of
the State of Rhode Island (exclusive of its choice-of-laws principles)
applicable to contracts made and performed in such state, and any applicable
laws of the United States of America and the Guarantor hereby expressly submits
to the jurisdiction of such courts for the purpose of any such legal proceedings
and expressly waives for such purpose any other preferential jurisdiction by
reason of present or future domicile or otherwise. Guarantor consents to
personal jurisdiction before the Circuit Court in and for Providence County,
Rhode Island and the United States District Court for the District of Rhode
Island. Guarantor waives any objection which they may now or hereafter have to
venue in Providence County, Rhode Island of any suit, action or proceeding
arising out of or relating to this Guaranty Agreement or the obligations created
hereunder and further waive any claim that Providence County, Rhode Island is
not a convenient forum for any such suit, action or proceeding. Notwithstanding
anything to the contrary provided in this Guaranty Agreement or any other Loan
Document, to the greatest extent permitted under United States and Mexican law,
Guarantor expressly waives any and all claims to jurisdiction in Mexico.
22. Severability, Etc. If any provision of this Guaranty Agreement or the
application thereof to any Person or circumstance shall, to any extent, be
illegal, invalid or unenforceable, the remainder of this Guaranty Agreement or
the application of such provision to Persons or circumstances other than those
as to which it is illegal, invalid or unenforceable, as the case may be, shall
not be affected, and each provision of this Guaranty Agreement shall be legal,
valid and enforceable to the fullest extent permitted by law. The illegality,
invalidity or unenforceability of any provision of this Guaranty Agreement in
any jurisdiction shall not affect the legality, validity or enforceability
thereof in any other jurisdiction. Any right or remedy granted herein or in any
Loan Document is separate, distinct and cumulative and not exclusive of any
other right or remedy granted herein or in any Loan Document or provided by law
or in equity; and all of the same may be exercised concurrently, independently
or successively by Lender in its discretion. Any forbearance on the part of
Lender in exercising any right or remedy shall not constitute a waiver of or
preclude the exercise of such right or remedy. Lender shall not be deemed by any
act or omission to have waived any right or remedy or any default unless such
waiver is in writing and signed by Lender, and then only to the extent
specifically set forth in such writing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURES BEGIN ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement to be
duly executed as of the first date appearing above.
GUARANTOR:
Raintree Resorts International,
Inc., a Nevada corporation
____________________________ By:_______________________________
Witness Name:
[SEAL]
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STATE OF _________________)
COUNTY OF ________________)
The foregoing instrument was acknowledged before me this ______ of
________________, by _______________________________, as_______________________
of Raintree Resorts International, Inc., a Nevada corporation, on behalf of the
corporation. He/She is personally known to me.
__________________________________
Notary Public
(SEAL)
My Commission Expires:_________________________
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EXHIBIT A
PENDING LITIGATION
12
CREDIT AGREEMENT WITH TRUST GUARANTEE, ENTERED INTO:
A) AS PARTY OF THE FIRST PART AND BORROWER, BANCOMER,S.A. INSTITUCION DE BANCA
MULTIPLE, GRUPO FINANCIERO, HEREINAFTER DENOMINATED "BANCOMER,", HEREBY
REPRESENTED BY MESSRS. ENGINEER CARLOS D. VELAZQUES THIERRY AND ENGINEER JOSE
ENRIQUE SILOS BASURTO.
B) AS PARTY OF THE SECOND PART, AND BORROWER, C.R. RESORTS CAPITAL, SOCIEDAD DE
RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE, HEREINAFTER DENOMINATED THE
"BORROWER", REPRESENTED HEREUNDER BY MR. JOHN McCARTHY SANDLAND;
C) AS PARTY OF THE THIRD PART, AS FOUNDER OF THE PORTFOLIO, C-R- RESORTS PUERTO
VALLARTA, SOCIEDAD DE RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE, HERINAFTER
DENOMINATED THE "FOUNDER OF TRUST 1," HEREIN REPRESENTED BY MR. JOHN McCARTHY
SANDLAND;
D) AS PARTY OF THE FOURTH PART AS FOUNDER OF THE PORT- FOLIO, C.R. RESORTS
CANCUN, SOCIEDAD DE RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE, HEREINAFTER
DENOMINATED "FOUNDER OF TRUST 2," HEREIN REPRESENTED BY MR. JOHN McCARTHY
SANDLAND;
E) AS PARTY OF THE FIFTH PART, AS FOUNDER OF THE PORTFOLIO AND REAL ESTATE, C.R.
RESORTS LOS CABOS, SOCIEDAD DE RESPON- SABILIDAD LIMITADA DE CAPITAL VARIABLE,
HEREINAFTER DENOMINATED "FOUNDER OF TRUST 3," HEREIN REPRESENTED BY MR. JOHN
McCARTHY SANDLAND;
F) AS PARTY OF THE SIXTH PART, AS FOUNDER OF THE REAL ESTATE, DESARROLLOS
TURISTICOS INTEGRALES DE COZUMEL, SOCIEDAD DE RESPONSAABILIDAD LIMITADA DE
CAPITAL VARIABLE, HEREINAFTER DENOMINATED "FOUNDER OF TRUST 4," HEREIN
REPRESENTED BY MR. JOHN McCARTHY SANDLAND;
G) AS PARTY OF THE SEVENTH PART, FOR THE EFFECTS HEREINBELOW INDICATED,
CORPORACION MEXITUR, SOCIEDAD DE RES- PONSABILIDAD LIMITADA DE CAPITAL VARIABLE,
HEREINAFTER DENOMINATED "MEXITUR", HEREIN REPRESENTED BY MR JOHN McCARTHY
SANDLAND;
H) AS PARTY OF THE EIGHTH PART, FOR THE EFFECTS HEREIN- BELOW INDICATED, CLUB
REGINA, SOCIEDAD ANONIMA DE CAPITAL VARIABLE, HERINAFTER DENOMINATED "REGINA,"
HEREIN REPRE- SENTED BY MR. JOHN McCARTHY SANDLAND; AND
I) PARTY OF THE NINTH PART, AS TRUSTEE, FIANZAS MONTERREY AETNA, SOCIEDAD
ANONIMA, GRUPO FINANCIERO BANCOMER, HEREINAFTER DENOMINATED "THE TRUSTEE,"
HEREIN REPRESENTED BY MR. ARMANDO VIGNAU QUIROS.
ALL OF THE ABOVE PURSUANT TO THE FOLLOWING ANTECEDENTS,
DECLARATIONS AND CLAUSES:
A N T E C E D E N T S
I.- CONSTITUTION OF THE BORROWER, FACULTIES AND POWERS-OF ATTORNEY.
The Accredited declares, thrrough its representative that: 0 It is a
company with limited responsibility, duly,constiuted and existing, as
evidenced in public instrument fifty thousand eight hundred fifty seven
dated Augusteleven nineteen hundred ninety seven, granted before Notary
Public number two hundred thirty one in the Federal District, Attorney Luis
de Angoitia Becerra, recorded in the Public Registry of Commerce in the
Federal District, under mercantile page No. 225,005.
B) Its corporate object includes de execution of operations such as those
contemplated hereunder.
C) Its representative herunder has sufficient faculties to enter into this
contract and that these faculties have not been revoked, limited nor
modified in any way, as evidenced in the Public Instrument mentioned in
antecedent 1 (A) above.
D) On December first nineteen hundred ninety seven, it carried out in the
city of New York, New York, jointly with Club Regina Resorts, Inc.
(currently Raintree International Inc., ) an emission of securities made of
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of warrants and promissory notes, for the total amount of US$100,000,000.00
(ONE HUNDRED MILLION DOLLARS) United States of America legal currency, with
interest at the rate of 13% (THIRTEEN PERCENT) per annum, payable
half-yearly on the first of June an on the first of December each year,
beginning on the first of June nineteen hundred ninety eight and ending on
the first of December year two thousand and four.
E) It has requested BANCOMER to open a simple credit, nominated in UDIS;
for the principal amount up to the equivalent on the date of disposal of US
$7,000.000 (SEVEN MILLION DOLLARS 00/100) United States of Americal legal
currency, which shall be subject to the terms and conditions hereunder
agreed, for the purpose of guaranteeing, and in its, case, covering to the
holders of the securities described in the foregoing paragraph regarding
the payment of interest, and for the payment of expenses related with this
operation.
II. CONSTITUTION OF FOUNDER OF TRUST 1, FACULTIES AND POWERS-OF ATTORNEY. The
FOUNDER OF THE TRUST declares, through its representative, that:
A) The FOUNDER OF TRUST 1 is a company with limited responsibility and
variable capital, duly constituted and existing, as evidenced in public
instrument fifty five thousand nine hundred thirty dated August eighteen
nineteen hundred ninety seven, granted before Notary Public number one
hundred three in the Federal District, Attorney Armando Galvez
Perez-Aragon, recorded in the Public Registry of Commerce in the Federal
District,under mercantile paage No. 102.373-
B) Its corporate object includes the granting of guarantees and the
execution of operations such as those contemplated hereunder.
C) Its representative hereunder has suficient faculties to enter into this
contract, which have not been revoked, limited nor modified in any way, as
evidenced in Public Instrument No. 51,260 dated December twenty two
nineteen hundred ninety seven, granted before Notary Pulic number two
hndred thirty in the Federal District, Attorney Luis de Angoitia Becerra.
D) It has commercial and associated relationships with THE BORROWER; from
which a direct benefit arises upon guaarnteeing the fulfillment of the
obligations that it assumes, and it is therefore willing to guarantee the
fulfillment of each every one of the obligations derived to the BORROWER in
accordance with this document and other documents related thereto.
III.- CONSTITUTION OF FOUNDER OF TRUST 2, FACULTIES AND POWERS-OF-ATTORNEY. The
FOUNDER OF THE TRUST declares, through its representative, that
A) FOUNDER OF TRUST 2 is a company with limited responsibility and variable
capital duly constituted and existing, as evidenced in public instrument
dated granted before Notary Public number in the Federal District,
Attorney, recorded in the Public Registry of Commerace, under mercantile
page No. _ _ _ _ _ .:
1 Its corporate object includes the granting of guarantees, and
executing operations such as those contemplated hereunder.
2 Its representative hereunder has sufficient faculties to enter into
this contract, which have not been revoked, limited, nor modified in
any way, as evidenced in Public Instrument No. dated before Notary
Public number in the Federal District, attorney
3 It has commercial and associated relationships with the BORROWER,
from which a direct benefit arises upon guaranteeing the fulfillment
of the obligations assumed , and it is therefore willing to gurantee
the fulfillment of each and every one of the obligations derived to
the BORROWER in accordance with this instrument and other documents
related thereto.
IV.- CONSTITUTION OF FOUNDER OF TRUST 3, FACULTIES AND POWERS-OF- ATTORNEY. THE
FOUNDER OF THE TRUST declares, through its representataive, that:
A) FOUNDER OF TRUST 3 is a company with limited responsibility with
variable capital duly constituted and existing, as evidenced in public
instrument, dated granted before Notary Public number in the Federal
District, Attorney, recorded in the Public Registry of Commerce in the
Federal District, under mercantile Page No. _ _ _ _ _
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B) Its corporate object includes the granting of guarantees and the
execution of operations suchas those contemplated hereunder.
C) Its representataive hereunder has sufficient faculties to execute this
operation,. which have not been revoked, limited nor modified in any way,
as evidenced in Public Instrument No. dated, granted before Notary Public
number in the FederalDistrict, attorney
D) It has commercial and associated relationships with the BORROWER, feom
which a direct benefit arises upon guaranteeing the fulfillment of the
obligations assumed hereunder and, therefore, it is willing to guarantee
the fulfillment of each and every one of the obligations derived to the
BORROWER in accordance with this document and other documents related
thereto.
V.- CONSTITUTION OF FOUNDER OF TRUST 4, FACULTIES AND POWERS-OF-ATTORNEY. The
FOUNDER OF THE TRUST declares through its representative that:
A) FOUNDER OF THE TRUST 4 is a company with limited responsibility with
variable capital, duly constituted and existing, as evidenced in public
instrument dated, granted before Notary Public number in the Federal
District, attorney recorded in the Public Registry of Commerce in the
Federal District, under Mercantile page No. _ _ _ _
B) Its corporate object includes the granting of guarantees and the
execution of operataions such as those contemplated hereunder.
C) Its representative hereunder has sufficient faculties to execute the
same, which have not been revoked, limited or modified in any way, as
evidenced in Public Instrument dated granted before Notary Public number
for the Federal District, attorney
D. That it has commercial and associated relationships with the BORROWER,
from which a direct benefit arises upon guaranteeing the fulfillment of
each and every one of the obligations derived to the BORROWER in accordance
with this document and other documents related thereto.
VI.- CONSTITUTION OF MEXITUR, FACULTIES AND POWERS-OF-
ATTORNEY.
MEXITUR declares, through its representative, that:
A) MEXITUR is a company with limited responsibility with variable capital,
duly constituted and existing, as evidenced in public instrument, dated
granted before Notary Public number in the Federal District, Attorney,
recorded in the Public Registry of Commerce in the Federal District, under
Mercantile Page No. _ _ _ _.
B) Its corporate object .includes the commercialization and collection of
time-share, and the execution of operations such as those contemplated
hereunder.
A) i
B) Its representative hereunder has sufficient faculties to execute the
same, which have not been revoked, limited nor modified in anyway, as
evidenced in Public Instrument No., dated, granted before Notary Public
Number in the Federal District, Attorney _ _ _ _.
C) That it agrees to carry out the operations and activities derived
hereunder, particularly to act as Depositary of the Portfolio, to carry out
the collections, and to act as depositary of the product of the said
collections.
VI.- CONSTITUTION OF REGINA, FACULTIES AND POWERS-OF-ATTORNEY. REGINA declares,
through its representative, that:
A) REGINA is a sociedad anonima with variable capital, duly constituted and
existing, as evidenced in public instrument, dated, granted before Notary
Public number in the Federal District, Attorney , recorded in the Public
Registry of Commerce in the Federal District under mercantile Page No. _ _
_ _
B) Its corporate object includes the commercialization and operation of
time-share clubs and the execution of operations such as those contemplated
hereunder.
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C) Its representative hereunder has sufficient faculties to execute the
same, which have not been revoked, limited nor modified in any way, as
evidenced in Public Instrument No. dated, granted before Notary Public
number for the Federal District, Attorney .
D) That it agrees to carry out the operations and activities derived
hereunder and accepts the corresponding responsibilities.
VII.- CONSTITUTION OF THE TRUSTEE, FACULTIES AND POWERS-OF ATTORNEY The Trustee
declares, through its representaataive that:
A) It is a bonding institution, duly authorized to perform as trustee in
trust agreements in guarantee.
B) That its representative hereunder has sufficient faculties to execute
the same, which have not been revoked, limited nor modified in any way.
IX.- CONSTITUTION OF BANCOMER, FACULTIES AND POWERS-OF-ATTORNEY. BANCOMER
declares,through its representative, that:
A) It is a multiple bank institution, duly authorized to carry out the
operations inherent to its corporate object.
B) Its representative hereunder has sufficient faculties to execute the
same, which have not been revoked, limited nor modified in any way.
PRELIMINARY STATEMENTS
I- The BORROWER declares that:
a) The execution, delivery and fulfillment of the Contract hereunder and
the Promissory Note through its representative, are operations inherent to
its corporate object which have been duly authorized and do not violate its
constitutions or its corporate statatutes, nor any contractual retriction
or law, regulation or order from any government organism which may obligate
or affect the BORROWER or any of its properties.
b) The Contract hereunder and the Promissory Note, once subscribed and
signed by the BORROWER, shall constitute the BORROWER's legal and valid
obligations, demandable against it in accordance with the respective terms.
c) The existence of any legal action or judicial proceeding is not pending
nor hasthe BORROWER been notified about the existence of any legal action
or judicial proceeding which affect or may affect substantially and
adversely its financial operations, or the legitimacy, validity or
enforceability of the Contract hereunder and/or the Promissory Note.
d) Up to the date of this Contract, it has not been subject to any strike,
nor has it been summoned to any strike, and as far as it knows, it is not
attempted to present against it any action by its employees which might
affect its financial condition or its operations, or which might affect the
legitimacy, validity or enforceability of this Contract and/or the
Promissory Note.
e) It is not in default on debts or contracts in which it participates, or
through which it could be commited, at the date of this contract.
f) It has applied to BANCOMER for a simple credit denominated in UDIS, with
a fiduciary guarantee, equal to up to the principal amount of US
$7,000,000.00 legal currency of the United States of America on the date of
its disposal, which shall be applied to warrant, and in its case, to cover
the payment of interests to the holders of the securities described in
Antecedent I (D) hereunder, and to the payment of expenses related to this
operation.
II.- THE FOUNDERS OF THE TRUST declare that they are willing to guarantee the
fulfillment of the BORROWER'S obligations, in accordance with the contract
here-under through the constitutions of Trusts in Guarantee on (a) certain
collection rights resulting from the sale to the public of Memberships; (b) the
Maintenance Fees which will serve to conserve the value of the Portfolio; and c)
the Real Estate in Trust, all of which is defined hereinafter.
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III.- BANCOMER declares through its representatives, that it is willing to open
the credit requested to the BORROWER, subject to the fulfillment of the terms
and conditions, herein contemplated.
By virtue of the above, the parties agree to the following
C L A U S E S
FIRST.- DEFINITIONS AND ACCOUNTING TERMS.
A) Definitions.
When used in this Contract, the terms set forth below shall have the
meaning herein indicated, which shall be applicable both in the
singular and in the plural forms:
"Portfolio",.- Means the collection rights derived from the present
and future accounts payable denominated in UDIS and in Pesos,
resulting to physical or moral parties acquiring Memberships from the
FOUNDERS OF THE TRUST, regarding all matters that by fact or by right
may correspond to them, including their accessory rights,affecting the
Portfolio and Fees Trust. In the amounts payable or effectively paid
by the FOUNDERS OF THE TRUST.
"Maintenance Contract." Means the maintenance contract executed with
Starwood for each of: FOUNDER OF TRUST 1, FOUNDER OF TRUST 2, and
FOUNDER OF TRUST 3, so that Starwood may provide the preventive and
corrective maintenance service at the above mentioned FOUNDERS'
facilities.
"Credit" Means the credit denominated in UDIS opened by BANCOMER to
the BORROWER, pursuant to the terms of the contract hereunder, up to
the the principal amount, equal to, on the date of its disposal,
US$7,000.000.00 (SEVEN MILLION DOLLARS 00/100 ) Currency of the United
States of America.
"Maintenance Fees.-" Means the fees which the purchasers of
Memberships shall pay to FOUNDERS 1, and 3, accordingly, with which
Starwood and other third parties providing maintenance service to the
FOUNDERS' facilities shall be paid.
"Bond RRI Coupon.-" Means the coupon corresponding to the payment of
net interest derived from the emission, in the amount of
US$6,500,000.00 SIX MILLION FIVE HUNDRED THOUSAND DOLLARS 00/100),
plus the applicable taxes payable on June first and December first
each year.
"Working Day".- MeansMeans a day when banks are open to the public to
carry out operations, or are not authorized to close in Mexico City,
D.F.
"Disposal.-" Means the disposal of funds from the credit carried out
by the BORROWER on the Date of the disposal, as covered by the
Contract hereunder.
"Credit Documents.-" Means the contract hereunder, the Promissory
Note, the Trusts in Guarantee and other documents in connection with
this contract.
"DOLLARS" AND "U.S. $.-" MeansDollars, legal currency of the United
States of America.
"Emission.-" Means the emission of securites, made up of warrants and
promissory notes carried out by the BORROWER on December first 1998,.
jointly with Club Regina Resorts, Inc, (currently Raintree Resorts
International, Inc.) in the city of New York, New York, for a total
amount of US $100,000,000.00 (ONE HUNDRED MILLION DOLLLARS 00/100)
legal currency of the United States pf America, with interest at the
rate of 13% (THIRTEEN PERCENT) per annum, payable half-yearly, on June
first and December first each year, beginning on June first 1998, and
ending on December first, year 2004.-
"Date of Disposal".- Means the date which occurs forty eight Working
Hours before December first nineteen hundred ninety nine, when the
BORROWER may dispose of the total amount of the Credit..
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"Date of Payment of Principal and Interest.-" Means the last day in
each Interest Period, and any other date when the BORROWER shall make
a payment of the principal sum or ordinary interests of the Credit and
Promissory Note in favor of BANCOMER in accordance with the provisions
established hereunder. Assuming that anyDate of Payment of Principal
and Interests should fall on a date that is not a Working Day,. the
said Date of Payment of Principal and Interest shall be understood to
be extended to the immediately following Working Day, and this
extension shall be included in the corresponding calculation of
interests.
"Trust Cabo San Lucas.-" Means the trust in guarantee which FOUNDER OF
TRUST 3 constitutes with the Trustee on this date to warrant the
fulfillment of the obligations derived from the Credit Documents, to
which it shall contribute the Cabo San Lucas Real Estate.
"Trust Cozumel.-" Means the trust in guarantee which FOUNDER OF TRUST
4 constitutes with the Trustee on this date to warrant the fulfillment
of the obligations. derived in the Credit Documents, to which it shall
contribute the Cozumel Real Estate.
"Trust on Portfolio and Fees.-" Means the trust in guarantee and the
payments which FOUNDERS OF TRUSTS 1, 2 and 3 constituted with the
Trustee on this date to guarantee the fulillment of the obligations
derived from the Credit Documents- to which the Portfolio, the
Maintenance Fees and the Real Estate in Trust shall be contributed.
"FOUNDER OF TRUST 1" Refers to C.R. Resorts Puerto Vallarta, S. de
R.L. de C.V-
"FOUNDER OF TRUST 2" Refers to C.R. Resorts Cancun, S. de R.L. de C.V.
"FOUNDER OF TRUST 3" Refers to C.R. Resorts Los Cabos, S. de R.L. de
C.V..
"FOUNDER OF TRUST 4" Refers to Desarrollos Turisticos Integrales de
Cozumel, S. de R.L.de C.V.
"FOUNDERS OF TRUSTS" Refers, collectively, to FOUNDER OF TRUST 1,
FOUNDER OF TRUST 2, FOUNDER OF TRUST 3 AND FOUNDER OF TRUST 4.
"TRUSTEE" Refers to Fianzas Monterrey Aetna, Bonding Institution,
BANCOMER Financial Group, or anyother fiduciary institution designated
by common agreement by the parties.
"AFFILIATE" Refers to any company wherein the BORROWER or any of the
FOUNDERS OF THE TRUST may be titleholders of stock of the coraporate
cpital, in a proportion below 25% (TWENTY FIVE PERCENT)
"MAINTENANCE FUND.-" This has the meaning attributed to the said term
in Clause EIGHTEENTH hereunder.
"PAYMENT FUND.-" This has the meaning attributed to the said term in
Clause EIGHEENTH hereunder.
"WORKING HOURS" Means the hours that are understood to be bank working
hours in the City of New York, New York, United States of America.
"CABO SAN LUCAS REAL ESTATE.-" Means the real estate owned by FOUNDER
OF TRUST 3, located at San Jose del Cabo, Baja California Sur,
acquired through public instrument number 36,979 on June 8, 1998,
granted before Notary Public number seven in the State of Baja
California sur, Attorney Hector Castro Castro, and recorded in the
Public Registry of Property in San Jose del Cabo, Baja California Sur,
under number _ _ _ volume :_ _ _ _ _, First Section, on _ _ _ _ _ _ _
_ _ _ _ _ , including land, improvements and constructions.
"COZUMEL REAL ESTATE.-" Means the real estate owned by FOUNDER OF
TRUST 4, located at Cozumel, Quintana Roo, acquired through public
instrument Number 4,378 dated November 126, 1996, granted before
Notary Public number four In the state of Quintana Roo, Attorney Bello
Melchor Rodriguez and recorded in rhe Public Registry of Property in
Cozumel, Quintana Roo, under number _ _ _ volume _ _ _ Section First,
on __ ___ _ _ _ _ _ _ __ _ _ _ including land, improve- ments and
constructions.
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"Real Estate under Trust.-" This refers jointly to the Cabo San Lucas
Real Estaate and the Cozumel Real Estate.
"Memberships" Means the vacational periods in time-share only
corresponding to the use of vacational units in the FOUNDERS OF
TRUSTS' facilities, which are derived from the purchase of series "B"
shares in REGINA, and to the membership contracts executed with
FOUNDER OF TRUST 1, FOUNDER OF TRUST 2 OR FOUNDER OF TRUST 3, which
form the Portfolio, through which concepts the initial payments and
the periodical monthly amortizations, interests, commissions,
collection expenses, Maintenance Fees and in general, any other
concept inherent to the payment shall be carried out.
"Mexico" refers to the United Mexican States.
"Promissory Note" refers the series of thirty promissory notes for a
period of one month, subscribed by the BORROWER in favor of BANCOMER,
documenting its debt additionally, which shall be written under terms
acceptable to BANCOMER.
"Interest Period.-" Means each of the monthly periods, on whose basis
the Credit interests shall be calculated. The first Interest Period
for the Disposal of this Credit shall begin on the date in which the
said Disposal is effected, and shall terminate precisely on December
29, 1999, and on this same date, the first Payment of Principal and
Interests shall occur. The second period and all the other Interest
Periods shall begin on the immediate day after the the termination of
the immediately prior Interest period and shall terminate on the
twenty ninth day of each month, except that corresponding to the month
of February each year, which shall terminate precisely on February 28
"Pesos" Means the legal currency in the United Mexican States.
"RCI" Means Resort Condominiums International, a company constituted
in accordance with the laws of the United States of America.
"RRI" Means Raintree Resorts Internation, a company constituted in
accordance with the laws of the United States of America.
"Starwood" This refers jointly, to Starwood Puerto Vallarta, S. de
R.L. de C.V., Starwood Cancun, S. de R.L. de C.V. and Starwood Los
Cabos, S. de R.L. de C.V.
"Subsidiary" Means any company in which the BORROWER or any of the
FOUNDERS OF THE TRUSTS may be titleholder of 25% (twenty five percent)
or more of the corporaate capital, or have the faculty to designate
the majority of members of the Board of Directors, or through a trust
to vote, administration contracts or other controlling vehicles which
may determine the administration of the company.
"Ordinary Rate" MeansBORROWERMeans the rate of interest of 12% per
annum.
"Textron" Means the Textron Financial Corporation, a company
constituted in accordance with the laws of the United States of
America.
"UDIS" or "Investment Units." Means the unit in the account of
constant real value determining all the payment obligations in Pesos
that may be agreed or generated due to judicial acts evidenced in this
instrument, which are regulated in the Decree establishing the
obligations that can be denominated in Investment Units, and reforms
and adds various provisions in the Fiscal Code for the Federation and
in the Income Tax Law, published in the Official Gazette of the
Federation on April first 1995.
"Securities" This refers jointly to the warrants and Promissory Notes,
derived from the emission described in antecedent I (D) hereunder.
B) Accounting terms
All the accounting terms used in this instrument and in the Credit
Documents shall be interpreted in accordance with the generally
accepted accounting principles in Mexico, issued by the Mexican
Institute of Public Accountants, unless a different meaning is
assigned hereunder.
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SECOND. OPENING THE CREDIT.
BANCOMER hereby opens a simple credit with a fiduciary guarantee to the
BORROWER, denominated in UDIS, up to the equivalent principal sum on the
Date of the Disposal, of US $7,000,000.00 (SEVEN MILLION DOLLARS 00/100)
which do not cover the interest and expenses caused by virtue of the
contract hereunder.
The applicable rate of exchange to establish exactly the total amount of
the credit in UDIS shall be determined 48 hours prior to the Date of
Disposal.
Under the terms of Article 294 (two hundred ninety four) in the General Law
for Credit Titles and Operations, the parties agree that BANCOMER shall
have faculties to limit the amount of the credit and the period, or both at
the same time, or to denounce the credit as from a certain date or at any
time, through the simple writen notification sent to the BORROWER under the
terms of this instrument, with which the said Contract shall be considered
expired.
THIRD.- DISPOSAL OF THE CREDIT.
The BORROWER may dispose of the Credit on the Date of Disposal, up to the
equivalent principal sum on the said Date of Disposal to US $7,000,000.00
(SEVEN MILLION DOLLARS 00/100) providing it fulfills the conditions for the
disbursement provided in Clause FIFTEENTH hereunder, and intends the funds
received for the purposes described in Clause Fifth in this contract.
FOURTH.- PERIOD
The total period for the Credit is thirty months, with no period of grace,
beginning on November 29, 1999 and terminating on May 29, 2002..
FIFTH.- DESTINATION OF THE CREDIT
The destination of the Credit is to warrant, and in its case to cover, to
the holders of the of bonds resulting from the emission, the punctual
payment of the amount of US $6,500,000.00 (SIX MILLION FIVE HUNDRED
THOUSAND 00/100 DOLLARS) corresponding to half-yearly interest at the rate
of 13% per annum, payable on the first of December 1999 under the terms of
the Emission, and to finance the BORROWER for the Income Tax on interest
paid in accordance with the Emission, commisions and expenses for this
Credit.
SIXTH.- PAYMENT OF THE CREDIT
The BORROWER shall return the principal amount of the Credit through thirty
successive monthly amortizations, substantially equal, beginning the first
Payment Date of Principal and Interests on December 29, 1999, and these
shall be covered at the value of UDIS on the date in which the
corresponding Date of Payment of Principal and Interests occurs.
SEVENTH.- ANTICIPATED PAYMENTS.
In the event that the BORROWER should decide to pay totally or partially
the unpaid balance of the Credit, it shall send BANCOMER a written
notification 5 (five) natural days in advance, indicating the date in which
the anticipated payment shall be made and the amount of same, in the
understanding that all anticipated payments shall 1) be made on the Date of
Payment of the Principal; and 2) be made together with the accumulated
unpaid interest up to the date of the said anticipated payment.
The above mentioned prepayments are not subject to premium or penalty, but
if the anticipated payment is made on a date different from a Date of
Payment of Principal and Interest, the BORROWER shall pay BANCOMER an
amount equal to the amount which BANCOMER has to pay to its source of funds
for making prepayments on dates different from a Date of Payment of
Principal and Interest. This amount shall be determined by BANCOMER at the
time when the BORROWER notifies the prepayment, under the terms above
provided, and shall be payable jointly with the anticipated payment.
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EIGHTH.- COMMISSIONS AND INTEREST
I Opening Commission
The BORROWER shall pay BANCOMER, on the date of execution of this contract,
an opening commission in the amount of US $105,000.00, equal to 1.50% (ONE
POINT FIFTY PERCENT) of the principal sum of the Credit, plus the
corresponding Value Added Tax, for an aggregate of US$120,750.00.
II. INTEREST
The Accredited shall pay ordinary and penalty interest, as the case may be
on the principal unpaid amount of the Credit, calculated on the basis of
one commercial year with 360 (three hundred sixty) days by the number of
natural days which have effectively elapsed, from the date in which the
Disposal is made, and up to the total and complete payment, calculated as
follows:
1) Ordinary interest: THE BORROWER shall pay on each Date of Payment
of Principal and Interest, ordinary interest on unpaid balances of the
principal amount of the Credit, calculated at the Ordinary Rate.
2) Moratorium interest: In the event of a moratoruium, this shall
cause interest on the expired and unpaid balances of the Credit, at
the annual rate resulting from multiplying the Ordinary Rate in effect
on the date of payment by 1.50 (ONE POINT FIFTY). The Moratorium
interest shall be caused as long as the delay lasts, as from the date
in which the default originates and up to the total payment, and shall
be payable on sight.
NINTH.- APPLICATION OF PAYMENTS
Each amount received by BANCOMER under this Contract for the payment of the
Principal sum, commissions, interests and Credit accessories, shall be
applied as far as it may be sufficient, to the payment of the obligations
derived from this contract, in accordance with the following order of
precedence:
In the first place, for the payment of each and every expense and cost in
which BANCOMER may have incurred, due to obtaining the obligatory
fulfillment of the obligations derived hereunder, assuming that any default
should occur to any of the Credit Documents;
In second place, the remaining amount after liquidating the above mentioned
concepts, shall be applied to the payment of moratorium interests earned up
to the date in which the corresponding payment is made.
In third place, the remainder after liquidating the above mentioned
concepts shall be applied to the payment of ordinary interests earned up to
the date in which the corresponding payment is made.
In the fourth place, the remainder after liquidating the above mentioned
concepts shall be applied to the payment of the monthly installments for
the principal unpaid balance of the Credit, in an inverted order to its
dates of maturity, beginning with the most distant date.
The above shall be applied without detriment to the provisions contained in
Clause Ninth in the Portfolio and Fees Trust Agreement.
TENTH.- EXPENSES
All the reasonable expenses in connection with this Contract, as well as
registrations and cancellations in the Public Registries of Property,
notarial fees and expenses, Trustee's reasonable fees and expenses, as well
those of its technical committee, administration expenses for the Trust,
fees, expenses and taxes caused by the assessment of the Portfolio to
warrant the fulfillment of this Contract, as well as the half-yearly
revisions carried out under the terms hereunder, supervisor's expenses, in
the event he is designated, expenses and insurance premiums incured by
BANCOMER, travelling expenses, fees and expenses of BANCOMER'S external
legal consultants, as well as other expenses in connection with the above,
shall be paid by the BORROWER or by any of the FOUNDERS, as soon as
BANCOMER requires the payment, without needing the intervention of a
Federal or judicial officer. BANCOMER agrees to make all the efforts within
its reach so that the amount of the above mentioned expenses are not above
the market average.
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With reference to the above, the parties agree that a) BANCOMER shall
inform the BORROWER about all the traveling expenses and every expense that
involves important amounts (understanding as such all the amounts involving
disbursements over US. $ 2,000 per event), at least five Working Days prior
to making such disbursements; b) the BORROWER cannot deny its authorization
to make such important expenses without a justified cause; and c) in the
event that a Cause of Anticipated Maturity occurs, BANCOMER may make the
expenses it deems pertinent charged to the patrimony of the Trusts in
Guarantee, without requiring a notification or authorization.
ELEVENTH. INCREASE IN COSTS
In the event that, as a result of a) the proclamation or modification of
any law or regulation, or due to any change in the interpretation, or b)
the fulfillment of any request from any central bank or government
authority or c) the anticipated payment of all or part of the Credit's
principal sum on a date which is not a Date of Payment of Principal and
Interest, an increase in the cost should be produced for BANCOMER to obtain
funds to exhibit or to maintain in effect the Disposal of the Credit, it
shall inform the BORROWER in writing about this matter, indicating the
amount of the increase. Once this information is received, the BORROWER
shall pay BANCOMER the amounts it may indicate that are required to cover
the said increase in costs, and shall make such payments within 5 (FIVE)
Working days after the date in which the corresponding information has been
received.
TWELTH.- PLACE AND FORM OF PAYMENT
All the payments that the BORROWER shall be made in favor of BANCOMER
covered by this Contract and the Promissory Note shall be made precisely in
Pesos, in the equivalent amount of UDIS, without needing a previous
requirement, making the credit before 11:A.M. (Mexico City time), to the
account which BANCOMER may indicate in writing, or at any other place and
in any account which BANCOMER may designate through a written notification
addressed to the BORROWER ten Working Days in advance.
THIRTEENTH.- TAXES
All the amounts payable by the BORROWER shall be covered without deductions
and shall be free from any taxes, contributions, deductions or retentions
of any nature that may be imposed or encumbered at any time by any
authority.
Due to the above, the BORROWER undertakes to leave BANCOMER free and safe
from any taxes or fiscal charges derived from or related to any of the
Credit documents that may not have been paid and of which the BORROWER was
not opportunely aware. This obligation shall remain in force during the
period of prescription due to fiscal responsibilities, in accordance with
the applicable legislation.
FOURTEENTH. PROMISSORY NOTE
The Promissory Note subscribed by the BORROWER to the order of BANCOMER
under the terms of this Contract, shall be understood to be in recognition
of the amount which the BORROWER has at its disposal as an additional form
of documentation of the same.
BANCOMER may also assign or transfer this Agreement, and the assignee will
be entitled to the same rights and benefits as if it were BANCOMER.
BORROWER may not assign the rights and obligations hereunder without the
prior written consent of BANCOMER.
BANCOMER may discount, transfer, assign, endorse or negotiate the
Promissory Note prior to its maturity under the terms of the applicable
legislation, and this instrument is the specific authorization required by
Article 299 (TWO HUNDRED NINETY NINE) in the General Law for Credit Titles
and Operations.
FIFTEENTH, CREDIT CONDITIONS
BANCOMER's obligation to effect the disbursements in accordance with this
Contract is subject to the previous fulfillment of the following
conditions:
I. To deliver to BANCOMER at least 5 (FIVE)) working days prior to the
date of execution of this Contract, the original documents and
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powers-of-attorney evidencing the BORROWER's legal existence as well
as the legal existence of each of the FOUNDERS OF THE TRUST, MEXITUR
and REGINA, as well as the faculties of the attorneys-in-fact,
including the information regarding their registration in the
corresponding Public Registry.
II: To deliver to BANCOMER, no later than on the Date of Disbursement:
A) This instrument, duly signed by all the parties participating
in same.
B) Testimony of the public instrument through which the trust
covering the transfer of ownership in benefit of the company
denominated Promotora villa Vera, S. de R. L. de C.V. with
respect to Hotel Villa Vera, located in Acapulco, Guerrero.
C) Evidence of having constituted the Trusts in Guarantee and the
Maintenance Funb, to BANCOMER'S satisfaction.
D) Evidence issued by an authorized official of the BORROWER,
stating that no default exists on its part with respect to the
positive and negative covenants hereunder and under all credit
contracts contracted in the past.
E) Evidence issued by the TRUSTEE stating that it has affected
the PORTFOLIO in a minimum proportion of 2.5 to 1(TWO POINT FIVE
TO ONE) in guarantee with respect to the total amount of the
Promissory Note, considering to this effect, the value of the
UDIS on the date of the Disposal, in the understanding that in
the event that all or part of the Portfolio should be replaced by
another in Pesos or Dollars, the parties shall determine the
applicable equivalence.
F) Certificate issued by the Trustee to the effect that it
received a deposit fo rUS$500,000.00, to form the Maintenance
Fund.
G) Evidence of having notified MEXITUR, or any other company in
charge of the Collection of the Portfolio endorsed to BANCOMER,
and of receiving the correspond-ing funds for the Maintenance
Fees, stating that it continues receiving the payments relative
to the capital, interests, anticipated payments, accelerated
amortizations and all the amounts that the clients may make in
favor of their debt, as well as such Maintenance Fees, so that
the amounts of both are concentrated in the Trust for the
Portfolio and Fees.
H) A commitment letter issued by any financing institution
satisfactory to BANCOMER, written in terms satisfactory to
BANCOMER, where the former undertakes to finance working capital
to the BORROWER, the FOUNDERS OF THE TRUST, its Affiliates and
Subsidiaries, as well as the ordinary interest derived from the
Emission, payable on June first in the year two thousand.. I) To
deliver to BANCOMER, no later than on the date of the Disposal,
the Promissory Note documenting the said Disposal, subscribed by
the BORROWER.
SIXTEENTH. POSITIVE COVENANTS
As long as any portion of the Credit is unpaid, and while the BORROWER has
any outstanding obligation to fulfill, the BORROWER, THE FOUNDERS OF THE
TRUST, MEXITUR and REGINA undertake to carry out the items indicated below,
unless they obtain the previous written consent from BANCOMER, exempting
them from fulfilling any of the said obligations, in which case, the said
consent shall be effective only with respect to the specific matter and
occasion for which it was granted.
A) Information requirements: To provide BANCOMER the information
indicated below;
1. As soon as available, and in any case within 45 (FORTY FIVE )
natural days after the close of each quarter in the corporate
year of BORROWER, the FOUNDERS OF THE TRUST, MEXITUR and REGINA;
an internal quarterly financial statement for the said companies
(in the BORROWER'S specific case, the statement known as 10K in
the United States) at the close of the said quarter, which should
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at least include General Balance sheet, Statement of Results and
Cash Flows, with its analytic reports signed by the corresponding
company's representative, that it is up to date in the
fulfillment of all the obligations To Do and Not to Do contained
in Clauses Sixteenth and Seventeenth hereunder.
2. As soon as available and in any case within 120 (ONE HUNDRED
TWENTY) natural days after the close of the fiscal yeaar of the
BORROWER and of the FOUNDERS OF THE TRUST, their respective
subsidiaries and/or affilates, a copy of their individual annual
financial stataements (in the BORROWER's and RRI's specific case,
the statement known as 10K in the Unted States) with the opinion
from one of the independent public accountant offices with the
best international prestige, or by any other that may be
acceptable to BANCOMER, as well as a letter subscribed by the
BORROWER's authorized official, stating that it is up to date in
the fulfillment of the Obligations to Do and Not to Do contained
in Clauses Sixteenth and Seventeenth hereunders.
3. Immediately after initiating or notifying any action, demand
or proceeding before any court, council, government entity or
commission, to deliver BANCOMER a notification indicating the
details of the corresponding demand or proceeding, assuming that
a) claims in connection with taxes, products, uses or
contributions to social security, local or federal, for an amount
equal to over Pesos Mexican Currency, US $250,000.00 (TWO HUNDRED
FIFTY THOUSAND DOLLARS 00/100) b) In any other case, except
bankruptcy, for an amount equal to over the equivalent to 3.0%
(THREE PERCENT) of the annual sales of any of them; or c)
requests or demands for bakruptcy or suspension of payments,
unlimited with respect to the amount involved.
4. On the date in which BANCOMER reasonably requests that any
other information be provided with respect to the financial
conditions or of any other nature from the BORROWER or from the
FOUNDERS OF THE TRUST, to deliver to BANCOMER such information,
providing that this information is immediately available..-
5. As soon as possible, but in any case within 10 (TEN) natural
days after the date in which a Cause for Anticipated Maturity
occurs, or an event that, with time, could constitute a Cause for
Anticipated Maturity, a notification from the corresponding
company's principal offical, stating the details of the said
Cause for Anticipated Maturity, and the measures that the said
company has taken or proposes to take in this respect.
6. To notify BANCOMER in writing, at least 30 (THIRTY) working
days in advance about any possible reduction of over 10% (TEN
PERCENT) of the corporate capital of the BORROWER, THE FOUNDERS
OF THE TRUST, REGINA and MEXITUR, or any of their respective
subsidiries.
7. As soon as possible, but in any case at least 10 (TEN)working
days in advance, to notify in writing, the expenses made from
capital or investments in fixed assets by the BORROWER or by the
FOUNDERS OF THE TRUST (different from expenses to cover
replacements or substitutions) which, considered individually or
in conjunc-tion during a fiscal yeara, amount to over US
$125,000.00 (ONE HUNDRED TWENT FIVE THOUSAND DOLLARS 00/100) per
quarter, accumulated up to a maximum of US $500,000.00 (FIVE
HUNDRED THOUSAND DOLLARS 00/100) annually, or its equivalent in
Mexican Currency, indicating the amount, destination and source
of funds to this effect.
In the event of any deviation from the amount proposed, to
explain to BANCOMER the nature of the same, so that BANCOMER may
authorize the corresponding investment, which shall not be denied
without a reason, all of which shall be under the terms of Clause
Seventeenth (F) hereunder.
8. As soon as available, but in any case within 10 (TEN) natural
days after the close of each quarter, a report regarding the
respective approvals for capital or investment expenses in fixed
assets, different from replacement or substitution expenses made
during the immediately foregoing quarter, for amounts over US
$125,000.00 (ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS 00/100) oe
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its equivalent in Pesos considering the BORROWER and the FOUNDERS
OF THE TRUST and their respected Subsidiaries and Affiliates
jointly.
9 As soon as available, but in any case within 60 (SIXTY) natural
days after the beginning of each calendar year, an executive
summary of its master operational budget applicable to the new
year, including all the proforma financial statements, (general
balance sheet,statement of results, statement of changes in the
capital and statement of changes in the financial position and
cash flow) all of which consider jointly the BORROWER and the
FOUNDERS OF THE TRUST and their respective affiliates and
subsidiaries.
A) To continue as an on-going company with no change in
their line of business.
B) To maintain their judicial personality, without modifying
its corporate object or the structure of their shares of
stock without the previous written authorization from
BANCOMER, whose consent shall not be denied without a
reason.
C) To permit BANCOMER or whomsoever it may designate to
carry out periodical visits, with a previous notification
and without interfering with the business's normal
operations, also providing the periodical information on
same which BANCOMER may reasonably request.
D) To keep insured against any insurable risk including,
without limitation, against fire, earthquake, flood,
hurricane, cyclone, storms, stormy winds, hurricane winds
and any other coverage in connection with the proper
safeguard of all and each one of the properties of which the
BORROWER, THE FOUNDERS OF THE TRUST or their respective
Affiliates and Subsidiaries may be owners or lessees, in
accordance with the standards in effect in Mexico The
corresponding policy or policies covering the properties on
which a guarantee is constituted under the terms hereunder,
shall be endorsed in favor of the Trustee, so that he may
proceed to repair the properties destined to time-share, or
to the payment of the credit. BANCOMER undertakes to
instruct the Trustee that, as long as the Guarantee Measure
is maintained, the amounts paid for insurance is for the
payment of the repairs required in the facilities and real
estate that may have been affected
F) To invoice at market prices comparable to the average in
the hotel and time-share industry, all the properties and
services provided by THE BORROWER, THE FOUNDERS OF THE
TRUST, and their respective Subsidiaries and Affiliates.
G) To maintain in the sales contracts of time-share, the
terms, conditions and period (including without limitation
the amounts for any kind of counterbenefits) similar to
those that are currently executed, and in general, to carry
out sales in competitive conditions and equivalent to those
in the maraket of developments having a similar category,
unless BANCOMER grants its written consent to modify the
same.
H) To substantially maintain in effect the preventive and
corrective maintenance programs provided in the Maintenance
Contract executed with Starwood, as well as the replacement
or substitution reserve, so that the time-share units and
the other properties in guarantee, may substantially
maintain their category of services, furnishings,
decoration, and other aspects related to those which they
currently have.
I) To maintain an investment program that ensures the
quality of the services to be provided to the clients in
each development
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J) To assign to the anticipated payment of the Credit, as
much as may be possible, the product obtained in cash of
emissions of debt or capital at a corporate level by the
BORROWER individually, or together with other companies, in
national or international markets.
K) Maintain a percentage of overdue Portfolio of less than
10%. Overdue portfolio means Portfolio between 1 and 90
calendar days late. Portfolio overdue for more than 90 days
will not be accepted.
L) To maintain FOUNDER OF TRUST 1, FOUNDER OF TRUST 2 AND
FOUNDER OF TRUST 3, within the "Golden Crown"
--------------- distinction granted by RCI.
M) To maintain and make its respective Subsidiaries or
Affiliates keep adequate Accounting books and records, where
they shall keep complete records in accordance with
generally accepted accounting principles in Mexico and
consistently applied, reflecting all the corresponding
company's financial operations.
N) To take all the necessary measures required at any time
to obtain and to maintain in effect all the governmental
records, authorizations and approvals necessary so that the
BORROWER and the FOUNDERS OF THE TRUST may fulfill their
obligations in accordance with this Contract.
SEVENTEENTH. NEGATIVE COVENANTS
As long as any part of the Credit is unpaid, and as long any obligation is
pending fulfillment, the BORROWER and the FOUNDERS OF THE TRUST are
obligated to abstain from, and to make their respective Affiliaates and
Subsidiares abstain from carrying out any of the activities indicated
below, unless they obtain the writtenconsent from BANCOMER, in which case
the said consent or approval shall be effective only and exculusively with
respect to the specific matter and the occasion for which it was granted.
A) To carry out any substantial modification in its administrative and
sales system which might have the direct or indirect result of a
reduction or deviation of the cash flows from the use of the
time-share.
A) To contract without BANCOMER's previous written authorization, any
credit or loan, in an individual or in a Consolidated level different
from the (i) The credit alternatives described in Clause FIFTEENTH
(III) (D) hereof; (ii) the revolving lines opf credit, up to the
principal amount of US$32,500,000 entered into with FINOVA Capital
Corporation; and (iii) the credit for the purchase of Hotel Villa Vera
in Acapulco, Gro., unless the product obtained is applied to the
anticipated payment of this Credit and this authorization shall not be
denied without a justified cause.
B) To totally encumber or assign the BORROWER's fixed assets or those
of any of THE FOUNDERS OF THE TRUST for an amount over US $100,000.00
(ONE HUNDRED THOUSAND DOLLARS 00/100) annually or its equivalent in
Pesos, in the understanding that this obligation is exclusively to the
BORROWER and to the FOUNDERS OF THE TRUST, excluding its fulfillment
by their respective Affiliates and Subsidiaries.
C) To grant loans or prepayments to its shareholders, parent
companies, direct orindirect third parties, or any third party, except
in payment of debts assumed prior to the date of this Contract, loans
or prepayments to its subsidiaries and affiliates, its suppliers or
its employees in accordance with the normal practices of the BORROWER
AND THE FOUNDERS OF THE TRUST and sales credits to its clients within
the normal parameters of the hotel and time-share industry, without
this imposing any restriction other than as provided in Section 4.08
of the Emission."
D) To make sales of Memberships, weeks and/or time-share units at
wholesale, both to physical and to moral parties different from the
FOUNDERS OF THE TRUST, unless a minimum of 50% of the product thus
obtained is applied to the prepayment of the Credit.
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E) To carry out different capital or investment expenses in fixed
assets for an amount over Us $500,000.00 (FIVE HUNDRED THOUSAND
DOLLARS 00/100) annually, accumulated, unless it is a matter of
investments for replacement, substitutions, or replacement of
equipment or properties directly in relation with the operations of
the FOUNDERS OF THE TRUST, REGINA or MEXITUR.
F) That the BORROWER carry out any emission of debt or capital at a
corporate level, in an individual form or jointly with another
company, both in the national or in the international markets, unless
the product from the same is assigned to the pre-payment of the
Credit.
G) To reduce its corporate capital in any amount, or to pay dividends
with resources from payments of the Maintenance Fees.
EIGHTEENTH. GUARANTEE/COLLATERAL
For the purpose of preserving the correct application of the Maintenance
Fees, which in turn preseve the value of the Portfolio, and to guaranatee
the fulfillment of each and every one of the BORROWER's obligations, as
well as for the punctual and opportune payment of the principal and of the
ordinary and moratorium interest earned, charges, costs, expenses or taxes,
and any other payment obligations assumed or derived in charge of the
BORROWER under the terms hereunder, and in the other documents in
connection with the Credit, and without prejudice to responding with all
its patrimony for the obligations acquired, the BORROWER and the FOUNDERS
OF THE TRUSTS constitute the fiduciary warranty contemplated in the Trusts
in Guarantee which on this date are constituted with the Trustee, under the
terms of Exhibits "A," "B," and "C" hereunder, whose general
characteristics are the following:
I TRUST CABOS SAN LUCAS REAL ESTATE
A) Nature: An irrevocable trust in guarantee
B) Parties:
Founder of Trust Founder of Trust 3
Beneficiary BANCOMER in the first place
Founder of Trust 3 in second place.
Trustee The Trustee
C) Matter: Cabo San Luicas Real Estate
D) Purposes: So that the Trustee may keep the Cabo San Lucas Real
Estate in guarantee for the fulfillment of the obligations .
derived from the Credit Documents, carrying out the corresponding
execution procedure when BANCOMER communicates the existence of
default, without liability for the Trustee.
E) Releases: The Trustee, by instructions fromBANCOMER, releases
the guarranty constituted on the Cabo San Lucas Real Estate.
BANCOMER shall give give the respective instructions, providing
no default has occured to the terms of the Credit documents, and
providing the two following assumptions have occured: 1) The
BORROWER has fully and punctually complied with the first seven
monthly amortiza- tions of the Credit; and 2) Total and punctual
compliance has been made of the payment of the RRI Bond Coupon,
maturing on June first in the year 2000-
II TRUST COZUMEL REAL ESTATE
A) Nature : Irrevocable trust in guarantee.
B)Parties
Founder of Trust; Founder of Trust 4
Fideicommissary: BANCOMER in the first place
Founder of Trust 4 in the second place
Trustee: The Trustee
C) Matter: Cozumel Real Estaate
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A) Purpose: That the Trustee may keep the Cozumel real estate to
guarantee the fulfillment of the obligations derived from the
Credit Docu- ments, carrying out the corresponding execution
proceeding when BANCOMER communicates the existence of such
default, without liability to the Trustee.
III) TRUST ON PORTFOLIO AND FEES.
A) Nature; An irrevocable trust in guarantee and payment
A) Parties:
Founders of Trust
for Portfolio: Founder of Trust 1
Founder of T
Founders of Trust
for Fees Founder of Trust 1
Founder of Trust 2
Founder of Trust 3
Beneficiary: BANCOMER I in the first place
The Founders of the Trust in second place
Trustee: The Trustee.
C) Matter:
1) The Portfolio approved by BANCOMER with a value
representing at all times an equal or superior proportion to
2.5 to 1 with respect to the unpaid value of the Credit,
considering exclusively the portion of the Portfolio which
is up-to-date. To determine the indicated measurement, the
Portfolio in moratorium shall not be considered. The
FOUNDERS OF THE TRUST shall primarily affect all the portion
of the Portfolio denominated in UDIS, and only in the event
that this should be insufficient to cover the agreed
measurement, they shall affect the Portfolio in Pesos. 2)
All the Maintenance Fees
A) Purposes:
1) That the Trustee shall maintan affected in guarantee the
credit titles documenting the Portfolio, both those which
are contributed initially and those contributed later in
trust, in addition or in substitution to those existing, in
order to preserve the value of the said warranty, in order
to comply with the provisions contained in this contract and
in the Trust for the Portfolio and Fees.
2) That the Trustee, on its own behalf, or through
depositaries to whom the collection is delegated, to
collect, receive and keep the funds corresponding to the
Portfolio, including prepayments, usually denominated
"Cashouts as well as the interest earned by the Porfolio and
the total amount of the Maintenance Fees, in guarantee for
the fulfillment of the obligations derived from the Credit
Documents, carrying out the corresponding execution
procedure when BANCOMER communicates the existence of a
default, without liability for the Trustee
3) That the Trustee shall monthly apply the product from the
collection of the Portfolio in the first place, to the
constitution or re-constitution of the Payment Fund,
releasing the FOUNDERS OF THE TRUST from the excess, in the
understanding that from the moment in which the Trustee
receives instructions from BANCOMER that a default has
occurred to the terms of the Credit, the Trustee shall
deliver to BANCOMER the total amont received, to be applied
to the prepayment of the Credit.
4) That as long as the Trustee does not receive instructions
to the contrary from BANCOMER, it shall deliver to the
designated depositaries the amounts received from
Maintenance Fees, with the exception of the portion
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corresponding to the Maintenance Fund indicated below, for
purpose of covering the total amounts to be paid for these
concepts to the respective providers of services.
5) Thaat the Trustee shall montly separate from the amounts
received for Maintenance Fees, the necessary amount fo form
a fund denominated "Maintenance Fund" in an amount not to be
under US $500,000.00, determined in accordance with the rate
of exchange at the end ofthe month, and this shall be
deposited in the account which BANCOMER shall indicate, for
the purpose of guaranteeing that at all times it shall have
at least the said sum to face the payments to Starwood for
maintenance services.
6) That the Trustee, in accordance with the procedure
established in Clause NINETEENTH in the Trust for the
Portfolio and Fees, as from the date in which it receives
instructions from BANCOMER indicating that a default has
occurred to any of the terms and conditions of the Credit or
the Trusts in Guarantee, shall deliver to BANCOMER each and
every one of the amounts it keeps and is receiving from the
25 Portfolio, Maintenance Fees, or any other, to be applied
under the terms which BANCOMER shall indicate, in the
understanding that BANCOMER shall apply the Maintenance Fees
in the first place to pay Starwood and MEXITUR.
7) All those provided in the Trust for the Portfolio and
Fees.
Besides the above, BANCOMER shall contract an external accounting
auditor, who may be from REGINA's current auditors' office, to
carry out an aleatory sample of the Portfolio, always different
and statistically selected, for the purpose of examining
half-yearly:
* The Control of Collections (the correct application of
payments, for automatic charges and on-site payments, calendar of
payments, control and application in the collection of interests,
etc.).
Overdue Portfolio not exceeding 90 calendar days.
Promissory notes properly documented (amount, signatures,
date of payment)
Promissory Notes properly endorsed in favor of the Trustee.
One of the monthly reports for the immediately foregoing
semester.
MEXITUR shall also prepare, under its responsibility, a
monthly report of the Portfolio, under the terms of the
Trust for the Portfolio and Fees.
NINETEENTH. CASES OF ANTICIPATED MATURITY
BANCOMER may consider as anticipated expiry of the period for the Credit
herein stipulated, and demand the payment of the balance of the principal
amount of the Credit and the Promissory Note, together with the accumulated
and unpaid interest, and other amounts that should be paid, in the event
that BORROWER, any of the FOUNDERS OF THE TRUST, REGINA, MEXITUR, or any of
the respective Subsidiaries default on any of the obligations derived from
the Credit Documents or from any other document in connection thereto, at
all times complying with the periods provided for in the execution
proceedings set forth in the Guaranty trusts, including without limitation,
the following:
A) In the event that the BORROWER fails to punctually pay an
exhibition of Capital, interest or commissions in accordance with the
provisions established here_ under and/or in the Promissory Note that
are subscribed, and other amounts payable in accordance with the
Credit Documents-.
B) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST
default with any other credit contract executed with any third party,
if such default results in the anticipated expiry of the said credit.
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C) In the event that (i) Starwood, MEXITUR or REGINA fail to provide
their services or (ii) if they terminate the service or the operation
and maintenance contract with Starwood, unless within the following 60
working days after the situation, a third party begins to provide the
said services at an efficiency level comparable to that which is
currently provided.
D) In the event that REGINA ceases to be depositary of the rights of
use of weeks or Time-share intervals in any of the facilities of the
FOUNDERS OF THE TRUST.
E) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST
should encumber or alienate any of its fixed assets registered in
their acounting on the date of execution of this instrument, exceeding
US $100,000.00 (ONE HUNDRED THOUSAND DOLLARS 00/100) annually, with
the exception of those encumbered with this Credit.
F) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST
i) should declare itself in bankrupcy or in suspension of payments;
ii) if it is intervened by any authority; iii) if it admits in writing
its incapacity to pay its debts upon maturity; iv) if it makes a
general assignment of properties in benefit of creditors; or (v) if it
begins and continues during more than sixty natural days, any
proceeding through which it seeks any of the above, or vi) in the
event that situations should arise affecting the BORROWER'S or the
FOUNDERS OF THE TRUST'S, REGINA'S or MEXITUR's good operations, or of
any of its respective Subsidiaries that can endanger the economic or
financial stability of any one of them.
G) In the event that any of the Trusts in Guarantee are not
constituted in accordance with the agreements contained hereunder, if
it fails to have the desired effects of the value of the guarantee or
declines in such a way that it does not comply ith the measurements
herein provided, or in the event that due to any cause the FOUNDERS OF
THE TRUST apply the funds from the Collection of Memberships or Fees
for the payment of debts of any other kind
H) In the event that the BORROWER'S stockholders meetings, or of any
of the FOUNDERS OF THE TRUST, REGINA, MEXITUR, or of any of their
respective Affilates or Subsidiaries should at any time during the
period of the credit, resolve to decree the payment of dividends,
applying amounts derived or from the Maintenance fees, except with
BANCOMER's previous written authorization.
I) In the event that the BORROWER, any of the FOUNDERS OF THE TRUST, ,
REGINA, MEXITUR, reduce the fixed portion of their corporate capital
stock.
J) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST
do not deliver to BANCOMER the financial statements representative of
the economic entity that constitute its Subsidiaries or Affiliates,
including the annual financial statements, which shall have the
professional opinion from an Independent Public Accountant acceptable
to BANCOMER on the date of closing its corporate year as well as the
financial statements prepared y its Administration corresponding to
natural quarters with the accumulated results for the corresponding
year.
K) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST,
REGINA, MEXITUR, or any if the respective Affiliates or Subsidiaries
abandon the Administration of their business.
L) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST,
REGINA OR MEXITUR should default, with no justified cause in any of
their local and federal fiscal obligations, as taxpayers and as
retainers, and with respect to payments to the Mexican Institute of
Social Security (IMSS), to the Savings System for Retirement (SAR), or
any other in connection with the operation of their business, and as a
result, the corresponding authority dictates a mandate of execution
against it and is not attended on time and through proper procedures,
or if it is paid within the following 60 (SIXTY) natural days or
within the legally applicable period to do so, whichsoever may result
first.
M) In the event that any of the declarations or statements under oath
to tell the Truth in any of the Credit Documents the BORROWER or by
any of its Subsidiaies should be false or inexact.
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N) In the event that any authority should expropriate, attach, assume
custody, or take control of all or part of the BORROWER'S properties
or those of one of the FOUNDERS OF THE TRUSTS, REGINA'S or MEXITUR'S
or those of their respective Subsidiaries or Affiliates, it should
displace its present administration, or limit its faculty to operate
the business.
O) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST
REGINA, MEXITUR, or any of its respective subsidiaries should grant a
bond or guarantee , or if it isjointly and severally obligated in
favor of third parties without the previous written authorization from
BANCOMER, except in amounts not greater than 100,000 Pesos.
P) In the event that the BORROWER'S or any of the FOUNDERS OF THE
TRUST, REGINA, MEXITUR's or any of their respective subsidiaries
resolve to merge, liquidate or spin-off the corresponding company;
Q) In the event that the use of all or part of the public areas, or
those for common use in the facilities should be obstructed or
restricted, the FOUNDERS OF THE TRUST, or if the corresponding
companies should be boxed-in, assigned, segregated, encumbered, merged
or, due to any cause the use is obstructed or limited .
R) In the event that during the period of the Credit, Mr. John
McCarthy Sandland is substituted as a General Director or in the
Administration of the time-share Business,. assuming that the need
arises to substitute him, the BORROWER shall provide BANCOMER the
information about the person with whom it seeks to substitute him, and
it shall obtain the previous written authorization from BANCOMER to
carry out this change, which shall not be denied without a justified
cause.
S) In the event that the amount of the Credit is not used precisely
for the purposes consigned in Clause Fifth hereunder.
T) In the event that the BORROWER or any of the FOUNDERS OF THE TRUST,
REGINA or MEXITUR OR ANY OF the respective Subsidiaries or Affiliates
cease to provide BANCOMER the information or documentation it may
request under the terms hereunder, and such deficiency is not remedied
within a period of ten natural days, when the corresponding
information is not found subject to a period for delivery under the
terms of this contract.
U) In the event that any of the stipulations or provisions of any of
the Credit Documents should be null or unenforceable.
V) In the event that the RRI stockholders do not increase the capital
of the said RRI in at least two million dollars within the three
months following the date of execution of this instrument, or, if RRI,
individually or jointly with the BORROWER has not determined to
BANCOMER'S satisfaction the mechanism under which it shall face the
payment of the said ordinary interest derived from the Emission, and
under the said supposition, the BORROWER, the FOUNDERS OF THE TRUST,
MEXITUR or REGINA have not constituted a new company within the
following five Working Days which will result the isolation of any
adverse situation in the operation, reservation system, collection of
the Portfolio and Maintenance Fees, in the understanding that the
shares or the corporate parts of the corporate capital of the said new
company shall be contributed to the Trust for the Portfolio and Fees
within twenty four hours after the date in which they are issued.
W) In the event that, at least three months prior to the date in which
the interests derived from the Emmission should be covered, the
BORROWER does not demonstrate to BANCOMER that it has an adequate
mechanism to pay the said interest.
TWENTIETH.- PARTICIPATIONS
At all times, BANCOMER shall be entitled to syndicate or sub-participate
the credit totally or partially, keeping the same conditions for the
BORROWER through the simple written notification to the said BORROWER,
indicating such syndication or sub-participation, provided that costs for
the BORROWER are not increased.
19
<PAGE>
TWENTY FIRST. MODIFICATIONS
No modification of terms or conditions in this instrument, and no consent
or exemption with respect to any of the said terms and conditions shall be
effective in any case, unless it is made in writing and is subscribed by
the parties, and even then such modification, exemption or consent shall
only be effective for the specific case and purposes for which it was
granted.
TWENTY SECOND. NOTIFICATIONS
All notifications and communications anticipated or required in accordance
with this contract shall be made in writing, and shall be delivered or sent
to each party to the addresses indicated in this Clause, or to any other
address that the said party may indicate in writing to the others. These
notifications and communications shall be effective upon being delivered in
the above expressed form, and no notification shall be effective until
after it has been effectively received by the party to which it is
intended.
With respect to the above, and for all matters relative to this document
and other Credit Documents, to the Trusts in Guarantee and any other
document in relation Thereto, the parties establish the following
addresses:
THE BORROWER Boulevard Adolfo Ruiz Cortines
No. 3642 THE FOUNDERS OF
THE TRUST Floor 7
MEXITUR AND REGINA Colonia Jardines del Pedregal
Postal Code 01900
Mexico, Federal District
BANCOMER Avenida Universidad No. 1200
Colonia Xoco
Postal Code 03339
Mexico, Federal District
THE TRUSTEE Avenida Universidad No. 1200
Colonia Xoco
Postal Code 01900
Mexico, Federal District
TWENTY THIRD.- Authorization to receive and provide information.
BORROWER and any obligee here under hereby expressly and irrevocably
authorized BANCOMER to obtain any and all information concerning credit and
other transactions of such companies with BANCOMER or with any other bank
or company. Up on request of third parties, BANCOMER may provide credit
history information of the borrower or any obligee her under to other users
of credit bureaus, as well as any domestic or foreign rating agency.
TWENTY FOURTH.- JURISDICTION
For all matters relative to this instrument, the other Credit documents,
the Trusts in Guarantee and the documents in connection with or derived
therefore, the parties expressly submit to the jurisdiction of the
competent courts in the City of Mexico, Federal District, waiving any other
jurisdiction that might correspond to them by virtue of their present or
future domiciles, or due to any other reason.
20
<PAGE>
TWENTY FIFTH.- APPLICABLE LAW
This Contract and the other Credit Documents shall interpret the agreement
to the Laws in effect in the United Mexican States.
In Testimony of the above, the parties hereunder sign this Contract in
Mexico City, D.F. on the twenty-sixth day of November, 1999-
THE BORROWER FOUNDERS OF THE TRUST
CR Resorts Capital, S. de R.L. de
C.V., CR Resorts Puerto Vallarta,
S. de R.L. de C.V., CR Resorts
Cancun, S. de R.L. de V.B.,
CR Resorts Los Cabos, S. de R.L.
de C.V.- Desarrollos Turisticos
Integrales de Cozumel, S. deR.L.
de C.V.
- -- ---- - - -- - - - - - - - - - - - - - - - - - - - - - - - -
By: John McCarthy Sandland By: John McCarthy Sandland
Attorney-in-Fact Attorney-in-Fact
MEXITUR REGINA
Corporacion Mexitur, S. de R.L. de C.V. Club Regina, S.A. de C.V.
- - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -
By John McCarthy Sandland By John McCarthy Sandland
Attorney-in-Fact Attorney-in-Fact
BANCOMER THE TRUSTEE
Bancomer, S.A. Fianzas Monterrey Aetna, S.A.
Institucion de Banca Multiple Bancomer Financial Group
Financial Group
- - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - -
By: Ing. Carlos D. Velazques Thierry By: Lic. ArmandoVignau Quiros
Director Corporate bank Fiduciary Delegate
- - -- - - - -- - - - - - - - - -
By Dr. Gerardo Salazar Viezca
Corporate Bank
21
Exhibit 21.1
Raintree Resorts International, Inc.
Subsidiaries
(formed under the laws of the
United States unless otherwise indicated)
Raintree North American Resorts, LLC
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.*
Promotora Villa Vera, S. de R.L. de C.V. *
Villa Vera Resort, S. de R.L. de C.V. *
Los Cabos Express Intercity, S. de R.L. de C.V. *
Regina Cabo West, S. de R.L. de C.V. *
Operadora RT Resorts, S. de R.L. de C.V. *
Servicios Bugambilias, S. de R.L. de C.V. *
Raintree Resorts International Canada Ltd. **
Northface Realty Co. Ltd. **
Whiski Jack Resorts Ltd. **
Whistler Rental Accommodation Centre Ltd. **
Whistler Valley Adventure Centre, Ltd. **
Whistler Central Reservations 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999.
</LEGEND>
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<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
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