<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1998
REGISTRATION STATEMENT NO. 333-61433
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EPIC RESORTS, LLC
EPIC CAPITAL CORP.
and Subsidiary Guarantors listed on Table 1 hereto
(Exact name of registrants as specified in their charters)
<TABLE>
<S> <C> <C>
DELAWARE 6531 23-2888968
DELAWARE 9999 23-2970678
(State of incorporation (Primary Standard (I.R.S. employer
or organization) Industrial Code Number) identification
number)
</TABLE>
1150 FIRST AVENUE, SUITE 900
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-0100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
THOMAS F. FLATLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EPIC RESORTS, LLC
1150 FIRST AVENUE, SUITE 900
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-0100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPY TO:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE 1 TO REGISTRATION STATEMENT COVER PAGE:
CO-REGISTRANT SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
IRS EMPLOYER
STATE OF PRIMARY STANDARD IDENTIFICATION
SUBSIDIARY GUARANTOR ORGANIZATION INDUSTRIAL CODE NUMBER CODE
- ---------------------------------------------------------- ------------ ------------------------- -----------------
<S> <C> <C> <C>
Epic Travel, LLC.......................................... Delaware 6531 23-2971528
London Bridge Resort, LLC................................. Delaware 6531 23-2971535
Daytona Beach Regency, Ltd................................ Florida 6531 23-2832062
Resort Management, LLC.................................... Delaware 6531 23-2971532
Resort Investment, LLC.................................... Delaware 6531 23-2971531
Epic Resorts--Hilton Head, LLC............................ Delaware 6531 23-2971530
Epic Resorts--Palm Springs Marquis Villas, LLC............ Delaware 6531 23-2970687
Epic Resorts--Scottsdale Links Resort, LLC................ Delaware 6531 23-2970684
Epic Resorts--Westpark Resort, LLC........................ Delaware 6531 23-2970685
Epic Warrant Co........................................... Delaware 9999 23-2970675
Epic Marketing, LLC....................................... Delaware 6531 applied for
Epic Resorts--Vacation Showplace, LLC..................... Delaware 6531 applied for
Epic Resorts Management, LLC.............................. Delaware 6531 applied for
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
EPIC RESORTS, LLC
[LOGO]
EPIC CAPITAL CORP.
OFFER TO EXCHANGE UP TO $130,000,000 13% SENIOR SECURED NOTES DUE
2005, SERIES B OF EPIC RESORTS, LLC AND EPIC CAPITAL CORP., WHICH
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF
THEIR OUTSTANDING 13% SENIOR SECURED NOTES DUE 2005, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
------------------------
Epic Resorts, LLC, a Delaware limited liability company (the "Company" or
"Epic"), and Epic Capital Corp., a Delaware corporation ("Capital Corp.," and
together with the Company, the "Issuers") hereby offer (the "Exchange Offer"),
upon the terms and conditions set forth in this Prospectus (this "Prospectus")
and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange up to $130,000,000 principal amount of their 13% Senior Secured Notes
due 2005, Series B (the "Exchange Notes"), registered under the Securities Act
of 1933, as amended (the "Securities Act") for any and all of its outstanding
13% Senior Secured Notes due 2005, Series A (the "Original Notes" and
collectively with the Exchange Notes, the "Notes"). The form and terms of the
Exchange Notes are the same as the form and terms of the Original Notes, except
that the Exchange Notes will be registered under the Securities Act, will not
bear legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate under certain circumstances
relating to the timing of the Exchange Offer. The Exchange Notes will evidence
the same indebtedness as the Original Notes and will be issued under and
entitled to the benefits of the July 8, 1998 Indenture (the "Indenture"), among
the Issuers, the Subsidiary Guarantors listed on Table 1 to the Registration
Statement Cover Page and United States Trust Company of New York as trustee (the
"Trustee"). See "The Exchange Offer" and "Description of Notes." For the
definitions of certain terms used herein, see "Glossary of Defined Terms."
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all Original Notes validly tendered and not withdrawn prior
to 5:00 p.m., New York City time, on , 1998 unless extended (for a
maximum of an additional 20 business days) by the Company in its sole discretion
(the "Expiration Date"). Tenders of the Original Notes may be withdrawn at any
time prior to the Expiration Date. The Exchange Offer is subject to certain
customary conditions.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
(CONTINUED FROM COVER PAGE)
The Original Notes were sold on July 8, 1998 (the "Issue Date") to NatWest
Capital Markets Limited (the "Initial Purchaser") in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act as part of a sale of 130,000 units (the "Units"), consisting of
the Original Notes and warrants (the "Warrants") to purchase, at the purchaser's
election, one membership interest in the Company or one share of common stock
(the "Common Stock") of Epic Warrant Co. ("Warrant Co."). These transactions are
collectively hereinafter referred to as the "Initial Offering." In connection
with the Initial Offering, the Company consummated the acquisitions of the
Westpark Resort, the Scottsdale Links Resort, the Planter's Quarters Resort and
the Palm Springs Marquis Villas and acquired the limited partnership interests
in Daytona Beach Regency, Ltd. that were not previously owned by the Company or
one of its subsidiaries (collectively, the "Acquisitions"). The Initial
Purchaser subsequently placed the Units in transactions exempt from registration
under the Securities Act. The Warrants immediately detached from the Original
Notes on the Issue Date. Accordingly, the Original Notes and Warrants may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder solely in exchange for the Original Notes in order
to satisfy the obligations of the Issuers under the Registration Rights
Agreement (as defined) entered into the by the Issuers in connection with the
Initial Offering. Neither the Company nor Capital Corp. has any obligation under
the Registration Rights Agreement or any other agreement to exchange the
Warrants or register the Warrants under the Securities Act. See "The Exchange
Offer."
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuers believe
that the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than (i) a
broker-dealer who purchased such Exchange Notes from the Issuers to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
or (ii) any such holder that is an "affiliate" of an Issuer within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. However, the Issuers have not sought
and do not intend to seek their own no-action letter in connection with the
Exchange Offer and there can be no assurance that the Commission would make a
similar determination with respect to the Exchange Offer. Eligible holders of
Original Notes wishing to accept the Exchange Offer must represent to the
Issuers that such conditions have been met. Each broker-dealer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Original Notes where such
Original Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Holders of Original Notes not tendered and accepted in the Exchange Offer
will continue to hold such Original Notes and will be entitled to all the rights
and benefits, and will be subject to the limitations applicable thereto, under
the Indenture and with respect to transfer under the Securities Act. The Issuers
will pay all the expenses incurred by them incident to the Exchange Offer. See
"The Exchange Offer."
i
<PAGE>
There has not previously been any public market for the Original Notes or
the Exchange Notes. The Company does not intend to list the Exchange Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Lack of a Public Market for the
Notes." Moreover, to the extent that Original Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Original Notes could be adversely affected.
The Exchange Notes will be available initially only in book-entry form and
the Issuers expect that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the Exchange Notes will be shown on,
and transfers thereof will be effected through, records maintained by DTC and
its participants. After the initial issuance of the Global Note, Exchange Notes
in certificated form will be issued in exchange for the Global Note only under
the limited circumstances set forth in the Indenture. See "Description of
Notes--Book-Entry, Delivery and Form."
Interest on the Original Notes is payable, and interest on the Exchange
Notes will be payable, semi-annually on June 15 and December 15 of each year,
commencing December 15, 1998. The Notes will mature on June 15, 2005. Except as
described below, the Issuers may not redeem the Notes prior to June 15, 2003. On
or after such date, the Issuers may redeem the Notes, in whole or in part, at
any time, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time and
from time to time on or prior to June 15, 2001, the Issuers may, subject to
certain requirements, redeem up to 35% of the aggregate principal amount of the
Notes with the cash proceeds of one or more Equity Offerings (as defined) at a
redemption price equal to 113% of the principal amount to be redeemed, together
with accrued and unpaid interest, if any, to the date of redemption, provided,
that at least 65% of the original aggregate principal amount of the Notes
remains outstanding immediately after each such redemption. The Issuers will be
obligated to make an offer to purchase $65 million (subject to adjustment as
described under "Description of Notes") aggregate principal amount of the Notes
not earlier than June 15, 2000 nor later than June 15, 2002 at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. Upon the occurrence of a Change of Control (as
defined), the Issuers will be required to make an offer to purchase the Notes at
a price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase.
The Original Notes are, and the Exchange Notes will be, senior obligations
of the Issuers. The Original Notes rank, and the Exchange Notes will rank, PARI
PASSU in right of payment with all existing and future Senior Indebtedness (as
defined) of the Issuers. The Original Notes rank, and the Exchange Notes will
rank, senior in right of payment to all existing and future Subordinated
Obligations (as defined) of the Issuers. The Original Notes are, and the
Exchange Notes will be, secured by (a) a first Mortgage (as defined) on all real
property acquired by the Issuers after the Issue Date, which Mortgages shall
convert into, and be replaced by, Mortgages on completed but unsold Vacation
Ownership Interests as they are created on such real property, PROVIDED, that
real property acquired or to be developed with funds from an A&D Facility (as
defined) shall not be subject to a Mortgage until such A&D Facility has been
repaid in full, (b) a security interest in the Escrow Account, and (c) a
security interest in the Cash Collateral Account (as defined). The Original
Notes are, and the Exchange Notes will be, unconditionally guaranteed (the
"Subsidiary Guarantees"), jointly and severally, by all of the Company's
subsidiaries in existence on July 8, 1998 and by each subsidiary of an Issuer
acquired or created thereafter other than certain Receivables Subsidiaries (as
defined) (collectively, the "Subsidiary Guarantors"). The Subsidiary Guarantees
are, and will continue to be, senior obligations of the Subsidiary Guarantors
and rank, and will continue to rank, PARI PASSU in right of payment with all
other existing and future Senior Indebtedness of the respective Subsidiary
Guarantors and senior in right of payment to all existing and future
Subordinated Obligations of the respective Subsidiary Guarantors. The Subsidiary
Guarantees may be released upon the
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<PAGE>
occurrence of certain events. Except as provided below, the Subsidiary
Guarantees are and will continue to be secured by a first Mortgage on (a) any
completed but unsold Vacation Ownership Interests owned by a particular
Subsidiary Guarantor, and (b) any real property owned by a particular Subsidiary
Guarantor, which Mortgage will automatically convert into, and be replaced by, a
Mortgage on Vacation Ownership Interests created thereon, PROVIDED, that real
property acquired or to be developed with funds from an A&D Facility shall not
be subject to a Mortgage until such A&D Facility has been repaid in full. In
addition, the Subsidiary Guarantee of Epic Resorts - Palm Springs Marquis
Villas, LLC is and will continue to be secured by a leasehold mortgage on the
leasehold acquired by it in connection with the Acquisitions. As Vacation
Ownership Interests are sold, the Mortgages thereon will be released. As of June
30, 1998, on a pro forma basis after giving effect to the Initial Offering and
the application of the net proceeds from the sale of the Original Notes, the
Issuers and the Subsidiary Guarantors would have had $21.3 million of Secured
Indebtedness (as defined) outstanding, excluding the Notes which constitutes
(along with the Notes) the only Senior Indebtedness of the Issuers and the
Subsidiary Guarantors. See "Description of Notes--Ranking", "--Security", and
"Description of Other Indebtedness."
Epic Capital Corp. and Epic Warrant Co. are each newly-formed Delaware
corporations wholly owned by the Company. Neither Epic Warrant Co. nor Epic
Capital Corp. has any assets or conducts any operations.
AVAILABLE INFORMATION
The Issuers and the Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Exchange Offer Registration Statement,"
which definition shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Issuers and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
Reference is made to the copy of contracts, agreements, or other documents filed
as an exhibit to the Exchange Offer Registration Statement for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of
the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers and the Subsidiary Guarantors will become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will be required to
file periodic reports and other information with the Commission. The Issuers
have agreed that, whether or not they are required to do so by the rules and
regulations of the Commission, for so long as any of the Notes remain
outstanding, they will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers
were required to file such forms, including for each a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with respect
to the annual information
iii
<PAGE>
only, a report thereon by the Company's independent auditors and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Issuers were required to file such reports. In addition, for so long
as any of the Notes remain outstanding, the Issuers have agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, the information required by Rule 144A(d)(4) of the Securities Act.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business" and elsewhere, constitute
forward-looking statements. Such forward-looking statements (including, without
limitation, information concerning planned development and the Acquisitions) are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control, that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements and no
assurances can be given that the plans, estimates and expectations reflected in
such statements will be achieved. Such risks, uncertainties and other important
factors include, among others, the following factors (as well as the other
factors referred to in "Risk Factors" and elsewhere herein): (a) changes in
national, international or regional economic conditions that can affect the
vacation ownership industry, which is highly sensitive to such changes,
including, among other factors, levels of employment and discretionary
disposable income, consumer confidence, available financing and interest rates;
(b) risks associated with a large investment in vacation ownership inventory at
any given time (including risks that inventories will decline in value due to
changing market and economic conditions and that the development and carrying
costs of inventories may exceed those anticipated); (c) risks associated with an
inability to locate suitable vacation ownership inventory for acquisition; (d)
risks associated with delays in bringing the Company's inventories to market due
to, among other things, adverse weather conditions, changes in regulations
governing the Company's operations or changes in the availability of development
financing on terms acceptable to the Company; (e) the inability of the Company
to find external sources of liquidity on favorable terms to support its
operations, acquire, carry and develop its inventories and satisfy its debt and
other obligations; (f) the inability of the Company to find sources of capital
on favorable terms for the pledge of Vacation Ownership Interests Receivable (as
defined); (g) costs to develop vacation ownership inventory for sale and/or
selling, general and administrative expenses in excess of those anticipated; (h)
an increase or decrease in the number of resort properties subject to percentage
of completion accounting which requires deferral of profit recognition on such
projects until development is substantially complete; (i) risks associated with
management's ability to effectively manage the substantial increase in the
number of vacation ownership resorts that the Company will operate after the
Acquisitions; and (j) risks associated with the Company's ability to obtain the
necessary regulatory approvals required to commence sales of Vacation Ownership
Interests at the resorts to be acquired by the Company in connection with the
Acquisitions. See "Risk Factors." All forward-looking statements contained in
this Prospectus speak only as of the date of this Prospectus, and the Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
INDUSTRY DATA
Market and industry data used throughout this Prospectus were obtained from
internal company surveys, industry publications, unpublished industry data and
estimates, discussions with industry sources and currently available
information. The source for industry data is the American Resort Development
Association ("ARDA"), a non-profit industry organization. Industry publications
generally state that the information contained therein has been obtained from
sources believed to be reliable, but there can be no
iv
<PAGE>
assurance as to the accuracy and completeness of such information. The Company
has not independently verified such market data. Similarly, internal surveys by
the Company, while believed by the Company to be reliable, have not been
verified by any independent sources. Accordingly, no assurance can be given that
any such data is accurate. Data for 1997 with respect to the estimated number of
tourists who visited the cities and surrounding areas in which the Company's
resorts are located was provided by the respective local visitors and convention
bureaus, and in the case of Lake Havasu City, the local chamber of commerce.
v
<PAGE>
GLOSSARY OF DEFINED TERMS
The following terms defined in this glossary are used throughout this
Prospectus. Other capitalized terms used in this Prospectus but not otherwise
defined shall have the meanings assigned to them in "Description of
Notes--Certain Definitions."
<TABLE>
<S> <C>
ACQUISITIONS........................ The acquisition by the Company of the Palm Springs
Marquis Villas, the Westpark Resort and the
Scottsdale Links Resort on June 30, 1998 and the
acquisition by the Company of the Planter's Quarters
Resort and certain of the limited partnership
interests in the Daytona Beach Regency, Ltd. on July
8, 1998.
COMPANY OR EPIC..................... Epic Resorts, LLC and its subsidiaries.
COMPARABLE PUBLIC COMPANY INDEX..... An index comprised of six public companies operating
in the vacation ownership industry which management
believes are comparable to the Company and for which
comparable sales and marketing information is
publicly available. The companies constituting the
index are Fairfield Communities, Inc., ILX Resorts
Incorporated, Signature Resorts, Inc., Silverleaf,
Inc., Trendwest Resorts, Inc. and Vistana, Inc.
COMPLETED INVENTORY................. The number of existing unsold Vacation Ownership
Interests in properties owned by the Company plus the
Vacation Ownership Interests that can be created in
resort properties for which construction is complete.
DAYTONA BEACH REGENCY............... The Company's vacation ownership resort located in
Daytona Beach, Florida.
EBITDA.............................. Earnings before interest expense, capitalized
interest included in cost of sales, income taxes,
depreciation and amortization, and extraordinary
item. EBITDA is presented because it is a widely
accepted industry financial indicator of a company's
ability to service and/or incur indebtedness.
However, EBITDA should not be construed in isolation
as a substitute for income from operations, net
income or cash flows from operating activities or
other income or cash flow statement data prepared in
accordance with GAAP as a measure of profitability or
liquidity 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.
LONDON BRIDGE RESORT................ The Company's vacation ownership resort located in
Lake Havasu City, Arizona.
PALM SPRINGS MARQUIS VILLAS......... The resort villas located in Palm Springs,
California, which the Company acquired on June 30,
1998, and which will be converted to a vacation
ownership resort by the Company.
PLANNED INVENTORY................... Vacation Ownership Interests not yet available for
sale relating to planned and zoned resort properties
that are not yet under construction.
PLANTER'S QUARTERS RESORT........... The vacation ownership resort located in Hilton Head,
South Carolina, which the Company acquired on July 8,
1998.
PLEDGED VACATION OWNERSHIP The Vacation Ownership Interests at the Westpark
INTERESTS......................... Resort, the Scottsdale Links Resort, the London
Bridge Resort, the Daytona Beach Regency and any
resorts subsequently acquired or developed by the
Company or any of its subsidiaries.
</TABLE>
vi
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<TABLE>
<S> <C>
SCOTTSDALE LINKS RESORT............. The resort complex located in Scottsdale, Arizona,
which the Company acquired on June 30, 1998, and
which will be converted to a vacation ownership
resort by the Company.
UNDER DEVELOPMENT INVENTORY......... Vacation Ownership Interests available for sale
relating to resorts currently under construction.
VACATION OWNERSHIP INTEREST......... An interest typically entitling the purchaser to a
fully-furnished vacation residence for a one-week
period on an annual or biannual basis in perpetuity.
WESTPARK RESORT..................... The resort complex located in Las Vegas, Nevada,
which the Company acquired on June 30, 1998, and
which will be converted to a vacation ownership
resort by the Company.
</TABLE>
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION CONTAINED HEREIN REFERS TO THE COMPANY
SUBSEQUENT TO THE ACQUISITIONS AND THE RESTRUCTURING. INVESTORS SHOULD CAREFULLY
CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Epic Resorts, LLC is a nationwide developer and marketer of high quality
vacation ownership resorts located in proven, major tourist destinations.
Vacation Ownership Interests typically entitle the buyer to a fully furnished
vacation residence for an annual or biannual period in perpetuity, as well as
access to over 1,500 resorts worldwide through the Company's participation in
vacation ownership interest exchange networks. The Company owns six resorts
located in Las Vegas, Nevada; Scottsdale, Arizona; Palm Springs, California;
Daytona Beach, Florida; Lake Havasu City, Arizona; and Hilton Head, South
Carolina and has an option to acquire property suitable for a resort in Pismo
Beach on the coast of California. In 1997, over 60 million tourists visited
these locations. The Company strategically markets and sells its Vacation
Ownership Interests through both on-site and off-site sales centers and believes
that it is one of the lowest-cost marketers of Vacation Ownership Interests in
the United States, with sales and marketing expenses for 1997 equal to 38.6% of
Vacation Ownership Interest sales versus the Comparable Public Company Index
average of 47.8% for the same period. In addition, the Company's Completed
Inventory enables it to generate income through the rental of available suites
at its resorts. The Company has historically provided financing to approximately
90% of the purchasers of its Vacation Ownership Interests, which, at an average
yield of 15.0% for the six months ended June 30, 1998, generated significant
interest income for the Company.
THE RESORTS
The Company's six high quality resorts are located in the following warm
weather, high volume, major tourist destinations:
<TABLE>
<CAPTION>
MILLIONS OF
LOCATION TOURISTS PER YEAR SURROUNDING AMENITIES/ATTRACTIONS
- --------------------------------- ------------------- ------------------------------------------------------------
<S> <C> <C>
Las Vegas, Nevada................ 30.0 Located one and one-half miles west of the Las Vegas strip
Scottsdale, Arizona.............. 12.0 Located on the famous Tournament of Players ("TPC") golf
course; over 100 other world-class golf courses
Palm Springs, California......... 4.5 Located on seven acres in downtown Palm Springs; over 70
world-class golf courses
Daytona Beach, Florida........... 8.0 18 miles of sandy beach; home of NASCAR and Grand Prix
racing; 52 miles from Disney World
Lake Havasu City, Arizona........ 3.0 London Bridge and English Village tourist and shopping
attractions; boating and fishing on Lake Havasu and the
Colorado River; 150 miles from Las Vegas and 67 miles from
Laughlin, Nevada
Hilton Head, South Carolina...... 2.5 12 miles of sandy beach; over 20 world-class golf courses
</TABLE>
1
<PAGE>
As the table below demonstrates, the Company's Completed Inventory will
increase from 822 to 25,854 Vacation Ownership Interests, which the Company
believes is among the highest of any vacation ownership resort company operating
in North America. Sales and marketing and general and administrative expenses
are the only material cash costs required to convert such Completed Inventory to
Vacation Ownership Interest sales and comprised 49.8% of such sales for the
twelve months ended June 30, 1998.
<TABLE>
<CAPTION>
UNSOLD
VACATION OWNERSHIP
MONTH/YEAR INTERESTS AT RESORTS
SALES ------------------------
COMMENCED OR AVERAGE UNDER
EXPECTED TO SALES DEVELOP-
RESORT LOCATION COMMENCE PRICE (A) COMPLETED MENT
- --------------------------------- --------------------------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
London Bridge Resort Lake Havasu City, AZ 8/91 $ 13,323 400 612
Daytona Beach Regency Daytona Beach, FL 11/96 11,349 422 2,295
Westpark Resort Las Vegas, NV 11/98 11,400 7,752 0
Scottsdale Links Resort Scottsdale, AZ 10/98 15,500 11,628 0
Palm Springs Palm Springs, CA 11/98 13,300 5,252 0
Marquis Villas
Planter's Hilton Head, SC 12/96 12,900 400 0
Quarters Resort
----------- -----
TOTAL............................................................................................. 25,854 2,907
----------- -----
----------- -----
<CAPTION>
RESORT PLANNED
- --------------------------------- -----------
<S> <C>
London Bridge Resort 9,843
Daytona Beach Regency 0
Westpark Resort 0
Scottsdale Links Resort 0
Palm Springs 0
Marquis Villas
Planter's 6,324
Quarters Resort
-----------
TOTAL............................ 16,167
-----------
-----------
</TABLE>
- ------------------------
(a) Average sales price is the average retail sales price for London Bridge
Resort, Daytona Beach Regency and the Planter's Quarters Resort for the
second quarter of 1998 and the expected average retail sales price for the
remaining resorts over the sellout period of Vacation Ownership Interests at
each such resort.
SALES AND MARKETING
The Company focuses its sales and marketing activities on generating a
predictable flow of both off-site and on-site prospective purchasers of Vacation
Ownership Interests at minimal cost.
OFF-SITE SALES CENTERS: The Company currently operates off-site sales
centers in Fresno, California and Philadelphia, Pennsylvania. The Company
also plans to add an additional off-site sales center in 1998 and four
additional centers by the end of 1999. The Company currently intends to
locate its planned off-site sales centers in major metropolitan areas, which
can be conveniently toured during evenings and weekends. These centers,
which are leased by the Company, are generally more cost effective because
they reduce the need for on-site tours of the Company's resorts and are
easily accessible to the Company's target customers. The Company's Fresno
off-site sales center generated $4.5 million of revenue and had an operating
margin of 47.6% for the twelve months ended June 30, 1998.
ON-SITE SALES CENTERS: The Company utilizes a variety of marketing
techniques to generate on-site tours, including mini-vacations resulting
from telemarketing and targeted mailings, retail center kiosks, in-house
marketing to renters, marketing to current owners of Vacation Ownership
Interests and referrals. The Company's Completed Inventory also provides
both additional revenue as well as sales and marketing cost advantages,
through (i) rental income, (ii) access to a steady source of high quality,
low cost, on-site sales tours from rental customers, and (iii) lower
mini-vacation marketing costs. The Company believes that its ability to
effectively implement, manage and refine its marketing activities has
resulted in the generation of a predictable and increasing supply of sales
prospects.
The Company typically establishes the sales prices for its Vacation
Ownership Interests on a resort-by-resort basis after reviewing local market
conditions. When the Company enters into a new market, it typically prices
Vacation Ownership Interests to attract the maximum number of potential
customers and gain market share. As the Company becomes more established in a
market, the Company increases its sales prices to reflect the high quality of
its properties. For example, average sales prices for Vacation Ownership
Interests at the London Bridge Resort and the Daytona Beach Regency have
increased from $8,900 and $7,900, at the date of commencement of sales,
respectively, to $13,323 and $11,349, respectively
2
<PAGE>
as of June 30, 1998. The Company expects to implement this pricing strategy with
respect to the resorts purchased in connection with the Acquisitions.
To support its marketing and sales efforts, the Company has developed and
continues to enhance its database to track its vacation ownership marketing and
sales programs. Management believes that, as the Company's vacation ownership
operations grow, this database will become an increasingly significant asset,
enabling it to take advantage of less costly marketing and referral
opportunities.
CUSTOMER FINANCING
The Company has historically provided financing to approximately 90% of its
vacation ownership customers. These customers are required to make a downpayment
of at least 10% of the Vacation Ownership Interest sales price, and typically
finance the balance over a period of seven to ten years. At the closing of a
sale of a Vacation Ownership Interest, the Company currently delivers a deed to
the purchaser of such Vacation Ownership Interest and secures repayment of such
purchaser's obligation by obtaining a mortgage on the Vacation Ownership
Interest. The Company is considering converting its vacation ownership
operations to a vacation club arrangement, whereby the purchaser of a Vacation
Ownership Interest would receive a non-deeded membership interest in a vacation
club operated by the Company, which would entitle such purchaser to reserve
units at any of the Company's resorts at any time of the year. As of June 30,
1998, the Company had a vacation ownership receivables portfolio totaling
approximately $45.0 million in principal amount, with a weighted average
contractual yield of approximately 15.0% for the six months ended June 30, 1998.
The Company expects a significant increase in its vacation ownership receivables
portfolio as sales commence at its newly-acquired resorts, begining in the
fourth quarter of 1998. On September 28, 1998, the Company entered into a
non-recourse vacation ownership interest loan participation facility (the "New
Receivables Facility") with Prudential Securities Credit Corporation, which will
enable the Company to turn its Vacation Ownership Interests Receivable into cash
quickly. The Company believes that the New Receivables Facility will enable it
to fund a significant portion of the Company's future development without
further leveraging the Company. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Description of Other
Indebtedness."
VACATION OWNERSHIP EXCHANGE NETWORKS
According to ARDA, the primary reason cited by consumers for purchasing a
Vacation Ownership Interest is the ability to exchange such interest for
accommodations at other resorts through worldwide exchange networks. London
Bridge Resort and the Daytona Beach Regency are affiliated with Interval
International ("II"), one of the leading worldwide vacation ownership exchange
companies. In addition, the Planter's Quarters Resort is affiliated with Resorts
Condominium International, Inc. ("RCI"), another leading worldwide vacation
ownership exchange company. Participation in II or RCI entitles owners to
exchange their annual Vacation Ownership Interests for occupancy at over 1,500
II or 3,200 RCI resorts worldwide. Both the London Bridge Resort and the Daytona
Beach Regency have received Five-Star designations from II, the highest
designation under II's rating system. In addition, the London Bridge Resort was
one of II's 30 largest resorts based on 1997 sales volume. The Planter's
Quarters Resort has been designated as a Gold Crown Resort, the highest
designation in RCI's rating system. The Company intends to affiliate its
newly-acquired resorts with either II or RCI.
VACATION OWNERSHIP INDUSTRY
First introduced in Europe in the mid-1960's, vacation ownership has been
one of the fastest growing segments of the hospitality industry over the past
two decades. According to ARDA and other industry sources, vacation ownership
sales and the number of Vacation Ownership Interest owners grew at compound
annual rates of approximately 16% and 22%, respectively, from 1980 to 1997 (see
chart below). The Company expects the industry to continue to grow as consumer
awareness of the attractiveness of
3
<PAGE>
vacation ownership as an alternative to traditional vacation lodging
establishments increases. Set forth below is certain information relating to the
vacation ownership industry.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
($ IN BILLIONS) VACATION OWNERSHIP INTEREST SALES VOLUME
<C> <C>
1980 0.25
1981 1
1982 1.2
1983 1.3
1984 1.5
1985 1.4
1986 1.4
1987 2
1988 2.25
1989 3
1990 3.15
1991 3.75
1992 4.25
1993 4.5
1994 4.75
1995 5.25
1996 5.5
1997 6
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
(IN MILLIONS) NUMBER OF VACATION OWNERSHIP INTEREST OWNERS
<S> <C>
1980 0.15
1981 0.25
1982 0.35
1983 0.5
1984 0.65
1985 0.75
1986 1
1987 1.1
1988 1.3
1989 1.5
1990 1.75
1991 2.1
1992 2.35
1993 2.65
1994 3.1
1995 3.5
1996 4
1997 4.5
</TABLE>
Source: ARDA (includes, with respect to 1995, 1996 and 1997, unpublished
estimates provided by ARDA)
BUSINESS STRATEGY
Epic's core business strategy is to generate significant cash flow from its
total inventory of Vacation Ownership Interests by (i) expanding and developing
off-site sales centers, (ii) capitalizing on its superior sales and marketing
techniques, (iii) renting available suites at its resorts, (iv) utilizing the
New Receivables Facility, and (v) cross-marketing additional vacation products
to its extensive customer base.
EXPANDING AND DEVELOPING OFF-SITE SALES CENTERS. The Company has a
proven ability to market Vacation Ownership Interests off-site. The Company
intends to capitalize on this ability through the development of several
off-site sales centers in targeted, high volume locations throughout the United
States. Off-site sales centers require minimal capital investment and produce
significant sales.
CAPITALIZING ON SUPERIOR SALES AND MARKETING TECHNIQUES. The Company
believes that its proven ability to generate qualified tours at lower costs
gives it a competitive advantage over other companies in the vacation ownership
industry. The Company plans to capitalize on and continually refine its highly
transferable marketing techniques at its newly acquired properties. Management
believes that as the Company matures, it will also be able to reduce sales and
marketing costs as lower cost marketing programs, such as in-house tours and
referrals, grow. In addition, as the Company's newly acquired resorts become
established, the Company intends to increase its prices based on demand for
Vacation Ownership Interests at such resorts and local market conditions.
RENTING AVAILABLE SUITES AT ITS RESORTS. The Company has historically
generated income from the rental of suites available at its resorts. The
Acquisitions have significantly increased the Company's Completed Inventory and
therefore the number of suites available for rent.
UTILIZING THE NEW RECEIVABLES FACILITY. The Company intends to utilize
the New Receivables Facility to convert its Vacation Ownership Interests
Receivable into cash quickly, thereby enabling the Company to finance a
significant portion of its future development without incurring substantial
additional indebtedness.
CROSS-MARKETING ADDITIONAL VACATION PRODUCTS TO ITS EXTENSIVE CUSTOMER
BASE. Through its marketing research, the Company has created, and will continue
to expand, its already extensive customer base. The Company's long-term strategy
includes increasing the number of vacation products available to its customers.
To develop this strategy and expand its customer base, the Company has recently
formed Epic Travel, LLC, a licensed travel agency, to market and sell vacation
packages to individuals.
4
<PAGE>
The Company also intends to continue to grow through acquisitions in proven,
high-volume, major tourist destinations. Because the vacation ownership industry
is highly fragmented, the Company believes that significant opportunities exist
to make complementary acquisitions at attractive valuations. Acquisitions the
Company may consider include vacation ownership operating companies, land for
resort development, additional inventory, or other vacation ownership-related
assets which may be integrated into the Company's existing operations. In
addition, the Company intends to make selective acquisitions outside the United
States, focusing on the Caribbean region.
THE ACQUISITIONS
On June 30, 1998, the Company consummated the acquisitions of the Scottsdale
Links Resort, the Westpark Resort and the Palm Springs Marquis Villas. On July
8, 1998, the Company consummated the acquisition of the Planter's Quarters
Resort. The following table sets forth the purchase price of each of these
resorts:
<TABLE>
<CAPTION>
RESORTS
- -------------------------------------------------------------------- PURCHASE PRICE
--------------
($ IN
MILLIONS)
<S> <C>
Scottsdale Links Resort............................................. $25.5
Westpark Resort..................................................... 15.9
Palm Springs Marquis Villas......................................... 14.0
Planter's Quarters Resort........................................... 7.8(a)
-----
Total............................................................... $63.2
-----
-----
</TABLE>
- ------------------------------
(b) This amount includes approximately $4.0 million of indebtedness of the
Planter's Quarters Resort that was assumed by the Company and refinanced
from the net proceeds of the Initial Offering.
On July 8, 1998, the Company also acquired the remaining limited partnership
interests of Daytona Beach Regency, Ltd. which were not owned by the Company or
one of its subsidiaries for $3.3 million. The Company now owns through its
subsidiaries Resort Management, LLC ("RMI") and Resort Investment, LLC ("RII"),
100% of the general and limited partnership interests in Daytona Beach Regency,
Ltd.
THE RESTRUCTURING
Epic Resorts, LLC, a Delaware limited liability company, was formed in June
1998 to merge with Epic Resorts, Inc., which was formed to combine the ownership
of the London Bridge Resort and the Daytona Beach Regency and their vacation
ownership acquisition and development businesses. London Bridge Resort was
acquired in 1986 by London Bridge Resort, Inc., a Delaware corporation wholly
owned by Mr. Thomas F. Flatley, the President and Chief Executive Officer of the
Company. In 1991, the conversion of the London Bridge Resort into a vacation
ownership resort was completed and sales of Vacation Ownership Interests at such
resort commenced. In April 1996, the Daytona Beach Regency was acquired by
Daytona Beach Regency, Ltd., and sales of Vacation Ownership Interests commenced
at such resort in November 1996. In connection with the Initial Offering, Epic
Resorts, Inc. was merged into Epic Resorts, LLC and certain of its subsidiaries
were merged into limited liability companies. Mr. Flatley simultaneously
contributed his membership interests in certain of such subsidiaries to the
Company (the "Restructuring").
5
<PAGE>
The following chart describes the structure of the Company following the
Restructuring and the Acquisitions:
<TABLE>
<S> <C> <C> <C>
Epic Capital Corp.
Epic Warrant Co.
London Bridge Resort, LLC
Epic Resorts - Westpark Resort, LLC
Epic Resorts - Scottsdale Links Resort, LLC
Epic Resorts - Palm Springs Marquis Villas,
Epic Resorts, LLC........ LLC
EPIC Travel, LLC
Epic Resorts Hilton Head, LLC d/b/a Planters
Quarter's Resort
Resort Management, LLC 1% G.P.
Daytona Beach Regency, Ltd.
Resort Investment, LLC 99% L.P
</TABLE>
Subsequent to the Initial Offering and the Acquisitions, the Company formed
three additional subsidiaries, Epic Resorts--Vacation Showplace, LLC, Epic
Resorts Management, LLC and Epic Marketing, LLC. These subsidiaries were formed
as Delaware limited liability companies and will operate off site sales, resort
management and travel service businesses for the Company. Each of these
subsidiaries will become Subsidiary Guarantors of the Notes by entering into a
Supplemental Indenture. On August 27, 1998, the Company also formed Epic Master
Funding Corporation, a bankruptcy remote Delaware corporation ("Epic Funding"),
as a special purpose financing subsidiary to facilitate securitization of the
Vacation Ownership Interests financed by the Company.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in a like principal amount, the terms of which are substantially
identical to the Exchange Notes. All Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company. See "Use of Proceeds."
------------------------
The Company's executive offices are located at 1150 First Avenue, Suite 900,
King of Prussia, Pennsylvania, 19406 and its telephone number is (610) 992-0110.
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
ISSUERS......................... Epic Resorts, LLC and Epic Capital Corp.
OUTSTANDING NOTES............... The Original Notes were sold by the Issuers on July 8,
1998 to NatWest Capital Markets Limited (the "Initial
Purchaser") pursuant to a Purchase Agreement, dated June
30, 1998 (the "Purchase Agreement"). The Initial Purchaser
subsequently resold the Original Notes in transactions
exempt from registration under the Securities Act.
REGISTRATION RIGHTS AGREEMENT... Pursuant to the Purchase Agreement, the Issuers and the
Initial Purchaser entered into the Registration Rights
Agreement, which grants the holders of the Original Notes
certain exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights which terminate upon the consummation
of the Exchange Offer.
SECURITIES OFFERED.............. $130.0 million aggregate principal amount of 13% Senior
Secured Notes due 2005, Series B (the "Exchange Notes").
THE EXCHANGE OFFER.............. The Issuers are offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal amount
of Original Notes that are properly tendered and accepted.
The Issuers will issue Exchange Notes on or promptly after
the Expiration Date. $130.0 million aggregate principal
amount of Original Notes is currently outstanding. The
Original Notes and the Exchange Notes are collectively
referred to herein as the "Notes." The terms of the
Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity
date) to the terms of the Original Notes for which they
may be exchanged pursuant to the Exchange Offer, except
that (i) the Exchange Notes will bear a Series B
designation (ii) the Exchange Notes are freely
transferable by holders thereof (other than as provided
herein) and are not subject to any covenant restricting
transfer absent registration under the Securities Act, and
(iii) holders of the Exchange Notes will not be entitled
to certain rights of holders of the Original Notes under
the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. See
"The Exchange Offer."
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Issuers believe that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-
dealer who purchases such Exchange Notes directly from the
Issuers to resell pursuant to Rule 144A under the
Securities Act or any other available exemption under the
Securities Act, or (ii) a person that is an "affiliate" of
an Issuer within the meaning of Rule 405 under the
Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act,
provided that the holder is acquiring the Exchange Notes
in the ordinary course of its business and is not
participating, and has
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes.
The Issuers have not sought, and do not currently intend
to seek a no-action letter. There can be no assurance that
the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each
broker-dealer that receives the Exchange Notes for its own
account in exchange for the Original Notes, where such
Original Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange
Notes.
MINIMUM CONDITION............... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Notes being
tendered for exchange.
EXPIRATION DATE................. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, unless the Exchange Offer is
extended (for a maximum of an additional 20 business days)
by the Issuers in their reasonable discretion, in which
cases the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND ORIGINAL NOTES........ Interest on the Exchange Notes will accrue from (A) the
last interest payment date on which interest was paid on
the Original Notes surrendered in exchange therefor, or
(B) if no interest has been paid on the Original Notes,
from July 8, 1998. Holders whose Original Notes are
accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Original
Notes.
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuers. See "The
Exchange Offer-- Certain Conditions to the Exchange
Offer." The Issuers reserve the right to terminate or
amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any of such
conditions.
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES.................... The exchange of the Original Notes for Exchange Notes by
tendering holders should not be a taxable exchange for
U.S. federal income tax purposes, and such holders should
not recognize any taxable gain or loss for U.S. federal
income tax purposes as a result of such exchange. See
"Material United States Federal Tax Consequences."
EFFECT ON HOLDERS OF THE
ORIGINAL NOTES.................. As a result of the making of, and upon acceptance for
exchange of all validly tendered Original Notes pursuant
to the terms of this Exchange Offer, the Issuers will have
fulfilled one of the covenants contained in the
Registration Rights Agreement and, accordingly, no
liquidated damages will become payable in respect of the
Original Notes pursuant to the applicable terms of the
Registration
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Rights Agreement. Holders of the Original Notes who do not
tender their Original Notes will be entitled to all the
rights and subject to all of the limitations applicable
thereto under the Indenture relating to the Original Notes
and the Exchange Notes, except for any rights under the
Indenture or the Registration Rights Agreement, which by
their terms terminate or cease to have further
effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Original
Notes pursuant to, the Exchange Offer. All untendered
Original Notes will continue to be subject to the
restrictions on transfer provided for in the Original
Notes and in the Indenture. To the extent that Original
Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Original Notes could be
adversely affected.
USE OF PROCEEDS................. There will be no cash proceeds to the Issuers from the
exchange pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL NOTES
TENDERING ORIGINAL NOTES........ Each beneficial owner owning interests in Original Notes
("Beneficial Owner") through a DTC Participant (as
defined) must instruct such DTC Participant to cause their
Original Notes to be tendered in accordance with the
procedures set forth in this Prospectus and in the
applicable Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering--Original Notes held
through DTC."
Each participant (a "DTC Participant") in the Depository
Trust Company ("DTC") holding Original Notes through DTC
must (i) electronically transmit its acceptance to DTC
through the DTC Automated Tender Offer Program ("ATOP"),
for which the transaction will be eligible, and DTC will
then verify the acceptance, execute a book-entry delivery
to the Exchange Agent's (as defined) account at DTC and
send an Agent's Message (as defined) to the Exchange Agent
for its acceptance, or (ii) comply with the guaranteed
delivery procedures set forth in this Prospectus and in
the Letter of Transmittal. By tendering through ATOP, DTC
Participants will expressly acknowledge receipt of the
accompanying Letter of Transmittal and agree to be bound
by its terms and the Issuers will be able to enforce such
agreement against such DTC Participants. See "The Exchange
Offer-- Procedures for Tendering--Original Notes held
through DTC" and "--Guaranteed Delivery
Procedures--Original Notes held through DTC."
Each Holder must (i) complete and sign a Letter of
Transmittal, and mail or deliver such Letter of
Transmittal, and all other documents required by the
Letter of Transmittal, together with certificate(s), if
any, representing all tendered Original Notes, to the
Exchange Agent at its address set forth in this Prospectus
and in the Letter of Transmittal, or (ii) comply with the
guaranteed delivery procedures set forth in this
Prospectus. See "The Exchange Offer--Procedures for
Tendering," "--Exchange Agent"
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
and "--Guaranteed Delivery Procedures--Original Notes held
by Holders."
By tendering, each holder will represent to the Issuers
that, among other things, (i) the Exchange Notes are to be
acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder,
in the ordinary course of business, (ii) the holder or any
such other person (other than a broker-dealer referred to
in the next sentence) is not engaging and does not intend
to engage in the distribution of the Exchange Notes, (iii)
the holder or any such other person has no arrangement or
understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the
holder nor any such other person is an "affiliate" of an
Issuer within the meaning of Rule 405 under the Securities
Act, and (v) the holder or any such other person
acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of
distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the
Exchange Notes. Each broker-dealer participating in the
Exchange Offer that receives Exchange Notes for its own
account in exchange for Original Notes must acknowledge
that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "The Exchange Offer--
Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES...................... DTC Participants holding Original Notes through DTC who
wish to cause their Original Notes to be tendered, but who
cannot transmit their acceptances through ATOP prior to
the Expiration Date, may effect a tender in accordance
with the procedures set forth in this Prospectus and in
the Letter of Transmittal. See "The Exchange
Offer--Guaranteed Delivery Procedures." Holders who wish
to tender their Original Notes but (i) whose Original
Notes are not immediately available and will not be
available for tendering prior to the Expiration Date, or
(ii) who cannot deliver their Original Notes, the Letter
of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect a
tender in accordance with the procedures set forth in this
Prospectus. See "The Exchange Offer--Guaranteed Delivery
Procedures."
SHELF REGISTRATION STATEMENT.... Under certain circumstances described in the Registration
Rights Agreement, certain holders of Original Notes
(including holders who are not permitted to participate in
the Exchange Offer or who may not freely resell Exchange
Notes received in the Exchange Offer) may require the
Issuers to file and use its best efforts to cause to
become effective, a shelf registration statement under the
Securities Act, which would cover resales of Original
Notes by such holders. See "The Exchange Offer--Purposes
and Effect of the Exchange Offer."
WITHDRAWAL RIGHTS............... Tenders of Original Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
</TABLE>
10
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<TABLE>
<S> <C>
EXCHANGE AGENT.................. United States Trust Company of New York is serving as the
Exchange Agent in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
THE NOTES
THE EXCHANGE NOTES.............. The Exchange Offer applies to $130.0 million aggregate
principal amount of the Original Notes. The form and terms
of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the exchange will
have been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends
restricting their transfer pursuant to the Securities Act,
and (ii) holders of the Exchange Notes will not be
entitled to certain rights of holders of the Original
Notes under the Registration Rights Agreement, which
rights will terminate upon consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as
the Original Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture.
See "Description of Notes" for further information and for
definitions of certain capitalized terms used below.
</TABLE>
<TABLE>
<S> <C>
MATURITY........................ June 15, 2005.
INTEREST PAYMENT DATES.......... June 15 and December 15 of each year, commencing on
December 15, 1998 (each, an "Interest Payment Date").
ORIGINAL ISSUE DISCOUNT......... The Original Notes are, and the Exchange Notes will be
considered to have been, issued with original issue
discount (the difference between the principal payable on
the Notes and the issue price of the Notes) for United
States federal income tax purposes. Original issue
discount, as defined in the Internal Revenue Code of 1986
as amended and the Treasury Regulations issued thereunder
("OID"), has accrued from the issue date of the Notes and
generally will be includable as interest income in the
U.S. Holder's (defined in "Material United States Federal
Tax Consequences") gross income for United States federal
income tax purposes in advance of the cash payments to
which the income is attributable. For a more detailed
discussion of the United States federal income tax
consequences to the holders of the Exchange Notes of the
purchase, ownership and disposition of the Exchange Notes,
see "Material United States Federal Tax Consequences."
RANKING......................... The Original Notes rank, and the Exchange Notes will rank,
PARI PASSU with all existing and future Senior
Indebtedness of the Issuers. The Original Notes rank, and
the Exchange Notes will rank, senior in right of payment
to all existing and future Subordinated Obligations of the
Issuers. As of June 30, 1998, on a pro forma basis after
giving effect to the Initial Offering and the application
of the net proceeds from the sale of the Original Notes,
the Issuers and the Subsidiary Guarantors would have had
approximately $21.3 million of Secured Indebtedness,
excluding the Notes, which constitutes (along with the
Notes) the only Senior Indebtedness of the Issuers and the
Subsidiary Guarantors. See
</TABLE>
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<TABLE>
<S> <C>
"Description of Notes--Ranking", "--Security", and
"Description of Other Indebtedness."
GUARANTEES...................... The Original Notes are, and the Exchange Notes will be,
unconditionally guaranteed, jointly and severally, by the
Subsidiary Guarantors. The Subsidiary Guarantees are and
will be senior obligations of the Subsidiary Guarantors
rank and will rank PARI PASSU in right of payment with all
other existing and future Senior Indebtedness of the
respective Subsidiary Guarantors and senior in right of
payment to all existing and future Subordinated
Obligations of the respective Subsidiary Guarantors and
may be released upon the occurrence of certain events. See
"Description of Notes--Subsidiary Guarantees."
SECURITY........................ The Original Notes are, and the Exchange Notes will be,
secured by (a) a first mortgage or other similar interest
(subject to customary exceptions)(each, a "Mortgage") on
all real property acquired by the Issuers after the Issue
Date, which Mortgages shall convert into, and be replaced
by, Mortgages on completed but unsold Vacation Ownership
Interests on such real property (together with the
completed but unsold Vacation Ownership Interests pledged
by the Subsidiary Guarantors, the "Pledged Vacation
Ownership Interests") as they are created; PROVIDED, that
real property acquired or developed with funds from an A&D
Facility shall not be subject to a Mortgage until such A&D
Facility has been repaid in full, (b) a security interest
in the Escrow Account, and (c) a security interest in a
cash collateral account (the "Cash Collateral Account")
into which the proceeds of all sales of Vacation Ownership
Interests and receivables (including in connection with
the New Receivables Facility), as well as any receivables
actually collected, shall be deposited; PROVIDED, that the
Company shall have unrestricted access to all cash in the
Cash Collateral Account so long as no Event of Default has
occurred and is continuing.
Except as provided below, the Subsidiary Guarantees of
London Bridge Resort, LLC and Daytona Beach Regency, Ltd.
are and will be secured by a first Mortgage on all
completed but unsold Vacation Ownership Interests on the
real property owned by each such subsidiary, and, to the
extent that Vacation Ownership Interests on such
properties have yet to be created, on the fee simple
interest of such subsidiaries in such real property. Upon
the creation of such Vacation Ownership Interests, the
Mortgages on such real property (together with any other
real property pledged by any of the Issuers or the
Subsidiary Guarantors, the "Pledged Real Property") will
automatically convert into, and be replaced by, Mortgages
on such Vacation Ownership Interests. In the case of
London Bridge Resort, LLC, its Subsidiary Guarantee is and
will be secured by its existing completed but unsold
Vacation Ownership Interests solely to the extent
permitted under its existing receivables credit facility.
In addition, London Bridge Resort, LLC's new resort
development may be financed through an A&D Facility, in
which case such property will not be subject to a Mortgage
until such A&D Facility is repaid in full.
</TABLE>
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<TABLE>
<S> <C>
The Subsidiary Guarantees of Epic Resorts-Westpark Resort,
LLC, Epic Resorts-Hilton Head, LLC and Epic
Resorts-Scottsdale Links Resort, LLC are and will
initially be secured by a first Mortgage on the fee simple
interest in the Pledged Real Property acquired by such
subsidiary in connection with the Acquisitions and, upon
the creation of Vacation Ownership Interests at such
properties, such Mortgages on such Pledged Real Property
will automatically convert into Mortgages on the Pledged
Vacation Ownership Interests of such subsidiaries. In
addition, the Subsidiary Guarantee of Epic Resorts-Palm
Springs Marquis Villas, LLC is and will be secured by a
leasehold mortgage on the leasehold acquired by it in
connection with the Acquisitions, subject to approval of
such mortgage by the Bureau of Indian Affairs.
Absent the occurrence and the continuance of an Event of
Default, the Trustee will be required to release, or
refrain from imposing its lien on the Pledged Vacation
Ownership Interests as they are sold and the Trustee will
not have a lien on the proceeds of any such sale. In
addition, absent the occurrence and the continuance of an
Event of Default, the Trustee will be required to release
its lien on the Pledged Real Property in the event that
that a Permitted Lien securing an A&D Facility is sought
to be imposed thereon; PROVIDED, that when such A&D
Facility is repaid in full, such lien of the Trustee shall
be imposed or reimposed, as the case may be.
The Subsidiary Guarantees of Subsidiary Guarantors
acquired in the future, or that acquire property in the
future not in connection with the Acquisitions, shall be
secured by a first Mortgage on the fee simple interest in
any Pledged Real Property acquired or owned by such
subsidiaries and, upon the creation of Vacation Ownership
Interests at such properties, such Mortgages on such
Pledged Real Property will automatically convert into, and
be replaced by, Mortgages on the Pledged Vacation
Ownership Interests of such subsidiaries; PROVIDED, that
real property acquired or developed with funds from an A&D
Facility shall not be subject to a Mortgage until such A&D
Facility has been repaid in full.
Mortgages will not be required to be imposed on
newly-acquired real property of the Issuers or any
Subsidiary Guarantor until sixty days after acquisition
thereof. If the Company determines to finance the
development of such real property through an A&D Facility
prior to the expiration of such sixty-day period and the
lender thereunder will not permit any Mortgage on such
property, no Mortgage on such real property will be
imposed until such A&D Facility is repaid in full.
Except to the extent of the assets, if any, serving as
security for such Subsidiary Guarantees, the Subsidiary
Guarantee of each Subsidiary Guarantor is and will be
effectively subordinated to the Secured Indebtedness of
each such Subsidiary Guarantor to the extent of the assets
serving as security therefor. See "Description of
Notes--Security."
</TABLE>
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<TABLE>
<S> <C>
ESCROW ACCOUNT.................. The Company has placed $16.9 million of the net proceeds
realized from the sale of the Original Notes, representing
funds sufficient to pay the first two interest payments on
the Notes, into the Escrow Account to be held by United
States Trust Company of New York, as escrow agent (the
"Escrow Agent") for the benefit of the holders of the
Notes. Until disbursed in accordance with the Escrow and
Disbursement Agreement (as defined), the Escrow Account
will secure a portion of the Company's obligations under
the Notes. Funds will be disbursed from the Escrow Account
to fund the first interest payment on the Notes and, upon
certain repurchases or redemptions of the Notes, to pay
principal of and premium, if any, thereon. Pending such
disbursement all funds contained in the Escrow Account
will be invested in Cash Equivalents. Thereafter, the
Issuers must at all times maintain in the Escrow Account
funds sufficient to make the next required interest
payment on the Notes.
OPTIONAL REDEMPTION............. Except as described below and under "Change of Control"
the Issuers may not redeem the Notes prior to June 15,
2003. On or after such date, the Issuers may redeem the
Notes, in whole or in part, at any time at the redemption
prices set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In addition,
at any time and from time to time on or prior to June 15,
2001, the Issuers may, subject to certain requirements,
redeem up to 35% of the aggregate principal amount of the
Notes with the cash proceeds of one or more Equity
Offerings at a redemption price equal to 113% of the
principal amount to be redeemed, together with accrued and
unpaid interest, if any, to the date of redemption,
provided that at least 65% of the original aggregate
principal amount of the Notes remain outstanding
immediately after each such redemption. See "Description
of Notes--Optional Redemption."
CHANGE OF CONTROL............... Upon the occurrence of a Change of Control, the Issuers
will be required to make an offer to purchase the Notes at
a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the
date of purchase. See "Description of Notes--Optional
Redemption" and "--Change of Control."
MANDATORY PURCHASE OFFER........ The Issuers will be obligated to make one or more offers
to purchase (each, a "Mandatory Purchase Offer") a total
of $65 million (subject to adjustment as described herein)
aggregate principal amount of the Notes (such amount, as
adjusted if applicable, the "Mandatory Purchase Amount")
not earlier than June 15, 2000 nor later than June 15,
2002 (the "Mandatory Purchase Offer Period") at a price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of any
purchase. Each Mandatory Purchase Offer shall be made for
a minimum of $10.0 million aggregate principal amount of
the Notes or such lesser amount as shall result in the
Issuers' having offered to purchase during the Mandatory
Purchase Offer Period, in the aggregate, at least the
Mandatory Purchase Amount of the Notes. Mandatory Purchase
Offers may only be made on an
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Interest Payment Date. If, prior to any Mandatory Purchase
Offer, Notes have been called for redemption or purchased
by the Issuers, the Mandatory Purchase Amount shall be
reduced by an amount equal to the aggregate principal
amount of the Notes so called for redemption or purchased
by the Issuers. If Notes with an aggregate principal
amount in excess of the amount that the Issuers are
seeking to purchase pursuant to a Mandatory Purchase Offer
are tendered in connection with such Mandatory Purchase
Offer, such Notes shall be purchased on a pro rata basis.
RESTRICTIVE COVENANTS........... The Indenture contains certain covenants that, among other
things, will limit (i) the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries, (ii) the payment of dividends or
distributions on, and redemption of, capital stock or
membership interests of the Company and the redemption of
certain subordinated obligations of the Company, (iii)
investments, (iv) sales of assets and subsidiary stock or
membership interests, (v) transactions with affiliates and
(vi) consolidations, mergers and transfers of all or
substantially all the assets of the Company. The Indenture
will also prohibit certain restrictions on distributions
from Restricted Subsidiaries. However, all of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See "Description
of Notes--Certain Covenants."
</TABLE>
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
information set forth under the caption "Risk Factors" and all other information
set forth in this Prospectus before participating in the Exchange Offer.
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<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The following table sets forth summary combined financial information for
the Company. For all periods presented, the financial information of London
Bridge Resort, Inc. is included together with the financial data of Epic
Resorts, Inc. since its inception on March 10, 1997 and the financial data of
Daytona Beach Regency, Ltd. since its acquisition on April 8, 1996. The summary
combined financial information as of and for the three years ended December 31,
1997 have been derived from the audited financial statements of such entities.
The summary combined financial information presented below for the six-month
periods ended June 30, 1998 and 1997 have been derived from the unaudited
financial statements of such entities. The unaudited combined financial
statements include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its combined financial position and results of operations for these periods.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the entire year. The following financial
information should be read in conjunction with "Use of Proceeds", "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the combined financial statements of the Company and related notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED, MONTHS ENDED,
------------------------------------------- ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICE DATA)
INCOME STATEMENT DATA:
Revenues:
Sales of vacation ownership interests................... $ 8,290 $ 10,584 $ 30,104 $ 13,586 $ 16,666
Resort operations....................................... 5,029 6,074 6,652 3,860 3,416
Interest income and other............................... 704 1,208 3,535 1,517 2,511
------------- ------------- ------------- ----------- -----------
Total revenues.................................... 14,023 17,866 40,291 18,963 22,593
Cost of sales--vacation ownership interests............. 3,154 3,544 7,337 3,088 3,861
Resort operations expense............................... 4,103 4,806 4,599 2,674 2,010
Selling and marketing expenses.......................... 3,452 4,307 11,574 5,064 6,449
General and administrative expenses..................... 1,322 2,014 3,188 1,408 1,775
Depreciation and amortization........................... 644 799 772 408 376
Provision for losses.................................... 474 492 1,391 576 698
Financing and closing costs............................. 460 323 868 296 579
Interest expense........................................ 894 2,143 3,748 1,779 2,070
------------- ------------- ------------- ----------- -----------
Income (loss) before minority interest and extraordinary
item.................................................. (480) (562) 6,814 3,670 4,775
Minority interest....................................... -- (473) 1,676 1,002 1,190
------------- ------------- ------------- ----------- -----------
Income (loss) before extraordinary item................. (480) (89) 5,138 2,668 3,585
Extraordinary gain on settlement of debt................ 5,077 -- -- -- --
------------- ------------- ------------- ----------- -----------
Net income (loss)....................................... $ 4,597 $ (89) $ 5,138 $ 2,668 $ 3,585
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
OTHER DATA AND CREDIT STATISTICS:
EBITDA (1).............................................. $ 1,058 $ 2,859 $ 9,844 $ 4,951 $ 6,181
Pro Forma EBITDA (1).................................... 1,058 2,386 11,520 5,953 7,371
Cash flows from operating activities.................... (2,642) (83) (3,388) (1,853) (1,649)
Cash flows from investing activities.................... (980) (1,489) (2,313) (512) (56,298)
Cash flows from financing activities.................... 3,528 1,550 5,923 2,349 57,739
Weighted average interest rate on notes receivable at
period end............................................ 14.2% 14.4% 14.9% 14.7% 15.0%
Number of resorts at period end......................... 1 2 2 2 5
Average sales price of vacation ownership interests
sold.................................................. $ 11,157 $ 12,466 $ 11,746 $ 11,692 $ 12,129
Number of vacation ownership interests sold............. 743 849 2,563 1162 1374
Ratio of earnings to fixed charges (2).................. 0.46 0.88 2.29 2.45 2.70
BALANCE SHEET DATA:
Mortgages receivable, net............................... $ 7,641 $ 20,996 $ 37,148 $ 27,949 $ 45,035
Inventory, net.......................................... 12,032 12,741 7,963 11,994 63,286
Total assets............................................ 28,269 43,034 56,288 49,624 120,886
Notes payable........................................... 18,780 34,009 42,891 36,841 101,571
Stockholder's equity.................................... 8,763 8,163 10,578 10,496 13,913
</TABLE>
- ------------------------
(1) EBITDA represents net income (loss) before interest expense, capitalized
interest included in cost of sales, income taxes, depreciation and
amortization, and extraordinary item. EBITDA is presented because it is a
widely accepted industry financial indicator of a Company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed
in isolation as
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a substitute for income from operations, net income or cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with generally accepted accounting principles as a measure of
profitability or liquidity 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. The following
table reconciles EBITDA to net income (loss):
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED SIX MONTHS ENDED
------------------------------------------ ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1997 1998
------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net income (loss)......................... $ 4,597 $ (89) $ 5,138 $ 2,668 $ 3,585
Interest expense.......................... 894 2,143 3,748 1,779 2,070
Capitalized interest expense included in
cost
of sales................................ -- 6 186 96 150
Income taxes (a).......................... -- -- -- -- --
Depreciation and amortization............. 644 799 772 408 376
Extraordinary item........................ (5,077) -- -- -- --
------------ ------------- ------------- ----------- -----------
EBITDA.................................... 1,058 2,859 9,844 4,951 6,181
Minority interest......................... -- (473) 1,676 1,002 1,190
------------ ------------- ------------- ----------- -----------
Pro Forma EBITDA (b)...................... $ 1,058 $ 2,386 $ 11,520 $ 5,953 $ 7,371
------------ ------------- ------------- ----------- -----------
------------ ------------- ------------- ----------- -----------
</TABLE>
- ------------------------
(a) The Company is a limited liability company and has been structured to
qualify as a partnership for United States federal income tax purposes.
Accordingly, the Company pays no taxes and its income and expenses flow
through to the Company's members.
(b) Pro forma EBITDA represents the pro forma effects of the Initial
Offering and the application of the net proceeds therefrom, assuming the
Initial Offering closed January 1, 1997 and reflects the elimination of
minority interest associated with the Company's acquisition of certain
limited partnership interests in Daytona Beach Regency, Ltd. on July 8,
1998.
(2) Earnings for the years ended December 31, 1996 and 1995 were insufficient to
cover fixed charges by $283 and $480, respectively.
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RISK FACTORS
PRIOR TO PARTICIPATING IN THE EXCHANGE OFFER, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS:
RISKS ASSOCIATED WITH THE ACQUISITIONS AND FUTURE ACQUISITIONS
A principal component of the Company's strategy is to continue to grow by
acquiring additional vacation ownership projects, existing resorts from third
party operators or the land on which to develop vacation ownership resorts. On
June 30, 1998, the Company consummated the acquisition of the Westpark Resort,
the Scottsdale Links Resort and the Palm Springs Marquis Villas, and on July 8,
1998, the Company consummated the acquisition of the Planter's Quarters Resort
and the remaining limited partnership interests of the Daytona Beach Regency,
Ltd. The Company's future growth and financial success will depend upon a number
of factors, including its ability to (i) identify future attractive resort
acquisition opportunities, (ii) consummate such acquisitions on favorable terms,
and (iii) develop and profitably sell Vacation Ownership Interests at the
resorts purchased pursuant to the Acquisitions and any future acquisitions.
There can be no assurance that the Company will be successful with respect to
these factors.
Currently, there are numerous potential buyers of resort real estate, many
of whom are better capitalized than the Company and are competing to acquire
resort properties which the Company may consider attractive acquisition
opportunities. There can be no assurance that the Company will be able to
compete successfully against such other buyers.
Moreover, to successfully implement its business strategy, the Company must
integrate its newly acquired resorts into its existing sales and marketing
programs. During the start-up phase of a new resort, the Company expects to
experience lower operating margins for that resort until such resort's
operations mature and average prices of Vacation Ownership Interests can be
increased from the initial sales prices, which are typically below market to
allow the Company to attract customers and establish market share. The lower
margins could be substantial and could negatively impact the Company's cash
flow. No assurances can be given that the Company's operating margins will be
maintained or improved as its resorts achieve maturity or that new resorts will
not reduce the Company's overall operating margins. In addition, the Company's
expenses as a percentage of revenues is expected to increase as the Company
absorbs certain fixed costs related to the resorts acquired in connection with
the Acquisitions.
Acquisitions involve certain inherent risks and uncertainties. Such risks
include undisclosed liabilities, potential claims against the seller for which
indemnification may not be available (by virtue of caps or otherwise),
uncertainty as to future financial results, integrating distinct business
operations and projects, increased demands on management resources and other
similar factors. The Company also anticipates making selective acquisitions
outside the United States, which are subject to additional risks, such as
political and economic instability, regulation by foreign governments, the
imposition of taxes and tariffs and other similar factors. No assurance can be
given that the Acquisitions or future acquisitions will be profitable. See
"Business--The Acquisitions."
MANAGEMENT OF GROWTH
The Company, through its predecessors, has been involved in the vacation
ownership industry since 1991 through the London Bridge Resort and the Daytona
Beach Regency. However, the Company has had limited experience in the concurrent
development and operation of multiple resorts. With the consummation of the
Acquisitions, the Company has undertaken the development, marketing and sales of
Vacation Ownership Interests at its four newly-acquired resorts in addition to
continued operation and new phase development at its two existing resorts. This
rapid expansion is expected to place significant pressure on the Company's
managerial, operational and financial systems. To manage its growth, the Company
must continue to strengthen its management team, implement and improve its
operational and financial systems and expand, train and manage its employee
base. The Company also will be required to develop and
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manage multiple relationships with site operators, advertisers, suppliers and
other third parties. The Company's systems, procedures or controls may not be
adequate to support the Company's operations, and management may not be able to
achieve the rapid expansion necessary to exploit potential market opportunities.
The Company's future operating results will also depend on its ability to expand
its sales and marketing organization, to penetrate markets and to expand its
support organization. The failure to manage growth effectively could create a
negative image of the Company in the vacation ownership industry and could have
a material adverse effect on the Company's business, financial condition and
results of operations.
VACATION OWNERSHIP INDUSTRY AND GENERAL ECONOMIC CONDITIONS
The vacation ownership industry is highly sensitive to changes in national
and regional economic conditions, including, among other factors, levels of
employment and discretionary disposable income, consumer confidence, available
financing and interest rates. A downturn in the economy in general or in the
market for vacation ownership property could have a material adverse effect on
the Company's business, operating results and financial condition. Any adverse
changes affecting the vacation ownership industry such as an oversupply of
Vacation Ownership Interests, a reduction in demand for Vacation Ownership
Interests, changes in travel and vacation patterns, changes in governmental
regulations of the vacation ownership industry and increases in construction
costs or taxes, as well as negative publicity for the vacation ownership
industry, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
SUBSTANTIAL LEVERAGE; POTENTIAL INABILITY TO SERVICE DEBT
The Company has significant debt service obligations. As of June 30, 1998,
after giving effect to the Initial Offering and the application of the net
proceeds therefrom, the Company and its consolidated subsidiaries would have had
total indebtedness of approximately $152.2 million. $21.3 million of such
indebtedness is outstanding under the Company's existing $23.0 million
receivables facility (the "Exisiting Receivables Facility") which bears interest
at a variable rate. This variable rate reprices each business day in which the
commercial prime base rate is changed by Citibank, N.A. After giving pro forma
effect to the Initial Offering and the Acquisitions, the Company's earnings
would have been insufficient to cover its fixed charges by approximately $1.8
million for the six months ended June 30, 1998. Moreover, the Company is
required to seek external sources of liquidity to support its operations,
finance the acquisition and development of vacation ownership inventory, finance
a substantial percentage of its sales and satisfy its debt and other
obligations. The Company anticipates that it will continue to require external
sources of liquidity to support its operations in the future. The Indenture
permits the Company to incur material additional indebtedness, provided that
certain conditions and a coverage ratio of consolidated cash flow to
consolidated interest expense, currently equal to 2.00 to 1.00, are met. The
Company's ability to pay cash dividends, to repay subordinated debt and to make
certain investments exceeding 50% of the Company's consolidated net income is
also limited by certain restrictions. See "Description of Notes--Certain
Covenants."
The Company's ability to service or to refinance its indebtedness (including
the Notes) or to obtain additional financing (including its ability to
consummate future notes receivable securitizations) depends on its future
performance, which is subject to a number of factors, including the Company's
results of operations, leverage, financial condition and business prospects, the
performance of its receivables, prevailing interest rates, general economic
conditions and perceptions about the vacation ownership industry. The Company
entered into the New Receivables Facility in September 1998. However, no
assurance can be given that the Company will be able to obtain sufficient
additional external sources of liquidity on attractive terms, or at all. The New
Receivables Facility includes, among other things, various representations and
warranties, conditions to funding, eligibility requirements for collateral,
affirmative, negative and financial covenants and events of default.
Specifically, the Company must maintain a Tangible
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Net Worth (as defined in the New Receivables Facility) of at least $10.0 million
and must meet all financial covenants contained in the Indenture. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources," "Business," and "Description of
Notes."
The Company's level of debt and debt service requirements will have several
important effects on its future operations, including the following: (i) the
Company will have significant cash requirements to service debt, reducing funds
available for operations and future business opportunities as well as increasing
the Company's vulnerability to adverse economic and industry conditions; (ii)
the Company's leveraged position will increase its vulnerability to competitive
pressures; (iii) the financial covenants and other restrictions contained in the
Indenture and other agreements relating to the Company's indebtedness will
require the Company to meet certain financial tests and will restrict its
ability to, among other things, borrow additional funds, dispose of assets or
pay cash dividends on, or repurchase, preferred or common stock; and (iv) funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes may be limited. Certain of the Company's competitors operate
on a less leveraged basis and will have greater operating and financial
flexibility than the Company.
RISKS RELATED TO DEVELOPMENT ACTIVITIES
The Company's growth strategy involves certain inherent risks including the
following: (i) the Company will be required to make material capital
expenditures to develop its Planned Inventory and Under Development Inventory
(the Company estimates that the total cash required to complete preparation for
the sale of such inventory as of June 30, 1998 was approximately $53.3 million),
(ii) planned development may be delayed or abandoned and development and
carrying costs may exceed those anticipated, possibly making the project
uneconomical or unprofitable, (iii) the Company may experience a fluctuation in
quarterly results due to an increase or decrease in the number of vacation
ownership projects subject to percentage of completion accounting which requires
net profit on such projects to be recognized on a pro rata basis as development
is completed, (iv) the Company may experience delays in bringing inventories to
market due to delays in obtaining required regulatory approvals to sell Vacation
Ownership Interests or otherwise, resulting in decreased revenues and increased
interest expense and carrying charges and (v) inventories may decline in value
due to changing market and economic conditions. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business." There
can be no assurance that the Company will complete planned development
activities or be able to acquire additional properties on attractive terms.
In addition, the Company's construction activities typically are performed
by third-party contractors, and, accordingly, the timing, quality and completion
of such activities cannot be controlled by the Company. Nevertheless,
construction claims may be asserted against the Company for construction defects
and such claims may give rise to liabilities. New development activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, sales and other
required governmental permits and authorizations, the ability of the Company to
coordinate construction activities with the process of obtaining such permits
and authorizations, and the ability of the Company to obtain the financing
necessary to complete the necessary acquisition, construction, and/or conversion
work at its projects and resorts. In particular, with respect to the Westpark
Resort, the Company must obtain a zoning variance to permit the creation and
sale of Vacation Ownership Interests at such resort. With respect to the
Scottsdale Links Resort and the Palm Springs Marquis Villas, the Company has
obtained conditional use zoning permits, which permit the creation and sale of
Vacation Ownership Interests at such resorts, subject to the satisfaction of the
conditions thereto. No assurance can be given that the Company will obtain a
zoning variance with respect to the Westpark Resort or that the Company will
satisfy the conditions to its zoning permits at the Scottsdale Links Resort
and/or the Palm Springs Marquis Villas. The failure to obtain or maintain such
zoning permits would have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, certain state and
local laws may impose liability on
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property developers with respect to construction defects discovered or repairs
made by future owners of such property.
RISKS ASSOCIATED WITH CUSTOMER FINANCING AND RECEIVABLES
The Company generally offers financing of up to 90% of the purchase price to
all purchasers of its Vacation Ownership Interests. These loans are
collateralized by liens on such Vacation Ownership Interests. The Company has
historically required external sources of liquidity in order to offer financing
to its customers and may require external sources of liquidity in the future.
The receivables arising from sales of Vacation Ownership Interests have
generally been pledged to institutional lenders. Under its current pledged
receivables facilities (rather than the New Receivables Facility), the Company
is typically advanced 90% of the principal balance of eligible pledged
receivables. Under such facilities, the Company is required to replace
receivables that become delinquent or to pay down the loan secured by such
receivables to remain within required loan to value ratios. Because the
Company's receivables bear interest at a fixed rate and its borrowings bear
interest at a variable rate, the Company bears the risk of increases in interest
rates. The average maturity of these receivables is seven years.
Under the Existing Receivables Facility, the Company bears the risk of
delinquencies and defaults by buyers who finance the purchase of their Vacation
Ownership Interests through the Company. The Company's Vacation Ownership
Interest financing is generally not subject to extensive loan underwriting
criteria. Prior to providing such financing, the Company performs a commercial
credit check. The New Receivables Facility will permit the Company to sell its
Vacation Ownership Interest Receivables to a limited-purpose receivables
subsidiary on a non-recourse basis. Such Vacation Ownership Interest Receivables
may thereafter be sold in securitization transactions. As a result, the risk of
delinquencies or defaults on such receivables would shift to the securitizing
lender. The Company will be able to finance a substantial portion of its
customers' purchases of Vacation Ownership Interests from the funds provided by
the New Receivables Facility. No assurance can be given, however, as to whether
the Company will also require a traditional pledged receivables facility in
order to support its operations.
General economic conditions have an impact on the ability of borrowers to
repay loans. Loss of earnings, illness and other similar factors affecting
borrowers may lead to an increase in delinquencies. The Company ceases to carry
a receivable upon a foreclosure or when it receives a deed in lieu of
foreclosure, at which time the property goes back into inventory. If the
vacation ownership market should experience an overall decline in values such
that the outstanding balances of the Company's notes receivable are greater than
the value of the respective Vacation Ownership Interests, the actual rates of
delinquencies, foreclosures and losses could be materially higher than those now
experienced. An increase in delinquency rates or defaults on the Company's
receivables could have a material adverse effect on the Company's business,
operating results and financial condition as well as the Company's ability to
obtain financing under the New Receivables Facility or any other pledged
receivables facility. In addition, if a purchaser of a Vacation Ownership
Interest defaults early in the repayment schedule, the costs associated with
marketing and sales commissions may not be recouped, and similar costs and
commissions will be incurred in connection with the resale of such Vacation
Ownership Interest after the Company regains possession of such Vacation
Ownership Interest. The Company may incur substantial costs and delays in
connection with its servicing of receivables, including costs in foreclosing or
realizing on its collateral and additional marketing and sales costs with
respect to reacquired property. No assurances can be given that reacquired
property will be sold at a profit. During the six-month period ended June 30,
1998 and the year ended December 31, 1997, the Company charged $.07 million and
$1.4 million, respectively, to its provision for loan losses to reflect the
difference between the unpaid principal balance of the non-performing
receivables and the estimated net realizable value of the reacquired property.
See "Business--Customer Financing."
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RISK OF INABILITY TO REALIZE UPON SECURITY; INSUFFICIENT COLLATERAL
The Original Notes are, and the Exchange Notes will be, secured by Mortgages
on certain real property and Vacation Ownership Interests. See "Description of
Notes--Security" for a description of such collateral. The ability of the
Trustee to foreclose on such collateral upon the occurrence of an Event of
Default under the Indenture will be subject to legal requirements, potential
delays and practical problem sassociated with realization upon mortgages and
security interests in real property generally. Foreclosures are regulated by law
and are subject to a court's equitable powers. In certain circumstances, the
liens of the Trustee could become junior to certain governmental or other liens,
including, without limitation, liens for unpaid taxes or assessments or certain
environmental remediation liabilities. See "Description of Notes-- Security." In
addition with respect to the proposed leasehold mortgage on the Palm Springs
Marquis Villas leasehold, no assurance can be given that the Company will be
able to obtain the approval of the Bureau of Indian Affairs to impose such a
mortgage. If such approval is not obtained, the Subsidiary Guarantee of Epic
Resorts-Palm Springs Marquis Villas, LLC will not be secured by any mortgage on
such leasehold.
The proceeds of any sale of Pledged Real Property or Pledged Vacation
Ownership Interests, as the case may be, following an Event of Default under the
Indenture may not be sufficient to repay the Notes in full. No appraisals were
obtained on the Pledged Real Property or the Pledged Vacation Ownership
Interests in connection with the Initial Offering. No assurances can be given as
to the value of the Pledged Real Property or the Pledged Vacation Ownership
Interests or as to the amounts that could be realized in the event of a
foreclosure or other comparable proceeding realizing on the Mortgages or that
the Pledged Real Property or the Pledged Vacation Ownership Interests will not
decline in value. Moreover, pursuant to the terms of the Indenture and the
Mortgages, the Trustee will be required to release the lien of the Mortgages
upon the sale of any Pledged Vacation Ownership Interest covered thereby unless
an Event of Default shall have occurred and be continuing. Absent such an Event
of Default, the Trustee will not have a lien on the proceeds from a sale of the
Pledged Vacation Ownership Interests. Consequently, as Pledged Vacation
Ownership Interests are sold, the value of the collateral covered by the
Mortgages will diminish. The Company expects to begin selling Vacation Ownership
Interests at the Scottsdale Links Resort, the Palm Springs Marquis Villas, the
Westpark Resort upon receipt of required government approvals, which the Company
expects to obtain by November 1998 for Scottsdale Links Resort and Westpark
Resort and by January 1999 for Palm Springs Marquis Villas. The Company
currently estimates, based on historical sales at the Daytona Beach Regency and
the London Bridge Resort, that the Pledged Vacation Ownership Interests will be
sold out over a four to seven year period. In addition, if a lender under an A&D
Facility requires a Mortgage to secure borrowings under such facility, the
Trustee will not be permitted to impose or maintain a Mortgage on the property
acquired or developed therewith until such A&D Facility is repaid in full.
If a bankruptcy proceeding were to be commenced by or against the Company
and/or the Subsidiary Guarantors and the bankruptcy court concluded that the
applicable Subsidiary Guarantees were not adequately secured, the holders of the
Notes would have only an unsecured deficiency claim with respect to the
applicable Subsidiary Guarantee to the extent of such deficiency, and would not
be entitled to post-petition interest or reimbursement of costs of collection
(including attorney's fees). Any deficiency claim of the holder of the Notes
with respect to the Subsidiary Guarantors who executed Mortgages would rank PARI
PASSU with any deficiency claims of all other general unsecured creditors of the
Company and/or the Subsidiary Guarantors. In addition, the ability of the
holders of the Notes to effect a sale of the Pledged Real Property or the
Pledged Vacation Ownership Interests may be subject to certain bankruptcy
limitations in the event of a bankruptcy proceeding involving the Company and/or
the Subsidiary Guarantors, including, without limitation, the so called
"automatic stay" under Section 362 of the United States Bankruptcy Code, 11
U.S.C. Section 101 et. seq., as amended from time to time.
Except for the Mortgages on the Pledged Real Property and the Pledged
Vacation Ownership Interests, the Pledged Note and the security interests in the
Escrow Account and the Cash Collateral Account neither the Company nor any of
its subsidiaries, including the Subsidiary Guarantors, has
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provided or is required to provide any security for its obligations under the
Notes or the Subsidiary Guarantees, as applicable.
RISKS ASSOCIATED WITH VACATION OWNERSHIP INTEREST EXCHANGE NETWORK
The attractiveness of Vacation Ownership Interests is enhanced significantly
by the availability of exchange networks that allow owners of Vacation Ownership
Interests to exchange their occupancy right during a particular year for an
occupancy right granted at another participating network resort. Several
companies, including II and RCI, provide broad-based Vacation Ownership
Interests exchange services. The London Bridge Resort and the Daytona Beach
Regency are currently qualified for participation in the II exchange network and
the Planter's Quarters Resort is qualified for participation in RCI. No
assurance can be given that these resorts will continue to qualify, or its
future resorts will qualify, for participation in the II or RCI networks or any
other exchange network, or that the Company's customers will continue to be
satisfied with II's or RCI's exchange network. If such exchange networks cease
to function effectively, if the Company's resorts are not accepted as exchanges
for other desirable resorts, or if II or RCI ceases to be a leading exchange
network, the Company's sales of Vacation Ownership Interests could be materially
adversely affected. The Company has entered into agreements with II regarding
the Daytona Beach Regency and the London Bridge Resort and will assume the
agreement with RCI relating to the Planter's Quarters Resort. The Company
expects to enter into agreements with II or RCI regarding each of the Palm
Springs Marquis Villas, the Scottsdale Links Resort and the Westpark Resort.
However, there can be no assurance that such agreements will be entered into for
all or any one of such resorts. See "Business-- Vacation Ownership Industry
Overview--Participation in Exchange Networks."
HOLDING COMPANY STRUCTURE
The Notes will be obligations exclusively of the Issuers. Because a
significant portion of the operations of the Company currently are conducted
through subsidiaries, the cash flow of the Company and its ability to service
its debt, including the Notes, is dependent upon the cash flows of such
subsidiaries and the distribution of those cash flows to the Company, or upon
loans or other payments of funds by such subsidiaries to the Company. The
Company's subsidiaries are separate and distinct legal entities and, except
pursuant to the Subsidiary Guarantees, have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether by distributions, loans or other payments. In
addition, distributions and certain loans and advances to the Company by such
subsidiaries may be subject to certain contractual restrictions, will be
contingent upon the earnings of such subsidiaries and will be subject to various
business considerations and legal restrictions. The Original Notes are, and the
Exchange Notes will be, effectively subordinated to all Indebtedness (as
defined) and other liabilities and commitments (including trade payable and
lease obligations) of the Company's subsidiaries that are not Subsidiary
Guarantors and to all Secured Indebtedness of the Company and its subsidiaries
(except to the extent of any collateral securing the Notes or the Subsidiary
Guarantees). Any right of the Company to receive assets of any such subsidiary
upon the liquidation or reorganization of such subsidiary (and the consequent
right of the holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of those subsidiary's creditors, except
to the extent that the Company or the Trustee, on behalf of the holders of
Notes, pursuant to the Subsidiary Guarantees, is itself recognized as a creditor
of such subsidiary, in which case the claims of the Company or the Trustee, on
behalf of the holders of Notes, would still be subordinate to any security in
the assets of such subsidiary and any Indebtedness of such subsidiary senior to
that held by the Company.
LIMITATION ON PURCHASE OF NOTES UPON A CHANGE OF CONTROL OR MANDATORY PURCHASE
OFFER
Upon a Change of Control (as defined in the Indenture) or a Mandatory
Purchase Offer, each holder of the Notes will have certain rights, at the
holder's option, to require the Company to purchase all or a portion of such
holder's Notes. In connection with a Mandatory Purchase Offer, or if a Change of
Control
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were to occur, there can be no assurances the Company would have sufficient
financial resources, or would be able to arrange financing, to purchase all
Notes tendered by the holders thereof. In addition, certain events involving a
Change of Control may constitute an event of default under the Company's credit
agreements and other debt instruments. Moreover, the exercise by the holders of
their right to require the Company to purchase the Notes as a result of the
occurrence of a Change of Control or in connection with a Mandatory Purchase
Offer may create an event of default under the Company's credit agreements and
other debt instruments, and could create an event of default under other future
credit agreements or other debt instruments. Any such default could effectively
block the purchase of the Notes. See "Description of the Notes--Change of
Control" and "--Mandatory Offer to Purchase."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The issuance by the Subsidiary Guarantors of the Subsidiary Guarantees and
the granting of the Mortgages could be subject to review under applicable
federal and state fraudulent transfer or conveyance laws in a bankruptcy
proceeding or a lawsuit by or on behalf of unpaid creditors of a Subsidiary
Guarantor or a representative of such creditors, such as a trustee or a
Subsidiary Guarantor as debtor-in-possession. Under such laws, if a court were
to find that, at the time a Subsidiary Guarantor issued the Subsidiary Guarantee
or granted a Mortgage, either (i) the Subsidiary Guarantor issued such
Subsidiary Guarantee or granted such Mortgage with the intent of hindering,
delaying or defrauding creditors, or (ii) the Subsidiary Guarantor received less
than a reasonably equivalent value or fair consideration for issuing such
Subsidiary Guarantee or granting such Mortgage, and the Subsidiary Guarantor (a)
was insolvent or rendered insolvent by reason of the issuance of such Subsidiary
Guarantee or granting such Mortgage, (b) was engaged in a business or a
transaction, or was about to engage in a business or a transaction, for which
the assets remaining with the Subsidiary Guarantor after giving effect to the
issuance of such Subsidiary Guarantee or the granting of a Mortgage, constituted
an unreasonably small amount of capital, or (c) intended to incur, or believed
that it would incur, debts beyond its ability to pay as they matured, such court
could void the Subsidiary Guarantor's obligations under such Subsidiary
Guarantee or Mortgage and direct the repayment of any amounts paid thereunder to
the Subsidiary Guarantor or to a fund for the benefit of the Subsidiary
Guarantor's creditors, or take other action detrimental to the holders of the
Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, an
entity will be considered insolvent for purposes of the foregoing if the sum of
its debts is greater than all of its property at a fair valuation, or if the
present fair salable value of its assets is less than the amount that will be
required to pay its probable liabilities on its existing debts as they become
absolute and matured or if it could not pay its debts as they became due. Based
upon management's analysis of internal cash flow projections and other financial
information and estimated values of assets and liabilities of the Subsidiary
Guarantors, the Company believes that, immediately after issuance of the
Original Notes, the Subsidiary Guarantors were solvent, and had sufficient
capital to carry on their businesses and that the Subsidiary Guarantors were
able to pay their debts as they mature. No assurance can be given, however, as
to what standard a court could apply in making such determinations or that a
court would reach the same conclusions with regard to these issues.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the experience
and abilities of the Company's senior management, including the Company's
President and Chief Executive Officer, Thomas F. Flatley. The loss of the
services of Mr. Flatley could have a material adverse effect on the Company and
its business prospects. Although the Company has entered into employment
agreements with certain members of senior management, no assurances can be given
the Company will be able to retain the services of such individuals. The
Company's continued success is also dependent upon its ability to hire,
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train and retain qualified marketing, sales, development, acquisition, finance,
management and administrative personnel. Such personnel are in substantial
demand and the cost of attracting or retaining such key personnel could escalate
over time. There can be no assurance that the Company will be successful in
attracting or retaining such personnel. See "Management."
VARIABILITY OF CASH FLOWS
The Company's cash flows, and thus its ability to pay interest and principal
on the Notes, may be impacted by, among other things, the timing of the
completion of the acquisition and development of its vacation ownership resorts,
a shortage of ready-for-sale inventory in its key market areas, levels of loan
losses, and the potential impact of adverse weather and other natural disasters
at the Company's resorts. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition."
GOVERNMENT REGULATION
The Company is subject to extensive and complex federal, state and local
regulation, and is required to comply with various federal, state and local
environmental, zoning, land use, consumer protection, anti-fraud, labor, usury,
truth-in-lending, equal opportunity, vacation ownership registration, licensing
and other laws and regulations which govern its operations. Existing or future
regulations may have a material adverse impact on the Company's operations by,
among other things, imposing additional compliance costs, delaying the period in
which projects are brought to market and limiting the interest rate which the
Company may charge to customers who utilize its financing. The Company believes
that it is in material compliance with all applicable laws and regulations to
which it is currently subject. However, no assurances can be given that the
costs of future compliance will not be significant or that the Company is in
fact in compliance with all applicable laws and regulations. In addition, there
can be no assurance that laws and regulations applicable to the Company in any
specific jurisdiction will not be revised or that other laws or regulations
(including, without limitation, with respect to tax matters) will not be adopted
which could increase the Company's cost of compliance or prevent the Company
from marketing or selling its vacation ownership properties or conducting other
operations in such jurisdictions or otherwise have a material adverse impact on
the Company's operations. Any failure of the Company to comply with applicable
laws or regulations or any increase in the costs of compliance could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Government Regulation" and "--Legal
Proceedings."
COMPETITION
The vacation ownership industry is highly competitive. The Company competes
with various high profile and well-established resort operators. Many of the
world's most recognized lodging, hospitality and entertainment companies have
begun to develop and sell Vacation Ownership Interests in resort properties.
Major companies that now operate or are developing or planning to develop
vacation ownership resorts include Marriott Ownership Resorts ("Marriott"), The
Walt Disney Company ("Disney"), Hilton Hotels Corporation ("Hilton"), Hyatt
Corporation ("Hyatt"), Four Seasons Hotels & Resorts ("Four Seasons") and
Inter-Continental Hotels and Resorts ("Inter-Continental"). The Company also
competes with other publicly-traded vacation ownership companies, including
Signature Resorts, Inc. ("Signature"), Vistana, Inc. ("Vistana"), Fairfield
Communities, Inc. ("Fairfield"), Bluegreen Corporation ("Bluegreen"),
Silverleaf, Inc. ("Silverleaf"), Trendwest Resorts, Inc. ("Trendwest") and ILX
Resorts Incorporated ("ILX") as well as numerous other owners and operators of
vacation ownership resorts. Many of the Company's competitors are larger and
possess greater financial, marketing, personnel and other resources than the
Company. Although the Company believes it can effectively compete in its market
areas, no assurances can be given as to the Company's future ability to locate,
develop and sell attractive properties in the markets in which it wishes to
operate or that the entrance of high profile and well-established operators into
the Company's market areas will not have a material adverse effect on the
Company's
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operations. The development and operation of additional vacation ownership
resorts in the Company's markets could have a material adverse impact on the
demand for Vacation Ownership Interests at the Company's resorts as well as the
Company's results of operations. In addition, management believes that
competition will be increased as the Company's competitors become larger through
recent and possible future consolidation in the vacation ownership industry.
With respect to its finance operations, the Company competes with banks,
mortgage companies, other financial institutions and government agencies
offering financing of Vacation Ownership Interests. See "Business--Competition."
NATURAL DISASTERS; UNINSURED LOSS
Certain of the Company's resorts are located in areas that are susceptible
to wind storms, hurricanes, floods, mud slides, earthquakes, and other natural
disasters. The Company's resorts could suffer significant damage as a result of
storms or natural disasters. Any such damage could impair the Company's ability
to sell Vacation Ownership Interests at its resorts, and to collect on
outstanding notes receivable arising from such sales and adversely affect the
Company's business, operating results and financial condition.
There are certain types of losses that are not generally insured because
they are either uninsurable or not economically feasible to insure and for which
the Company does not have insurance coverages such as losses due to floods or
acts of war. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its investment in a resort as well as the
anticipated future revenues from such resort, but would continue to be obligated
on any indebtedness or other obligations related to such resort.
LIMITED RESALE MARKET FOR VACATION OWNERSHIP INTERESTS
The Company sells Vacation Ownership Interests to buyers for leisure
purposes and not for investment. The Company believes that the market for resale
of Vacation Ownership Interests by such buyers is presently limited and that any
resales of Vacation Ownership Interests are typically at prices substantially
less than the original purchase price. These factors may make ownership of
Vacation Ownership Interests less attractive to prospective buyers. In addition,
attempts by buyers to resell their Vacation Ownership Interests may compete with
sales of, and depress the market price of, Vacation Ownership Interests at the
Company's resorts.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, the
current or previous owner, manager or operator of real property may be 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, manager or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), a lender may be liable either to the government or to
private parties for cleanup costs on property securing a loan, even if the
lender does not cause or contribute to the contamination. Certain states impose
a statutory lien for associated costs on property that is the subject of a
cleanup action by the state on account of hazardous wastes or hazardous
substances released or disposed of on the property. Such a lien will generally
have priority over all subsequent liens on the property and, in certain of these
states, will have priority over prior recorded liens including the lien of a
mortgage or deed of trust. In addition, under federal environmental legislation
and possibly under state law in a number of states, a secured party which takes
a deed in lieu of foreclosure or acquires a mortgaged property at a foreclosure
sale or otherwise is deemed an "owner" or "operator" of the property and may be
liable for the full costs of cleaning up a contaminated site. Such costs could
be substantial and are not limited to the value of the property. The Company
believes that it is in compliance in all material respects with all federal,
state and local laws, ordinances and regulations regarding hazardous or toxic
substances, but no assurance can be given that hazardous or toxic substances
will not be found on its property.
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COMPLIANCE WITH LAWS GOVERNING ACCESS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although the Company believes that its resorts are in compliance with these laws
in all material respects, the Company may incur additional costs of complying
with such laws and no assurances can be given that the Company is in fact in
compliance with such laws. The ultimate amount of the cost of compliance with
such legislation is not currently ascertainable, and while such costs are not
expected to have a material effect on the Company, such costs could be
substantial.
ORIGINAL ISSUE DISCOUNT
The Original Notes are, and the Exchange Notes will be considered to have
been issued with original issue discount (the difference between the principal
payable on the Notes and the original issue price of the Notes) for United
States federal income tax purposes. Original issue discount as defined in the
Code and the Treasury Regulations issued thereunder ("OID") will accrue from the
issue date of the Notes and generally will be includable as interest income in
the U.S. Holder's (defined in "Material United States Federal Tax Consequences")
gross income for United States federal income tax purposes in advance of the
cash payments to which the income is attributable. For a more detailed
discussion of the United States federal income tax consequences to the holders
of the Exchange Notes of the purchase, ownership and disposition of the Exchange
Notes, see "Material United States Federal Tax Consequences."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Original Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Original Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes. See "--Consequences of Failure to Exchange Original Notes."
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders (who are not affiliates of the Company)
without compliance with the registration and prospectus delivery requirements
under the Securities Act, they will constitute a new issue of securities with no
established trading market. If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities and
other factors including general economic conditions and the financial condition
of the Company. The Company does not intend to apply for a listing or quotation
of the Exchange Notes on any securities exchange or stock market. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Exchange Notes. The liquidity of, and trading market for, the Notes also may
be adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. Subject to certain provisions set forth in the Registration
Rights Agreement, the Company has agreed that, for a period of up to 180 days
after the consummation of the Exchange Offer, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. However, under certain circumstances, the Company has the right to
require that Participating Broker-Dealers suspend the resale of Exchange Notes
pursuant to this Prospectus. See "The Exchange Offer--Resale of the Exchange
Notes."
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CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes were offered and sold pursuant to exemptions from the
Securities Act. Accordingly, holders of Original Notes who do not exchange their
Original Notes for Exchange Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such Original Notes as set
forth in the legend thereon. In general, the Original Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act or
applicable state securities laws. The Company does not currently expect that it
will register the Original Notes under the Securities Act. Based on
interpretations by the staff of the Commission issued in no-action letters to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Original Notes may be offered for resale,
resold or otherwise transferred by the Holder thereof (other than (i) a
broker-dealer who purchases Exchange Notes directly from the Issuers to resell
pursuant to Rule 144A or any other available exemption under the Securities Act,
or (ii) a person that is an "affiliate" of an Issuer within the meaning of Rule
405 under the Securities Act), provided that such Exchange Notes are acquired in
the ordinary course of such Holder's business and such Holder has no arrangement
with any person to participate in the distribution of such Exchange Notes. Such
no-action letters are not binding interpretations of the law. The Company has
not sought, and does not currently intend to seek a no-action letter. There can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Any Holder of Original Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes would not be acting consistently with such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any Exchange Notes acquired by
such Holder will not be freely transferable except in compliance with the
Securities Act. Each Restricted Holder that receives Exchange Notes for its own
account in exchange for the Original Notes, where such Original Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
28
<PAGE>
USE OF PROCEEDS
The Issuers will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Issuers will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. All Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company.
The proceeds of the Initial Offering were used by the Company (i) to fund
the purchase price of the Acquisitions; (ii) to repay certain indebtedness of
the Company; (iii) to fund the escrow of first year interest on the Notes; (iv)
for working capital and general corporate purposes and (v) to pay fees and
expenses related to the Initial Offering and the Acquisitions.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1998 (i) on an actual basis and (ii) after giving effect to the Acquisitions,
the Initial Offering and the application of the net proceeds of the Initial
Offering as described under "Use of Proceeds." This information should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the combined financial statements of the
Company and related notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities:
Lines of credit, notes payable and receivable-backed notes payable..................... $ 101,571 $ 22,206
13% Senior Secured Notes due 2005...................................................... -- 127,243
---------- -----------
Total long-term debt............................................................... 101,571 149,449
Warrants................................................................................. -- 2,757
Total stockholder's equity............................................................... 13,913 11,191
---------- -----------
Total capitalization............................................................... $ 115,484 $ 163,397
---------- -----------
---------- -----------
</TABLE>
30
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. For
all periods presented, the financial data of London Bridge Resort, Inc. is
included together with the financial data of Epic Resorts, Inc. since its
inception on March 10, 1997 and the financial data of Daytona Beach Regency,
Ltd. since its acquisition on April 8, 1996. The selected combined financial
data as of and for the three years ended December 31, 1997 have been derived
from audited financial statements. The summary financial data presented below
for the six-month periods ended June 30, 1998 and 1997, and the two years ended
December 31, 1994 have been derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the entire year. The
following financial data should be read in conjunction with "Use of Proceeds",
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the combined financial statements of the Company and related
notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX-MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICE DATA)
INCOME STATEMENT DATA:
Revenues:
Sales of vacation ownership interests........... $ 8,572 $ 8,110 $ 8,290 $ 10,584 $ 30,104 $ 13,586 $ 16,666
Resort operations............................... 5,565 5,592 5,029 6,074 6,652 3,860 3,416
Interest income and other....................... 56 51 704 1,208 3,535 1,517 2,511
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ 14,193 13,753 14,023 17,866 40,291 18,963 22,593
Cost of sales--vacation ownership interests..... 3,193 3,008 3,154 3,544 7,337 3,088 3,861
Resort operations expense....................... 4,350 4,217 4,103 4,806 4,599 2,674 2,010
Selling and marketing expenses.................. 3,047 3,104 3,452 4,307 11,574 5,064 6,449
General and administrative expenses............. 1,357 1,385 1,322 2,014 3,188 1,408 1,775
Depreciation and amortization................... 591 586 644 799 772 408 376
Provision for losses............................ 473 458 474 492 1,391 576 698
Financing and closing costs..................... 217 271 460 323 868 296 579
Interest expense................................ 700 502 894 2,143 3,748 1,779 2,070
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary item............................ 265 222 (480) (562) 6,814 3,670 4,775
Minority interest............................... -- -- -- (473) 1,676 1,002 1,190
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item......... 265 222 (480) (89) 5,138 2,668 3,585
Extraordinary gain on settlement of debt........ -- -- 5,077 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ 265 $ 222 $ 4,597 $ (89) $ 5,138 $ 2,668 $ 3,585
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA AND CREDIT STATISTICS:
Weighted average interest rate on notes
receivable at period end...................... 13.9% 13.8% 14.2% 14.4% 14.9% 14.5% 15.0%
Number of resorts at period end................. 1 1 1 2 2 2 5
Average sales price of vacation ownership
interests sold................................ $ 9,911 $ 10,657 $ 11,157 $ 12,466 $ 11,746 $ 11,649 $ 12,014
Number of vacation ownership interests sold..... 865 761 743 849 2,563 540 617
Ratio of earnings to fixed charges(1)........... 1.38 1.44 0.46 0.88 2.29 2.45 2.70
BALANCE SHEET DATA:
Mortgages receivable, net....................... $ 610 $ 801 $ 7,641 $ 20,996 $ 37,148 $ 27,949 $ 45,035
Inventory, net.................................. 16,350 14,620 12,032 12,741 7,963 11,994 63,286
Total assets.................................... 25,954 24,476 28,269 43,034 56,288 49,624 120,886
Notes payable................................... 20,117 18,399 18,780 34,009 42,891 36,841 101,571
Stockholder's equity............................ 5,051 5,316 8,763 8,163 10,578 10,496 13,913
</TABLE>
- ------------------------------
(1) Earnings for the years ended December 31, 1996 and 1995 were insufficient to
cover fixed charges by $283 and $480, respectively.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
COMBINED FINANCIAL STATEMENTS AND RELATED NOTES AND THE OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Epic Resorts, LLC, a Delaware limited liability company, was formed in June
1998 to merge with Epic Resorts, Inc., which was formed to combine the ownership
of the London Bridge Resort and the Daytona Beach Regency, and their vacation
ownership acquisition and development businesses. London Bridge Resort was
acquired in 1986 by London Bridge Resort, Inc., a Delaware corporation
wholly-owned by Mr. Flatley. In 1991, the conversion of the London Bridge Resort
into a vacation ownership resort was completed and sales of Vacation Ownership
Interests at such resort commenced. In April 1996, the Daytona Beach Regency was
acquired by Daytona Beach Regency, Ltd. and sales of Vacation Ownership
Interests commenced at such resort in November 1996. In connection with the
Initial Offering, Epic Resorts, Inc. was merged into Epic Resorts, LLC and
certain of its subsidiaries were merged into limited liability companies. Mr.
Flatley simultaneously contributed his membership interests in certain of such
subsidiaries to the Company (the "Restructuring"). Financial statements for
periods prior to the Restructuring have been restated to combine the assets,
liabilities, equity and results of operations of London Bridge Resort, Daytona
Beach Regency and the Company.
As a result of the Acquisitions, the following discussion of the Company's
historical financial condition and results of operations is not necessarily
indicative of future results.
The Company generates revenues from the sale and financing of Vacation
Ownership Interests at its resorts, as well as from resort operations which
include commercial rentals, food and beverage sales, greens fees, rentals of
suites available at the Company's resorts and from fees associated with managing
the vacation ownership resorts.
The Company recognizes revenue from Vacation Ownership Interest sales when a
minimum of 10% of the sales price has been received in cash, the refund or
rescission period has expired, collectibility of the receivable representing the
remainder of the sales price is reasonably assured and the Company has completed
substantially all of its obligations with respect to any development relating to
the Vacation Ownership Interest sold. In cases where all development has not
been completed, the Company will recognize revenue in accordance with the
percentage of completion method of accounting. Under this method of revenue
recognition, income is recognized as work progresses. Measures of progress are
based on the relationship of costs incurred to date to expected total costs.
The Company has been dedicating greater resources to the acquisition and
development of vacation ownership projects. Costs associated with the
acquisition and development of vacation ownership resorts, including carrying
costs, are capitalized as inventory and allocated to cost of sales as the
respective revenue is recognized.
At each of the Company's existing resort properties currently in operation,
a Homeowners Association (each an "Association") is established. Each
Association is a not-for-profit corporation and operates primarily to collect
the assessments from its members and remit to the developer of the property the
Association's pro-rata share of direct and allocated expenditures including real
estate taxes, property insurance, grounds maintenance, utility costs and
housekeeping services. Typically, the Association reimburses the developer or
property manager for the Association's pro-rata share of such expenditures. The
Company intends to establish an Association at each of its newly acquired
resorts.
32
<PAGE>
Pursuant to the New Receivables Facility, a portion of the Company's
revenues may be comprised of gains on sales of loans. In that event, the gains
will be recorded in the Company's revenues and on its balance sheet (as retained
interests on loan sales) at the time of sale, and the amount of gains recorded
will be based in part on management's estimates of future prepayment and default
rates and other considerations in light of then-current conditions. If actual
prepayments with respect to loans occur more quickly than was projected at the
time such loans were sold, as can occur when interest rates decline, interest
would be less than expected and earnings would be charged in the current period.
If actual defaults with respect to loans sold are greater than estimated,
charge-offs would exceed previously estimated amounts and earnings would be
charged in the current period.
RESULT OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
combined financial statements and related notes and the other financial
information included elsewhere in this Prospectus.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE
30, 1997
TOTAL REVENUES. The Company recognized total revenues of $22.6 million for
the six months ended June 30, 1998 as compared to $19.0 million for the
comparable period in 1997, an increase of $3.6 million, or 18.9%. The increase
primarily reflects the increased sales growth at Daytona Beach Regency of $2.4
million or 37.5%, to $8.8 million for the six months ended June 30, 1998 from
$6.4 million for the comparable period in 1997.
Interest income increased 66.7% to $2.5 million for the six months ended
June 30, 1998 from $1.5 million for the comparable period in 1997 due to an
increase in the principal amount of net customer mortgages receivable to $45.0
million in 1998 from $21.0 million in 1997. Resort operations revenue decreased
12.8%, to $3.4 million for the six months ended June 30, 1998 from $3.9 million
for the comparable period in 1997. This decrease in resort operations revenue
reflects the decreasing availability of suites for rent in 1998, due to the
continued conversion of suites to Vacation Ownership Interests at Daytona Beach
Regency.
COST OF SALES. Cost of sales for Vacation Ownership Interests as a
percentage of sales of Vacation Ownership Interests increased to 23.2% for the
six months ended June 30, 1998 from 22.7% for the comparable period in 1997 due
to increases in the cost of converting hotel rooms to vacation ownership units.
RESORT OPERATIONS EXPENSE. Resort operations expense decreased 25.9% to
$2.0 million for the six months ended June 30, 1998 from $2.7 million for the
comparable period in 1997, resulting from increased reimbursements from the
Associations in 1998.
SELLING AND MARKETING. Selling and marketing expenses (including
commissions) as a percentage of sales of Vacation Ownership Interests increased
to 38.7% for the six months ended June 30, 1998 from 37.3% for the comparable
period in 1997 resulting from an increase in the sales force commission rate
structure in 1998.
GENERAL AND ADMINISTRATIVE. As a percentage of total revenues, general and
administrative expenses increased to 7.9% for the six months ended June 30, 1998
from 7.4% for the comparable period in 1997 resulting from an increase in
overhead in preparation for the consummation of the Acquisitions.
INTEREST EXPENSE. Interest expense increased 16.7% to $2.1 million for the
six months ended June 30, 1998 from $1.8 million for the comparable period in
1997 reflecting the Company's higher level of borrowings in 1998. The average
outstanding balance of interest-bearing debt increased 24.6% to $44.5 million
for the six months ended June 30, 1998 from $35.7 million for the comparable
period in 1997.
33
<PAGE>
PROVISION FOR LOAN LOSSES. Provision for loan losses as a percentage of
sales of Vacation Ownership Interests remained constant at 4.2% for the six
months ended June 30, 1998. The Company periodically monitors its provision for
loan losses to provide for future losses associated with any defaults on
customer notes receivable.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUES. For the year ended December 31, 1997, the Company
recognized total revenues of $40.3 million compared to $17.9 million for the
year ended December 31, 1996, an increase of $22.4 million, or 125.1%. This
increase was primarily the result of a $19.5 million increase in sales of
Vacation Ownership Interests to $30.1 million during 1997 from $10.6 million
during 1996, an increase of 184.0%. Of this increase, $14.0 million was
attributable to the acquisition of the Daytona Beach Regency and $5.5 million
was attributable to increased sales volume at the London Bridge Resort.
Sales of Vacation Ownership Interests increased primarily as a result of (i)
an increase in the number of Vacation Ownership Interests sold at London Bridge
Resort from 794 in 1996 to 1,204 in 1997 and (ii) a full year of operations at
the Daytona Beach Regency compared to only two months of operations in 1996.
Interest income and other increased 191.7% to $3.5 million in 1997 from $1.2
million in 1996 due to a 76.7% increase in the principal amount of net customer
mortgages receivable from $21.0 million to $37.1 million, and an increase in the
average yield on the Company's customer mortgages receivable portfolio to 14.9%
from 14.4%.
Resort operations revenue increased 9.8%, to $6.7 million in 1997 from $6.1
million in 1996, as a result of increased suite rentals and retail operations at
London Bridge Resort and the acquisition of the Daytona Beach Regency.
COST OF SALES. Cost of sales as a percentage of sales of Vacation Ownership
Interests decreased to 24.4% in 1997 from 33.5% in 1996, reflecting higher
average selling prices for Vacation Ownership Interests at the London Bridge
Resort and the lower cost inventory acquired at Daytona Beach Regency.
RESORT OPERATIONS EXPENSE. Resort operations expense as a percentage of
resort operations revenue decreased to 69.1% in 1997 from 79.1% in 1996
primarily as a result of increased reimbursements from the Associations.
SELLING AND MARKETING. Selling and marketing expenses (including
commissions) as a percentage of sales of Vacation Ownership Interests declined
to 38.4% in 1997 from 40.7% in 1996. This decrease was primarily a result of
increases in the average sales prices of Vacation Ownership Interests and the
development of more efficient sales and marketing programs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
60.0% to $3.2 million in 1997 from $2.0 million in 1996, primarily as a result
of additional employee costs incurred in generating increased sales volumes,
offset by the effect of the leveraging of these costs over a larger revenue
base. However, as a percentage of total revenues, these costs decreased to 7.9%
in 1997 from 11.3% in 1996. The $1.2 million increase in general and
administrative expenses was primarily the result of additional employee expenses
incurred in generating increased sales volumes and the acquisition of the
Daytona Beach Regency, as previously discussed.
INTEREST EXPENSE. Interest expense increased to $3.7 million in 1997 from
$2.1 million in 1996. This 76.2% increase reflects higher levels of borrowings
to fund growth in the Company's operations. The average outstanding balance of
interest-bearing debt increased to $38.4 million in 1997 from $26.4 million in
1996. The weighted average interest rate for the Company's financing
arrangements secured by notes receivable was 10.7% and 10.8% in 1997 and 1996,
respectively.
34
<PAGE>
PROVISION FOR LOAN LOSSES. Provision for loan losses remained relatively
constant at 4.6% of sales of Vacation Ownership Interests in 1997 and 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
TOTAL REVENUES. For the year ended December 31, 1996, the Company
recognized total revenues of $17.9 million compared to $14.0 million for the
year ended December 31, 1995, an increase of $3.9 million, or 27.9%. This
increase was primarily the result of a $2.3 million, or 27.7%, increase in sales
of Vacation Ownership Interests to $10.6 million during 1996 from $8.3 million
during 1995.
Sales of Vacation Ownership Interests increased primarily as a result of a
14.3% increase in the number of Vacation Ownership Interests sold to 849 in 1996
from 743 in 1995.
Interest income and other increased 71.4% to $1.2 million in 1996 from $0.7
million in 1995 due to a 176.3% increase in the principal amount of net customer
mortgages receivable from $7.6 million in 1996 to $21.0 million in 1995. The
average yield on the Company's customer mortgages receivable portfolio increased
to 14.4% in 1996 from 14.2% in 1995.
Resort operations revenue increased 22.0% to $6.1 million in 1996 from $5.0
million in 1995, as a result of increased suite rentals and retail operations at
London Bridge Resort.
COST OF SALES. Cost of sales of Vacation Ownership Interests as a
percentage of such sales decreased to 33.4% in 1996 from 38.0% in 1995,
reflecting higher average selling prices for Vacation Ownership Interests at the
London Bridge Resort.
RESORT OPERATIONS EXPENSE. Resort operations expense as a percentage of
resort operations revenue decreased to 79.1% in 1996 from 81.6% in 1995,
primarily as a result of increased reimbursements from the Association.
SELLING AND MARKETING. Selling and marketing expenses (including
commissions) as a percentage of sales of Vacation Ownership Interests declined
to 40.7% in 1996 from 41.6% in 1995. The decrease in selling and marketing
expenses, as a percentage of sales of Vacation Ownership Interests, was
primarily a result of increases in the average sales prices of Vacation
Ownership Interests and the development of more efficient selling and marketing
programs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
53.8% to $2.0 million in 1996 from $1.3 million in 1995, primarily as a result
of additional employee costs incurred in generating increased sales volumes,
offset by the effect of the leveraging of these costs over a larger revenue
base. As a percentage of total revenues, these costs increased to 11.3% in 1996
from 9.4% in 1995. This $0.7 million increase in general and administrative
expenses was primarily the result of additional employee expenses incurred in
generating increased sales volumes.
INTEREST EXPENSE. Interest expense increased to $2.1 million in 1996 from
$0.9 million in 1995. This increase in 1996 reflected higher borrowings to fund
growth in the Company's operations. The average outstanding balance of
interest-bearing debt increased to $26.4 million in 1996 from $18.6 million in
1995. The weighted average interest rate for the Company's financing
arrangements secured by notes receivable was 10.8% and 11.5% in 1996 and 1995,
respectively.
PROVISION FOR LOAN LOSSES. Provision for loan losses as a percentage of
sales of Vacation Ownership Interests declined to 4.6% in 1996 from 5.7% in
1995.
35
<PAGE>
CHANGES IN FINANCIAL CONDITION
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash and cash equivalents increased by approximately $221,000 for the year
ended December 31, 1997 and decreased by approximately $22,000 and $94,000 for
the years ended December 31, 1996 and 1995, respectively.
Net cash used in operating activities was $3.4 million, $0.1 million and
$2.6 million in 1997, 1996 and 1995, respectively. The change in net cash used
in operating activities from 1996 to 1997 is primarily attributable to the
increase in net income as described above, and the net change in activity in
inventory, which included a net decrease of $4.7 million in 1997 (due primarily
to increased sales activity) and a net increase in 1996 of $0.7 million (due
primarily to conversion activity in excess of sales at Daytona Beach Regency).
The change in net cash used in operating activities from 1995 to 1996 is
primarily attributable to the net inventory activity which included a net
increase in 1996 of $0.7 million (due primarily to conversion activity in excess
of sales at Daytona Beach Regency) and a net decrease in 1995 of $2.6 million
associated with sales activity at the London Bridge Resort.
Net cash used in investing activities was $2.3 million, $1.5 million, and
$1.0 million in 1997, 1996 and 1995, respectively. The increase from 1996 to
1997 is primarily attributable to the refurbishing of the on-site restaurant at
the London Bridge Resort, and the construction of a pool, exercise facility and
lounge area at the Daytona Beach Regency during 1997. The increase from 1995 to
1996 is primarily attributable to the construction of the Company's on-site
sales center at the Daytona Beach Regency.
Net cash provided by financing activities was $5.9 million, $1.6 million,
and $3.5 million in 1997, 1996, and 1995, respectively. The net decrease in cash
provided by financing activities from 1997 to 1996 is primarily attributable to
additional distributions to the Company's sole stockholder in 1997 totalling
$1.8 million. The net increase in cash provided by financing activities from
1996 to 1995 is primarily attributable to additional equity contributions by the
partners of Daytona Beach Regency, Ltd. in 1996 totalling $0.9 million.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Cash and cash equivalents decreased by $200,000 and $16,000 for the six
months ended June 30, 1998 and 1997, respectively.
Net cash used in operating activities was $1.6 million and $1.9 million for
the six months ended June 30, 1998 and 1997, respectively. The net change is
primarily attributable to the $0.9 million increase in net income to $3.6
million for the six months ended June 30, 1998 from $2.7 million for the prior
period as well as the $1.1 million net change in mortgages receivable to $8.6
million for the six months ended June 30, 1998 from $7.5 million for the prior
period.
Net cash used in investing activities was $56.3 million and $0.5 million for
the six months ended June 30, 1998 and 1997, respectively. The net change is
attributable to the acquisition of the three resorts on June 30, 1998.
Net cash used in financing activities was $57.7 million and $2.3 million for
the six months ended June 30, 1998 and 1997, respectively. The net change is
primarily attributable to the $55.4 million proceeds from a bridge loan, which
was used to finance the purchase of three resorts on June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from operations through the sale and financing of
Vacation Ownership Interests, resort operations transient rental of resort
accommodations and management fees. With respect to the sale of Vacation
Ownership Interests, the Company generates cash from operations from customer
downpayments and third party financing of customer mortgages receivable in
amounts typically equal to
36
<PAGE>
90% of the related customer mortgages receivable. The Company generates
additional cash from the financing of Vacation Ownership Interests equal to the
difference between the interest charged on the customer mortgages receivable
(which averaged 14.9% at December 31, 1997) and the interest paid on the notes
payable secured by the Company's pledge of such customer mortgages receivable
(which averaged 10.7% at December 31, 1997). The Company will generate
additional cash flow from its Vacation Ownership Interests Receivable portfolio
through receipt of the spread between the yield on such portfolio and the cost
of the New Receivables Facility upon completion of securitizations of such
receivables.
The Company requires funds to finance the acquisition and development of
resorts and related inventory, and to finance customer purchases of Vacation
Ownership Interests. Historically, these funds have been provided by
indebtedness secured by a portion of the Company's inventory of unsold Vacation
Ownership Interests, customer mortgages receivable and other assets. As of June
30, 1998, the Company had $46.2 million of outstanding notes payable secured by
its land, Vacation Ownership Interests and customer mortgages receivable. In
connection with the Initial Offering, the Company repaid $24.3 million of these
outstanding notes payable. The Company anticipates that its Existing Receivables
Facility will be repaid and terminated once securitizations under the New
Receivables Facility begin. The Existing Receivables Facility bears interest at
prime plus 2.5% per annum (11% per annum at June 30, 1998) and is payable in
monthly installments of principal and interest equal to 100% of all proceeds of
the receivables collateral collected during the month. Any remaining principal
under the Existing Receivables Facility is due seven years after the date of the
last advance related to mortgage receivables and is collateralized by certain
assets, including the specific mortgage receivables. As of June 30, 1998 the
outstanding principal balance under the Existing Receivables Facility was
approximately $21.3 million.
In September 1998, the Company entered into the New Receivables Facility
with Prudential Securities Credit Corporation ("PSCC"), which is a non-recourse
$75 million vacation ownership loan participation facility. Under this facility,
the Company will sell its Vacation Ownership Interest Receivables to Epic
Funding a limited purpose, bankruptcy remote subsidiary of the Company, and PSCC
will purchase from Epic Funding participation interests in such receivables. The
proceeds from the sale of the participation interests will be paid to the
Company as consideration for the receivables sold to Epic Funding. The
commitment provides for advance rates of 88% of the lesser of (i) unpaid
principal balance of the receivables sold to Epic Funding or (ii) the market
value of such receivables as determined by Prudential Securities Incorporated.
Borrowings under the facility will bear interest at LIBOR plus 1.50%, reset
daily. The facility will provide non-recourse interim funding for the Vacation
Ownership Interests Receivable pending their permanent funding through
receivables securitization transactions. The Company expects to be able to fund
a significant portion of its future development from funds provided by the New
Receivables Facility. See "Description of Other Indebtedness."
The Company's capital resources are provided from the following sources: (i)
cash flows from operations, (ii) proceeds from the Existing Receivables Facility
and the New Receivables Facility, (iii) proceeds from additional borrowings
permitted under the Indenture, and (iv) proceeds from the Initial Offering
designated for working capital and general corporate purposes. In addition,
$16.9 million of the net proceeds of the Initial Offering, representing an
amount equal to the first two interest payments under the Notes, was placed into
the Escrow Account to be held by the Escrow Agent for the benefit of the holders
of the Notes to pay interest on the Notes. The Escrow Funds may be disbursed to
the extent necessary to make the first interest payment on the Notes.
Thereafter, the Company must at all times maintain Escrow Funds in the Escrow
Account sufficient to make the next required interest payment on the Notes. The
Indenture and the Company's other credit facilities will include certain
covenants restricting, among other things, the incurrence of debt, the payment
of dividends and other restricted payments, the incurrence of liens and
transactions with affiliates. Certain current and future credit facilities
include or will include financial covenants. No assurances can be given that
such covenants will not limit the Company's ability to satisfy or refinance its
obligations or otherwise adversely affect the Company's operations. See "Risk
Factors--Substantial Leverage; Potential Inability to Service Debt."
37
<PAGE>
The Company intends to pursue a growth-oriented strategy; accordingly, the
Company may, from time to time acquire, among other things, additional vacation
ownership resorts and additional land upon which vacation ownership resorts may
be developed, and companies operating quality resorts or having vacation
ownership assets, management, sales or marketing expertise commensurate with the
Company's operations in the vacation ownership industry. Over the next twelve
months, the Company anticipates spending approximately $55.0 million for
acquisition, expansion, conversion and development activities. In this regard,
the Company currently has an option to acquire property suitable for a resort in
Pismo Beach, located on the coast of California. The Company may also evaluate
asset and operating company acquisitions, but presently has no contracts,
understandings or capital commitments relating to any such potential
acquisition.
The Company believes that the net proceeds to the Company from the Initial
Offering, together with cash generated from operations and future borrowings,
will be sufficient to meet the Company's working capital and capital expenditure
needs through December 1999. The Company may, in the future, require additional
credit facilities or issuances of other corporate debt or equity securities to
meet the Company's working capital and expenditure needs and in connection with
acquisitions or otherwise. Any debt incurred or issued by the Company may be
secured or unsecured, at fixed or variable rates of interest and may be subject
to such terms as management deems prudent. There can be no assurance that the
proposed credit facilities will be consummated on the terms described herein, if
at all, or that sufficient funds will be available from operations or under
existing, proposed or future revolving credit facilities or other borrowing
arrangements to meet the Company's cash needs, including, without limitation,
its debt service obligations. As noted above, the Indenture and the Company's
other credit facilities include or will include customary conditions to funding,
eligibility requirements for collateral, certain financial and other affirmative
and negative covenants, including, among others, limits on the incurrence of
indebtedness, covenants concerning net worth and fixed charge coverage
requirements and debt to equity ratios and events of default. In addition, the
Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond the Company's control.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. Due to the current economic climate, the Company
does not expect that inflation and changing prices will have a material impact
on the Company's revenues, operating income or net income.
YEAR 2000
The Company has conducted tests of its existing computer hardware and
software and determined that they are Year 2000 compliant. Because most of its
computer hardware and software is less than two years old, the Company believes
that its exposure to Year 2000 problems with respect to this hardware and
software is minimal. In addition, Non-IT systems do not have a significant role
in the Company's operations. As a result, the Company does not believe that it
is exposed to any material Year 2000 risks relating to such systems. The Company
is actively working with its suppliers and third party service providers,
including its receivables servicing providers and the vacation ownership
exchange networks with which it is affiliated, to assess their compliance
efforts. The Company has received assurances of compliance from several of such
third parties. The Company is currently assessing its potential exposure to the
failure of any such suppliers and third party service providers to become Year
2000 compliant and will formulate any necessary contingency plans once this risk
assessment is complete. While the Company believes that such exposure is
minimal, there can be no assurance that the systems of suppliers or third party
service providers are Year 2000 compliant, or that the failure of such suppliers
or third party service providers to be Year 2000 compliant will not have a
material adverse effect on the Company.
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<PAGE>
BUSINESS
Epic Resorts, LLC is a nationwide developer and marketer of high quality
vacation ownership resorts located in proven, major tourist destinations.
Vacation Ownership Interests typically entitle the buyer to a fully furnished
vacation residence for an annual or biannual period in perpetuity, as well as
access to over 1,500 resorts worldwide through the Company's participation in
vacation ownership interest exchange networks. The Company owns six resorts
located in Las Vegas, Nevada; Scottsdale, Arizona; Palm Springs, California;
Daytona Beach, Florida; Lake Havasu City, Arizona; and Hilton Head, South
Carolina and has an option to acquire property suitable for a resort in Pismo
Beach on the coast of California. In 1997, over 60 million tourists visited
these locations. The Company strategically markets and sells its Vacation
Ownership Interests through both on-site and off-site sales centers and believes
that it is one of the lowest-cost marketers of Vacation Ownership Interests in
the United States, with sales and marketing expenses for 1997 equal to 38.6% of
Vacation Ownership Interest sales versus the Comparable Public Company Index
average of 47.8% for the same period. In addition, the Company's Completed
Inventory enables it to generate income through the rental of available suites
at its resorts. The Company has historically provided financing to approximately
90% of the purchasers of its Vacation Ownership Interests, which, at an average
yield of 15.0% for the six months ended June 30, 1998, generated significant
interest income for the Company.
THE RESORTS
The Company's six high quality resorts are located in the following warm
weather, high volume, major tourist destinations:
<TABLE>
<CAPTION>
MILLIONS OF
LOCATION TOURISTS PER YEAR SURROUNDING AMENITIES/ATTRACTIONS
- --------------------------------- ------------------- ------------------------------------------------------------
<S> <C> <C>
Las Vegas, Nevada................ 30.0 Located one and one-half miles west of the Las Vegas strip
Scottsdale, Arizona.............. 12.0 Located on the famous TPC golf course; over 100 other
world-class golf courses
Palm Springs, California......... 4.5 Located on seven acres in downtown Palm Springs; over 70
world-class golf courses
Daytona Beach, Florida........... 8.0 18 miles of sandy beach; home of NASCAR and Grand Prix
racing; 52 miles from Disney World
Lake Havasu City, Arizona........ 3.0 London Bridge and English Village tourist and shopping
attractions; boating and fishing on Lake Havasu and the
Colorado River; 150 miles from Las Vegas and 67 miles from
Laughlin, Nevada
Hilton Head, South Carolina...... 2.5 12 miles of sandy beach; over 20 world-class golf courses
</TABLE>
As the table below demonstrates, the Company's Completed Inventory will
increase from 822 to 25,854 Vacation Ownership Interests, which the Company
believes is among the highest of any vacation
39
<PAGE>
ownership resort company operating in North America. Sales and marketing and
general and administrative expenses are the only material cash costs required to
convert such Completed Inventory to Vacation Ownership Interest sales and
comprised 49.8% of such sales for the twelve months ended June 30, 1998.
<TABLE>
<CAPTION>
UNSOLD
VACATION OWNERSHIP
INTERESTS AT RESORTS
MONTH/YEAR SALES -------------------------------------
COMMENCED OR AVERAGE UNDER
EXPECTED TO SALES DEVELOP-
RESORT LOCATION COMMENCE PRICE(A) COMPLETED MENT PLANNED
- ----------------------------- ----------------------------- ------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
London Bridge Lake Havasu City, AZ 8/91 $ 13,323 400 612 9,843
Resort
Daytona Beach Daytona Beach, FL 11/96 11,349 422 2,295 0
Regency
Westpark Resort Las Vegas, NV 11/98 11,400 7,752 0 0
Scottsdale Links Scottsdale, AZ 10/98 15,500 11,628 0 0
Resort
Palm Springs Palm Springs, CA 11/98 13,300 5,252 0 0
Marquis Villas
Planter's Hilton Head, SC 12/96 12,900 400 0 6,324
Quarters Resort
----------- ----- -----------
TOTAL....................................................................................... 25,854 2,907 16,167
----------- ----- -----------
----------- ----- -----------
</TABLE>
- ------------------------------
(a) Average sales price is the average retail sales price for the London Bridge
Resort, Daytona Beach Regency and the Planter's Quarters Resort for the
second quarter of 1998 and the expected average retail sales price for the
remaining resorts on June 30, 1998 over the sellout period of Vacation
Ownership Interests at such resorts.
SALES AND MARKETING
The Company focuses its sales and marketing activities on generating a
predictable flow of both off-site and on-site prospective purchasers of Vacation
Ownership Interests at minimal cost.
OFF-SITE SALES CENTERS: The Company currently operates off-site sales
centers in Fresno, California and in Philadelphia, Pennsylvania. The Company
also plans to add one additional off-site sales center in 1998 and four
additional centers by the end of 1999. The Company currently intends to
locate its planned off-site sales centers in major metropolitan areas, which
can be conveniently toured during evenings and weekends. These centers,
which are leased by the Company, are generally more cost effective because
they reduce the need for on-site tours of the Company's resorts and are
easily accessible to the Company's target customers. The Company's Fresno
off-site sales center generated $4.5 million of revenue and had an operating
margin of 47.6% for the twelve months ended June 30, 1998.
ON-SITE SALES CENTERS: The Company utilizes a variety of marketing
techniques to generate on-site tours, including mini-vacations resulting
from telemarketing and targeted mailings, retail center kiosks, in-house
marketing to renters, marketing to current owners of Vacation Ownership
Interests and referrals. The Company's Completed Inventory also provides
both additional revenue as well as sales and marketing cost advantages
through (i) rental income, (ii) access to a steady source of high quality,
low cost, on-site sales tours from rental customers, and (iii) lower
mini-vacation marketing costs. The Company believes that its ability to
effectively implement, manage and refine its marketing activities has
resulted in the generation of a predictable and increasing supply of sales
prospects.
The Company typically establishes the sales prices for its Vacation
Ownership Interests on a resort-by-resort basis after reviewing local market
conditions. When the Company enters into a new market, it typically prices
Vacation Ownership Interests to attract the maximum number of potential
customers and gain market share. As the Company becomes more established in a
market, the Company increases its
40
<PAGE>
sales prices to reflect the high quality of its properties. For example, average
sales prices for Vacation Ownership Interests at the London Bridge Resort and
the Daytona Beach Regency have increased from $8,900 and $7,900, at the date of
commencement of sales, respectively, to $13,323 and $11,349, respectively as of
June 30, 1998. The Company expects to implement this pricing strategy with
respect to the resorts purchased in connection with the Acquisitions.
To support its marketing and sales efforts, the Company has developed and
continues to enhance its database to track its vacation ownership marketing and
sales programs. Management believes that, as the Company's vacation ownership
operations grow, this database will become an increasingly significant asset,
enabling it to take advantage of less costly marketing and referral
opportunities.
CUSTOMER FINANCING
The Company has historically provided financing to approximately 90% of its
vacation ownership customers. These customers are required to make a downpayment
of at least 10% of the Vacation Ownership Interest sales price, and typically
finance the balance over a period of seven to ten years. At the closing of a
sale of a Vacation Ownership Interest, the Company currently delivers a deed to
the purchaser of such Vacation Ownership interest and secures repayment of such
purchaser's obligation by obtaining a mortgage on the Vacation Ownership
Interest. The Company is considering converting its vacation ownership
operations to a vacation club arrangement, whereby the purchaser of a Vacation
Ownership Interest would receive a non-deeded membership interest in a vacation
club operated by the Company, which would entitle such purchaser to reserve
units at any of the Company's resorts, at any time of the year. As of June 30,
1998, the Company had a vacation ownership receivables portfolio totaling
approximately $45.0 million in principal amount, with a weighted average
contractual yield of approximately 15.0% and 14.9% for the six months ended June
30, 1998 and the year ended December 31, 1997, respectively. The Company expects
a significant increase in its vacation ownership receivables portfolio as sales
commence at its newly-acquired resorts beginning in the fourth quarter of 1998.
The Company believes that the New Receivables Facility will enable the Company
to turn such receivables into cash quickly and enable it to fund a significant
portion of the Company's future development without further leveraging the
Company. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Description of Other Indebtedness."
VACATION OWNERSHIP EXCHANGE NETWORKS
According to ARDA, the primary reason cited by consumers for purchasing a
Vacation Ownership Interest is the ability to exchange such interest for
accommodations at other resorts through worldwide exchange networks. London
Bridge Resort and the Daytona Beach Regency are affiliated with II, one of the
leading worldwide vacation ownership exchange companies. In addition, the
Planter's Quarters Resort is affiliated with RCI, another leading worldwide
vacation ownership exchange company. Participation in II or RCI entitles owners
to exchange their annual Vacation Ownership Interests for occupancy at over
1,500 II or 3,200 RCI resorts worldwide. Both the London Bridge Resort and the
Daytona Beach Regency have received Five-Star designations from II, the highest
designation under II's rating system. In addition, the London Bridge Resort was
one of II's 30 largest resorts based on 1997 sales volume. The Planter's
Quarters Resort has been designated as a Gold Crown Resort, the highest rating
designation in RCI's rating system. The Company intends to affiliate its
newly-acquired resorts with either II or RCI.
VACATION OWNERSHIP INDUSTRY
First introduced in Europe in the mid-1960's, vacation ownership has been
one of the fastest growing segments of the hospitality industry over the past
two decades. According to ARDA and other industry sources, vacation ownership
sales and the number of Vacation Ownership Interest owners grew at compound
annual rates of approximately 16% and 22%, respectively, from 1980 to 1997 (see
chart below). The Company expects the industry to continue to grow as consumer
awareness of the attractiveness of
41
<PAGE>
vacation ownership as an alternative to traditional vacation lodging
establishments increases. Set forth below is certain information relating to the
vacation ownership industry.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
($ IN BILLIONS) VACATION OWNERSHIP INTEREST SALES VOLUME
<C> <C>
1980 0.25
1981 1
1982 1.2
1983 1.3
1984 1.5
1985 1.4
1986 1.4
1987 2
1988 2.25
1989 3
1990 3.15
1991 3.75
1992 4.25
1993 4.5
1994 4.75
1995 5.25
1996 5.5
1997 6
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
(IN MILLIONS) NUMBER OF VACATION OWNERSHIP INTEREST OWNERS
<S> <C>
1980 0.15
1981 0.25
1982 0.35
1983 0.5
1984 0.65
1985 0.75
1986 1
1987 1.1
1988 1.3
1989 1.5
1990 1.75
1991 2.1
1992 2.35
1993 2.65
1994 3.1
1995 3.5
1996 4
1997 4.5
</TABLE>
Source: ARDA (includes, with respect to 1995, 1996 and 1997, unpublished
estimates provided by ARDA)
BUSINESS STRATEGY
Epic's core business strategy is to generate significant cash flow from its
total inventory of Vacation Ownership Interests by (i) expanding and developing
off-site sales centers, (ii) capitalizing on its superior sales and marketing
techniques, (iii) renting available suites at its resorts, (iv) utilizing the
New Receivables Facility, and (v) cross-marketing additional vacation products
to its extensive customer base.
EXPANDING AND DEVELOPING OFF-SITE SALES CENTERS. The Company has a proven
ability to market Vacation Ownership Interests off-site. The Company intends
to capitalize on this ability through the development of several off-site
sales centers in targeted, high volume locations throughout the United
States. Off-site sales centers require minimal capital investment and
produce significant sales.
CAPITALIZING ON SUPERIOR SALES AND MARKETING TECHNIQUES. The Company
believes that its proven ability to generate qualified tours at lower costs
gives it a competitive advantage over other companies in the vacation
ownership industry. The Company plans to capitalize on and continually
refine its highly transferable marketing techniques at its newly acquired
properties. Management believes that as the Company matures, it will also be
able to reduce sales and marketing costs as lower cost marketing programs,
such as in-house tours and referrals, grow. In addition, as the Company's
newly acquired resorts become established, the Company intends to increase
its prices based on demand for Vacation Ownership Interests at such resorts
and local market conditions.
RENTING AVAILABLE SUITES AT ITS RESORTS. The Company has historically
generated income from the rental of suites available at its resorts. The
Acquisitions have significantly increased the Company's Completed Inventory
and therefore the number of suites available for rent.
UTILIZING THE NEW RECEIVABLES FACILITY. The Company intends to utilize the
New Receivables Facility to convert its Vacation Ownership Interests
Receivable into cash quickly, thereby enabling the Company to finance a
significant portion of its future development without incurring substantial
additional indebtedness.
CROSS-MARKETING ADDITIONAL VACATION PRODUCTS TO ITS EXTENSIVE CUSTOMER
BASE. Through its marketing research, the Company has created, and will
continue to expand, its significant customer base. The Company's long-term
strategy includes increasing the number of vacation products available to
its customers. To develop this strategy and expand its customer base, the
Company formed Epic Travel, LLC, a licensed travel agency, to market and
sell vacation packages to individuals.
42
<PAGE>
The Company also intends to continue to grow through acquisitions in proven,
high-volume, major tourist destinations. Because the vacation ownership industry
is highly fragmented, the Company believes that significant opportunities exist
to make complementary acquisitions at attractive valuations. Acquisitions the
Company may consider include vacation ownership operating companies, land for
resort development, additional inventory, or other vacation ownership-related
assets which may be integrated into the Company's existing operations. In
addition, the Company intends to make selective acquisitions outside the United
States, focusing on the Caribbean region.
THE ACQUISITIONS
On June 30, 1998, the Company consummated the acquisitions of the Scottsdale
Links Resort, the Westpark Resort and the Palm Springs Marquis Villas. On July
8, 1998, concurrently with the consummation of the Initial Offering, the Company
acquired the Planter's Quarters Resort and the remaining limited partnership
interests of the Daytona Beach Regency, Ltd. not then owned by RII. The purchase
of these resorts is consistent with the Company's strategy to grow through
selected acquisitions. Prior to entering into agreements to acquire these resort
properties, the Company undertook a full property review, including an
environmental assessment. During the review process, the Company's acquisition
specialists analyzed market, tourism and demographic data as well as the quality
and diversity of the location's existing amenities and attractions to determine
the potential strength of the vacation ownership market in such area. Based on
this review, the Company estimated the potential sellout value of the property
and the extent of any additional required development costs to determine the
appropriate purchase price for such properties. The Company intends to conduct a
similar property review before consummating any future acquisitions.
Set forth below is a summary of the terms of the Acquisitions.
SCOTTSDALE LINKS RESORT. Epic Resorts, Inc. and Scottsdale Links Apartments
Limited Partnership entered into a Purchase and Sale Agreement, dated May 7,
1998 (the "Scottsdale Agreement"). Pursuant to this agreement, the Company
agreed to acquire the Scottsdale Links 228-suite complex and adjacent property,
including all furniture, fixtures and other personal property located at the
complex, all permits, licenses and easements held by the seller and all existing
leases and tenancy agreements for a purchase price of $25,541,233. With the
proceeds of the purchase price, the seller agreed to pay and satisfy all
obligations, liens and encumbrances against the property, including the existing
mortgage, current and outstanding real estate taxes and all outstanding state
and local taxes relating to the property. The Company assumed no liabilities,
mortgages, obligations or indebtedness relating to the property. The sellers
also agreed to indemnify the Company for any material inaccuracy in the
representations and warranties made by the sellers in the Scottsdale Agreement
and any personal injury or contract claims associated with the property for
events occurring prior to the closing. Epic Resorts, Inc. assigned the
Scottsdale Agreement to its wholly-owned subsidiary Epic Resorts--Scottsdale
Links Resort, Inc. prior to the closing of this acquisition on June 30, 1998.
The complex will be converted into a vacation ownership resort. The Company
does not anticipate that any construction or material renovation will be
necessary to effect this conversion. The Company will begin selling Vacation
Ownership Interests at this resort in selected states as the public reports of
condominium are filed and accepted by the respective states and the Company
satisfies the conditions to the conditional use permit relating to the resort.
See "Risk Factors--Risks Related to Development Activities."
WESTPARK RESORT. Epic Resorts, Inc. and Westpark II Partnership L.L.C.
entered into a Purchase and Sale Agreement, dated May 8, 1998 (the "Westpark
Agreement"). Pursuant to this agreement, the Company agreed to acquire the
Westpark Resort 152-suite complex and adjacent property, including all
furniture, fixtures and other personal property located at the complex, all
permits, licenses and easements held by the seller and all existing leases and
tenancy agreements for a purchase price of $15,857,519. With
43
<PAGE>
the proceeds of the purchase price, the seller agreed to pay and satisfy all
obligations, liens and encumbrances against the property, including current and
outstanding real estate taxes and all outstanding state and local taxes relating
to the property. The Company assumed no liabilities, mortgages, obligations or
indebtedness relating to the property. The seller agreed to indemnify the
Company for any material inaccuracy in the representations and warranties made
by the seller in the Westpark Agreement and any personal injury or contract
claims associated with the property for events occurring prior to the closing.
Epic Resorts, Inc. assigned the Westpark Agreement to its wholly-owned
subsidiary, Epic Resorts-Westpark Resort, Inc. prior to closing of this
acquisition on June 30, 1998.
The Company will convert the complex into a vacation ownership resort and
plans to operate under the name of Desert Paradise Resort. All Nevada state
filing will be amended accordingly. The Company does not anticipate that any
construction or material renovation will be necessary to effect this conversion.
The Company will begin selling Vacation Ownership Interests at this resort in
selected states as the public reports of condominium are filed and accepted by
the respective states and when the Company receives zoning authorization
permitting the conversion and sale of Vacation Ownership Interests. See "Risk
Factors--Risks Related to Development Activities."
PALM SPRINGS MARQUIS VILLAS. Epic Resorts, Inc., Palm Springs Marquis
Villas, Inc. and Mark A. Bragg entered into an Option to Purchase Real Property,
dated May 20, 1998 (the "Palm Springs Option Agreement"). Pursuant to this
agreement, the Company exercised its option to purchase the Palm Springs Marquis
Resort 101-suite complex and adjacent property, including all furniture,
fixtures and other personal property located at the complex, all permits,
licenses and easements held by the seller and all existing leases and tenancy
agreements, and purchased such assets. The option was exercised by delivering to
the seller the purchase price of $14,015,500 as well as an executed purchase
agreement (the "Palm Springs Purchase Agreement"). With the proceeds of the
purchase price, the seller agreed to pay and satisfy all obligations, liens and
encumbrances against the property, including current and outstanding
indebtedness, real estate taxes and all outstanding state and local taxes
relating to the property. The Company assumed no liabilities, mortgages,
obligations or indebtedness relating to the property. The sellers agreed to
indemnify the Company, for a period of two years following closing, for any
material inaccuracy in the representations and warranties made by the sellers in
the Palm Springs Purchase Agreement other than those representations and
warranties pertaining to federal, state and local taxes, which survive until the
applicable statute of limitations on claims, and any personal injury or contract
claims associated with the property for events occurring prior to the closing of
this acquisition. Epic Resorts, Inc. assigned the Palm Springs Purchase
Agreement to its wholly-owned subsidiary, Epic Resorts-Palm Springs Marquis
Villas, Inc. prior to closing of this acquisition on June 30, 1998.
The Company will convert the complex into a vacation ownership resort. The
Company does not anticipate that any construction or material renovation will be
necessary to effect this conversion. The Company will begin selling Vacation
Ownership Interests at this resort in selected states as the public reports of
condominium are filed and accepted by the respective states and the Company
satisfies the conditions to the conditional use permit relating to the resort.
See "Risk Factors--Risks Related to Development Activities."
PLANTER'S QUARTERS RESORT. Epic Resorts, Inc. and Planter's Preserve, LLC
entered into a Purchase and Sale Agreement, dated May 13, 1998 (the "Planter's
Quarters Agreement"). Pursuant to this agreement, the Company agreed to acquire
the 160-suite resort and adjacent land, all furniture, fixtures and other
personal property located at the resort, all permits, licenses and easements
held by the seller, and all existing leases and tenancy agreements for a
purchase price of $3,821,000, subject to certain adjustments. The seller and
each of its members have agreed to indemnify the Company, for a period of two
years following the closing of this acquisition, for any material inaccuracy in
the representations and warranties made in the Planter's Quarters Agreement by
the seller or any of its members, and for any personal injury or contract claims
associated with the property for events occurring prior to closing. Prior to the
closing of
44
<PAGE>
this acquisition on July 8, 1998, the Company assigned the Planter's Quarters
Agreement to Epic Resorts-Hilton Head, LLC, a limited liability company wholly
owned by the Company.
The Company began selling Vacation Ownership Interests at the developed
phases of the Planter's Quarters Resort in South Carolina after the closing of
this acquisition, and expects to begin selling such interests in other states as
the public reports of condominium are filed and accepted by such states. The
Company expects to commence construction on the remaining undeveloped phases of
the resort in the near future. The Company plans to change the operating name of
this resort to Island Links Resort and will will amend all South Carolina state
filings accordingly.
DAYTONA BEACH REGENCY RESORT. The Company agreed to acquire the limited
partnership interests of Daytona Beach Regency Ltd. that were not then owned by
limited partners affiliated with the Company for an aggregate purchase price of
$3.3 million, which was allocated to such limited partners on a pro rata basis.
Prior to the closing of the Initial Offering on July 8, 1998, Mr. Flatley
contributed to the Company all of his equity interests in RMI and RII, which had
owned a 1% general partnership interest and a 55% limited partnership interest,
respectively, of Daytona Beach Regency, Ltd. As a result, the Company now owns
100% of the general and limited partnership interests of Daytona Beach Regency,
Ltd.
VACATION OWNERSHIP INDUSTRY OVERVIEW
THE MARKET. The vacation ownership industry consists primarily of
commercial lodging operators and vacation ownership resorts. Commercial lodging
typically consists of (i) hotels and motels which rent individual rooms on a
nightly, weekly or monthly basis and (ii) rental of privately owned condominium
units or homes. These facilities often prove uneconomical for frequent or
long-term leisure travelers, particularly vacationing families. In addition,
rates and availability are often unpredictable and subject to change.
Vacation ownership resorts are gaining in popularity as a relatively
economical and convenient alternative to commercial lodging establishments.
Vacation ownership resorts allow buyers to essentially prepay for their
vacation, while securing vacation accommodations and controlling room cost.
Vacation ownership resorts often provide comparable locations and greater
amenities at a decreased cost as compared to commercial lodging. In addition,
such resorts generally offer superior accommodations in terms of unit size.
WORLDWIDE MARKET. The worldwide vacation ownership industry has experienced
rapid growth since its inception in Europe in the mid-1960s. According to ARDA,
vacation ownership industry sales and the number of Vacation Ownership Interest
owners have grown at compound annual rates of approximately 16% and 22%,
respectively, from 1980 to 1997.
UNITED STATES MARKET. The vacation ownership industry has experienced
significant growth since Vacation Ownership Interests were first marketed in the
United States in the 1970s, and the number of vacation ownership resorts has
increased to 1,204 in 1997 from 870 in 1993. Similarly, the number of households
owning Vacation Ownership Interests has increased to 1.8 million households in
1997 from 1.3 million households in 1993. During 1996, a total of 218,000
one-week Vacation Ownership Interests were sold in the United States at an
average price of $10,000 each for a total sales volume of $2.2 billion. This
represents a 69.2% increase from 1992, when a total of 168,840 of such interests
were sold in the United States at an average price of $7,000 each for a total
sales volume of $1.3 billion. Despite such growth, the current average market
penetration rate for vacation ownership is only 1.72% of all U.S. households.
THE CONSUMER. According to ARDA, the median age and annual income of a
Vacation Ownership Interest purchaser in the United States in 1997 was 50 years
and $71,000, respectively. While demographics differ by property, the typical
age and annual income of an owner of a Vacation Ownership Interest at the
Company's resorts has ranged from between 40 to 55 years and in excess of
$50,000, respectively.
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<PAGE>
According to the U.S. Census Bureau, the number of persons in the 40 to 54 age
group was 54.9 million, which represented 21% of the U.S. population at July 1,
1997, and is predicted to increase to approximately 59.5 million by 2000.
REASONS FOR GROWTH. The Company believes that this growth trend in the
industry is a result of certain shifts in customer satisfaction and changes in
consumer perceptions of Vacation Ownership Interests. Management believes, based
on industry publications, that these trends are attributable to the following
factors, among others:
- Increased flexibility and options associated with Vacation Ownership
Interests;
- Improved quality and management of vacation ownership resorts and related
amenities;
- Improved customer perception of the value and quality of Vacation
Ownership Interests, as compared to other vacation lodging alternatives;
- Demographic trends resulting in a greater base of customers meeting the
profile of a typical Vacation Ownership Interest purchaser;
- Growth of exchange networks;
- Increased customer protection regulation of the vacation ownership
industry;
- Increased participation of brand name lodging companies; and
- Greater access to financing for purchasers.
Historically, the vacation ownership industry has been highly fragmented and
dominated by a large number of local and regional resort developers and
operators, each with limited portfolios of differing quality. Recently, there
has been a trend toward consolidation among vacation ownership resort developers
and operators. In addition, many of the world's most widely-recognized lodging,
hospitality and entertainment companies have begun to develop and sell Vacation
Ownership Interests under their brand names, including Marriott, Disney, Hilton,
Hyatt, Four Seasons and Inter-Continental. The Company believes that the entry
of such participants is one of the most significant factors contributing to the
vacation ownership industry's current success. The Company believes that
national lodging and hospitality companies are attracted to the vacation
ownership industry because of its relatively low product cost and high profit
margins. In addition, sales of Vacation Ownership Interests allow traditional
hotel companies to leverage their brands into additional resort markets where
demand exists for accommodations beyond traditional hotels. See "--Competition"
and "Risk Factors--Competition."
According to a 1997 ARDA study, the three primary reasons cited by consumers
for purchasing a Vacation Ownership Interest are (i) the ability to exchange
their Vacation Ownership Interest for accommodations at other resorts through
exchange networks, (ii) the quality and appeal of the resort at which they
purchased a Vacation Ownership Interest, and (iii) the money savings over
traditional resort vacations. According to a 1994 ARDA study, Vacation Ownership
Interest purchasers have a high rate of repeat purchases: approximately 35% of
all Vacation Ownership Interest owners own more than one interval and
approximately 45% of all owners who bought their first Vacation Ownership
Interest before 1985 have since purchased an additional interest. Moreover,
customer satisfaction was found to increase with length of ownership, age,
income, multiple location ownership, and accessibility to exchange networks.
DESCRIPTION OF THE RESORTS
Set forth below is a description of the Company's vacation ownership
resorts. The Company will commence sales of Vacation Ownership Interests at the
resorts purchased in connection with the Acquisitions upon receipt of required
governmental approvals, which are expected to be received by November 1998,
except in the case of Palm Springs Marquis Villas, which the Company expects to
receive by January 1999.
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LONDON BRIDGE RESORT. The London Bridge Resort is situated on twelve acres
in scenic Lake Havasu City, Arizona, surrounding the world famous London Bridge,
which was relocated from London in 1968. The resort, formerly a 180 room hotel,
currently consists of 122 studio, one- and two-bedroom suites for a total of
6,222 Vacation Ownership Interests. The Company commenced a new construction
phase of 193 additional one- and two-bedroom suites in the third quarter of
1998. London Bridge offers many amenities, including three swimming pools, a
fifty-seven slip marina and a tennis court, as well as a nine-hole executive
golf course and one mile of beachfront on Lake Havasu. Also located at the
resort is one of Arizona's major tourist attractions, the London Bridge English
Village and Shopping Mall, which includes over 50 shops, restaurants, bars and
entertainment outlets. The Lake Havasu City area is a popular vacation
destination, which attracts over 3 million visitors each year and offers fishing
on the Colorado River, hunting, boating and water sports, and is located 150
miles from Las Vegas and 67 miles from Laughlin, Nevada. The London Bridge
Resort has been designated as a Five Star Resort by II, which awards this
designation to less than 10% of its 1,500 member resorts.
DAYTONA BEACH REGENCY. The Daytona Beach Regency is located in Daytona
Beach, Florida and currently consists of 45 one- and two-bedroom suites, for a
total of 2,295 Vacation Ownership Interests. Formerly a 198 room hotel, the
Company has renovated 45 of the resort's 90 vacation ownership suites, and plans
to complete the conversion of the remaining 45 suites by the first quarter of
1999. Amenities include an outdoor swimming pool and deck, and an indoor leisure
center with indoor pool, spa and health club. In addition, the resort will be
further enhanced by the recent enactment of a city ordinance which will prohibit
cars from driving on the resort's beachfront property. Activities such as
boating, surfing, water sports and golfing are within short walking distance to
the resort. In addition to its famous beaches and boardwalk, the Daytona Beach
area is the "World Center of Racing" and is the home of NASCAR and Grand Prix
motorcycle racing, attracting over 8 million visitors each year. The resort is a
short 52-mile drive to Orlando, home to Disney World. II has designated the
Daytona Beach Regency as a Five Star resort.
SCOTTSDALE LINKS RESORT. Located on the world famous TPC golf courses in
Scottsdale, Arizona, Scottsdale Links Resort offers 228 luxury one-, two- and
three-bedroom suites, for a total of 11,628 Vacation Ownership Interests. The
resort's amenities include mountain views, pool and spa, massage therapy room,
state-of-the-art fitness center, gas-operated grills and oversized patios and
balconies. The Scottsdale area attracts more than 12 million visitors each year
to its over 100 golf courses, gourmet restaurants, art galleries and world class
shopping.
WESTPARK RESORT. Located one and one-half miles west of the world famous
Las Vegas Strip in Las Vegas, Nevada, the Westpark Resort is situated in a quiet
tropical setting while offering easy access to the excitement and nightlife of
Las Vegas. The resort consists of 152 one- and two-bedroom suites, for a total
of 7,752 Vacation Ownership Interests. Each suite is equipped with oversized
patios or balconies and private Jacuzzis, state of the art audio and visual
equipment and full kitchens with dishwashers, refrigerators with icemakers and
microwave ovens. The resort offers shuttle service to Las Vegas attractions, and
can arrange for golf tee times, show tickets and sightseeing tours. Known as
"The Entertainment Capital of the World," Las Vegas attracts over 30 million
visitors each year.
PALM SPRINGS MARQUIS VILLAS. Conveniently located on seven acres in
downtown Palm Springs, California, the Palm Springs Marquis Villas consists of
101 one- and two-bedroom suites for a total of 5,252 Vacation Ownership
Interests. The resort's suites include full kitchens, marble baths, state of the
art audio visual equipment, wet bars, fireplaces and private balconies. The
resort's amenities include several pools, a full service spa and exercise
facility, tennis courts, close proximity to golf courses, sightseeing and
shopping. The resort staff will arrange tee times and transportation to any of
the area's over 70 world-class golf courses. The Palm Springs area attracts over
4.5 million visitors each year.
PLANTER'S QUARTERS RESORT. Located on Hilton Head Island off the coast of
South Carolina, the Planter's Quarters Resort currently consists of 36 one-and
two-bedroom suites for a total of 1,856 Vacation
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Ownership Interests. The Company expects to commence development of a total of
124 additional one-and two-bedroom suites (totalling 6,324 Vacation Ownership
Interests) at the resort. Such construction commenced in the third quarter of
1998 and will be completed in phases of eight to nine suites each. Current and
proposed amenities include a swimming pool, an outdoor spa, picnic areas,
bicycle rental, on-site movie rentals and an exercise facility. In addition, the
resort has special golf privileges at Port Royal Resort and Shipyard Plantation
and exclusive tennis privileges at the Port Royal Racquet Club. The Planter's
Quarters Resort has been designated as a Gold Crown Resort by RCI, the highest
designation in RCI's rating system. Hilton Head Island is a popular vacation
destination which attracts over 2.5 million visitors each year to its over 20
world-class championship golf courses, 6 major tennis centers, 7 major shopping
and entertainment centers, 12 miles of beach and over 200 restaurants.
SALES AND MARKETING
The Company believes that it has acquired significant skill and expertise in
the development, management and operation of its resorts and in the marketing of
Vacation Ownership Interests. The Company's sales representatives are a critical
component of its sales and marketing effort, and the Company continually strives
to attract, train and retain a dedicated sales force. The Company provides
intensive sales instruction and training, which coupled with the sales
representative's valuable local knowledge of each resort, assists in acquainting
prospective customers with each resort's benefits. The Company's sales staff is
required to provide each customer with a written disclosure statement regarding
the Vacation Ownership Interest to be sold prior to the time the customer signs
a purchase agreement. This disclosure statement sets forth relevant information
regarding ownership of a Vacation Ownership Interest at the resort and must be
signed by every purchaser. The Company believes that this information statement
contains all material and relevant information a customer requires to make an
informed decision regarding the purchase of a Vacation Ownership Interest at one
of its resorts, and contributes to its low rates of rescission. The Company
sells Vacation Ownership Interests to purchasers for leisure purposes and not
for investment purposes.
CUSTOMER FINANCING
GENERAL
Approximately 90% of the Company's customers finance their purchase of a
Vacation Ownership Interest with the Company. The Company financed approximately
90% of the aggregate purchase price of these sales during each of 1996 and 1997
and the six months ended June 30, 1998, and received cash for the remaining
balance. The typical financing extended by the Company on a Vacation Ownership
Interest provides for a term of approximately seven years at a fixed interest
rate. At the closing of a sale of a Vacation Ownership Interest, the Company
delivers the deed to the purchaser and secures repayment of such purchaser's
obligation by obtaining a mortgage on such purchaser's Vacation Ownership
Interest.
The Company believes that its financing is attractive to purchasers who find
it convenient to handle all facets of the purchase of Vacation Ownership
Interests through a single source and because the downpayments required by the
Company are similar to those required by banks and mortgage companies which
offer this type of credit, when such credit is available. The weighted average
interest rate on the Company's notes receivable was 14.4%, 14.9% and 15.0% at
December 31, 1996, December 31, 1997 and June 30,
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1998, respectively. The table below sets forth additional information relating
to the Company's notes receivable (amounts in thousands).
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------------------- JUNE 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Notes receivable, gross, secured by Vacation Ownership Interests.... $ 21,732,059 $ 37,897,911 $ 46,262,418
Reserve for loan losses............................................. (736,211) (750,061) (1,227,598)
------------- ------------- -------------
Notes receivable, net............................................... $ 20,995,848 $ 37,147,850 $ 45,034,820
------------- ------------- -------------
------------- ------------- -------------
Charge-offs......................................................... $ 448,359 $ 1,377,617 $ 220,406
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
LOAN UNDERWRITING
Consistent with industry practice, Vacation Ownership Interest financing is
not subject to extensive loan underwriting criteria. Prior to providing such
financing, the Company performs a commercial credit check. The Company requires
a minimum downpayment of 10% of the purchase price and the execution of certain
closing documents. The Company encourages purchasers to make increased
downpayments by offering a lower interest rate. In addition, purchasers who do
not elect to participate in the Company's pre-authorized payment plan are
charged interest at a rate which is one percent greater than the otherwise
prevailing rate.
COLLECTION POLICIES
The Company currently bears the risk of purchaser default under its
traditional receivable financial facilities. Under these facilities, the
Company's practice has been to continue to accrue interest on its loans to
purchasers of Vacation Ownership Interests until such loans are deemed to be
uncollectible, at which point it commences foreclosure proceedings and, upon
obtaining title, returns such Vacation Ownership Interests 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. If a purchaser of a
Vacation Ownership Interest defaults on the mortgage during the early part of
the loan amortization period, the Company will not have recovered its marketing,
selling (other than certain sales commissions) and general and administrative
costs relating to such Vacation Ownership Interest. In addition, although in
certain jurisdictions the Company may seek recourse against a defaulting
customer for the sales price of a Vacation Ownership Interest, the Company has
not historically pursued such a remedy. See "Risk Factors--Risks Associated with
Customer Financing and Receivables."
LOAN LOSS RESERVES
Reserve for loan losses as a percentage of period-end notes receivable was
3.5%, 2.0% and 2.7% at December 31, 1996, December 31, 1997 and June 30, 1998,
respectively. The adequacy of the Company's reserve for loan losses is
determined by management and reviewed on a regular basis considering, among
other factors, historical frequency of default, loss experience, present and
expected economic conditions as well as the quality of receivables. See "Risk
Factors--Risks Associated with Customer Financing and Receivables."
SALES OF RECEIVABLES/PLEDGING OF RECEIVABLES
The Company has historically pledged substantially all of its receivables to
obtain financing, generally retaining the right and obligation to service such
receivables. In the case of receivables in securitization transactions pledged
to a financial institution, the Company generally must maintain a debt to
eligible collateral rate (based on outstanding principal balance of the pledged
loans) of 90%. The Company is
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obligated to pledge additional eligible receivables or make additional principal
payments in order to maintain this collateralization rate. Repurchases and
additional principal payments have not been material to date. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Capital Resources."
RECEIVABLES SERVICING
Receivables servicing includes collecting payments from borrowers and
remitting such funds to the owners, lenders or investors in such receivables,
accounting for receivables principal and interest, making advances when
required, contacting delinquent borrowers, foreclosing in the event that
defaults are not remedied and performing other administrative duties. The
Company outsources the servicing of its receivables to a third party vendor, and
paid aggregate fees of $228,119 and 76,211 in fiscal 1997 and the second quarter
of 1998, respectively. The Company expects that its receivables servicing will
not change substantially when advances under the New Receivables Facility
commence.
CUSTOMER SERVICE
The Company emphasizes customer satisfaction and maintains full-time
customer service representatives in its King of Prussia headquarters to respond
to customer inquiries. At closing, all purchasers are provided with a toll-free
customer service phone number to facilitate any additional information requests.
Customer service surveys are often sent to each purchaser to measure customer
satisfaction and to alert the Company to problems, if any.
PARTICIPATION IN EXCHANGE NETWORKS
The Company believes that consumers are more likely to purchase from its
inventory of Vacation Ownership Interests as a result of its participation in
exchange networks. In a 1997 study sponsored by ARDA, exchange opportunity was
cited by purchasers of Vacation Ownership Interests as one of the most
significant factors in their decision to purchase such an interest. Membership
in an exchange network allows the owner of a Vacation Ownership Interest at one
of the Company's resorts to exchange their occupancy right for a similar right
at another participating resort, based upon availability and the payment of a
variable exchange fee. A Vacation Ownership Interest can be exchanged by listing
the interest as available with the exchange network affiliated with the owner's
home resort and requesting occupancy at another participating resort, indicating
the preferred resort or geographic area, the size of the unit desired, and the
period during which occupancy is desired. The exchange network assigns a rating
to each listed Vacation Ownership Interest, which is based upon a number of
factors, including the location and size of the unit, the quality of the resort
and the time of year during which the exchanging owner's Vacation Ownership
Interest is available. The network then attempts to satisfy the exchange request
by providing an occupancy right in a participating resort with a similar rating.
COMPETITION
The Company competes with other vacation ownership resort providers as well
as hotels, motels, condominium developments and second homes. Competition is
based primarily upon the attractiveness and location of the resort property and
amenities. The Company considers the direct competitors of individual resorts to
also include alternative accommodations, including hotels, motels,
bed-and-breakfasts and small vacation ownership operators located within the
immediate geographic vicinity of each of its resorts.
The vacation ownership industry historically has been highly fragmented and
dominated by a very large number of local and regional resort developers and
operators, each with limited portfolios. More recently, many of the world's most
widely-recognized lodging, hospitality and entertainment companies have begun to
develop and sell timeshare and vacation ownership interests under their brand
names,
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including Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental.
In addition, other publicly-traded companies such as Signature, Vistana,
Fairfield, Trendwest, ILX, Bluegreen and Silverleaf currently compete or may
compete in the future with the Company. Furthermore, significant competition
exists in other markets in which the Company currently operates or is developing
vacation ownership resorts. Many entities with which the Company competes have
significantly greater access to financial, sales and marketing and other
resources than those of the Company and may be able to grow at a more rapid rate
or more profitably as a result. Management anticipates that competition will
increase in the future as a result of consolidation in the vacation ownership
industry. There can be no assurance that the Company will be able to
successfully compete with such consolidated companies. See "Risk
Factors--Competition."
GOVERNMENT REGULATION
The Company's marketing and sales activities and other resort operations are
subject to extensive regulation by the federal government and the states in
which the Company's resorts are located and in which its Vacation Ownership
Interests are marketed and sold. Federal legislation to which the Company is or
may be subject includes the Federal Trade Commission Act, the Fair Housing Act,
the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Equal
Credit Opportunity Act, the Interstate Land Sales Full Disclosure Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, and the Civil Rights
Acts of 1964, 1968 and 1991. Many states have adopted legislation as well as
specific laws and regulations regarding the sale of vacation ownership
interests. The laws of most states require a designated state authority to
approve a public report of condominium, a detailed offering statement describing
the Company and all material aspects of the resort and the sale of Vacation
Ownership Interests at such resort. In addition, the laws of most states in
which the Company sells Vacation Ownership Interests grant the purchaser of such
an interest the right to rescind a contract of purchase at any time within a
statutory rescission period, which generally ranges from three to ten days.
Furthermore, most states have other laws which regulate the Company's
activities, such as real estate licensure laws, travel sales licensure laws,
anti-fraud laws, telemarketing laws, prize, gift and sweepstakes laws, labor
laws and various regulations governing access and use of the Company's resorts
by disabled persons. The Company believes that it is in material compliance with
all applicable federal, state, local and foreign laws and regulations to which
it is currently subject. See "Risk Factors--Government Regulation."
EMPLOYEES
As of June 30, 1998, the Company employed a total of 667 full time
employees, and plans to add employees to staff the resorts purchased in
connection with the Acquisitions. None of the Company's employees are
represented by a collective bargaining unit, and the Company believes that its
relations with its employees are good.
LEGAL PROCEEDINGS
The Company is not presently involved in any material legal proceedings.
However, from time to time during the ordinary course of business, the Company
is threatened with, or may become a party to legal actions and other proceedings
incidental to the Company's business. The Company believes that its potential
exposure to such legal actions is adequately covered by its general liability
insurance.
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MANAGEMENT
MANAGING MEMBER
The Company's Managing Member is Epic Membership Corp., a Delaware
corporation wholly owned by Mr. Flatley. Pursuant to the Company's Operating
Agreement, the Managing Member has the sole power to conduct, manage, control
and make all decisions affecting the conduct of the business, assets and affairs
of the Company. The Company also maintains a Board of Managers which acts in an
advisory capacity to the Managing Member and performs such other functions as
delegated to it by the Managing Member. In addition, the Board of Managers
retains certain duties and powers pursuant to the terms of the Indenture
governing the Notes. See "Description of Notes."
MANAGERS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
named as a manager and/or executive officer of the Company. Managers serve until
their successors are elected, and Officers hold office until their successors
are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Thomas F. Flatley.................................... 46 President, Chief Executive Officer and Manager
Scott J. Egelkamp.................................... 39 Vice President, Chief Financial Officer and Manager
Gerald L. Clark...................................... 66 Manager
James A. Ditanna..................................... 48 Manager
Robert M. Kramer..................................... 46 Manager
</TABLE>
THOMAS F. FLATLEY has been President, Chief Executive Officer and a Director
of predecessors of the Company since 1991. Mr. Flatley has also served as the
President and a Director of American Financial Mortgage Corporation, a national
mortgage banking company, since 1988. From 1974 to 1982, Mr. Flatley practiced
as a Certified Public Accountant with Price Waterhouse, LLP. Mr. Flatley was
recently awarded the 1998 ARDA Community Service Award.
SCOTT J. EGELKAMP has been Vice President and Chief Financial Officer of
predecessors of the Company since 1992. Mr. Egelkamp has also served, since
1988, as Vice President and Chief Financial Officer of American Financial
Mortgage Corporation. Mr. Egelkamp has over 15 years of experience as a
financial manager in service and manufacturing environments.
GERALD L. CLARK, NCARB, FAIA, has served as Director of Development of
predecessors of the Company since 1992. Mr. Clark, a registered architect, has
over 35 years of experience in all aspects of design, construction and
development and currently also serves as President of Clark & Associates
Architects, Inc. In addition, Mr. Clark is a partner and principal of Accent
Plus Interiors, an interior design company.
JAMES A. DITANNA has served as Chief Financial Officer and Financial
Consultant of Nexmed, Inc., a pharmaceutical manufacturing company, since 1996.
Mr. Ditanna has also been a joint venture partner in VAVCO, a vaccine
manufacturer since 1992. Prior to joining Nexmed, Inc., Mr. Ditanna worked as a
consultant in the field of international finance and business development. Mr.
Ditanna practiced as a tax specialist with Price Waterhouse in Teheran, Iran.
Mr. Ditanna has a dual Masters in Business and Governmental Administration from
the Wharton School of the University of Pennsylvania.
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<PAGE>
ROBERT M. KRAMER has served as General Counsel, Executive Vice President and
Secretary of the Eastern Environmental Services, Inc. since June 1996. Since
1989, Mr. Kramer has been the sole partner of Robert M. Kramer & Associates,
P.C., a law firm consisting of three lawyers. From December 1989 to December
1997, Mr. Kramer served on the Board of Directors of American Capital
Corporation, a registered securities broker-dealer. Mr. Kramer received a J.D.
degree from Temple University Law School.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth, for fiscal
1997, certain information about the compensation paid to the chief executive
officer and the other executive officer of the Company (the "Named Executives").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------ ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Thomas F. Flatley--............................................... 1997 (a) -- --
President and Chief Executive
Officer
Scott J. Egelkamp--............................................... 1997 $ 125,000 -- --
Vice President and Chief Financial
Officer
</TABLE>
- ------------------------
(a) Mr. Flatley did not receive a salary in 1997. It is expected that Mr.
Flatley's salary after the Initial Offering will be $280,000 per year.
EMPLOYMENT AGREEMENTS. Each of Thomas F. Flatley and Scott J. Egelkamp (the
"Executive Officers") have entered into employment agreements with the Company
(the "Employment Agreements"). Each Employment Agreement provides for an
employment term of three years, commencing May 20, 1998 (the "Employment
Period") and an annual base salary of $280,000 and $125,000, for Mr. Flatley and
Mr. Egelkamp, respectively. The Executive Officers' annual base salary is
subject to increase at the discretion of the Board of Managers. Each of Mr.
Flatley and Mr. Egelkamp's Employment Agreements provide that if such Executive
Officer is terminated for any reason other than violation of such agreement,
such Executive Officer is entitled to 120 days, notice prior to termination, to
payment of all accrued and unpaid salary and benefits through the date of
termination, and a lump sum payment equal to one year of his salary. In
addition, if the Employment Agreement of either Executive Officer is terminated
without cause upon the occurrence of a merger, consolidation or other business
combination in which the Company is not the surviving entity, such Executive
Officer will be entitled to a lump sum payment equal to two years of his salary.
Pursuant to the Employment Agreements, each of the Executive Officers has
agreed (i) not to compete with the Company in the vacation ownership business
during the Employment Period and for a period of six months after the
termination of such period, and (ii) to keep all proprietary information of the
Company confidential for a period of two years following the termination of his
employment with the Company. Each Executive Officer has also agreed that he will
not solicit any employee to leave the employ of the Company during the
Employment Period or for two years following the termination of his employment
with the Company.
LIFE INSURANCE POLICY The Company purchased an annual renewable term life
insurance policy on Mr. Flatley from CNA Life Insurance Company. This policy has
a face value of $15 million. The Company is the sole beneficiary of such policy.
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COMPENSATION OF MANAGERS. The Company pays each Manager an annual retainer
of $10,000 to be paid in four quarterly installments of $2,500 each. In
addition, each Manager receives reasonable out-of-pocket expenses for each
meeting attended.
PRINCIPAL MEMBERS
99% of the 1,118,000 outstanding Membership Interests in the Company are
held by its President and Chief Executive Officer, Mr. Flatley. The remaining 1%
of outstanding Membership Interests are owned by Epic Membership Corp., a
Delaware corporation wholly owned by Mr. Flatley, which acts as the Managing
Member of the Company. In connection with the Initial Offering and the
Acquisitions, the Company agreed to issue Epic Warrants exercisable, in the
aggregate, for approximately 14% of the total outstanding Membership Interests
on a fully diluted basis after giving effect to the Initial Offering.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1990, London Bridge Resort obtained a line of credit not to
exceed $3,412,545. This loan was collateralized by an assignment of a second
mortgage on London Bridge Resort's facilities and properties and was subordinate
to the claims of London Bridge Resort's construction and equipment loans and did
not become payable until such loans have been paid in full. American Realty
Group, Inc., a Pennsylvania corporation wholly-owned by Mr. Flatley ("ARG"), was
the holder of a promissory note evidencing such loan (the "American Realty
Debt"). Interest on the promissory note accrued at a rate of 8.5% per annum up
to a maximum amount of $500,000. In 1995, interest accrued to $500,000 and the
promissory note became non-interest bearing. As of December 31, 1997, the
balance of the promissory note was $3,912,545, and was repaid out of the
proceeds of the Initial Offering. Pursuant to an Agreement to Subordinate dated
October 30, 1995, between ARG and Queen's Bay Joint Venture ("QBJV")
(predecessor to London Bridge Resort, LLC.), ARG was entitled to receive a fee
of $1,087,455 upon the repayment of certain financing of QBJV as consideration
for ARG's agreement to subordinate the American Realty Debt to such financing.
Such fee was paid in connection with the Initial Offering.
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DESCRIPTION OF OTHER INDEBTEDNESS
The Existing Receivables Facility is a $23.0 million Receivables Loan and
Security Facility between London Bridge Resort, Inc. and a financial
institution, which bears interest at prime plus 2.5% (11.0% at June 30, 1998).
The Existing Receivables Facility is payable in monthly installments of
principal and interest equal to 100% of all proceeds of the receivables
collateral collected during the month. Any remaining principal under the
Existing Receivables Facility is due seven years after the date of the last
advance related to mortgages receivable and is collateralized by the specific
mortgages receivable. As of June 30, 1998, the outstanding balance under the
Existing Receivables Facility was approximately $21.3 million.
On September 28, 1998, the Company and PSCC entered into the New Receivables
Facility, whereby PSCC agreed to finance up to $75 million (outstanding at any
time) of Vacation Ownership Interest Receivables. Under the terms of the New
Receivables Facility, the Company will sell Vacation Ownership Interest
Receivables to Epic Funding, an unconsolidated special purpose subsidiary, and
PSCC will make advances to Epic Funding in an amount equal to 88% of the lesser
of (i) the unpaid principal balance of the Vacation Ownership Interest
Receivables sold to Epic Funding or (ii) the market value of such receivables as
determined by Prudential Securities Incorporated. Requests for advances under
the New Receivables Facility are limited to a maximum of one per week, with no
dollar limit. The New Receivables Facility will terminate on September 28, 1999,
unless terminated earlier due to the occurrence of an event of default, a
material adverse change in the business, operations or financial condition of
the Company or Epic Funding, or cumulative receivable defaults in excess of 9%.
Advances under this facility will bear interest at a per annum rate equal to one
month LIBOR plus 1.50%, reset daily. The New Receivables Facility is intended to
provide non-recourse interim funding for the Vacation Ownership Interests
Receivables pending their long-term funding through securitization transactions.
The commitment is subject to customary conditions, and the events of default
under the New Receivables Facility include failure to maintain the financial
covenants applicable to the Notes and failure to maintain a collateral value
based on PSCC's mark-to-market valuation. The Company retains a subordinated
interest in the pooled Vacation Ownership Interest Receivables. An event of
default could allow PSCC to liquidate the Vacation Ownership Interest
Receivables, thereby impairing the Company's retained interest in such
receivables. The Company expects to use the borrowings under the New Receivables
Facility to, among other things, repay the outstanding loans under the Existing
Receivables Facility, to fund new Vacation Ownership Interest Receivables and to
provide working capital.
The Existing Receivables Facility and the New Receivables Facility include,
among other things, customary representations and warranties, provisions with
respect to the payment of certain fees and expenses, conditions to funding,
eligibility rates and advance requirements for collateral, events of default and
certain financial and other covenants, including limitations on the incurrence
of indebtedness, net worth and fixed charge coverage requirements and other
coverage ratios.
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THE EXCHANGE OFFER
PURPOSES AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were sold by the Issuers on July 8, 1998 to the Initial
Purchaser pursuant to the Purchase Agreement among the Issuers, the Subsidiary
Guarantors and the Initial Purchaser. The Initial Purchaser subsequently resold
the Original Notes in transactions exempt from registration under the Securities
Act. Pursuant to the Purchase Agreement, the Issuers entered into the
Registration Rights Agreement. According to the terms of the Registration Rights
Agreement, the Issuers have agreed, for the benefit of the holders of the
Original Notes, at the Issuers' cost, to (i) file a registration statement with
the Commission within 75 days after the Issue Date of the Original Notes with
respect to the Exchange Offer for the Original Notes, and (ii) cause the
registration statement to be declared effective under the Securities Act within
135 days after the Issue Date. Upon the registration statement being declared
effective, the Issuers will offer the Exchange Notes in exchange for the
Original Notes. The Issuers will keep the Exchange Offer open for no less than
20 days (or longer if required by applicable law) after the date on which notice
of the Exchange Offer is mailed to the holders of the Original Notes.
For each Original Note properly tendered and accepted pursuant to the
Exchange Offer, the holder of such Original Note will receive an Exchange Note
having a principal amount equal to that of the Original Note tendered. Interest
on each Exchange Note will accrue from the last respective interest date on
which interest was paid on the Original Note tendered in exchange therefor, or,
if no interest has been paid on such Original Note, from the Issue Date. Holders
whose Original Notes are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Original Notes.
Each holder of the Original Notes who wishes to exchange the Original Notes
for Exchange Notes in the Exchange Offer will be required to represent in the
Letter of Transmittal that (i) it is not an affiliate of an Issuer or any of the
Subsidiary Guarantors, (ii) the Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and that it is not acting on behalf of a person who could not
truthfully make the foregoing representations.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as a
result of market making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of the Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Issuers to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 165 days after the Issue
Date, or, under certain circumstances, if the Initial Purchasers or any holder
of Original Notes (other than the Initial Purchasers) who is not eligible to
participate in the Exchange Offer shall so request (each a "Shelf Request"), the
Issuers will at their cost, (a) as promptly as practicable, and within 75 days
of the Issue Date, file a shelf registration statement covering resales of the
Original Notes (a "Shelf Registration Statement"), (b) use their reasonable
efforts to cause such Shelf Registration Statement to be declared effective
under the Securities Act no later than 135 days following the Issue Date and (c)
use their reasonable efforts to keep effective such Shelf Registration Statement
until the earlier of (i) two years after the Issue Date, (ii) such time as all
of the applicable Registrable Notes (as defined in the Registration Rights
Agreement) have been sold thereunder or (iii) such time as the Notes become
eligible for registration without volume restrictions pursuant to Rule 144 under
the Securities Act. The Issuers will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of Original Notes copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of Original
Notes. A holder that sells its Original Notes pursuant to a Shelf
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Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
If the Issuers or the Subsidiary Guarantors fail to comply with the above
provisions or if such Shelf Registration Statement fails to become effective,
then, as liquidated damages, additional interest (the "Additional Interest")
shall become payable with respect to the Notes as follows:
(i) if the Registration Statement or Shelf Registration Statement is not
filed within 75 days following the Issue Date, Additional Interest shall
accrue on the Notes over and above the stated interest at a rate of 0.50%
per annum for the first 30 days commencing on the 76th day after the Issue
Date or the Shelf Notice, respectively, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period;
(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 135 days following the Issue Date, Additional
Interest shall accrue on the Notes over and above the stated interest at a
rate of 0.50% per annum for the first 30 days commencing on the 136th day
after the Issue Date or the Shelf Notice, respectively, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 30-day period; or
(iii) if (A) the Issuers have not exchanged all Notes validly tendered
in accordance with the terms of the Exchange Offer on or prior to 165 days
after the Issue Date or (B) the Exchange Registration Statement ceases to be
effective at any time prior to the time that the Exchange Offer is
consummated or (C) if applicable, the Shelf Registration Statement has been
declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of the Issue Date
(unless all the Notes have been sold thereunder), then Additional Interest
shall accrue on the Notes over and above the stated interest at a rate of
0.50% per annum for the first 30 days commencing on (x) the 166th day after
the Issue Date with respect to the Notes validly tendered and not exchanged
by the Note Issuers, in the case of (A) above, or (y) the day the Exchange
Registration Statement ceases to be effective or usable for its intended
purpose in the case of (B) above, or (z) the day such Shelf Registration
Statement ceases to be effective in the case of (C) above, such additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 30-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the Notes under clauses
(i), (ii) or (iii) above, may not exceed, in the aggregate, 1.50% per annum; and
PROVIDED FURTHER, that (1) upon the filing of the Registration Statement or
Shelf Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration Statement or Shelf Registration Statement (in
the case of (ii) above), or (3) upon the exchange of Exchange Notes for all
Notes tendered (in the case of clause (iii)(A) above), or upon the effectiveness
of the Registration Statement which had ceased to remain effective (in the case
of clause (iii)(B) above), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
above), Additional Interest on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Notwithstanding anything to the contrary in Section 4(a) of the Registration
Rights Agreement, the Issuers and the Subsidiary Guarantors will not be required
to pay liquidated damages to the holder of Transfer Restricted Securities if
such holder failed to comply with its obligations to make the representations or
failed to provide the information required to be provided by it, if any,
pursuant to the Registration Rights Agreement.
The liquidated damages are intended to constitute the sole damages that will
be suffered by holders of Registrable Notes described above by reason of the
failure of (i) the Shelf Registration Statement or the
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Registration Statement to be filed, (ii) the Shelf Registration Statement to
remain effective or (iii) the Registration Statement to be declared effective
and the Exchange Offer to be consummated, in each case to the extent required by
the Registration Rights Agreement.
The summary herein of the material provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, which has been incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part, a copy of which will
be available upon request to Epic.
Following the consummation of the Exchange Offer, holders of the Original
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Original Notes will not have any further exchange or registration
rights and such Original Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Original Notes could be adversely affected. See "Risk Factors--Consequences of
Failure to Exchange Original Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Original
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Issuers will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of Original Notes
accepted in the Exchange Offer. Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However, Original Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and will not
contain certain provisions relating to an increase in the interest rate which
were included in the terms of the Original Notes in certain circumstances
relating to the timing of the Exchange Offer and (ii) holders of the Exchange
Notes will not be entitled to certain rights of the holders of the Original
Notes under the Registration Rights Agreement, which rights shall terminate upon
the consummation of the Exchange Offer. The Exchange Notes will evidence the
same debt as the Original Notes (which they replace) and will be issued under
and entitled to the benefits of the Indenture. The Original Notes and the
Exchange Notes will constitute a single class of debt securities under the
Indenture.
As of the date of this Prospectus, $130.0 million aggregate principal amount
of Original Notes are outstanding. The Issuers have fixed the close of business
, 1998 as the record date for the Exchange Offer for purposes of
determining the person to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of the Original Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. The Issuers intend to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Original Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Original Notes from the Issuers.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Original Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
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Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions of the
Letter of Transmittal, transfer taxes with respect to the exchange of Original
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than the transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Issuers, in their sole discretion, extend the
Exchange Offer (for a maximum of an additional 20 business days), in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral (confirmed in writing) or written notice, and
will make a public announcement thereof through an appropriate news agency,
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. The Issuers reserve the right, (i) to
delay accepting any Original Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
PROCEDURES FOR TENDERING
The tender of Original Notes pursuant to any of the procedures set forth in
this Prospectus and in the Letter of Transmittal will constitute a binding
agreement between the tendering Holder and the Issuers in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal. The tender of Original Notes will constitute an agreement to
deliver good and marketable title to all tendered Original Notes prior to the
Expiration Date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind. Holders must follow the procedures set
forth in this Prospectus in order to properly and effectively tender Original
Notes.
EXCEPT AS PROVIDED IN "--GUARANTEED DELIVERY PROCEDURES," UNLESS THE
ORIGINAL NOTES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL), THE ISSUERS MAY, AT THEIR OPTION, REJECT SUCH
TENDER. ISSUANCE OF EXCHANGE NOTES WILL BE MADE ONLY AGAINST DEPOSIT OF TENDERED
ORIGINAL NOTES AND DELIVERY OF ALL OTHER REQUIRED DOCUMENTS. NOTWITHSTANDING THE
FOREGOING, DTC PARTICIPANTS TENDERING THROUGH ATOP WILL BE DEEMED TO HAVE MADE
VALID DELIVERY WHERE THE EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (DEFINED
BELOW) PRIOR TO THE EXPIRATION DATE.
ORIGINAL NOTES HELD THROUGH DTC. Each Beneficial Owner holding Original
Notes through a DTC Participant must instruct such DTC Participant to cause its
Original Notes to be tendered in accordance with the procedures set forth in
this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Original Notes through DTC must (i) electronically transmit
its acceptance through ATOP, and DTC will then verify the acceptance, execute a
book-entry delivery to the Exchange Agent's account at DTC and send an Agent's
Message to the Exchange Agent for its acceptance, or (ii) comply with the
guaranteed delivery procedures set forth below and in the Notice of Guaranteed
Delivery. See "--Guaranteed Delivery Procedures."
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The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect to
Original Notes held through DTC, and any financial institution that is a DTC
Participant may make book-entry delivery of interests in Original Notes into the
Exchange Agent's account through ATOP. However, although delivery of interests
in the Original Notes may be effected through book-entry transfer into the
Exchange Agent's account through ATOP, an Agent's Message in connection with
such book-entry transfer, and any other required documents, must be transmitted
to and received by the Exchange Agent at its address set forth under "Exchange
Agent," or the guaranteed delivery procedures set forth below must be complied
with, in each case, prior to the Expiration Date. Delivery of documents to DTC
does not constitute delivery to the Exchange Agent. The confirmation of a
book-entry transfer into the Exchange Agent's account at DTC as described above
is referred to herein as a "Book-Entry Confirmation." The term "Agent's Message"
means a message transmitted by DTC to, and received by, the Exchange Agent and
forming a part of the Book-Entry Confirmation, which states that DTC has
received an express acknowledgment from each DTC Participant tendering through
ATOP that such DTC Participants have received a Letter of Transmittal and agree
to be bound by the terms of the Letter of Transmittal and that the Issuers may
enforce such agreement against such DTC Participants.
Cede & Co., as the Holder of the global certificates representing the
Original Notes (a "Global Security"), will tender a portion of each Global
Security equal to the aggregate principal amount due at the stated maturity for
which instructions to tender are given by DTC Participants.
ORIGINAL NOTES HELD BY HOLDERS. Each Holder must (i) complete and sign and
mail or deliver the accompanying Letter of Transmittal, and any other documents
required by the Letter of Transmittal, together with certificate(s) representing
all tendered Original Notes, to the Exchange Agent at its address set forth
under "--Exchange Agent," or (ii) comply with the guaranteed delivery procedures
set forth below and in the Notice of Guaranteed Delivery. See "--Guaranteed
Delivery Procedures."
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor" institution
within the meaning of the Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution"); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Original Notes are tendered for the account of an
Eligible Institution including (as such terms are defined in Rule 17Ad-15): (i)
a bank; (ii) a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings institution that is a
participant in a Securities Transfer Association recognized program.
If a Letter of Transmittal or any Original Note is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Issuers of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the Letter of Transmittal
the name and address to which substitute certificates evidencing Original Notes
for amounts not tendered are to be issued or sent, if different from the name
and address of the person signing the Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no instructions are given,
such Original Notes not tendered, as the case may be, will be returned to the
person signing the Letter of Transmittal.
By tendering, each Holder and each DTC Participant will make to the Issuers
the representations set forth in the third paragraph under the heading
"--Purposes and Effect of the Exchange Offer."
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No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or transmitting
an acceptance through ATOP, as the case may be, each tendering Holder waives any
right to receive any notice of the acceptance for purchase of its Original
Notes.
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance and withdrawal of tendered Original Notes will be
resolved by the Issuers in their discretion, whose determination will be final
and binding. The Issuers reserve the absolute right to reject any or all tenders
that are not in proper form or the acceptance of which may, in the opinion of
counsel for the Issuers, be unlawful. The Issuers also reserve the absolute
right to waive any condition to the Exchange Offer and any irregularities or
conditions of tender as to particular Original Notes. The Issuers'
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding. Unless
waived, any irregularities in connection with tenders must be cured within such
time as the Issuers shall determine. The Issuers and the Exchange Agent shall
not be under any duty to give notification of defects in such tenders and shall
not incur liabilities for failure to give such notification. Tenders of Original
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Original Notes received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
LETTERS OF TRANSMITTAL AND ORIGINAL NOTES MUST BE SENT ONLY TO THE EXCHANGE
AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR ORIGINAL NOTES TO THE ISSUERS OR
DTC.
The method of delivery of Original Notes and Letters of Transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or Letters of
Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, it is suggested that the Holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
ORIGINAL NOTES HELD THROUGH DTC. DTC Participants holding Original Notes
through DTC who wish to cause their Original Notes to be tendered, but who
cannot transmit their acceptances through ATOP prior to the Expiration Date, may
cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by mail, hand delivery,
facsimile transmission or overnight courier) substantially in the form
provided by the Issuers herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection
therewith (as described above) are received by the Exchange Agent within
three New York Stock Exchange ("NYSE") trading days after the date of the
execution of the Notice of Guaranteed Delivery.
ORIGINAL NOTES HELD BY HOLDERS. Holders who wish to tender their Original
Notes and (i) whose Original Notes are not immediately available, (ii) who
cannot deliver their Original Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
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(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder, the
certificate number(s) of such Original Notes and the principal amount of
Original Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three NYSE trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Original Notes (or a confirmation of
book-entry transfer of such Original Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility), and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Original Notes in proper form for transfer (or a confirmation or book-entry
transfer of such Original Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent upon three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m, New York City time, on the Expiration
Date.
ORIGINAL NOTES HELD THROUGH DTC. DTC Participants holding Original Notes
who have transmitted their acceptances through ATOP may, prior to 5:00 p.m., New
York City time, on the Expiration Date, withdraw the instruction given thereby
by delivering to the Exchange Agent, at its address set forth under "Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC Participant, the principal amount due at the Stated Maturity date of the
Original Notes to which such withdrawal related and the signature of the DTC
Participant. Withdrawal of such an instruction will be effective upon receipt of
such written notice of withdrawal by the Exchange Agent.
ORIGINAL NOTES HELD BY HOLDERS. Holders may withdraw a tender of Original
Notes in the Exchange Offer by a telegram, telex, letter or facsimile
transmission notice of withdrawal received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify
the Original Notes to be withdrawn (including the certificate number(s) and
principal amount due at the Stated Maturity of such Original Notes, or, in the
case of Original Notes transferred by book-entry transfer, the name and number
of the account at the Book-Entry Transfer Facility to be credited), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Original Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Original Notes register the
transfer of such Original Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Original Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Issuers, whose determination shall be final and binding on
all parties. Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Any Original Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as
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practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Original Notes may be retendered by following one of
the procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Original Notes being withdrawn are held for the account
of an Eligible Institution.
A withdrawal of an instruction or withdrawal of a tender must be executed by
a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or Letter of Transmittal,
as the case may be, to which such withdrawal relates. If a notice of withdrawal
is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the notice of withdrawal. A DTC Participant or a Holder may withdraw an
instruction or a tender, as the case may be, only if such withdrawal complies
with the provisions of this Prospectus.
A withdrawal of a tender of Original Notes by a DTC Participant or a Holder,
as the case may be, may be rescinded only by a new transmission of an acceptance
through ATOP or execution and delivery of a new Letter of Transmittal, as the
case may be, in accordance with the procedures described herein.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange securities for, any Original
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Issuers upon written advice of counsel, could
reasonably be expected to materially impair the ability of the Issuers to
proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Issuers or
any of Epic's subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the judgment of
the Issuers and based on written advice of counsel, could reasonably be
expected to materially impair the ability of the Issuers to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their discretion and based on written advice of counsel,
deem necessary for the consummation of the Exchange Offer as contemplated
hereby.
If any of the conditions are not satisfied, the Issuers may (i) refuse to
accept any Original Notes and return all tendered Original Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all Original Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to the
rights of holders to withdraw such Original Notes (see "--Withdrawal of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Original Notes which have not
been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. All questions and requests for assistance as well as all
correspondence in connection with the
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Exchange Offer and the Letter of Transmittal should be directed to the Exchange
Agent by phone at 800-548-6565, by facsimile at 212-780-0592 or addressed to the
Exchange Agent as follows:
BY HAND DELIVERY BEFORE 4:30 P.M. ON THE EXPIRATION DATE:
United States Trust Company of New York
111 Broadway, Lower Level
Attn: Corporate Trust Window
New York, New York 10006
BY OVERNIGHT COURIER OR BY HAND DELIVERY AFTER 4:30 P.M. ON THE EXPIRATION DATE:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
BY REGISTERED OR CERTIFIED MAIL:
United States Trust Company of New York
P.O. Box 844, Cooper Station
Attn: Corporate Trust Services
New York, New York 10276-0844
Requests for additional copies of this Prospectus, the Letter of Transmittal
or the Notice of Guaranteed Delivery should be directed to the Exchange Agent.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, as reflected in the Issuers' accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Issuers.
CONSEQUENCES OF FAILURE TO EXCHANGE
Original Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Issuers (upon redemption thereof or
otherwise), (ii) so long as the Original Notes are eligible for resale pursuant
to Rule 144A, to a person inside the United States whom the seller reasonably
believes is a qualified
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institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Issuers), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. See "Risk Factors--Consequences of
Failure to Exchange Original Notes."
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Issuers believe that a holder or other person who receives Exchange Notes in
the ordinary course of business, whether or not such person is the holder (other
than (i) a broker-dealer who purchases such Exchange Notes from the Issuers to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of an Issuer within the
meaning of Rule 405 under the Securities Act) who receives Exchange Notes in
exchange for Original Notes, and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the Exchange Notes a prospectus
that satisfies the requirements of Section 10 of the Securities Act. However, if
any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any similar interpretive letters, and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Issuers in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an affiliate of an Issuer within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives Exchange Notes
for its own account in exchange for Original Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
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DESCRIPTION OF NOTES
GENERAL
The Original Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of the Issue Date, among the Issuers, the Subsidiary
Guarantors and United States Trust Company of New York, as Trustee (the
"Trustee"), a copy of which is available upon request to the Company. The
Original Notes and the Exchange Notes will constitute a single class of debt
securities under the Indenture and, accordingly will vote together as a single
class for purposes of determining whether holders of the requisite percentage of
outstanding principal amount of Notes have taken certain actions or exercised
certain rights under the Indenture. The following is a summary of certain
provisions of the Indenture and the Notes and does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture (including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended) and the Notes.
Except as otherwise indicated, the following description relates both to the
Original Notes issued in the Initial Offering and the Exchange Notes to be
issued in the Exchange Offer. The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes in all material respects,
except that (i) the Exchange Notes will bear a Series B designation and have
been registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms of
the Original Notes in certain circumstances relating to the timing of the
Exchange Offer and (ii) the holders of the Exchange Notes will not be entitled
to certain rights of the holders of the Original Notes under the Registration
Rights Agreement, which rights shall terminate upon the consummation of the
Exchange Offer. The Exchange Notes will be obligations of the Company evidencing
the same indebtedness as the Original Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of a holder as such address appears in the Note Register.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes. The
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar, which initially will be the Trustee's corporate trust office
in New York, New York. The Company may change any Paying Agent and Registrar
without notice to holders of the Notes.
For each Original Note accepted for exchange, the holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF NOTES
The Issuers sold $130.0 million aggregate principal amount of Original Notes
in the Initial Offering. The Notes will mature on June 15, 2005. Each Note will
bear interest at the rate of 13% per annum, payable semiannually on June 15 and
December 15 of each year (each an "Interest Payment Date"), commencing on
December 15, 1998, to holders of record at the close of business on the
fifteenth day of the month (whether or not a business day) immediately preceding
the relevant Interest Payment Date; provided, that interest payable at maturity
will be payable to the person to whom principal is payable. Interest on the
Exchange Notes will accrue from (i) the last interest payment date on which
interest was paid on the Original Notes surrendered in exchange therefor, or
(ii) if no interest has been paid on the
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Original Notes, from July 8, 1998. Holders whose Original Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Original Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Notes will not be entitled to the benefit
of any mandatory sinking fund.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to June 15, 2003. On and after such date, the Notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), if redeemed during the 12-month period
commencing on June 15 of the years set forth below, plus accrued and unpaid
interest to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant Interest
Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. 106.50%
2004 and thereafter.............................................................. 103.25%
</TABLE>
OPTIONAL REDEMPTION UPON EQUITY OFFERING. In addition, at any time prior to
June 15, 2001, the Company may, at its option, redeem up to 35% of the original
aggregate principal amount of the Notes, with Net Cash Proceeds of one or more
Equity Offerings, at a redemption price equal to 113% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED, HOWEVER, that at least 65% of the original aggregate
principal amount of the Notes remains outstanding after each such redemption. In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 90 days after the
consummation of any such Equity Offering.
SELECTION. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a PRO RATA basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate; PROVIDED, HOWEVER, that if a partial redemption is made with
proceeds of an Equity Offering, selection of the Notes or portion thereof for
redemption shall be made by the Trustee only on a PRO RATA basis, unless such
method is otherwise prohibited. Notes may be redeemed in part in multiples of
$1,000 principal amount only. Notice of redemption will be sent, by first class
mail, postage prepaid, at least 45 days (unless a shorter period is acceptable
to the Trustee) prior to the date fixed for redemption to each holder whose
Notes are to be redeemed at the last address for such holder then shown on the
registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the Indenture.
RANKING
The Original Notes are and the Exchange Notes will be senior obligations of
the Issuers and the Original Notes rank and the Exchange Notes will rank PARI
PASSU in right of payment with all existing and future Senior Indebtedness of
the Issuers and the Original Notes rank and the Exchange Notes will rank senior
in right of payment to any existing and future Subordinated Obligations of the
Issuers. The Original
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Notes are and the Exchange Notes will be effectively subordinated in right of
payment to Secured Indebtedness of the Issuers to the extent of the assets
serving as security therefor. As of March 31, 1998, on a pro forma basis after
giving effect to the Initial Offering and the application of the net proceeds
therefrom as discussed under "Use of Proceeds", the Issuers and the Subsidiary
Guarantors would have had $19.9 million of Secured Indebtedness, excluding the
Notes, which (along with the Notes) is the only Senior Indebtedness of the Note
Issuers and the Subsidiary Guarantors. See "Description of Other Indebtedness."
SECURITY
The Original Notes are and the Exchange Notes will be secured by (a) a
Mortgage on all real property acquired by the Issuers after the Issue Date,
which Mortgages shall convert into, and be replaced by, Mortgages on the Pledged
Vacation Ownership Interests of the Note Issuers as they are created; PROVIDED,
that real property acquired or developed with funds from an A&D Facility shall
not be subject to a Mortgage until such A&D Facility has been repaid in full,
(b) a security interest in the Escrow Account, and (c) a security interest in
the Cash Collateral Account; PROVIDED, that the Company shall have unrestricted
access to the funds in the Cash Collateral Account unless an Event of Default
has occurred and is continuing.
Except as provided below, the Subsidiary Guarantees of London Bridge Resort,
LLC and Daytona Beach Regency, Ltd. are secured by a Mortgage on the Vacation
Ownership Interests on the real property owned by such Subsidiary Guarantors
and, to the extent that Vacation Ownership Interests have yet to be created on
such properties, on the fee simple interest of such Subsidiary Guarantors in
such real property. Upon the creation of further Vacation Ownership Interests on
such Pledged Real Property, the Mortgages on such Pledged Real Property shall
convert into, and be replaced by, Mortgages on such Pledged Vacation Ownership
Interests. In the case of London Bridge Resort, LLC, its Subsidiary Guarantee is
secured by its existing completed but unsold Vacation Ownership Interests solely
to the extent permitted under its existing Receivables Credit Facility. In
addition, London Bridge Resort, LLC's new resort development may be financed
through an A&D Facility, in which case it will not be subject to a Mortgage
until such A&D Facility is repaid in full.
The Subsidiary Guarantees of Epic Resorts-Westpark Resort, LLC, Epic
Resorts-Hilton Head, LLC and Epic Resorts-Scottsdale Links Resort, LLC initially
are secured by a first Mortgage on their Pledged Real Property and, upon the
creation of Vacation Ownership Interests at such properties, such Mortgages will
automatically be converted into, and be replaced by, Mortgages on the Pledged
Vacation Ownership Interests of such subsidiaries. In addition, the Subsidiary
Guarantee of Epic Resorts-Palm Springs Marquis Villas, LLC is secured by a
leasehold mortgage on the leasehold acquired by it in connection with the
Acquisitions.
No assurances can be given as to the value of the Pledged Real Property or
the Pledged Vacation Ownership Interests or as to the amount that would be
realized in the event of a foreclosure or other comparable proceeding realizing
on the Mortgages or that the property will not decline in value. Pursuant to the
terms of the Indenture and the Mortgages, the Trustee shall be required to
release the lien of the Mortgages with respect to the sale of any property
covered thereby unless an Event of Default shall have occurred and be
continuing. Absent such an Event of Default, the Trustee shall not have a lien
on the proceeds from a sale of the Pledged Vacation Ownership Interests.
Consequently, the value of the collateral covered by the Mortgages will diminish
over time as Pledged Vacation Ownership Interests are sold. The Company
currently estimates, based on historical sales at London Bridge Resort and
Daytona Beach Regency, that the Pledged Vacation Ownership Interests and the
unsold Vacation Ownership Interests securing the indebtedness evidenced by the
Pledged Note will be sold out over a four to seven year period. In addition, if
the lender under an A&D Facility requires as a condition to making advances
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thereunder that such advances be secured by a Mortgage on the real property to
be acquired and/or developed with such advances, then absent the occurrence and
continuance of an Event of Default, the Trustee shall, to the extent so required
by such lender, remove any existing Mortgage in its favor from the property and
shall refrain from imposing any Mortgages thereon until such A&D Facility has
been repaid in full. Once such A&D Facility has been repaid in full, the
applicable Note Issuer or Subsidiary Guarantor shall be obligated to cause the
removal of such lender's Mortgage, and the Trustee shall impose or reimpose, as
the case may be, its Mortgage on such property. See "Risk Factors--Risk of
Inability to Realize Upon Security; Insufficient Collateral."
If the recording tax applicable to the filing of a Mortgage is more then a
de minimis amount, the amount secured by such Mortgage shall equal two times the
aggregate purchase price and development cost of the property subject to such
Mortgage, not to exceed $130.0 million. In addition, in connection with the
acquisition of any real property, the Company shall have 60 days from the date
of such acquisition within which to grant, or cause to be granted, the Mortgage
on such property required by the Indenture unless, prior to the expiration of
such sixty-day period, the Company determines to utilize an A&D Facility to
finance development of such real property, in which case no Mortgage will be
granted until such A&D Facility is repaid in full.
SUBSIDIARY GUARANTEES
Each Subsidiary Guarantor has unconditionally guaranteed on a senior basis,
jointly and severally, to each holder and the Trustee, as primary obligor and
not as a surety, the full and prompt payment of principal of and interest on the
Notes, and of all other obligations of the Note Issuers under the Indenture.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture) result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to
contribution from each other Subsidiary Guarantor of a PRO RATA amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor (other than Warrant Co.) may consolidate with or
merge into or sell its assets to the Company or another Subsidiary Guarantor
without limitation. Subject to certain conditions, each Subsidiary Guarantor
(other than Warrant Co.) may also consolidate with or merge into or sell all or
substantially all its assets to a corporation, partnership or trust other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor). Upon the sale or disposition of a Subsidiary Guarantor
(or all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company,
which sale or disposition is otherwise in compliance with the Indenture
(including the covenant described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock"), such Subsidiary Guarantor shall be
deemed released from all its obligations under the Indenture and its Subsidiary
Guarantee, and such Subsidiary Guarantee shall terminate; PROVIDED, HOWEVER,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under and all of its guarantees of, and under all of
its pledges of assets or other security interests which secure, any other
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
Subsequent to the Issue Date, separate financial information for the
Subsidiary Guarantors will not be provided except to the extent required by
Regulation S-X under the Securities Act.
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ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if (i) the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary, other than a
Receivables Subsidiary, or (ii) an Unrestricted Subsidiary of the Company is
redesignated as a Restricted Subsidiary or otherwise ceases to be an
Unrestricted Subsidiary, then such newly, acquired, created or redesignated
Restricted Subsidiary shall execute a supplemental indenture and become a
Subsidiary Guarantor in accordance with the terms of the Indenture.
DISBURSEMENT OF FUNDS--INTEREST ESCROW ACCOUNT
Pursuant to the Indenture, the Issuers placed $16.9 million of the net
proceeds of the Initial Offering, representing funds sufficient to pay the first
two interest payments on the Notes, into the Escrow Account. The Issuers entered
into the Escrow and Disbursement Agreement, which provides, among other things,
that funds may be disbursed from the Escrow Account to fund the first interest
payment on the Notes and, upon certain repurchases or redemptions thereof, to
pay principal of and premium, if any, thereon. Pending such disbursement, the
Note Issuers will cause all funds contained in the Interest Escrow Account to be
invested in Cash Equivalents. Interest earned on these Cash Equivalents will be
added to the Interest Escrow Account. After the first Interest Payment Date, the
Note Issuers must at all times maintain funds in the Escrow Account sufficient
to fund the next required interest payment on the Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require the Company to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date): (i)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company
and its Subsidiaries; (ii) a majority of the Board of Directors of the Company
shall consist of Persons who are not Continuing Directors of the Company; (iii)
if no Equity Offering shall have occurred, the failure of Thomas F. Flatley to
continue to beneficially own more than 50% of the ordinary voting power for the
election of managers or directors of the Company; (iv) if an Equity Offering
shall have occurred, the failure of Mr. Flatley to beneficially own at least 25%
of the ordinary voting power for the election of managers or directors of the
Company or (v) if any Person or Group shall at any time beneficially own a
greater percentage of the ordinary voting power for the election of managers or
directors of the Company than is then beneficially owned by Mr. Flatley.
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on a record date to receive interest
on the relevant Interest Payment Date); (2) the purchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (3) the procedures determined by the Company, consistent with the
Indenture, that a holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict
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with provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries. With respect to the disposition of property or
assets, the phrase "all or substantially all" as used in the Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the law which governs
the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to repurchase the Notes as described above.
Future Senior Indebtedness of the Company and its Subsidiaries may contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be purchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders upon a purchase may be limited the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required purchases.
MANDATORY OFFER TO PURCHASE
During the period beginning on and including June 15, 2000 and ending on and
including June 15, 2002, the Issuers are obligated to make one or more Mandatory
Purchase Offers to purchase a total of $65 million (the "Mandatory Purchase
Amount") aggregate principal amount of Notes (subject to adjustment as described
below) at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of payment. Any Mandatory Purchase
Offer must be made on an Interest Payment Date, and in connection with any
Mandatory Purchase Offer, the Issuers must offer to purchase at least $10
million aggregate principal amount of Notes (or such lesser amount as shall
result in the Issuers' having offered to purchase, in the aggregate, the
Mandatory Purchase Amount of Notes). If prior to any Mandatory Repurchase Offer,
Notes have been called for redemption or purchased by the Issuers, the Mandatory
Purchase Amount shall be reduced by an amount equal to the aggregate principal
amount of the Notes so called for redemption or purchased. If Notes with an
aggregate principal amount in excess of the amount that the Issuers are seeking
to purchase in connection with a Mandatory Purchase Offer are tendered in
connection with such Mandatory Purchase Offer, such Notes shall be purchased on
a PRO RATA basis.
On any Interest Payment Date on which the Issuers are making a Mandatory
Purchase Offer, the Issuers shall mail a notice to each holder with a copy to
the Trustee stating: (1) that a Mandatory Purchase Offer is being made and that
such holder has the right to require the Issuers to purchase such holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase; (2) the aggregate
principal amount of Notes to be purchased in connection with such Mandatory
Purchase Offer and that if Notes in excess of such amount are tendered, that
such Notes will be purchased on a pro rata basis; (3) the purchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (4) the procedures determined by the Issuers, consistent
with the Indenture, that a holder must follow in order to have its Notes
purchased.
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The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Issuers will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The Issuers' ability to pay cash to the holders in connection with a
Mandatory Purchase Offer may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required purchases.
CERTAIN COVENANTS
The Indenture contains certain covenants, including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED,
HOWEVER, that the Company and its Restricted Subsidiaries may Incur Indebtedness
if (i) no Default or Event of Default shall have occurred and be continuing at
the time of such Incurrence or would occur as a consequence of such Incurrence
and (ii) the Consolidated Coverage Ratio would be equal to at least (x) 2.00 to
1.00 if such Indebtedness is incurred on or prior to June 1, 2000, (y) 2.25 to
1.00 if such Indebtedness is incurred after June 1, 2000 but on or prior to June
1, 2002 and (z) 2.50 to 1.00 if such Indebtedness is Incurred after June 1,
2002.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness represented by Capitalized Lease Obligations, mortgage
financing or purchase money obligations, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in a Permitted Business or
Incurred to refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the date of
such acquisition or the date of completion of such construction or
improvement; PROVIDED, HOWEVER, that the principal amount of any
Indebtedness Incurred pursuant to this clause (i) shall not exceed $2.0
million at any time outstanding;
(ii) Indebtedness of the Company owing to and held by any Wholly-Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly-Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or any Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iii) Indebtedness represented by (A) the Original Notes and the Exchange
Notes, (B) the Subsidiary Guarantees, (C) Existing Indebtedness and (D) any
Refinancing Indebtedness Incurred in respect of any Indebtedness described
in clause (i) or this clause (iii) or Incurred pursuant to paragraph (a)
above;
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); PROVIDED, HOWEVER, that at the time such
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Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to paragraph
(a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (iv) and (B) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of the
Company or any of its Restricted Subsidiaries for or in connection with
pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations and (C) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchises or customers of obligations (other than
Indebtedness) incurred in the ordinary course of business;
(vi) Indebtedness under Currency Agreements and Interest Rate
Agreements; PROVIDED, HOWEVER, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the Company or
its Restricted Subsidiaries (as determined in good faith by the Board of
Directors of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates as applicable, to Indebtedness of
the Company or its Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business;
(vii) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credits, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the disposition of
any business assets or Restricted Subsidiary of the Company (other than
Guarantees of Indebtedness or other obligations incurred by any Person
acquiring all or any portion of such business assets or Restricted
Subsidiary of the Company for the purpose of financing such acquisition) in
a principal amount not to exceed the gross proceeds actually received by the
Company or any of its Restricted Subsidiaries in connection with such
disposition; PROVIDED, HOWEVER, that the principal amount of any
Indebtedness Incurred pursuant to this clause (vii) when taken together with
all Indebtedness Incurred pursuant to this clause (vii) and then
outstanding, shall not exceed $2.0 million;
(viii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness incurred by a Restricted Subsidiary without violation of the
Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of the Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness incurred by the Company without
violation of the Indenture (so long as such Restricted Subsidiary could have
Incurred such Indebtedness directly without violation of the Indenture);
(ix) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument issued by the Company or
its Subsidiaries drawn against insufficient funds in the ordinary course of
business in an amount not to exceed $250,000 in the aggregate at any time,
provided that such Indebtedness is extinguished within two business days of
its incurrence;
(x) Indebtedness representing borrowings against Vacation Ownership
Interests Receivable relating to property as to which no certificate of
occupancy has been received; PROVIDED, that the aggregate amount of
Indebtedness permitted under this clause (x) shall at no time exceed $5
million;
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(xi) Indebtedness Incurred pursuant to credit facilities (A) in an
amount not to exceed 85% of Vacation Ownership Interests Receivable
outstanding at the time of Incurrence or (B) by a Receivables Subsidiary in
an amount not to exceed 100% of the total amount of Vacation Ownership
Interests Receivable outstanding as of the time of Incurrence as long as all
such Indebtedness is not Guaranteed by the Company or any Subsidiary,
PROVIDED that in either case such Indebtedness is secured by a Lien on such
Vacation Ownership Interests Receivable; and
(xii) Indebtedness Incurred under A&D Facilities; PROVIDED, that if the
Consolidated Coverage Ratio at the time of such Incurrence is at least 2.00
to 1.00 but less than 3.00 to 1.00, the total amount of Indebtedness
Incurred pursuant to the clause (xii) shall not exceed $30.0 million at any
one time outstanding; PROVIDED, FURTHER, that if the Consolidated Coverage
Ratio at the time of such Incurrence is less than 2.00 to 1.00, the total
amount of Indebtedness Incurred pursuant to this clause (xii) shall not
exceed $15.0 million.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses at the time of incurrence, the Company shall, in its sole discretion,
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in the applicable clause(s) so selected by the
Company. No fluctuation in currency exchange rates or interest rates following
the incurrence of any Indebtedness shall result in a Default hereunder if the
Indebtedness itself was incurred in compliance with the Indenture at the time of
the incurrence.
(c) Neither the Company nor any Restricted Subsidiary shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the Company
unless such Indebtedness shall be subordinated to the Notes to at least the same
extent as such Subordinated Obligations. No Restricted Subsidiary shall Incur
any Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Guarantor Subordinated Obligation of
such Subsidiary Guarantor unless such Indebtedness shall be subordinated to the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee to at
least the same extent as such Guarantor Subordinated Obligation.
(d) The Company will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock and (B) dividends or distributions payable to the Company or a
Restricted Subsidiary of the Company which holds any equity interest in the
paying Restricted Subsidiary (and if the Restricted Subsidiary paying the
dividend or making the distribution is not a Wholly-Owned Subsidiary, to its
other holders of Capital Stock on a PRO RATA basis), (ii) purchase, redeem,
retire or otherwise acquire for value any Capital Stock of the Company held by
Persons other than a Wholly-Owned Subsidiary of the Company or any Capital Stock
of a Restricted Subsidiary of the Company held by any Affiliate of the Company,
other than a Wholly-Owned Subsidiary (in either case, other than in exchange for
its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
as described in preceding clauses (i) through (iv) being referred to as a
"Restricted Payment");
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if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); or (2) the Company is not able to incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under "Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments declared or made subsequent to the Issue Date would exceed the sum of
(A) 50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from the first day of the fiscal quarter beginning on or
after the Issue Date to the end of the most recent fiscal quarter ending prior
to the date of such Restricted Payment as to which financial results are
available (but in no event ending more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate net proceeds received by
the Company from the issue or sale of its Capital Stock (other than Disqualified
Stock) or other capital contributions subsequent to the Issue Date (other than
net proceeds received from an issuance or sale of such Capital Stock to (x) a
Subsidiary of the Company, (y) an employee stock ownership plan or similar trust
or (z) management employees of the Company or any Subsidiary of the Company
(other than sales of Capital Stock (other than Disqualified Stock) to management
employees of the Company pursuant to BONA FIDE employee stock option plans of
the Company); PROVIDED, HOWEVER, that the value of any non-cash net proceeds
shall be as determined by the Board of Directors in good faith, except that in
the event the value of any non-cash net proceeds shall be $2.0 million or more,
the value shall be as determined in writing by an independent investment banking
firm of nationally recognized standing); (C) the amount by which Indebtedness of
the Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); and (D)
the amount equal to the net reduction in Investments (other than Permitted
Investments) made after the Issue Date by the Company or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser, repayments of loans or advances or other transfers
of assets by such Person to the Company or any Restricted Subsidiary of the
Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of "Investment")
not to exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously included in the calculation of the amount of Restricted
Payments; PROVIDED, HOWEVER, that no amount shall be included under this Clause
(D) to the extent it is already included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary, an employee stock ownership plan
or similar trust or management employees of the Company or any Subsidiary of the
Company); PROVIDED, HOWEVER, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph
(a); (ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company in compliance with the
"Limitation on Indebtedness" covenant; PROVIDED, HOWEVER, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations as a
result of a Change of Control (provided that the covenant described in
"Limitation on Repayments upon a Change of Control" is complied with); (iv) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock"
below; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments; (v) dividends paid within
60 days after the date of declaration if at such date of declaration such
dividend would have complied with this provision; PROVIDED, HOWEVER, that such
dividend shall be included in the calculation of
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the amount of Restricted Payments; and (vi) so long as the Company is not
treated for federal income tax purposes as a corporation or an association
taxable as a corporation or other entity that is subject to an entity level tax
for income tax purposes, distributions to any holder of Membership Interests in
the Company (each, a "Member"), as soon as practicable after the end of each
calendar quarter, of an amount (A) reasonably determined to be sufficient to pay
any federal and, if such an election is in effect for state and local income tax
purposes, state and local income taxes actually imposed on such Member's
allocable share of income from the Company, or (B) if Thomas F. Flatley and his
Affiliates cease to own beneficially 90% or more of the ordinary voting power
for the election of directors of the Company, equal to such Member's Tax
Allowance Amount in respect of such quarter, and the Company shall cause the
Accountants to deliver to the Trustee a certificate setting forth the
determination of each Member's Tax Allowance Amount within 60 days of the end of
each fiscal year; PROVIDED, HOWEVER, such Tax Allowance Amounts shall be
excluded in the calculation of the amount of Restricted Payments; PROVIDED,
FURTHER, that in the case of clauses (i), (ii), (iii) and (iv) no Default or
Event of Default shall have occurred or be continuing at the time of such
payment or as a result thereof.
(c) For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment; PROVIDED, HOWEVER, that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the Capital Stock or Indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment in an aggregate amount
in excess of $2.0 million, a written opinion as to the fairness of the valuation
thereof (as determined by the Company) for purposes of determining compliance
with the "Limitation on Restricted Payments" covenant in the Indenture shall be
issued by an independent investment banking firm of national standing.
(d) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officer's certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available quarterly
financial statements, and a copy of any required investment banker's opinion.
LIMITATION ON LIENS. The Indenture provides that the Company will not and
will not permit any Restricted Subsidiary to, directly or indirectly, create or
permit to exist any Liens except for Permitted Liens.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligation owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company or Guarantee the Notes, except: (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Issue Date; (b) any
encumbrance or restriction with respect to such a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness issued by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was
acquired by the Company and outstanding on such date (other than Indebtedness
Incurred in anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary of the Company or was acquired by the Company); (c) any encumbrance
or restriction with respect to such a Restricted
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Subsidiary pursuant to an agreement evidencing Indebtedness Incurred without
violation of the Indenture or effecting a refinancing of Indebtedness issued
pursuant to an agreement referred to in clauses (a) or (b) or this clause (c) or
contained in any amendment to an agreement referred to in clauses (a) or (b) or
this clause (c); PROVIDED, HOWEVER, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less favorable to
the holders of the Notes in any material respect, as determined in good faith by
the Board of Directors of the Company, than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in agreements in effect at, or
entered into on, the Issue Date; (d) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture, (C) that is included in a licensing
agreement to the extent such restrictions limit the transfer of the property
subject to such licensing agreement or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate, detract
from the value of property or assets of the Company or any of its Subsidiaries
in any manner material to the Company or any such Restricted Subsidiary; (e) in
the case of clause (iii) above, restrictions contained in security agreements,
mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject to
such security agreements; (f) in the case of clause (iii) above, any instrument
governing or evidencing Indebtedness of a Person acquired by the Company or any
Restricted Subsidiary of the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person so acquired; PROVIDED, HOWEVER, that
such Indebtedness is not incurred in connection with or in contemplation of such
acquisition; (g) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (h) encumbrances or
restrictions arising or existing by reason of applicable law; (i) any
encumbrance or restriction pursuant to Indebtedness of Restricted Subsidiaries
that is permitted to be incurred subsequent to the Issue Date pursuant to the
provisions of the covenant described under "--Limitation on Indebtedness"; and
(j) restrictions on cash or other deposits imposed by customers under contracts
incurred in the ordinary course of business consistent with past practices.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Company's Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 75% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) FIRST, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of any Secured
Indebtedness), (x) to prepay, repay or purchase Secured Indebtedness within 45
days from the later of the date of such Asset Disposition or the receipt of such
Net Available Cash or (y) to the investment in or acquisition of Additional
Assets within 360 days from the later of the date of such Asset Disposition or
the receipt of such Net Available Cash; (B) SECOND, within 360 days from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), to make an offer
to purchase Notes at 100% of their principal amount plus accrued and unpaid
interest, if any, thereon; and (C) THIRD, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A) and (B) (w)
to the investment in or acquisition of Additional Assets, (x) the making of
Temporary Cash Investments or (y) and other purpose otherwise permitted under
the Indenture, in each case within the later of 45 days after the application of
Net Available Cash in accordance with
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clauses (A) and (B) or the date that is one year from the receipt of such Net
Available Cash; PROVIDED, HOWEVER, that, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (B) above, the
Company or such Restricted Subsidiary shall retire such Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this covenant at any
time exceed $10.0 million. The Company shall not be required to make an offer
for Notes pursuant to this covenant if the Net Available Cash available therefor
(after application of the proceeds as provided in clause (A)) is less than $10.0
million for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of Senior Indebtedness of the Company or
Senior Indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such Senior
Indebtedness in connection with such Asset Disposition (in which case the
Company shall, without further action, be deemed to have applied such assumed
Indebtedness in accordance with clause (A) of the preceding paragraph) and (y)
securities received by the Company or any Restricted Subsidiary of the Company
from the transferee that are promptly (and in any event within 90 days)
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(B), the Company will be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes at a purchase price
of 100% of their principal amount plus accrued and unpaid interest, if any, to
the purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the Notes tendered pursuant to the offer is less than the Net Available
Cash allotted to the purchase of the Notes, the Company will apply the remaining
Net Available Cash in accordance with clause (a)(iii)(C) above.
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of the Company, other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the disinterested members of such Board, if any
(and such majorities each determine that such Affiliate Transaction satisfies
the criteria in (i) above); and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $2.0 million, the Company has received
a written opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of
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securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, or any stock options
and stock ownership plans for the benefit of employees, officers and directors,
consultants and advisors approved by the Board of Directors of the Company,
(iii) loans or advances to employees in the ordinary course of business of the
Company or any of its Restricted Subsidiaries in aggregate amount outstanding
not to exceed $250,000 to any employee or $500,000 in the aggregate at any time,
(iv) any transaction between Wholly-Owned Subsidiaries, (v) indemnification
agreements with, and the payment of fees and indemnities to, directors, officers
and employees of the Company and its Restricted Subsidiaries, in each case in
the ordinary course of business, (vi) transactions pursuant to agreements in
existence on the Issue Date which are (x) described in the Prospectus or (y)
otherwise, in the aggregate, immaterial to the Company and its Restricted
Subsidiaries taken as a whole, (vii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business, (viii) the
issuance of Capital Stock of the Company (other than Disqualified Stock), (ix)
the payment of reasonable and customary fees to directors of the Company who are
not employees of the Company (including, without limitation, the grant of stock
options), and (x) Affiliate Transactions between either the Company or a
Restricted Subsidiary and a Receivables Subsidiary involving the transfer or
sale of Vacation Ownership Interests Receivable.
LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The
Company will not permit any of its Restricted Subsidiaries to issue any Capital
Stock to any Person (other than to the Company or a Wholly-Owned Subsidiary of
the Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own any Capital Stock of a Restricted Subsidiary
of the Company, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of the Company; PROVIDED, HOWEVER,
that this provision shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of all of the Capital
Stock of any Restricted Subsidiary or (y) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary in compliance with the Indenture.
LIMITATION ON REPAYMENT UPON A CHANGE OF CONTROL. The Company will not make
an offer to repurchase any Subordinated Obligations if required to do so
pursuant to a Change of Control until at least 60 days after the occurrence of
such Change of Control and shall not purchase any Subordinated Obligations for
30 days following the time the Company is required to make purchases of the
Notes under the Indenture following such Change of Control.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
Guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction with respect to any property or assets unless (i) the Company or
such Restricted Subsidiary, as the case may be, would be entitled pursuant to
the Indenture to Incur Indebtedness secured by a Permitted Lien on such property
or assets in an amount equal to the Attributable Indebtedness with respect to
such Sale/Leaseback Transaction, (ii) the Net Cash Proceeds from such Sale/
Leaseback Transaction are at least equal to the fair market value of the
property or assets subject to such Sale/Leaseback Transaction (such fair market
value determined, in the event such property or assets have a fair market value
in excess of $1.0 million, no more than 30 days prior to the effective date of
such Sale/ Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a resolution of such Board) and (iii) the Net Cash Proceeds of such
Sale/Leaseback Transaction are applied in accordance with the provisions
described under "--Limitation on Sales of Assets and Subsidiary Stock."
SEC REPORTS. The Company will provide to the Trustee and the holders of the
Notes, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event that the Company is not
required to file such reports with the Commission
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pursuant to the Exchange Act, the Company will nevertheless deliver such
Exchange Act information to the Trustee and the holders of the Notes within 15
days after it would have been required to file it with the Commission.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of (i)
fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Additional Indebtedness" at the time of
Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"--Limitation on Restricted Payments."
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
TAXES. The Company will, and will cause its Restricted Subsidiaries to, pay
and discharge when due and payable all taxes, levies, imposts, duties or other
governmental charges ("Taxes") imposed on it or on its income or profits or on
any of its properties except such Taxes which are being contested in good faith
in appropriate proceedings and for which adequate reserves have been established
in accordance with GAAP.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to, any Person, unless: (i) the resulting, surviving or transferee Person
(the "Successor Company") shall be a corporation, partnership, trust or limited
liability
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company organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been Incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company (A) shall have a Consolidated Net Worth equal or greater to
the Consolidated Net Worth of the Company immediately prior to such transaction
and (B) shall be able to incur at least an additional $1.00 of Indebtedness
pursuant to paragraph (a) of "--Limitation on Indebtedness"; (iv) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture; and (v) there has
been delivered to the Trustee an Opinion of Counsel to the effect that holders
of the Notes will not recognize income, gain or loss for United States federal
income tax purposes as a result of such consolidation, merger, conveyance,
transfer or lease and will be subject to United States federal income tax with
respect to the Notes in the same amount and in the same manner and at the same
times as would have been the case if such consolidation, merger, conveyance,
transfer or lease had not occurred.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company or any other Wholly-Owned
Subsidiary. Notwithstanding the foregoing, neither Capital Corp. nor Warrant Co.
may merge with or into any other entity.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon required redemption or repurchase, upon declaration or
otherwise, (iii) the failure by any Note Issuer to comply with its obligations
under the "Merger and Consolidation" covenant described under "Certain
Covenants" above, (iv) the failure by the Company to comply for 30 days after
notice with any of its obligations under the covenants described under "Change
of Control" above or under covenants described under "Certain Covenants" above
(in each case, other than a failure to purchase Notes which shall constitute an
Event of Default under clause (ii) above), other than "Merger and
Consolidation," (v) the failure by any Note Issuer or any Subsidiary Guarantor
to comply for 60 days after notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $2.0 million and such default shall
not have been cured or such acceleration rescinded after a 20-day period, (vii)
certain events of bankruptcy, insolvency or reorganization of any Note Issuer or
a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or
decree for the payment of money in excess of $2.0 million (to the extent not
covered by insurance) is rendered against any Note Issuer or a Significant
Subsidiary and such judgment or decree shall remain undischarged or unstayed for
a period of 60 days after such judgment becomes final and non-appealable (the
"judgment default provision"), or (ix) any Subsidiary Guarantee by a Restricted
Subsidiary ceases to be in full force and effect (except as contemplated by the
terms of the Indenture) or any Subsidiary Guarantor denies or disaffirms its
obligations under the Indenture or its Subsidiary Guarantee and such Default
continues for 10 days.
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However, a default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Note Issuers do not
cure such default within the time specified in clause (iv) or (v), as
applicable, after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Note Issuers may declare the principal of and accrued and unpaid interest, if
any, on all the Notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of any Note Issuer occurs, the principal of and accrued and
unpaid interest on all the Notes will become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as its board of directors, a committee of its
board of directors or a committee of its Trust officers in good faith determines
that withholding notice is in the interests of the holders of the Notes. In
addition, the Note Issuers are required to deliver to the Trustee, within 90
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year. The
Note Issuers also are required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any events which would constitute
certain Defaults.
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past Default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each holder of the outstanding
Notes affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable
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upon the redemption or repurchase of any Note or change the time at which any
Note may be redeemed as described under "Optional Redemption" above, (v) make
any Note payable in money other than that stated in the Note, (vi) impair the
right of any holder to receive payment of principal of and interest on such
holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Notes or (vii)
make any change in the amendment provisions which require each holder's consent
or in the waiver provisions.
Without the consent of any holder, the Issuers and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation, partnership, trust or limited
liability company of the obligations of the Company under the Indenture
(provided that there has been delivered to the Trustee an Opinion of Counsel to
the effect that holders of Notes will not recognize income, gain or loss for
United States federal income tax purposes as a result of such assumption and
will be subject to United States federal income tax on the same amount and in
the same manner and at the same time as would have been the case if such
assumption had not occurred), to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add further Guarantees with respect to the Notes, to add
further security for the Notes, to add to the covenants of the Company for the
benefit of the holders or to surrender any right or power conferred upon the
Note Issuers, to make any change that does not adversely affect the rights of
any holder or to comply with any requirement of the Commission in connection
with the qualification of the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuers are
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
NO PERSONAL LIABILITY OF DIRECTORS, MANAGERS, OFFICERS, EMPLOYEES AND MEMBERS
No manager, officer or employee of the Company or any Subsidiary or member
of the Company, as such, shall have any personal liability for any obligations
of the Company or any Subsidiary under the Notes, the Indenture, the Subsidiary
Guarantees, the Mortgages or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary Guarantees and the
grant of the Mortgages. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuers at any time may terminate their obligations under covenants
described under "--Certain Covenants" (other than "Merger and Consolidation"),
the operation of the cross acceleration provision, the bankruptcy provisions
with respect to Significant Subsidiaries, the judgment default provision and the
Subsidiary Guarantee provision described under "Events of Default" above and the
limitations contained in clauses (iii) and (iv) under "--Certain
Covenants--Merger and Consolidation" above as well as the obligation to provide
security for the Notes and the Subsidiary Guarantees described under
"Description of Notes--Security" ("covenant defeasance").
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The Issuers may exercise the legal defeasance option notwithstanding their
prior exercise of the covenant defeasance option. If the Issuers exercise the
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuers exercise the covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries), (viii) or (ix) under "Events of Default" above or
because of the failure of the Company to comply with clause (iii) or (iv) under
"--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax with respect to the
Notes in the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal income tax
law).
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect (except as otherwise
expressly provided for in the Indenture) when either (i) all outstanding Notes
have been delivered (other than lost, stolen or destroyed Notes which have been
replaced) to the Trustee for cancellation or (ii) all outstanding Notes have
become due and payable, whether at maturity or as a result of the mailing of a
notice of redemption pursuant to the terms of the Indenture and the Issuers have
irrevocably deposited with the Trustee funds sufficient to pay at maturity or
upon redemption all outstanding Notes, including interest thereon (other than
lost, stolen, mutilated or destroyed Notes which have been replaced), and, in
either case, the Issuers have paid all other sums payable under the Indenture.
The Trustee is required to acknowledge satisfaction and discharge of the
Indenture on demand of the Issuers accompanied by an Officer's Certificate and
an Opinion of Counsel at the cost and expense of the Issuers.
TRANSFER AND EXCHANGE
Upon any transfer of a Note, the registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The registrar
is not required to transfer or exchange any Notes selected for redemption nor is
the registrar required to transfer or exchange any Notes for a period of 15 days
before a selection of Notes to be redeemed. The registered holder of a Note may
be treated as the owner of it for all purposes.
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as registrar and paying agent with regard
to the Notes. The Trustee's current address is 114 West 47th Street, New York,
New York 10036.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of any Note Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
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The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accountants" means Arthur Andersen LLP or such other nationally recognized
firm of independent certified public accountants as is reasonably acceptable to
the Trustee.
"A&D Facilities" means, with respect to the Company and its Restricted
Subsidiaries, one or more debt facilities with banks or other institutional
lenders providing for borrowings, the proceeds of which are required to be used
for the acquisition and/or development of real property owned by the Company or
such Restricted Subsidiary, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of
the type and in the amounts described in clause (viii) of the definition
thereof; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (x) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Subsidiary Guarantor with respect to
its contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantees, of such Subsidiary Guarantor at
such date and (y) the present fair salable value of the assets of such
Subsidiary Guarantor at such date exceeds the amount that will be required to
pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary by
such Subsidiary Guarantor in respect of the obligations of such Subsidiary under
the Subsidiary Guarantees), excluding debt in respect of the Subsidiary
Guarantees, as they become absolute and matured.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a sale, transfer or disposition in
the ordinary course of business of Vacation Ownership Interests or Vacation
Ownership Interests Receivables (including, without limitation, direct sales to
financial institutions and sales or transfers in connection with securitization
transactions in the ordinary course of business), (iii) a disposition of
obsolete or worn out equipment or equipment that is no longer useful in the
conduct of the business of the Company and its Restricted Subsidiaries and that
is disposed of in each case in the ordinary course of business, (iv)
dispositions of property for net proceeds which, when taken collectively with
the net proceeds of any other such dispositions under this clause (iv) that were
consummated since the beginning of the calendar year in which such disposition
is consummated, do not exceed $1.0 million, (v) transactions permitted under
"--Certain Covenants--Merger and Consolidation" above; and (vi) Permitted
Investments. Notwithstanding anything to the contrary contained above, a
Restricted Payment made in compliance with the "Limitation on Restricted
Payments" covenant shall not constitute an Asset Disposition except for purposes
of determinations of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate per annum equal to the discount rate which would be applicable to
a Capitalized Lease Obligation with a like term in accordance with GAAP) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
indebtedness, the quotient obtained by dividing (i) the sum of the product of
the numbers of years (rounded upwards to the nearest month) from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption multiplied by the amount of such payment by (ii)
the sum of all such payments.
"Board of Directors" means, with respect to any Person, the board of
directors, board of managers or other analogous controlling body of such Person
or any committee thereof duly authorized, with respect to any particular matter,
to exercise the power of such body, or so long as the Company is a limited
liability company, the managing member of the Company.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
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into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-l or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("S&P") and in each case
maturing within one year after the date of acquisition, (vi) investment funds
investing 95% of their assets in securities of the types described in clauses
(i)-(v) above, (vii) readily marketable direct obligations issued by any state
of the United States of America or any political subdivision thereof having one
of the two highest rating categories obtainable from either Moody's or S&P and
(viii) Indebtedness or preferred stock issued by Persons with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, and (v) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Notes) and less,
(x) the aggregate amount of contingent and "earnout" payments in respect of any
Permitted Business acquired by the Company or any Restricted Subsidiary that are
paid in cash during such period and (y) to the extent added in calculating
Consolidated Net Income, non-cash items (excluding such non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER,
that (A) if the Company or any of its Restricted Subsidiaries has incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by the Board
of Directors of the Company) shall be deemed outstanding for purposes of this
calculation), and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(B) if since the beginning of such period any Indebtedness of the Company or any
of its Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and the underlying commitment terminated and has not been
replaced), Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period
and as if the Company or any Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or Cash Equivalents
used to repay, repurchase, defease or otherwise discharge such Indebtedness, (C)
if since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount
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equal to the Consolidated Cash Flow (if positive) attributable to the assets
which are the subject of such Asset Disposition for such period or increased by
an amount equal to the Consolidated Cash Flow (if negative) attributable thereto
for such period, and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense attributable to
any Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary of the
Company is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (D) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result thereof)
or an acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (E) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (C) or (D) above if made by
the Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, PLUS, to the extent not included in such interest expense (i)
interest expense attributable to Capitalized Lease Obligations and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) capitalized interest, (iii) amortization of debt discount and
debt issuance costs, (iv) non-cash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any such
Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of
any other Person, (vii) net costs pursuant to Interest Rate Agreements and
Currency Agreements (including amortization of fees), (viii) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust and (ix) cash and Disqualified Stock dividends in respect
of all Preferred Stock of Subsidiaries and Disqualified Stock of the Company
held by Persons other than the Company or a Wholly-Owned Subsidiary and less
interest income. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Restricted Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
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"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and its consolidated Subsidiaries determined in accordance
with GAAP; PROVIDED, HOWEVER, that there shall not be included in such
Consolidated Net Income: (i) any net income (loss) of any person acquired by the
Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the "Limitation on
Restrictions on Distributions from Restricted Subsidiaries" covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business (it being understood that direct sales of Vacation
Ownership Interests Receivables to a financial institution or sales of Vacation
Ownership Interests Receivables in connection with securitization transactions
shall be deemed to be in the ordinary course of business) and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person,
(iv) any extraordinary gain or loss, (v) the cumulative effect of a change in
accounting principles, (vi) the net income of any Person, other than a
Restricted Subsidiary, except to the extent of the lesser of (A) cash dividends
or distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person and (B) the net income of such Person (but in no
event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of the Company or any of its Restricted Subsidiaries in such Person
and (vii) any non-cash expenses attributable to grants or exercises of employee
stock options. Notwithstanding the foregoing, for the purpose of the covenant
described under "--Certain Covenants--Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined on
a consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Continuing Director" of any Person means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of the Indenture or (ii) was nominated for election or elected to the Board
of Directors of such Person with the affirmative vote of a majority of the
Continuing Directors of such Person who were members of such Board of Directors
at the time of such nomination or election.
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures or is mandatorily redeemable,
pursuant to
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a sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final Stated Maturity of
the Notes, or (ii) is convertible into or exchangeable (unless at the sole
option of the issuer thereof) for (a) debt securities or (b) any Capital Stock
referred to in (i) above, in each case at any time prior to the final Stated
Maturity of the Notes.
"Equity Offering" means a primary public offering for cash by the Company of
its common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued, thereon,
after application of the net proceeds of the Notes as described in the
Prospectus.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Group" shall mean any "group" of related persons within the meaning of
Section 13(d) of the Exchange Act.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly, guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Subordinated Obligation" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on
the Issue Date or thereafter incurred) which is expressly subordinate or junior
in right of payment to the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee pursuant to a written agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of
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credit or other similar instruments (including reimbursement obligations with
respect thereto) (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i), (ii) and
(v)) entered into in the ordinary course of business of such Person to the
extent that such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third business day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services (except (x) trade
payables and accrued expenses incurred in the ordinary course of business and
(y) contingent or "earnout" payment obligations in respect of any Permitted
Business acquired by the Company or any Restricted Subsidiary), which purchase
price is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such services,
(v) all Capitalized Lease Obligations and all Attributable Indebtedness of such
Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person, (vii)
all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary of the Company, any Preferred Stock of such
Restricted Subsidiary to the extent such obligation arises on or before the
Stated Maturity of the Notes (but excluding, in each case, accrued dividends)
with the amount of Indebtedness represented by such Disqualified Stock or
Preferred Stock, as the case may be, being equal to the greater of its voluntary
or involuntary liquidation preference and its maximum fixed repurchase price;
PROVIDED that, for purposes hereof the "maximum fixed repurchase price" of any
Disqualified Stock or Preferred Stock, as the case may be, which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case may be, as if such
Disqualified Stock or Preferred Stock, as the case may be, were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based on the fair market value of such
Disqualified Stock or Preferred Stock, as the case may be, such fair market
value shall be determined in good faith by the Board of Directors of the Company
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. Unless specifically set
forth above, the amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts payable on the balance sheet of such Person) or other extension of
credit (including by way of Guarantee or similar arrangement, but excluding any
debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the definition
of "Unrestricted Subsidiary" and the covenant described under "Certain
Covenants--Limitation on Restricted Payments", (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of the Company at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such
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Subsidiary at the time of the original designation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a resolution of such Board of
Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date of issuance of the Original Notes.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition) therefrom in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all distributions and other payments required to
be made to any Person owning a beneficial interest in assets subject to sale or
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, (iii) the deduction of appropriate amounts to be provided by
the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition, provided
however, that upon any reduction in such reserves (other than to the extent
resulting from payments of the respective reserved liabilities), Net Available
Cash shall be increased by the amount of such reduction to reserves, and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition and (iv) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); PROVIDED,
HOWEVER, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor, general partner or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Officer" means the Chairman of the Board, the Vice-Chairman of the Board,
the Chief Executive Officer, the Chief Financial Officer, the President, any
Vice-President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" shall mean a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form and substance
acceptable to the Trustee, from legal counsel who is acceptable to the Trustee.
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"Permitted Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture, as reasonably determined
by the Company's Board of Directors.
"Permitted Investment" means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
PROVIDED, HOWEVER, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business and upon the making of such Investment, such Person becomes
a Restricted Subsidiary; (ii) another Person if as a result of such Investment
such other Person becomes a Wholly-Owned Subsidiary of the Company or is merged
or consolidated with or into, or transfers or conveys all or substantially all
its assets to, the Company or a Wholly-Owned Subsidiary of the Company and upon
the making of such Investment, such Person becomes a Restricted Subsidiary;
PROVIDED, HOWEVER, that in each case such Person's primary business is a
Permitted Business; (iii) Temporary Cash Investments; (iv) a Receivables
Subsidiary; (v) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (vi)
loans and advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary in
an aggregate amount outstanding at any one time not to exceed $250,000 to any
one employee or $1.0 million in the aggregate; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Restricted Subsidiaries or in
satisfaction of judgments or claims; (viii) Persons to the extent such
Investment is received by the Company or any Restricted Subsidiary as
consideration for asset dispositions effected in compliance with the covenant
described under "Limitations on Sales of Assets and Subsidiary Stock"; (ix)
prepayments and other credits to suppliers made in the ordinary course of
business consistent with the past practices of the Company and its Restricted
Subsidiaries; (x) Investments in connection with pledges, deposits, payments or
performance bonds made or given in the ordinary course of business in connection
with or to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations, (xi) loans by the
Company to Epic Resorts-Hilton Head, LLC for the purpose of constructing
vacation ownership suites at the Planter's Quarters Resort in an aggregate
principal amount not to exceed $4.0 million at any one time outstanding which
loans shall be on terms substantially similar (including with respect to
security) to the terms of the indebtedness described in clause (xii) below (with
the note evidencing such loan or loans pledged by the Company to the Trustee for
the benefit of the holders of the Notes as security for the Company's
obligations under the Notes), provided, that the aggregate principal amount of
such loans shall not be limited if Epic Resorts-Hilton Head, LLC is a Subsidiary
Guarantor, and (xii) loans by the Company to Epic Resorts-Hilton Head, LLC made
simultaneously with the consummation of the Initial Offering to be used to repay
indebtedness of Epic Resorts-Hilton Head, LLC then outstanding in an amount not
to exceed $4.0 million at any one time outstanding which loans shall be on terms
(including with respect to security) substantially similar to the terms of such
indebtedness.
"Permitted Liens" means: (i)(A) Liens granted by the Company and the
Subsidiary Guarantors which secure Indebtedness to the extent the Indebtedness
is permitted to be Incurred pursuant to clause (xii) of paragraph (b) under the
"Limitation on Indebtedness" covenant, PROVIDED that the only assets covered by
such Liens are assets that are acquired or developed with the proceeds of the
Indebtedness secured thereby, and (B) Liens granted to the Trustee on the
Pledged Real Property and the Pledged Vacation Ownership Interests securing the
obligations of certain Subsidiary Guarantors under their respective Subsidiary
Guarantees; (ii) Liens in favor of the Company or any Subsidiary Guarantor or
the Trustee for the benefit of the holders of the Notes; (iii) Liens on property
of a Person existing at the time such Person is acquired by or merged into or
consolidated with the Company or any Restricted Subsidiary thereof; provided
that such Liens were in existence prior to the contemplation of such acquisition
and do not extend to any assets of the Company or its Restricted Subsidiaries
other than those acquired in connection with such merger or consolidation; (iv)
Liens to secure the performance of obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business;
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(v) Liens existing on the Issue Date; (vi) Liens in respect of extensions,
renewals, refundings or refinancings of any Indebtedness secured by the Liens
referred to in clauses (i), (ii), and (iv) above and (vii) below; provided that
the Liens in connection with such renewal, extensions, renewals, refundings or
refinancing shall be limited to all or part of the specific property which was
subject to the original Lien; (vii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provisions as shall be
required in conformity with GAAP shall have been made therefor; (vii) any Lien
securing purchase money obligations Incurred in compliance with paragraph (b)(i)
of "--Certain Covenants--Limitation or Indebtedness" PROVIDED that such Liens do
not extend to any property (other than the property so purchased) owned by the
Company or its Restricted Subsidiaries and is not incurred more than 30 days
after the incurrence of such Indebtedness secured by such Lien; (ix) Liens to
secure Capitalized Lease Obligations (except in respect of Sale/Leaseback
Transactions) on real or personal property of the Company to the extent
consummated in compliance with paragraph (b)(i) of "--Certain
Covenants--Limitation or Indebtedness" provided that such Liens do not extend to
or cover any property of the Company of any of its Subsidiaries other than the
property subject to such Capitalized Lease Obligation; (x) any Lien securing
Indebtedness Incurred in compliance with clauses (x) or (xi) of paragraph (b) of
"--Certain Covenants--Limitation or Indebtedness" PROVIDED, that such Liens
cover only Vacation Ownership Interests Receivable; and (xi) Liens incurred in
the ordinary course of business of the Company or any Restricted Subsidiary
thereof with respect to obligations that do not exceed $1 million at any one
time outstanding and that (A) are not Incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (B) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of the business by the Company or such Restricted Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Receivables and Related Assets" means Vacation Ownership Interests
Receivable and instruments, chattel paper, obligations, general intangibles,
mortgages, deeds, records and other similar assets, in each case relating to
such Vacation Ownership Interests Receivable.
"Receivables Subsidiary" means a Restricted Subsidiary which is established
and continues to operate for the limited purpose of acquiring, selling and
financing Receivables and Related Assets in connection with receivables
securitization or financing transactions.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
PROVIDED, HOWEVER, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Notes and (B) Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the lesser of (A) the
Average Life of the Notes and (B) the Average Life of the Indebtedness being
refinanced and (iii) the Refinancing Indebtedness is in an aggregate principal
amount (or if issued with original issue discount, an aggregate
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issue price) that is equal to (or 101% of, in the case of a refinancing of the
Notes in connection with a Change of Control) or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced
(plus the amount of any premium required to be paid in connection therewith and
reasonable fees and expenses therewith); PROVIDED, FURTHER, that Refinancing
Indebtedness shall not include Indebtedness of a Subsidiary which refinances
Indebtedness of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Senior Indebtedness of the Company or a
Subsidiary Guarantor secured by a Lien.
"Senior Indebtedness" in the case of the Notes means Indebtedness that is
not by its terms expressly subordinate or junior in right of payment to any
other Indebtedness of the Company or the Subsidiary Guarantee of a Restricted
Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligations" means Indebtedness that is expressly subordinate
or junior in right of payment to any other Indebtedness of the Company or the
Subsidiary Guarantee of a Restricted Subsidiary.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means each Subsidiary of the Company in existence on
the Issue Date and each Subsidiary (other than an Unrestricted Subsidiary)
created or acquired by the Company after the Issue Date, and any Receivables
Subsidiary.
"Tax Allowance Amount" means, with respect to any Member (including a holder
of Epic Warrants if such holder is treated as holding an equity interest in the
Company for federal, state or local income tax purposes), for any calendar
quarter, (i) forty percent (40%) of the excess of (a) the estimated taxable
income allocable to such Member arising from its ownership of an interest in the
Company for the fiscal year through such calendar quarter over (b) any losses of
the Company for prior fiscal years and such fiscal year that are allocable to
such Member (or the predecessor in interest to such Member) that were not
previously utilized in the calculation of Tax Allowance Amounts for any period
minus (ii) prior distributions of Tax Allowance Amounts for such fiscal year,
all as determined by the Accountants in good faith. The amount so determined by
the Accountants shall be the Tax Allowance Amount for each period and shall be
final and binding on all Members.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of
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America or any agency thereof, (ii) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 180 days of
the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America having capital
surplus and undivided profits aggregating in excess of $250 million (or the
foreign currency equivalent thereof) and whose long-term debt, or whose parent
holding company's long-term debt, is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-l" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, (v) Investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's and (vi) Investments in mutual funds whose
investment guidelines restrict such funds' investments to those satisfying the
provisions of clauses (i) through (v) above.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED,
HOWEVER, that each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of such designation, and does not thereafter create, Incur,
issue, assume, guarantee or otherwise become liable with respect to any
Indebtedness other than Non-Recourse Debt and either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or less or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary subject to the limitations contained in "Limitation on Designations
of Unrestricted Subsidiaries."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Vacation Ownership Interests" means the right to use (whether arising by
virtue of a deeded interest in real property or otherwise) a fully-furnished
vacation residence for a specified period each year or otherwise, sold by the
Company and its Restricted Subsidiaries in the ordinary course of their resorts
business.
"Vacation Ownership Interests Receivable" means the receivables of the
Company and its Restricted Subsidiaries arising from sales by the Company and
its Restricted Subsidiaries of Vacation Ownership Interests or otherwise
acquired by the Company or a Restricted Subsidiary (but excluding any fees for
service or other fees in respect of such Vacation Ownership Interests)
determined on a consolidated basis in accordance with GAAP.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
In the opinion of Jones, Day, Reavis & Pogue, special tax counsel to the
Company, the discussion of the United States tax matters set forth below states
the material United States federal income and estate tax consequences of the
acquisition, ownership and disposition of a Note by a holder thereof. This
discussion is based upon the Code, Treasury Regulations, administrative
pronouncements, and judicial decisions, all of which are subject to change,
possibly retroactively. This discussion only applies to Notes held as capital
assets that were purchased by an initial holder at the initial issue price and
does not address aspects of United States federal income taxation that may be
applicable to certain other holders (including insurance companies, tax exempt
organizations, financial institutions, brokers or traders in securities or
currencies, holders that will hold a Note as part of a position in a "straddle"
or as part of a "hedging," "conversion" or "integrated" transaction for United
States federal income tax purposes or that have a "functional currency" other
than the United States dollar) that may be subject to special rules not
discussed below. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of Notes as well as any tax consequences that may arise under the laws
of any foreign, state, local or other taxing jurisdiction.
For purposes of this discussion, a "U.S. Holder" is a beneficial owner of
Notes who for United States federal income tax purposes is (i) a citizen or
resident of the United States; (ii) a corporation created under the laws of the
United States or any State thereof (including the District of Columbia); (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source; (iv) a trust (a) the administration over
which a United States court can exercise primary supervision and (b) all of the
substantial decisions of which one or more United States persons have the
authority to control or (v) a partnership or other entity that is created or
organized in or under the laws of the United States or any State thereof
(including the District of Columbia) and that is properly classified as a U.S.
entity. Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons also will be U.S. Holders. A "Non-U.S.
Holder" is a beneficial owner of Notes other than a U.S. Holder.
ALLOCATION OF THE ISSUE PRICE BETWEEN AN ORIGINAL NOTE AND A WARRANT
The Original Notes were issued as part of a Unit, comprised of Original
Notes and Warrants. The "issue price" of a Unit for United States federal income
tax purposes will be the initial offering price of a substantial amount of the
Units to investors (other than persons acting in their capacity as underwriters,
placement agents or wholesalers). The issue price of a Unit was allocated
between the Original Note and the Warrant based on their respective fair market
values at the time of issuance, and a holder's initial tax basis in each will be
equal to the amount so allocated. Based upon its estimate of the relative fair
market values of an Original Note and a Warrant, the Company and Capital Corp.
treated $978.79 of the issue price of a Unit as allocable to the Original Notes
(which amount the Company will therefore treat as its "issue price" for United
States federal income tax purposes) and $21.21 as allocable to the Warrant. The
Company and Capital Corp. intend to file information returns with the Internal
Revenue Service (the "IRS") based on such allocation.
THE NOTES
U.S. HOLDERS
INTEREST AND ORIGINAL ISSUE DISCOUNT. The Original Notes are, and the
Exchange Notes will be, considered to have been issued with original issue
discount ("OID"). As a result, a U.S. Holder of a Note generally will be
required to include in gross income (as interest) the sum of the "daily
portions" of OID on such Note calculated under a constant yield method for all
days during the taxable year that the U.S. Holder owns such Note. In addition, a
U.S. Holder will be required to include "qualified stated interest"
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(defined below) on such Note in gross income (as interest) under such U.S.
Holder's regular method of tax accounting.
The amount of OID on a Note allocable to an accrual period generally is
determined by multiplying the "adjusted issue price" (as defined below) of such
Note at the beginning of the accrual period by the yield to maturity of such
Note (adjusting the yield to take into account the length of the particular
accrual period) and subtracting from that product the amount payable as
qualified stated interest (as defined below) during such accrual period.
Generally, an accrual period is any period elected by a U.S. Holder, provided
that each accrual period is no longer than one year and that each interest
payment date is the first or last day of the accrual period. The "adjusted issue
price" of a Note at the beginning of any accrual period will be the sum of its
issue price and the amount of OID allocable to all prior accrual periods,
reduced by the amount of all payments other than qualified stated interest
payments made with respect to such Note in all prior accrual periods. "Qualified
stated interest" ("QSI") generally is stated interest that is unconditionally
payable in cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate during the entire term of the debt instrument.
The "stated redemption price at maturity" of a Note will be the sum of all
payments provided for under such Note other than QSI payments.
Accordingly, a U.S. Holder will be required to include in gross income (as
interest), in the manner set forth above: (i) qualified stated interest payments
on the Note and (ii) OID accruing on such Note. Stated interest on the Notes
will be treated as QSI for United States federal income tax purposes. The total
amount of OID on the Notes will equal the amount by which the issue price of the
Notes is less than the principal amount thereof.
A U.S. Holder's tax basis in a note will be increased by the amount of any
OID included in the U.S. Holder's gross income with respect to such Note under
the rules discussed above and decreased by the amount of any payment other than
QSI with respect to such Note.
It is possible that the IRS could assert that the Additional Interest which
the Company and Capital Corp. would be obligated to pay if the Exchange Offer
Registration Statement is not declared effective within the time periods set
forth herein (or if certain other actions described under "The Exchange Offer"
are not taken) are "contingent payments" for United States federal income tax
purposes. If so treated, the Notes would be treated as contingent payment debt
instruments and certain adverse United States federal income tax consequences
could result. However, the Treasury Regulations issued by the IRS regarding debt
instruments that provide for one or more contingent payments provide that, for
purposes of determining whether a debt instrument is a contingent debt
instrument, remote or incidental contingencies are ignored. The Company and
Capital Corp. believe that the possibility of the payment of Additional Interest
is remote and, accordingly, do not intend to treat the Notes as contingent
payment debt instruments.
The Company and Capital Corp. do not intend to treat the possibility of an
optional or provisional redemption or repurchase of the Notes as giving rise to
accrual of OID or recognition of ordinary income upon retirement, sale or
exchange.
SALE, EXCHANGE OR RETIREMENT. Subject to the discussion of the Exchange
Offer below, upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference, if any, between the
amount realized on the sale, exchange or retirement (other than unpaid interest
which will be taxable as such) and the U.S. Holder's adjusted tax basis in such
Note. As stated above, a U.S. Holder's adjusted tax basis in a Note generally
will equal the cost of such Note to the holder increased by the amount of OID
previously included in income by such U.S. Holder and decreased by payments
other than QSI made with respect to such Note. Any such gain or loss will be
capital gain or loss. In the case of a noncorporate U.S. Holder, the maximum
marginal United States federal income tax rate applicable to such gain will be
lower than the maximum marginal United States federal income tax rate applicable
to ordinary income if such U.S. Holder's holding period for such Notes exceeds
one year.
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NON-U.S. HOLDERS
Subject to the discussion of backup withholding below, under United States
federal tax law: (i) payments of principal of, premium, if any, and interest
(including OID) on the Notes by an Issuer or any paying agent thereof to a
Non-U.S. Holder (other than, (a) a controlled foreign corporation related to the
Company or Capital Corp. by stock ownership, (b) a member owning actually or
constructively 10% or more of the capital interests or profits interests of the
Company or 10% or more of the total combined voting power of all classes of
stock of Capital Corp. entitled to vote or (c) a bank which acquired such Notes
in consideration of an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of business) will not be subject to United
States federal income or withholding tax if such interest or other amount is not
effectively connected with the conduct of a trade or business in the United
States and, provided that valid certifications meeting the requirement of
Section 871(h)(2)(B)(ii) or 881(c)(2)(B)(ii) of the Code (as discussed below
under "United States Backup Withholding Tax and Information Reporting"), are
received or an exemption is otherwise established; (ii) any gain or income
recognized by a Non-U.S. Holder upon the sale or redemption of Notes will not be
subject to United States income or withholding tax unless (x) such gain is
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States or (y) in the case of any gain realized by an
individual Non-U.S. Holder, such holder is present in the United States for 183
days or more in the taxable year of such sale, exchange or retirement and
certain other conditions are met and (iii) a Note that is held by an individual
who at the time of death is not a citizen or resident of the United States will
not be subject to United States federal estate tax as a result of such
individual's death, provided that, at the time of such individual's death, such
individual does not own (actually or constructively) (x) 10% or more of the
capital interests or profits interests of the Company or (y) 10% or more of the
total combined voting power of all classes of stock of Capital Corp. entitled to
vote, and provided that payments of interest with respect to such Notes would
not have been effectively connected with the conduct by such individual of a
trade or business in the United States.
EXCHANGE OFFER
The exchange of an Original Note for an Exchange Note by a holder pursuant
to the Exchange Offer will not constitute a taxable exchange for United States
federal income tax purposes. A holder will not recognize any gain or loss upon
the receipt of an Exchange Note pursuant to the Exchange Offer and a holder will
be required to continue to include interest on the Exchange Note in gross income
for United States federal income tax purposes in the manner and to the extent
described herein. A holder's holding period for an Exchange Note will include
the holding period for the Original Note exchanged pursuant to the Exchange
Offer and such holder's adjusted basis in an Exchange Note will be the same as
such holder's adjusted basis in such Original Note.
CLASSIFICATION AS APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Corporations that issue debt obligations that are classified as applicable
high yield discount obligations (as defined in the Code) and holders thereof are
subject to special rules (the "AHYDO Rules") regarding the deductibility of
interest and reclassification of certain interest as dividends. If a debt
obligation's yield to maturity exceeds the "applicable federal rate" in effect
at the time of their issuance (the "AFR") plus five percentage points and
certain other requirements are met, such debt obligation will be classified as
an applicable high yield discount obligation. In that event, no portion of the
OID would be deductible by the issuer until paid. In addition, a portion of the
OID thereon may not be deductible by the issuer at any time; such portion would
be an amount that bears the same ratio to such OID as (i) the excess of the
yield to maturity of such debt obligation over the AFR plus six percentage
points bears to (ii) the yield to maturity. Since Capital Corp. is a co-issuer
of the Notes and certain members of the Company (a co-issuer of the Notes) may
be corporations, the AHYDO Rules will apply to such corporate members even
though the Company is not taxed as a corporation for United States federal
income tax purposes. For
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purposes of determining the yield to maturity of a Note, the issue price of a
Note will be determined as described above under "--The Notes." The Issuers do
not believe that the Notes will be subject to the AHYDO Rules because at the
time of issuance the Original Notes did not have "significant original issue
discount."
UNITED STATES BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
A 31% backup withholding tax and information reporting requirements apply to
certain payments of principal of, and premium, if any, and interest (including
OID) on a security and to the proceeds of the sale or redemption of a security
to certain non-corporate beneficial owners of a security that are United States
persons. A payor will be required to withhold 31% of any such payment on a Note
to beneficial owners of Notes that are United States persons (other than an
"exempt recipient," such as a corporation, a foreign person that provides
appropriate certification and certain other persons) if such holder fails to
furnish its correct taxpayer identification number or otherwise fails to comply
with, or establish an exemption from, such backup withholding requirements.
Under current Treasury Regulations, payments of principal and interest made
to a Non-U.S. Holder of a Note will not be subject to United States federal
income tax withholding, backup withholding or information reporting if an
appropriate certification is provided by the beneficial owner or by a financial
institution holding the Note on behalf of the beneficial owner in the ordinary
course of its trade or business to the paying agent and the paying agent does
not have actual knowledge that the certificate is false. If provided by a
beneficial owner, the certification must give the name and address of such
owner, state that such owner is not a United States person, or, in the case of
an individual, that such person is neither a citizen nor a resident of the
United States, and be signed by the owner under penalties of perjury. If
provided by a financial institution, the certification must state that the
financial institution has received from the beneficial owner the certificate set
forth in the preceding sentence, set forth the information contained in such
certificate (and include a copy of such certificate), and be signed by an
authorized representative of the financial institution under penalties of
perjury. In addition, if such principal or interest is paid to the beneficial
owner of a Note by a foreign office of a foreign custodian, foreign nominee or
other foreign agent of such beneficial owner, or if a foreign office of a
foreign "broker" (as defined in the applicable Treasury Regulations) pays the
proceeds of the sale of a Note to the seller thereof, backup withholding and
information reporting will not apply to such payment (provided that such
nominee, custodian, agent or broker derives less than 50% of its gross income
for certain periods from the conduct of a trade or business in the United States
and is not a "controlled foreign corporation" as to the United States).
Principal and interest so paid by a foreign office of other custodians, nominees
or agents, or the payment by a foreign office of other brokers of the proceeds
of the sale of a Note will not be subject to backup withholding, but will be
subject to information reporting unless the custodian, nominee, agent or broker
has documentary evidence in its records that the beneficial owner is not a
United States person for purposes of such backup withholding and information
reporting requirements and certain conditions are met, or the beneficial owner
otherwise establishes an exemption. Principal and interest so paid by the United
States office of a custodian, nominee or agent, or the payment of the proceeds
of a sale of a Note by the United States office of a broker, is subject to both
backup withholding and information reporting unless the beneficial owner
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption.
Treasury Regulations issued on October 6, 1997, and an IRS notice amending
such regulations, would modify certain of the rules discussed above generally
with respect to payments on the Notes made after December 31, 1999 and provide
alternative methods for establishing an exemption from United States withholding
tax. In general, the new regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. Further, the
new regulations alter the procedures for claiming the benefits of an income tax
treaty and may change certain procedures relating to intermediaries receiving
payments on behalf of
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beneficial owners. Prospective investors should consult their tax advisors
concerning the effect, if any, of such new regulations on an investment in the
Notes.
THE ABOVE DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF THE NOTES. PROSPECTIVE
PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX
CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
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PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by the respective holders
thereof without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that (i) such Exchange Notes are
acquired in the ordinary course of such holder's business and (ii) such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution of the Exchange Notes. A holder of Original Notes
that is an "affiliate" of an Issuer within the meaning of Rule 405 under the
Securities Act or that is a broker-dealer that purchased Original Notes from the
Issuers to resell pursuant to an exemption from registration under the
Securities Act (a) cannot rely on such interpretations by the staff of the
Commission, (b) will not be permitted or entitled to tender such Original Notes
in the Exchange Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Original Notes unless such sale or transfer is made pursuant to
an exemption from such requirements. In addition, any holder who tenders
Original Notes in the Exchange Offer with the intention or for the purpose of
participating in a distribution of the Exchange Notes cannot rely on such
interpretations by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing selling
securityholders information required by Item 507 of the Regulation S-K under the
Securities Act. To date, the staff of the Commission has taken the position that
a broker-dealer that has acquired securities in exchange for securities that
were acquired by such broker-dealer as a result of market-making activities or
other trading activities may fulfill the prospectus delivery requirements with
the prospectus contained in an exchange offer registration statement.
Each holder of Original Notes who wishes to exchange its Original Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Issuers set forth in "The Exchange Offer--Purpose and
Effect of the Exchange Offer."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering
102
<PAGE>
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Issuers by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The financial statements included in this Prospectus to the extent, and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
I. UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
Pro Forma Consolidating Balance Sheet as of December 31, 1997....................................... F-3
Pro Forma Consolidating Statement of Operations for the year ended December 31, 1997................ F-4
Pro Forma Consolidating Statement of Operations for the six months ended June 30, 1998 . F-5
Notes and Management's Assumptions to Unaudited Pro Forma Consolidating Financial Statements........ F-6
II. EPIC RESORTS, INC.
Report of Independent Public Accountants............................................................ F-8
Combined Balance Sheets as of December 31, 1997, 1996 and June 30, 1998 (Unaudited)................. F-9
Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995, and the Six
Months Ended June 30, 1998 and 1997 (Unaudited)................................................... F-10
Combined Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1997, 1996
and 1995, and the Six Months Ended June 30, 1998 (Unaudited)...................................... F-11
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995, and the Six
Months Ended June 30, 1998 and 1997 (Unaudited)................................................... F-12
Notes to Combined Financial Statements.............................................................. F-13
III. LONDON BRIDGE RESORT, INC.
Report of Independent Public Accountants............................................................ F-22
Balance Sheets as of December 31, 1997 and 1996..................................................... F-23
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995........................... F-24
Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1997, 1996 and
1995.............................................................................................. F-25
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................... F-26
Notes to Financial Statements....................................................................... F-27
IV. DAYTONA BEACH REGENCY, LTD.
Report of Independent Public Accountants............................................................ F-34
Balance Sheets as of December 31, 1997 and 1996..................................................... F-35
Statements of Income for the Year Ended December 31, 1997 and for the period from inception (April
8, 1996) through December 31, 1996................................................................ F-36
Statements of Changes in Partners' Equity (Deficit) for the Year Ended December 31, 1997 and for the
period from inception (April 8, 1996) through December 31, 1996................................... F-37
Statements of Cash Flows for the Year Ended December 31, 1997 and for the period from inception
(April 8, 1996) through December 31, 1996......................................................... F-38
Notes to Financial Statements....................................................................... F-39
</TABLE>
F-1
<PAGE>
EPIC RESORTS, LLC
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
The following unaudited pro forma financial information has been derived by
the application of pro forma adjustments to the Company's historical financial
data included elsewhere herein. The accompanying unaudited pro forma
consolidating financial information is presented as if the transactions
described below had been consummated on June 30, 1998 for balance sheet
purposes, and January 1, 1997 for purposes of the statements of operations:
- The Company completed the issuance of the original notes and warrants.
- The Company completed the acquisitions of the Westpark Resort, the
Scottsdale Links Resort, the Planter's Quarters Resort and the Palm
Springs Marquis Villas.
- The Company completed the acquisition of the minority interests in Daytona
Beach Regency, Ltd.
- The Company completed the exchange offer.
The unaudited pro forma consolidating financial information should be read
in conjunction with "Use of Proceeds," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of the Company and the related notes thereto
included elsewhere herein. In management's opinion, all adjustments necessary to
reflect the effects of the transactions have been made.
F-2
<PAGE>
EPIC RESORTS, LLC
PRO FORMA CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
THE COMPANY PRO FORMA, AS
HISTORICAL THE OFFERING ADJUSTED
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 41 $ 11,992(A) $ 12,033
Cash in escrow........................................................ 23 16,900(A) 16,923
Mortgages receivable.................................................. 45,035 -- 45,035
Inventory............................................................. 63,286 9,902(A) 73,188
Property and equipment, net........................................... 10,102 -- 10,102
Deferred financing costs, net......................................... 1,403 6,723(A) 8,126
Other assets.......................................................... 996 -- 996
------------- ------------ -------------
Total assets........................................................ $ 120,886 $ 45,517 $ 166,403
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND MEMBER'S EQUITY
Accounts payable...................................................... $ 1,761 -- $ 1,761
Accrued expenses...................................................... 437 -- 437
Advance deposits...................................................... 223 -- 223
Bridge loan........................................................... 55,414 (55,414)(A) --
Notes payable......................................................... 46,157 (23,951)(A) 22,206
Senior secured notes payable.......................................... -- 127,243(B) 127,243
Due to member......................................................... 585 -- 585
------------- ------------ -------------
Total liabilities................................................... 104,577 47,878 152,455
------------- ------------ -------------
Minority interest..................................................... 2,396 (2,396)(C) --
Warrants.............................................................. -- 2,757(B) 2,757
Member's equity....................................................... 13,913 (2,722)(D) 11,191
------------- ------------ -------------
Total liabilities and member's equity............................... $ 120,686 $ 45,517 $ 166,403
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-3
<PAGE>
EPIC RESORTS, LLC
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA THE COMPANY
HISTORICAL ADJUSTMENTS(A) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
Revenue:
Sales of vacation ownership interests.................................. $ 30,104 $ -- $ 30,104
Resort operations...................................................... 6,651 -- 6,651
Interest income........................................................ 3,536 -- 3,536
----------- -------------- -----------
Total revenue........................................................ 40,291 -- 40,291
----------- -------------- -----------
Costs and Expenses:
Cost of sales of vacation ownership interests.......................... 7,337 -- 7,337
Resort operations...................................................... 4,599 -- --
Selling and marketing.................................................. 11,574 -- 11,574
General and administrative............................................. 3,188 -- 3,188
Provision for doubtful accounts........................................ 1,392 -- 1,392
Depreciation and amortization.......................................... 771 -- 771
Financing and closing costs............................................ 868 -- 868
Interest expense....................................................... 3,748 16,546(b) 20,294
----------- -------------- -----------
Total expenses....................................................... 33,477 16,546 50,023
----------- -------------- -----------
Income (loss) before minority interest................................. 6,814 (16,546) (9,732)
Minority interest...................................................... 1,676 (1,676)(c) --
----------- -------------- -----------
Net income (loss)...................................................... $ 5,138 $ (14,899) $ (9,732)
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-4
<PAGE>
EPIC RESORTS, LLC
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA THE COMPANY
HISTORICAL ADJUSTMENTS(A) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
Revenue:
Sales of vacation ownership interests..................................... $ 16,666 $ -- $ 16,666
Resort operations......................................................... 3,416 -- 3,416
Interest income........................................................... 2,511 -- 2,511
----------- ------- -----------
Total revenue........................................................... 22,593 -- 22,593
----------- ------- -----------
Costs and Expenses:
Cost of sales of vacation ownership interests............................. 3,861 -- 3,861
Resort operations......................................................... 2,011 -- 2,011
Selling and marketing..................................................... 6,448 -- 6,448
General and administrative................................................ 1,775 -- 1,775
Provision for doubtful accounts........................................... 698 -- 698
Depreciation and amortization............................................. 376 -- 376
Financing and closing costs............................................... 579 -- 579
Interest expense.......................................................... 2,070 8,261(b) 10,331
----------- ------- -----------
Total expenses.......................................................... 17,818 8,261 26,079
----------- ------- -----------
Income (loss) before minority interest.................................... 4,775 (8,261) (3,486)
Minority interest......................................................... 1,189 (1,189)(c) --
----------- ------- -----------
Net income (loss)......................................................... $ 3,586 $ (7,072) $ (3,486)
----------- ------- -----------
----------- ------- -----------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-5
<PAGE>
EPIC RESORTS, LLC
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)
1. ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET:
<TABLE>
<CAPTION>
<S> <C> <C>
(A) To record the use of proceeds as follows:
Purchase price of inventory at Planter's Quarters Resort and buyout of
remaining minority interest obligations................................... $ 9,902
Escrow deposit on first year of interest on the Notes....................... $ 16,900
Repayment of the Bridge Loan (utilized to acquire Scottsdale Links Resort,
Westpark Resort, and Palm Springs Marquis Villas on June 30, 1998)........ $ 55,414
Repayment of existing company indebtedness, including a portion of the
London Bridge Debt, and all of the Daytona Debt........................... $ 23,951
Payment of fees and expenses relating to the Offering and the Acquisitions
($7.3 million), less write-off of deferred financing costs ($0.6 million)
associated with repayment of existing company indebtedness................ $ 6,723
Remaining proceeds for working capital and general corporate purposes....... $ 11,992
(B) To record the issuance of senior secured notes and warrants as follows:
Principal amount of notes................................................... $ 130,000
Less amount allocated to warrants (calculated value of $21.21 using the
Black-Scholes model, multiplied by 130,000 warrants)...................... 2,757
---------
$ 127,243
---------
---------
(C) To record the elimination of minority interest upon the acquisition of all
of the interests in Daytona Beach Regency, Ltd............................ $ 2,396
(D) To record the extraordinary loss on the early repayment of existing company
indebtedness, including prepayment penalties of approximately $2.1
million, and the write-off of unamortized deferred financing costs of
approximately $0.6 million................................................ $ 2,752
---------
</TABLE>
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Since the Company acquired inventory, there are no pro forma or historical
results of operations to be presented for these assets.
(b) To record additional interest expense as follows:
Interest on $130 million Senior Notes at 13%................................. $ 16,900
Interest on remaining hypothecation notes outstanding........................ 1,807
Amortization of $7.3 million of deferred issuance costs on Senior Notes over
7 years.................................................................... 1,050
Amortization of warrants over 7 years........................................ 394
Amortization of deferred financing costs on remaining hypothecation
facility................................................................... 143
---------
$ 20,294
---------
---------
(c) To record the elimination of minority interest upon the acquisition of all of
the interests in Daytona Beach Regency, Ltd.
</TABLE>
F-6
<PAGE>
EPIC RESORTS, LLC
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Since the Company acquired inventory, there are no pro forma or historical
results of operations to be presented for these assets.
(b) To record additional interest expense as follows:
Interest on $130 million Senior Notes at 13%.................................. $ 8,450
Interest on remaining hypothecation notes outstanding......................... 1,082
Amortization of $7.3 million of deferred issuance costs of Senior Notes over 7
years....................................................................... 525
Amortization of warrants over 7 years......................................... 197
Amortization of deferred financing costs on remaining hypothecation
facility.................................................................... 77
---------
$ 10,331
---------
---------
(c) To record the elimination of minority interest upon the acquisition of all of
the interests in Daytona Beach Regency, Ltd.
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Epic Resorts, Inc.
We have audited the accompanying combined balance sheets of Epic Resorts,
Inc. and affiliates, as discussed in Note 1, (a Delaware S-corporation) as of
December 31, 1997 and 1996, and the related combined statements of income, cash
flows and changes in stockholder's equity for each of the three years in the
period ended December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Epic Resorts, Inc.
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania,
May 22, 1998
F-8
<PAGE>
EPIC RESORTS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 40,871 $ 248,079 $ 27,135
Cash in escrow.................................... 23,160 53,142 139,103
Mortgages receivable, net of allowance of
$1,227,598 (unaudited), $750,061 and $736,211 as
of June 30, 1998, December 31, 1997 and 1996,
respectively.................................... 45,034,820 37,147,850 20,995,848
Inventory......................................... 63,285,731 7,962,552 12,741,087
Property and equipment, net....................... 10,102,127 9,971,388 8,429,264
Deferred financing costs, net..................... 1,402,659 677,159 613,764
Other assets...................................... 996,336 228,004 87,669
----------- ------------ ------------
Total assets................................ $120,885,704 $ 56,288,174 $ 43,033,870
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.................................. $ 1,760,887 $ 983,704 $ 719,926
Accrued expenses.................................. 437,339 520,735 414,722
Due to Homeowners' Association.................... -- 56,408 59,288
Advance deposits.................................. 222,871 53,142 139,103
Bridge loan....................................... 55,414,252 -- --
Notes payable..................................... 46,156,455 42,890,714 34,008,682
Due Member........................................ 585,438 -- --
----------- ------------ ------------
Total liabilities........................... 104,577,242 44,504,703 35,341,721
Minority Interest................................. 2,395,446 1,205,769 (470,602)
Commitments and contingencies (Note 9)............ -- -- --
Stockholder's Equity.............................. 13,913,016 10,577,702 8,162,751
----------- ------------ ------------
Total liabilities and stockholder's
equity.................................... $120,885,704 $ 56,288,174 $ 43,033,870
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
EPIC RESORTS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED, FOR THE YEAR ENDED
---------------------------- -------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Sales of vacation ownership
interests........................ $ 16,665,584 $ 13,586,239 $ 30,103,561 $ 10,583,527 $ 8,289,785
Resort operations.................. 3,416,179 3,860,158 6,651,552 6,074,429 5,029,222
Interest income.................... 2,511,270 1,517,124 3,535,575 1,207,977 703,813
------------- ------------- ------------- ------------- -------------
22,593,033 18,963,521 40,290,688 17,865,933 14,022,820
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales of vacation ownership
interests........................ 3,860,842 3,088,460 7,336,861 3,543,853 3,153,516
Resort operations.................. 2,010,669 2,673,475 4,599,059 4,805,702 4,103,109
Selling and marketing costs........ 6,448,621 5,064,498 11,573,747 4,306,702 3,451,965
General and administrative......... 1,774,627 1,408,129 3,188,269 2,014,015 1,322,263
Provision for doubtful accounts.... 697,943 576,089 1,391,467 492,056 473,539
Depreciation and amortization...... 375,665 408,212 771,330 798,904 643,941
Financing and closing costs........ 578,918 296,322 868,273 322,934 460,242
Interest expense................... 2,070,340 1,779,068 3,748,063 2,142,911 894,464
------------- ------------- ------------- ------------- -------------
17,817,625 15,294,253 33,477,069 18,427,077 14,503,039
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interest
and extraordinary item............... 4,775,408 3,669,268 6,813,619 (561,144) (480,219)
Minority interest...................... 1,189,677 1,001,704 1,676,371 (472,995) --
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary
item................................. 3,585,731 2,667,564 5,137,248 (88,149) (480,219)
Extraordinary gain on settlement of
debt (Note 7)........................ -- -- -- -- 5,077,456
------------- ------------- ------------- ------------- -------------
Net income (loss)...................... $ 3,585,731 $ 2,667,564 $ 5,137,248 $ (88,149) $ 4,597,237
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
EPIC RESORTS, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
THE THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995.......................... $ 5,315,998
Distributions................................... (1,150,664)
Net income...................................... 4,597,237
-------------
BALANCE, DECEMBER 31, 1995........................ 8,762,571
Contributions................................... 947,730
Distributions................................... (1,459,404)
Net loss........................................ (88,149)
-------------
BALANCE, DECEMBER 31, 1996........................ 8,162,748
Contributions................................... 602,865
Distributions................................... (3,325,159)
Net income...................................... 5,137,248
-------------
BALANCE, DECEMBER 31, 1997........................ 10,577,702
Contributions (unaudited)....................... 163,223
Distributions (unaudited)....................... (413,640)
Net income (unaudited).......................... 3,585,731
-------------
BALANCE, JUNE 30, 1998 (unaudited)................ $ 13,913,016
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
EPIC RESORTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED
------------------------ ----------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 3,585,731 $ 2,667,564 $5,137,248 $ (88,149) $4,597,237
Adjustments to reconcile net income (loss) to
net cash used in operating activities--
Depreciation and amortization................. 375,665 408,212 771,330 798,904 643,941
Amortization of financing fees................ 94,261 16,572 173,605 75,201 72,881
Provision for doubtful accounts............... 697,943 576,089 1,391,467 492,056 473,539
Minority Interest............................. 1,189,677 1,001,704 1,676,371 (470,602) --
Extraordinary gain on early
settlement of debt.......................... -- -- -- -- (5,077,456)
Change in assets and liabilities--
Cash in escrow.............................. 29,982 127,836 85,961 (88,509) (20,812)
Mortgages receivable........................ (8,584,913) (7,529,097) (17,543,469) (712,110) (6,323,252)
Inventory................................... 897,789 747,467 4,778,535 (709,259) 2,588,253
Other assets................................ (748,446) (292,104) (140,335) 12,960 54,667
Accounts payable............................ 227,183 241,751 263,775 237,219 114,513
Accrued expenses............................ (83,396) 13,068 106,013 221,872 244,015
Due to Association.......................... (56,408) (59,288) (2,880) 59,288 --
Advance deposits............................ 140,789 227,452 (85,961) 88,509 (9,585)
Due to Member............................... 585,438 -- -- -- --
----------- ----------- ------------ ------------ ------------
Net cash used in operating activities..... (1,648,705) (1,852,774) (3,388,340) (82,620) (2,642,059)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (506,404) (512,269) (2,313,454) (1,489,094) (980,326)
Resort acquisitions............................. (55,791,533) -- -- -- --
----------- ----------- ------------ ------------ ------------
Net cash used in investing activities..... (56,297,937) (512,269) (2,313,454) (1,489,094) (980,326)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................... 11,916,421 9,797,213 24,846,989 7,566,143 15,845,186
Payments on notes payable....................... (8,650,680) (6,965,220) (15,964,957) (5,472,540) (10,769,873)
Proceeds from bridge loan....................... 55,414,252 -- -- -- --
Payment of deferred financing costs............. (690,142) (149,500) (237,000) (31,793) (396,250)
Contributions................................... 163,223 267,164 602,865 947,730 --
Distributions................................... (413,640) (601,014) (3,325,159) (1,459,404) (1,150,664)
----------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities.............................. 57,739,434 2,348,643 5,922,738 1,550,136 3,528,399
----------- ----------- ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (207,208) (16,400) 220,944 (21,578) (93,986)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 248,079 27,135 27,135 48,713 142,699
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 40,871 $ 10,735 $ 248,079 $ 27,135 $ 48,713
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid................................... $ 2,172,145 $ 1,880,873 $3,835,997 $2,054,106 $ 942,567
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
During the year ended December 31, 1996, the Company acquired the beneficial interests in certain installment
contracts and mortgages receivable previously sold in exchange for the assumption of certain hypothecation notes
payable, in the amount of $13,134,847.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Epic Resorts, Inc. (the Company) is a Delaware Subchapter S-corporation
which, together with its affiliates, was formed for the purpose of acquiring,
developing, marketing, selling and financing vacation ownership interests. The
Company has resorts located in Lake Havasu City, Arizona and Daytona Beach,
Florida, which entitle the buyer to use a fully-furnished vacation residence,
generally for a one-week period each year, in perpetuity (Vacation Ownership
Interests). The Company's principal operations consist of (i) acquiring,
developing and operating vacation ownership resort locations, (ii) marketing and
selling Vacation Ownership Interests in its resorts, and (iii) providing
customer financing to individual purchasers of Vacation Ownership Interests at
its resorts. The Company also generates revenue from the transient rentals of
resort accommodations.
The Company was incorporated in March 1997. Previously, all administrative
costs and expenses were charged directly to the resort properties or funded by
the sole stockholder. Upon formation, the sole stockholder was issued 100 shares
of common stock at a total cash cost of $10.00. Upon completion of the Offering
(see Note 13), the Company will own additional vacation ownership resort
properties and will incur additional administrative costs of operating the
business.
In October 1996, London Bridge Resort, Inc. (LBR), a Delaware S-corporation,
was formed to acquire, develop, market and sell vacation ownership interests at
Lake Havasu City, Arizona. LBR is a 122-unit vacation ownership mixed-use
development with a total of 6,222 Vacation Ownership Interests. In addition to
vacation ownership units, the resort contains several common area amenities and
retail and conference center facilities. LBR succeeded to a joint venture which
had commenced selling Vacation Ownership Interests at this resort during 1991.
The sole stockholder has maintained full ownership control of LBR since its
inception in 1990.
In March 1996, Daytona Beach Regency, Ltd. (DBR) was formed as a limited
partnership to acquire, develop, market and sell Vacation Ownership Interests at
a resort located in Daytona Beach, Florida. DBR is a 90-unit resort with a total
of 4,590 Vacation Ownership Interests as well as common area amenities. The
partnership began selling Vacation Ownership Interests in November 1996. The
partnership is owned 56% by the Company's sole stockholder as the sole 1%
general partner (through a corporate entity known as Resort Management, Inc.)
and through a 55% limited partnership interest (through a corporate entity known
as Resort Investments, Inc.). The remaining 44% limited partnership interests
are owned by two unrelated third parties. These limited partnership interests
will be purchased by the Company in connection with the anticipated acquisitions
(see Note 13). The general partner has personally guaranteed DBR's acquisition
and construction loans and receives a fee for acting as the general partner of
DBR.
The accompanying financial statements include the combined accounts of Epic
Resorts, Inc., London Bridge Resort, Inc. and Daytona Beach Regency, Ltd., which
together are doing business as Epic Resorts, Inc. All of the entities operate
under the common control of a sole stockholder. Epic Resorts, Inc. was formed in
March 1997 to facilitate future acquisitions and financing of additional
vacation ownership resorts. Accordingly, all of the net assets of the entities
under common control have been recorded at their historical cost and their
results of operations have been included in the combined results since the dates
of acquisition. Minority interest reflects the historical results of operations
pertaining to the 44% partnership interest in Daytona Beach Regency, Ltd. for
all periods presented. The Company expects to record the acquisition of this
minority interest under purchase accounting upon completion of the anticipated
transactions (see Note 13).
F-13
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS AND CASH IN ESCROW
Cash and cash equivalents consist of cash, money market and all highly
liquid investments purchased with an original maturity of three months or less.
Funds received from purchasers which are held during the statutory rescission
period, or until all conditions are met for the sales transaction to be
recognized and title conveyed, are maintained in escrow accounts and are
reflected as restricted cash.
MORTGAGES RECEIVABLE
Mortgages receivable reflect the amounts due from Vacation Ownership
Interest purchasers who have accepted purchase money mortgage financing. The
obligations are evidenced by promissory notes and mortgages which are then
recorded in the state where the resort is located. The majority of these
installment contracts and mortgages receivable collateralize certain debt
obligations of the Company. The purchase money mortgages generally mature over
terms which approximate 84 months, with interest rates ranging from 9.9 percent
to 16.9 percent, per annum. The mortgages may be prepaid at any time, without
penalty.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides for estimated future losses related to uncollectible
receivables currently included in its installment contracts and mortgages
receivable portfolio. The provision is based upon management's estimate of
losses which may result because of cancellation of the related purchase money
mortgage contract.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful life of 5 to 7 years. Buildings
are amortized over their estimated useful life of 39 years.
DEFERRED FINANCING COSTS
Financing and loan origination fees incurred in connection with obtaining
certain acquisition and development funding have been capitalized and are being
amortized over the life of the indebtedness.
INCOME TAXES
No federal or state income taxes are payable by the Company, and none have
been provided for in the accompanying financial statements. The sole stockholder
is to include the Company's profits and losses in his tax returns.
STOCKHOLDER'S EQUITY
Stockholder's equity includes the capital stock, partners capital and
retained earnings of the Company, and its combined affiliates.
F-14
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SALES RECOGNITION AND SELLING POLICIES
The Vacation Ownership Interest purchaser has the right to rescind or cancel
their purchase contract within a set period of time following contract execution
(generally seven to ten calendar days depending on the state in which the resort
is located), and is entitled to a full refund of their deposit. All funds
received by the Company are held in escrow, by an independent agent, until the
expiration of the rescission period and title is conveyed to the purchaser.
Sales, which are principally made through installment contracts, are not
recognized until the Company has received at least 10 percent of the total
purchase price, the statutory rescission period has elapsed, and certificates of
occupancy in the underlying units have been issued. Prior to sales recognition,
all payments received are accounted for as advance deposits. Closing costs
collected from the purchaser are used to offset a portion of the closing costs
incurred by the Company.
COST OF SALES AND INVENTORY
Cost of sales is computed by dividing the total project acquisition and
conversion costs associated with the Vacation Ownership Interests by the number
of interests to be sold, based upon fifty-one weeks of availability per
individual unit. Inventory, including all development costs, contents and
improvements, and capitalized interest is stated at cost, which is not more than
net realizable value. Interests transferred back to the Company attributable to
forfeiture, legal foreclosure, or reconveyance of a deed-in-lieu of legal
foreclosure, is returned to inventory at the original amount expensed as the
cost of sale. Marketing, advertising, commissions, and other selling costs are
expensed as incurred.
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 reported amounts of assets and liabilities and
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.
3. MORTGAGES RECEIVABLE:
The Company provides financing to its customers, which is collateralized by
such purchaser's Vacation Ownership Interest. The mortgages receivable generally
bear interest at a rate between 9.9% and 16.9%, which remains fixed over the
term of the loan, which typically approximates seven years. The mortgages
receivable may be prepaid at any time without penalty. The weighted average rate
of interest on outstanding mortgages receivable is 14.9%, 14.4% and 14.2% as of
December 31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, approximately 4.1% of the Company's consumer loans
were considered by the Company to be delinquent (scheduled payment past due 60
or more days).
F-15
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. MORTGAGES RECEIVABLE: (CONTINUED)
The following schedule reflects the scheduled principal maturities of
mortgages receivable:
<TABLE>
<S> <C>
1998........................................................... $5,460,618
1999........................................................... 5,261,564
2000........................................................... 5,545,867
2001........................................................... 5,624,519
2002........................................................... 5,347,487
Thereafter..................................................... 10,657,856
----------
Total principal maturities of mortgages receivable............. 37,897,911
Less allowance for doubtful accounts........................... (750,061)
----------
Net principal maturities of mortgages receivable $37,147,850
----------
----------
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED
MONTHS ENDED ---------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period...................... $ 750,061 $ 736,211 $ 692,514
Provision for doubtful accounts................... 697,943 1,391,467 492,057
Charge-offs....................................... (220,406) (1,377,617) (448,360)
------------- ------------ ------------
Balance, end of period............................ $1,227,598 $ 750,061 $ 736,211
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
4. INVENTORY:
Inventory and accumulated cost of vacation ownership interests consist of
the following as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ 2,479,430 $ 2,479,430 $ 2,479,430
Development costs................................. 88,911,844 30,492,374 27,880,128
------------ ------------ ------------
91,391,274 32,971,804 30,359,558
Less: accumulated vacation ownership interest cost
of sales........................................ (25,364,926) (22,415,969) (15,332,303)
Less: resort property valuation allowance......... (2,740,617) (2,593,283) (2,286,168)
------------ ------------ ------------
$ 63,285,731 $ 7,962,552 $ 12,741,087
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-16
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
JUNE 30, 31, 31,
1998 1997 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................................. $2,913,029 $2,913,029 $2,909,304
Building and improvements............................. 9,246,043 8,806,349 7,880,795
Furniture, fixtures and equipment..................... 1,974,434 1,804,389 772,187
---------- ---------- ----------
14,133,506 13,523,767 11,562,286
Less- Accumulated depreciation........................ 4,031,379 3,552,379 3,133,022
---------- ---------- ----------
$10,102,127 $9,971,388 $8,429,264
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
6. DEFERRED FINANCING COSTS:
Deferred financing costs and accumulated amortization consist of the
following as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred financing costs.......................... $ 1,902,285 $1,082,524 $ 845,524
Less- Accumulated amortization.................... 499,626 405,365 231,760
----------- ------------ ------------
$ 1,402,659 $ 677,159 $ 613,764
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-17
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. NOTES PAYABLE:
Notes payable consist of the following as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Revolving line of credit not to exceed $23 million in the aggregate
(limited by eligible collateral), with interest payable monthly at
prime plus 2.5% (11.0% at June 30, 1998 and December 31, 1997 and
10.75% at December 31, 1996), payable in monthly installments of
principal and interest equal to 100% of all proceeds of the
receivables collateral collected during the month but not less
than the accrued interest, with any remaining principal due seven
years after the date of the last advance related to mortgages
receivable, collateralized by specific mortgages receivable....... $ 21,312,684 $ 19,445,949 $ 13,828,009
Revolving line of credit not to exceed $15 million in the aggregate
(limited by eligible collateral), with interest payable monthly at
LIBOR plus 5.5% (11.16%, 11.22% and 11.0% at June 30, 1998,
December 31, 1997, and 1996, respectively), payable in monthly
installments of principal and interest equal to 100% of all
proceeds of the receivables collateral collected during the month
but not less than the accrued interest, with any remaining
principal due October 2004, collateralized by specific mortgages
receivable........................................................ 11,290,278 8,360,703 422,659
Revolving line of credit not to exceed $7.5 million in the aggregate
(limited by eligible collateral), with interest payable monthly at
prime plus 2.5% (11.0% at June 30, 1998 and December 31, 1997 and
10.75% at December 31, 1996), payable in monthly installments of
principal and interest equal to 100% of all proceeds of the
receivables collateral collected during the month but not less
than the accrued interest, with any remaining principal due
September 2000, collateralized by specific mortgages receivable... 1,756,800 2,433,333 4,230,333
Construction loan payable not to exceed $9.5 million, with interest
payable at prime plus 2.75% (11.25% at June 30, 1998 and December
31, 1997 and 11.0% at December 31, 1996), principal payable with a
portion (24%) of the proceeds received on the sale of Vacation
Ownership Interests, collateralized by assets and unsold Vacation
Ownership Interests, due October 1999............................. 2,274,867 3,593,197 7,071,365
</TABLE>
F-18
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. NOTES PAYABLE: (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Construction loan payable not to exceed $3.9 million, with interest
payable at LIBOR plus 6% (11.66%, 11.72% and 11.5% at June 30,
1998, December 31, 1997 and 1996, respectively), principal payable
with a portion (24%) of the proceeds received on the sale of
Vacation Ownership Interests, collateralized by assets and unsold
Vacation Ownership Interests, due April, 2000..................... 3,223,190 2,605,453 1,175,822
Acquisition loan payable not to exceed $3.15 million, with interest
payable at LIBOR plus 6% (11.66%, 11.72% and 11.5% at June 30,
1998, December 31, 1997 and 1996, respectively), principal payable
with a portion of received on the sale of Vacation Ownership
Interests, collateralized by assets and unsold vacation ownership
interests, due April, 2000........................................ 1,493,202 2,042,751 3,101,952
Equipment loan payable not to exceed $336,297, with interest payable
at a fixed rate of 12.75%, payable in 48 equal monthly
installments of principal and interest, collateralized by
furniture and equipment, due December 1999........................ 139,999 182,380 265,997
Equipment loan payable with interest payable at a fixed rate of
13.05%, payable in 48 equal monthly installments of principal and
interest, collateralized by furniture and equipment, due April
2001.............................................................. 752,890 314,403 --
Other note payable.................................................. 3,912,545 3,912,545 3,912,545
------------- ------------- -------------
Total notes payable................................................. $ 46,156,455 $ 42,890,714 $ 34,008,682
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company anticipates paying off all outstanding indebtedness upon
completion of the Offering, as described in Note 13.
In 1995, the Company refinanced a mortgage notes payable with an outstanding
balance of $12,675,995 with a lender. The Company accounted for this debt
restructuring in accordance with Statement of Financial Accounting Standards No.
15, "Accounting for Debtors and Creditors for Troubled Debt Restructurings." As
a result, an extraordinary gain on debt forgiveness of $5,077,456 for the year
ended December 31, 1996 was recorded in the accompanying combined financial
statements.
8. RELATED PARTY TRANSACTIONS:
In October 1990, the Company obtained a nonrecourse line of credit not to
exceed $3,412,545 from American Realty Group, Inc. an affiliate of the sole
stockholder, all of which remains outstanding as of
F-19
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
8. RELATED PARTY TRANSACTIONS: (CONTINUED)
June 30, 1998 and December 31, 1997. The loan is collateralized by an assignment
of a second mortgage on the Company's property. This loan is subordinate to the
claims of the Company's construction and equipment loans and shall not become
payable until these notes have been paid in full. Interest accrued at a rate of
8.5% per annum up to a maximum amount of $500,000. Upon reaching $500,000 in
1995, the note became noninterest bearing and the accrued liability was
capitalized into the loan's principal. During 1997, no interest was accrued
under the terms of this note. The balance on this note was $3,912,545 as of
December 31, 1997 and 1996.
In the normal course of operations, an affiliate of the sole stockholder
provides the Company with administrative services including payroll and
insurance processing. No fee was paid in 1997 related to these services.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases commercial real estate to various retail operators, for
the operation of a shopping mall, under various lease agreements that expire
through September 2002. Future minimum rental income expected to be recognized
from noncancelable operating leases on a straight-line basis as of December 31,
1997, is as follows:
Year ending December 31
<TABLE>
<S> <C>
1998.............................................. $ 424,607
1999.............................................. 350,316
2000.............................................. 200,448
2001.............................................. 65,164
2002.............................................. 24,600
----------
Total future minimum rentals...................... $1,065,135
----------
----------
</TABLE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments",
requires that the Company disclose estimated fair value for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate their fair value because of the
short term nature of these instruments.
MORTGAGES RECEIVABLE: The carrying amounts reported in the balance sheets
for mortgages receivable approximate their fair value because the weighted
average interest rate on the portfolio of mortgages receivable approximates
current interest rates to be received on similar current mortgages receivable.
NOTES PAYABLE: The carrying amounts reported in the balance sheets for
notes payable approximate their fair value because the interest rates on these
instruments approximate current interest rates charged on similar current
borrowings.
F-20
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF JUNE 30, 1998 AND 1997 IS UNAUDITED)
11. SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in one industry segment, which includes the
development, acquisition, marketing, selling, financing and management of
vacation ownership resorts. The Company does not operate outside of the United
States. The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
12. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED:
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company is in the process of
reassessing current business segment reporting to determine if changes in
reporting will be required upon adoption of this new standard. Any required
disclosures prescribed by SFAS 131 will first be adopted in the Company's 1998
annual financial statements.
In March 1998, the Emerging Issues Task Force ("EITF") issued 97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisition".
The EITF concluded that internal costs related to the acquisition of operating
properties should be expensed as incurred. This EITF issue will not impact the
Company as they have not previously capitalized internal costs associated with
acquisitions.
13. SUBSEQUENT EVENTS:
In May 1998, the Company entered into agreements to purchase four resorts
located in Palm Springs, California; Hilton Head, South Carolina; Scottsdale,
Arizona; and Las Vegas, Nevada, all of which will be converted into vacation
ownership resorts. The purchase agreements are subject to normal contingencies
including the Company's ability to obtain financing.
On June 26, 1998, Epic Resorts, LLC, a Delaware limited liability company,
was formed to merge with the Company. This merger was completed on July 1, 1998.
On July 8, 1998, the Company issued $130 million aggregate principal amount
of Senior Secured Notes due June, 2005 (the "Notes") in a private placement
pursuant to Rule 144A of the Securities Act of 1933 (the "Offering"). The
Company used the net proceeds of the Offering as follows: (i) $66.5 million to
finance the acquisition of the four new vacation ownership resort properties
discussed above; (ii) $25.9 million to repay the Company's existing notes
payable, including prepayment penalties of $1.6 million; (iii) $16.9 million of
required escrow of first year interest on the Notes; (iv) $7.2 million of fees
and expenses relating to the Offering and the acquisitions; and (v) $13.5
million for working capital and general corporate purposes, including future
acquisitions the Company may pursue.
The Company has agreed to file a registration statement relating to an
exchange offer pursuant to which another series of notes of the Company,
containing substantially the same terms as the Notes, would be offered in
exchange for the Notes.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of London Bridge Resort, Inc.:
We have audited the accompanying balance sheets of London Bridge Resort,
Inc. (a Delaware S-corporation) as of December 31, 1997 and 1996, and the
related statements of income, stockholder's equity and cash flows for each of
the three years in the period ended December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of London Bridge Resort, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania,
May 22, 1998
F-22
<PAGE>
LONDON BRIDGE RESORT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1997 1996
----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 211,672 $ 540
Cash in escrow......................................... 25,713 55,615
Mortgages receivable, net of allowance of $374,863 and
$711,754 as of December 31, 1997 and 1996
respectively......................................... 26,182,690 20,531,163
Inventory.............................................. 5,494,335 9,259,476
Property and equipment, net............................ 7,833,116 7,676,233
Deferred financing costs, net.......................... 521,374 561,978
Other assets........................................... 126,031 82,023
-
----------- -----------
Total assets..................................... $40,394,931 $38,167,028
-
-
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable....................................... $ 763,272 $ 636,569
Accrued expenses....................................... 276,661 293,337
Due to Homeowners Association.......................... 56,408 59,288
Advance deposits....................................... 25,713 55,615
Notes payable.......................................... 29,881,807 29,308,249
-
----------- -----------
Total liabilities................................ 31,003,861 30,353,058
-
----------- -----------
Commitments and contingencies (Note 9)
Stockholder's Equity:
Common Stock ($100 par value, 1,000 shares
authorized, 100 shares outstanding)................ 10,000 10,000
Additional paid-in capital........................... 10,211,860 10,211,860
Accumulated deficit.................................. (830,790) (2,407,890)
-
----------- -----------
Total stockholder's equity....................... 9,391,070 7,813,970
-
----------- -----------
Total liabilities and stockholder's equity....... $40,394,931 $38,167,028
-
-
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
LONDON BRIDGE RESORT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Sales of vacation ownership interests.............. $15,540,895 $10,032,151 $ 8,289,785
Resort operations.................................. 5,650,046 5,532,699 5,029,222
Interest income.................................... 3,007,348 1,207,977 703,813
----------- ----------- -----------
24,198,289 16,772,827 14,022,820
----------- ----------- -----------
Costs and expenses:
Cost of sales of vacation ownership interests...... 4,535,563 3,429,831 3,153,516
Resort operations.................................. 3,648,887 4,028,285 4,103,109
Selling and marketing costs........................ 6,081,677 4,029,674 3,451,965
General and administrative......................... 1,681,332 1,493,036 1,322,263
Provision for doubtful accounts.................... 721,685 467,599 473,539
Depreciation and amortization...................... 504,379 618,114 643,941
Financing and closing costs........................ 454,594 324,780 460,242
Interest expense................................... 2,963,633 1,873,101 894,464
----------- ----------- -----------
20,591,750 16,264,420 14,503,039
----------- ----------- -----------
Income (loss) before extraordinary item................ 3,606,539 508,407 (480,219)
Extraordinary gain on settlement of debt (Note 7)...... -- -- 5,077,456
----------- ----------- -----------
Net income............................................. $ 3,606,539 $ 508,407 $ 4,597,237
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
LONDON BRIDGE RESORT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) EQUITY
--------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995................................ $ -- $ -- $ 5,315,998 $ 5,315,998
Distributions......................................... -- -- (1,150,664) (1,150,664)
Net income............................................ -- -- 4,597,237 4,597,237
--------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1995.............................. -- -- 8,762,571 8,762,571
Corporate formation of London Bridge Resort, Inc. and
liquidation of Queens Bay Joint Venture............. 10,000 10,211,860 (10,221,860) --
Distributions......................................... -- -- (1,457,008) (1,457,008)
Net income............................................ -- -- 508,407 508,407
--------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1996.............................. 10,000 10,211,860 (2,407,890) 7,813,970
Distributions......................................... -- -- (2,029,439) (2,029,439)
Net income............................................ -- -- 3,606,539 3,606,539
--------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1997.............................. $ 10,000 $ 10,211,860 $ (830,790) $ 9,391,070
--------- ------------- -------------- -------------
--------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
LONDON BRIDGE RESORT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 3,606,539 $ 508,407 $ 4,597,237
Adjustments to reconcile net income to net cash provided by
(used in) operating activities--
Depreciation and amortization................................. 504,379 618,114 643,941
Amortization of financing fees................................ 138,604 126,988 72,881
Provision for doubtful accounts............................... 721,685 467,599 473,539
Extraordinary gain on settlement of debt...................... -- -- (5,077,456)
Change in assets and liabilities--
Mortgages receivable........................................ (6,373,212) (222,968) (6,323,252)
Inventory................................................... 3,765,141 2,772,352 2,588,253
Cash in escrow.............................................. 29,902 (5,021) (20,812)
Other assets................................................ (44,008) 18,606 54,667
Accounts payable............................................ 126,700 153,859 114,513
Accrued expenses............................................ (16,676) 100,487 244,015
Due to Association.......................................... (2,880) 8,694 --
Advance deposits............................................ (29,902) 55,615 (9,585)
-------------- ------------- --------------
Net cash provided by (used in) operating activities....... 2,426,272 4,602,732 (2,642,059)
-------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............................. (661,262) (555,273) (980,326)
-------------- ------------- --------------
Net cash used in investing activities..................... (661,262) (555,273) (980,326)
-------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................................... 12,442,169 2,745,497 15,845,186
Payments on notes payable....................................... (11,868,608) (5,352,327) (10,769,873)
Payment of deferred financing costs............................. (98,000) (31,794) (396,250)
Distributions................................................... (2,029,439) (1,457,008) (1,150,664)
-------------- ------------- --------------
Net cash provided by (used in) financing activities....... (1,553,878) (4,095,632) 3,528,399
-------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 211,132 (48,173) (93,986)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................... 540 48,713 142,699
-------------- ------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................ $ 211,672 $ 540 $ 48,713
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
LONDON BRIDGE RESORT, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid was $2,856,003, $1,815,292 and $942,567 for the years ended
December 31, 1997, 1996 and 1995, respectively.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1996, the Company adopted a corporate
structure and liquidated its previous joint venture form. Common stock of
$10,000 and additional paid-in capital of $10,211,860 was issued in exchange for
the net assets of the joint venture.
During the year ended December 31, 1996, the Company acquired the beneficial
interests in certain installment contracts and mortgages receivable previously
sold by the former joint venture, in exchange for the assumption of certain
hypothecation notes payable, in the amount of $13,134,847.
F-27
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. NATURE OF BUSINESS:
London Bridge Resort, Inc. (the Company) is a Delaware S-corporation formed
for the purpose of acquiring, developing, marketing and selling vacation
ownership interests in certain units of the London Bridge Resort, located in
Lake Havasu City, Arizona. The Company generates revenues from the sale and
financing of vacation ownership interests in its resort, which entitle the buyer
to use a fully-furnished vacation residence, generally for a one-week period
each year, in perpetuity (Vacation Ownership Interests). The Company also
generates revenue from the transient rentals of resort accommodations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS AND CASH IN ESCROW
Cash and cash equivalents consist of cash and all highly liquid investments
purchased with an original maturity of three months or less. Funds received from
purchasers which are held during the statutory rescission period, or until all
conditions are met for the sales transaction to be recognized and title
conveyed, are maintained in escrow accounts and are reflected as restricted
cash.
MORTGAGES RECEIVABLE
Mortgages receivable reflect the amounts due from Vacation Ownership
Interest purchasers who have accepted purchase money mortgage financing. The
obligations are evidenced by promissory notes and mortgages which are then
recorded in the State of Arizona. The majority of these installment contracts
and mortgages receivable collateralize certain debt obligations of the Company.
The purchase money mortgages generally mature over terms which approximate 84
months, with interest rates ranging from 9.9 percent to 16.9 percent, per annum.
The mortgages may be prepaid at any time, without penalty.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides for estimated future losses related to uncollectible
receivables currently included in its installment contracts and mortgages
receivable portfolio. The provision is based upon management's estimate of
losses which may result because of cancellation of the related purchase money
mortgage contract.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful life of 5 to 7 years. Buildings
are amortized over an estimated useful life of 39 years.
DEFERRED FINANCING COSTS
Financing and loan origination fees incurred in connection with obtaining
certain acquisition and development funding have been capitalized and are being
amortized over the life of the respective loans.
INCOME TAXES
No federal or state income taxes are payable by the Company, and none have
been provided for in the accompanying financial statements. The sole stockholder
is to include the Company's profits and losses in his tax returns.
F-28
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SALES RECOGNITION AND SELLING POLICIES
The Vacation Ownership Interest purchaser has the right to rescind or cancel
their purchase contract within seven calendar days from contract execution, and
is entitled to a full refund of deposit. All funds received by the Company are
held in escrow, by an independent agent, until the expiration of the rescission
period and title is conveyed to the purchaser. Sales, which are principally made
through installment contracts, are not recognized until the Company has received
at least 10 percent of the total purchase price, the statutory rescission period
has elapsed, and certificates of occupancy in the underlying units have been
issued. Prior to sales recognition, all payments received are accounted for as
advance deposits. Closing costs collected from the purchaser are used to offset
a portion of the closing costs incurred by the Company.
COST OF SALES AND INVENTORY
Cost of sales is computed by dividing the total project acquisition and
conversion costs associated with the Vacation Ownership Interests by the number
of interests to be sold, based upon fifty-one weeks of availability per
individual unit. Inventory, including all development costs, contents and
improvements, and capitalized interest is stated at cost, which is not more than
net realizable value. Interests transferred back to the Company attributable to
forfeiture, legal foreclosure, or reconveyance of a deed-in-lieu of legal
foreclosure, is returned to inventory at the original amount expensed as the
cost of sale. Marketing, advertising, commissions, and other selling costs are
expensed as incurred.
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 reported amounts of assets and liabilities and
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.
3. MORTGAGES RECEIVABLE:
The Company provides financing to its customers, which is collateralized by
their Vacation Ownership Interest. The mortgages receivable generally bear
interest at a rate between 9.9% and 16.9%, which remain fixed over the term of
the loan, which typically approximates seven years. The mortgages receivable may
be prepaid at any time without penalty. The weighted average rate of interest on
outstanding mortgages receivable is 14.5%, 14.3%, and 14.2% as of December 31,
1997, 1996, and 1995.
As of December 31, 1997, approximately 3.8% of the Company's consumer loans
were considered by the Company to be delinquent (scheduled payment past due 60
or more days).
F-29
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
3. MORTGAGES RECEIVABLE: (CONTINUED)
The following schedule reflects the scheduled principal maturities of
mortgages receivables:
<TABLE>
<S> <C>
1998.............................................. $ 4,194,079
1999.............................................. 4,099,806
2000.............................................. 4,195,450
2001.............................................. 4,089,514
2002.............................................. 3,584,562
Thereafter........................................ 6,394,142
-----------
Total principal maturities of mortgages
receivable........................................ 26,557,553
Less allowance for doubtful accounts.............. 374,863
-----------
Net principal maturities of mortgages
receivable........................................ $26,182,690
-----------
-----------
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts for
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Balance, beginning of period...................................... $ 711,754 $ 692,514
Provision for doubtful accounts................................... 721,685 467,600
Charge-offs....................................................... (1,058,576) (448,360)
------------- -----------
Balance, end of period............................................ $ 374,863 $ 711,754
------------- -----------
------------- -----------
</TABLE>
4. INVENTORY:
Inventory and accumulated cost of Vacation Ownership Interests consist of
the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Land.......................................................... $ 2,479,430 $ 2,479,430
Development costs............................................. 24,946,160 24,226,747
-------------- --------------
27,425,590 26,706,177
Less: accumulated Vacation Ownership Interest cost of sales... (19,666,789) (15,224,077)
Less: resort property valuation allowance..................... (2,264,466) (2,222,624)
-------------- --------------
$ 5,494,335 $ 9,259,476
-------------- --------------
-------------- --------------
</TABLE>
F-30
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Land............................................................. $ 2,913,029 $ 2,909,304
Building and improvements........................................ 7,085,148 7,004,721
Furniture, fixtures and equipment................................ 1,131,919 772,187
------------- ------------
11,130,096 10,686,212
Less--Accumulated depreciation................................... 3,296,980 3,009,979
------------- ------------
$ 7,833,116 $ 7,676,233
------------- ------------
------------- ------------
</TABLE>
6. DEFERRED FINANCING COSTS:
Deferred financing costs consist of the following as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred financing costs.............................................. $ 885,524 $ 787,524
Less-Accumulated amortization......................................... 364,150 225,546
---------- ----------
$ 521,374 $ 561,978
---------- ----------
---------- ----------
</TABLE>
F-31
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
7. NOTES PAYABLE:
Notes payable consist of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revolving line of credit not to exceed $23 million in the
aggregate (limited by eligible collateral), with interest
payable monthly at prime plus 2.5% (11.0% and 10.75% at
December 31, 1997 and 1996, respectively), payable in monthly
installments of principal and interest equal to 100% of all
proceeds of the receivables collateral collected during the
month but not less than the accrued interest, with any
remaining principal due seven years after the date of the
last advance related to mortgages receivable, collateralized
by specific mortgages receivable............................. $ 19,445,949 $ 13,828,009
Revolving line of credit not to exceed $7.5 million in the
aggregate (limited by eligible collateral), with interest
payable monthly at prime plus 2.5% (11.0% and 10.75% at
December 31, 1997 and 1996, respectively), payable in monthly
installments of principal and interest equal to 100% of all
proceeds of the receivables collateral collected during the
month but not less than the accrued interest, with any
remaining principal due September 2000, collateralized by
specific mortgages receivable................................ 2,433,333 4,230,333
Construction loan payable not to exceed $9.5 million, with
interest payable at prime plus 2.75% (11.25% and 11.0% at
December 31, 1997 and 1996, respectively), principal payable
with a portion (24%) of the proceeds received on the sale of
Vacation Ownership Interests, collateralized by assets and
unsold Vacation Ownership Interests due October 1999......... 3,593,197 7,071,365
Equipment loan payable not to exceed $336,297, with interest
payable at a fixed rate of 12.75%, payable in 48 equal
monthly installments of principal and interest,
collateralized by furniture and equipment, due December
1999......................................................... 182,380 265,997
Equipment loan payable with interest payable at a fixed rate of
13.05%, payable in 48 equal monthly installments of principal
and interest, collateralized by furniture and equipment, due
April 2000................................................... 314,403 --
Other note payable............................................. 3,912,545 3,912,545
------------- -------------
Total notes payable............................................ $ 29,881,807 $ 29,308,249
------------- -------------
------------- -------------
</TABLE>
F-32
<PAGE>
LONDON BRIDGE RESORT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
7. NOTES PAYABLE: (CONTINUED)
In 1995, the Company refinanced a mortgage notes payable with an outstanding
balance of $12,675,995 with a lender. The Company accounted for this debt
restructuring in accordance with Statement of Financial Accounting Standards No.
15, "Accounting for Debtors and Creditors for Troubled Debt Restructurings." As
a result, an extraordinary gain on debt forgiveness of $5,077,456 for the year
ended December 31, 1996 was recorded in the accompanying financial statements.
8. RELATED PARTY TRANSACTIONS:
In October 1990, the Company obtained a nonrecourse line of credit not to
exceed $3,412,545 from American Realty Group Inc., an affliate of the sole
stockholder, all of which remains outstanding as of December 31, 1997. The loan
is collateralized by an assignment of a second mortgage on the Company's
property. This loan is subordinate to the claims of the Company's construction
and equipment loans and shall not become payable until these notes have been
paid in full. Interest accrued at a rate of 8.5% per annum up to a maximum
amount of $500,000. Upon reaching $500,000 in 1995, the note became noninterest
bearing and the accrued liability was capitalized into the loan's principal.
During 1997, no interest was accrued under the terms of this note. The balance
on this note was $3,912,545 as of December 31, 1997 and 1996.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases commercial real estate to various retail operators, for
the operation of a shopping mall, under various lease agreements that expire
through September 2002. Future minimum rental income expected to be recognized
from noncancelable operating leases on a straight-line basis as of December 31,
1997, is as follows:
Year ending December 31
<TABLE>
<S> <C>
1998........................................................... $ 424,607
1999........................................................... 350,316
2000........................................................... 200,448
2001........................................................... 65,164
2002........................................................... 24,600
----------
Total future minimum rentals................................... $1,065,135
----------
----------
</TABLE>
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Daytona Beach Regency, Ltd.:
We have audited the accompanying balance sheets of Daytona Beach Regency,
Ltd. (a Florida limited partnership) as of December 31, 1997 and 1996, and the
related statements of income, partners' equity (deficit) and cash flows for the
year ended December 31, 1997 and for the period from inception (April 8, 1996)
to December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Daytona Beach Regency, Ltd.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and for the period from inception
(April 8, 1996) to December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania,
May 22, 1998
F-34
<PAGE>
DAYTONA BEACH REGENCY, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 1997 31, 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 36,397 $ 26,595
Cash in escrow.................................... 27,429 83,488
Mortgages receivable, net of allowance of $375,198
and $24,457 at December 31, 1997 and 1996,
respectively.................................... 10,965,160 464,685
Inventory......................................... 2,468,217 3,481,611
Property and equipment, net....................... 2,138,272 753,031
Deferred financing costs, net..................... 155,785 51,786
Other assets...................................... 101,973 5,646
----------- -----------
Total assets................................ $15,893,233 $4,866,842
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Accounts payable.................................. $ 220,432 $ 83,357
Accrued expenses.................................. 244,074 121,385
Advance deposits.................................. 27,429 83,488
Notes payable..................................... 13,008,907 4,700,433
----------- -----------
Total liabilities........................... 13,500,842 4,988,663
----------- -----------
Commitments and contingencies -- --
Partners' equity (deficit)........................ 2,392,391 (121,821 )
----------- -----------
Total liabilities and partners' equity
(deficit)................................. $15,893,233 $4,866,842
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
DAYTONA BEACH REGENCY, LTD.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE INCEPTION
YEAR ENDED (APRIL 8,
DECEMBER 1996) TO
31, DECEMBER
1997 31, 1996
----------- -----------
<S> <C> <C>
Revenue:
Sales of vacation ownership interests......... $14,562,666 $ 551,376
Resort operations............................. 1,001,506 541,730
Interest income............................... 528,227 --
----------- -----------
16,092,399 1,093,106
----------- -----------
Costs and expenses:
Cost of sales of vacation ownership
interests................................... 2,801,298 114,022
Resort operations............................. 950,172 775,571
Selling and marketing costs................... 5,492,070 277,028
General and administrative.................... 904,082 520,979
Provision for doubtful accounts............... 669,782 24,457
Depreciation and amortization................. 266,951 180,790
Financing and closing costs................... 413,679 --
Interest expense.............................. 784,430 269,810
----------- -----------
12,282,464 2,162,657
----------- -----------
Net income (loss)................................. $ 3,809,935 $(1,069,551)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
DAYTONA BEACH REGENCY, LTD.
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD
FROM INCEPTION (APRIL 8, 1996) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIMITED PARTNERS
GENERAL ---------------------------------------
PARTNER CLASS B
------------ CLASS A --------------------------
RESORTS ----------- RESORTS REGENCY
MANAGEMENT, DONALD F. INVESTMENT, RESORTS,
INC. LEWIS INC. INC. TOTAL
------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
APRIL 8, 1996............................ $ 9,478 $ 132,682 $ 521,251 $ 284,319 $ 947,730
Net loss................................. (10,696) (149,737) (588,253) (320,865) (1,069,551)
------------ ----------- ------------ ------------ -------------
BALANCE,
DECEMBER 31, 1996........................ $ (1,218) $ (17,055) $ (67,002) $ (36,546) $ (121,821)
Distributions............................ (12,269) (222,183) (693,198) (368,073) (1,295,723)
Net income............................... 38,099 533,391 2,095,464 1,142,981 3,809,935
------------ ----------- ------------ ------------ -------------
BALANCE,
DECEMBER 31, 1997........................ $ 24,612 $ 294,153 $ 1,335,264 $ 738,362 $ 2,392,391
------------ ----------- ------------ ------------ -------------
------------ ----------- ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
DAYTONA BEACH REGENCY, LTD.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED FROM INCEPTION
DECEMBER 31, (APRIL 8, 1996) TO
1997 DECEMBER 31, 1996
------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 3,809,935 $(1,069,551)
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and amortization................. 266,951 180,790
Amortization of financing fees................ 35,001 6,214
Provision for doubtful accounts............... 669,782 24,457
Change in assets and liabilities--
Cash in escrow.............................. 56,059 (83,488)
Mortgages receivable........................ (11,170,257) (489,142)
Inventory................................... 1,013,394 (3,481,611)
Other assets................................ (96,327) (5,646)
Accounts payable............................ 137,075 83,357
Accrued expenses............................ 122,689 121,385
Advance deposits............................ (56,059) 83,488
------------ ------------------
Net cash used in operating activities..... (5,211,757) (4,629,747)
------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (1,652,192) (933,821)
------------ ------------------
Net cash used in investing activities..... (1,652,192) (933,821)
------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................... 12,404,823 4,820,646
Payments on notes payable....................... (4,096,349) (120,213)
Payment of deferred financing costs............. (139,000) (58,000)
Distributions................................... (1,295,723) --
Contributions................................... -- 947,730
------------ ------------------
Net cash provided by financing
activities.............................. 6,873,751 5,590,163
------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 9,802 26,595
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 26,595 --
------------ ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 36,397 $ 26,595
------------ ------------------
------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid................................... $ 979,994 $ 238,814
------------ ------------------
------------ ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
DAYTONA BEACH REGENCY, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS:
Daytona Beach Regency, Ltd. (the Partnership) is a Florida limited
partnership formed for the purpose of acquiring, developing, marketing and
selling vacation ownership interests in certain units of the Daytona Beach
Regency, located in Daytona Beach, Florida. The Partnership generates revenues
from the sale and financing of vacation ownership interests in its resort, which
entitle the buyer to use a fully-furnished vacation residence, generally for a
one-week period each year, in perpetuity (Vacation Ownership Interests). The
Partnership also generates revenue from the transient rentals of resort
accommodations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS CASH IN ESCROW
Cash and cash equivalents consist of cash and all highly liquid investments
purchased with an original maturity of three months or less. Funds received from
purchasers which are held during the statutory rescission period, or until all
conditions are met for the sales transaction to be recognized and title
conveyed, are maintained in escrow accounts and are reflected as restricted
cash.
MORTGAGES RECEIVABLE
Mortgages receivable reflect the amounts due from Vacation Ownership
Interest purchasers who have accepted purchase money mortgage financing. The
obligations are evidenced by promissory notes and mortgages which are then
recorded in the State of Florida. The majority of these installment contracts
and mortgages receivable collateralize certain debt obligations of the
Partnership. The purchase money mortgages generally mature over terms which
approximate 84 months, with interest rates ranging from 9.9 percent to 16.9
percent, per annum. The mortgages may be prepaid at any time, without penalty.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Partnership provides for estimated future losses related to
uncollectible receivables currently included in its installment contracts and
mortgages receivable portfolio. The provision is estimated based upon
management's estimate of losses which may result because of cancellation of the
related purchase money mortgage contract.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful life of 5 to 7 years. Buildings
are amortized over the estimated useful life of 39 years.
DEFERRED FINANCING COSTS
Financing and loan origination fees incurred in connection with obtaining
certain acquisition and development funding have been capitalized and are being
amortized over the life of the of the respective loans.
F-39
<PAGE>
DAYTONA BEACH REGENCY, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
No federal or state income taxes are payable by the Partnership, and none
have been provided for in the accompanying financial statements. The partners
are to include their respective share of the Partnership's profits or losses in
their tax returns. The Partnership's tax returns and the amount of allocable
Partnership profits and losses are subject to examination by federal and state
taxing authorities. If such examinations result in changes to Partnership
profits or losses, the tax liability of the partners would be changed
accordingly.
SALES RECOGNITION AND SELLING POLICIES
The Vacation Ownership Interest purchaser has the right to rescind or cancel
their purchase contract within 10 calendar days from contract execution, and is
entitled to a full refund of deposit. All funds received by the Partnership are
held in escrow, by an independent agent, until the expiration of the rescission
period and title is conveyed to the purchaser. Sales, which are principally made
through installment contracts, are not recognized until the Partnership has
received at least 10 percent of the total purchase price, the statutory
rescission period has elapsed, and certificates of occupancy in the underlying
units have been issued. Prior to sales recognition, all payments received are
accounted for as advance deposits. Closing costs collected from the purchaser
are used to offset a portion of the closing costs incurred by the Partnership.
COST OF SALES AND INVENTORY
Cost of sales is computed by dividing the total project acquisition and
conversion costs associated with the Vacation Ownership Interests by the number
of interests to be sold, based upon fifty-one weeks of availability per
individual unit. Inventory, including all development costs, contents and
improvements, and capitalized interest is stated at cost, which is not more than
net realizable value. Interests transferred back to the Partnership attributable
to forfeiture, legal foreclosure, or reconveyance of a deed-in-lieu of legal
foreclosure, is returned to inventory at the original amount expensed as the
cost of sale. Marketing, advertising, commissions, and other selling costs are
expensed as incurred.
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 reported amounts of assets and liabilities and
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.
3. MORTGAGES RECEIVABLE:
The Partnership provides financing to its customers which is collateralized
by their Vacation Ownership Interest. The mortgages receivable generally bear
interest at a rate between 9.9% and 16.9% which remain fixed over the term of
the loan, which typically approximates seven years. The mortgages receivable may
be prepaid at any time without penalty. The weighted average rate of interest on
outstanding mortgages receivable is 16.1% and 16.3% as of December 31, 1997 and
1996, respectively.
F-40
<PAGE>
DAYTONA BEACH REGENCY, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. MORTGAGES RECEIVABLE: (CONTINUED)
As of December 31, 1997, approximately 4.7% of the Partnership's consumer
loans were considered by the Partnership to be delinquent (scheduled payment
past due 60 or more days).
The following schedule reflects the scheduled principal maturities of
mortgages receivables:
<TABLE>
<S> <C>
1998.............................................. $ 1,266,539
1999.............................................. 1,161,758
2000.............................................. 1,350,417
2001.............................................. 1,535,005
2002.............................................. 1,762,925
Thereafter........................................ 4,263,714
-----------
Total principal maturities of mortgages
receivable...................................... 11,340,358
Less allowance for doubtful accounts.............. 375,198
-----------
Net principal maturities of mortgages
receivable...................................... $10,965,160
-----------
-----------
</TABLE>
The activity in the mortgages receivable allowance for doubtful accounts for
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Balance, beginning of period........................................ $ 24,457 $ --
Provision for doubtful accounts..................................... 669,782 24,457
Charge-offs......................................................... (319,041) --
------------- ----------
Balance, end of period.............................................. $ 375,198 $ 24,457
------------- ----------
------------- ----------
</TABLE>
4. INVENTORY:
Inventory and accumulated cost of Vacation Ownership Interests consist of
the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Development costs................................. $5,546,214 $3,653,381
Less: accumulated Vacation Ownership Interests
cost of sales................................... (2,749,180) (108,226)
Less: resort property valuation allowance......... (328,817) (63,544)
---------- ----------
$2,468,217 $3,481,611
---------- ----------
---------- ----------
</TABLE>
F-41
<PAGE>
DAYTONA BEACH REGENCY, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Building and improvements......................... $1,721,201 $ 876,074
Furniture, fixtures and equipment................. 672,470 --
---------- ----------
2,393,671 876,074
Less- Accumulated depreciation.................... 255,399 123,043
---------- ----------
$2,138,272 $ 753,031
---------- ----------
---------- ----------
</TABLE>
6. DEFERRED FINANCING COSTS:
Deferred financing costs consist of the following as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred financing costs............................................... $ 197,000 $ 58,000
Less- Accumulated amortization......................................... 41,215 6,214
---------- ---------
$ 155,785 $ 51,786
---------- ---------
---------- ---------
</TABLE>
7. NOTES PAYABLE:
Notes payable consist of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revolving line of credit not to exceed $15 million in
the aggregate (limited by eligible collateral), with
interest payable monthly at LIBOR plus 5.5% (11.22%
and 11.0% at December 31, 1997 and 1996,
respectively), payable in monthly installments of
principal and interest equal to 100% of all proceeds
of the receivables collateral collected during the
month but not less than the accrued interest, with
any remaining principal due October 2004,
collateralized by specific mortgages receivable...... $8,360,703 $422,659
Construction loan payable not to exceed $3.9 million,
with interest payable at LIBOR plus 6% (11.72 % and
11.5% at December 31, 1997 and 1996, respectively),
principal payable with a portion (24%) of the
proceeds received on the sale of Vacation Ownership
Interests, collateralized by assets and unsold
Vacation Ownership Interests, due April 2000......... 2,605,453 1,175,822
Acquisition loan payable not to exceed $3.15 million,
with interest payable at LIBOR plus 6% (11.72% and
11.5% at December 31, 1997 and 1996, respectively),
principal payable with a portion of received on the
sale of Vacation Ownership Interests, collateralized
by assets and unsold Vacation Ownership Interests,
due April 2000....................................... 2,042,751 3,101,952
----------- -----------
Total notes payable.................................... $13,008,907 $4,700,433
----------- -----------
----------- -----------
</TABLE>
F-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS
OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information................. iii
Prospectus Summary.................... 1
Risk Factors.......................... 18
Use of Proceeds....................... 29
Capitalization........................ 30
Selected Financial Data............... 31
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 32
Business.............................. 39
Management............................ 52
Principal Members..................... 54
Certain Relationships and Related
Transactions........................ 54
Description of Other Indebtedness..... 55
The Exchange Offer.................... 56
Description of Notes.................. 66
Material United States Federal Tax
Consequences........................ 97
Plan of Distribution.................. 102
Legal Matters......................... 103
Experts............................... 103
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN SELLING
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR THEIR OWN
ACCOUNT.
[LOGO]
EPIC RESORTS, LLC
EPIC CAPITAL CORP.
OFFER TO EXCHANGE UP TO $130,000,000 13% SENIOR SECURED NOTES DUE 2005, SERIES B
OF EPIC RESORTS, LLC AND EPIC CAPITAL CORP., WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT, FOR ANY AND ALL OF THEIR OUTSTANDING 13% SENIOR SECURED
NOTES DUE 2005, SERIES A
---------------
PROSPECTUS
---------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF MANAGERS AND OFFICERS.
Section 10.3 of the Company's Operating Agreement provides that the Company
will, to the fullest extent permitted by the Limited Liability Company Law of
the State of Delaware (including, without limitation, Section 18-108 thereof),
indemnify any manager or officer (each an "Indemnitee") as follows:
(a) The Company will indemnify each Indemnitee (subject to any limitation
now or hereafter required by law) against any cost, expense (including legal or
other expenses reasonably incurred in investigation or defense), amount paid in
settlement, judgment or liability incurred by or imposed upon an Indemnitee in
connection with any action, suit or proceeding (including civil, criminal,
administrative or investigative proceedings) to which an Indemnitee may be a
party or otherwise involved or with which an Indemnitee shall be threatened,
arising out of or in connection with an Indemnitee's activities or involvement
with the Company or the Managing Member; except that no Indemnitee will be
indemnified with respect to any matter as to which Indemnitee shall have failed
to act in good faith, in a manner he or she reasonably believes to be in or not
opposed to the best interests of the Company, and with the care that an
ordinarily prudent person in a similar position would use under similar
circumstances.
(b) Indemnification under Section 10.3 will not be deemed exclusive of any
other rights to which an Indemnitee may be entitled under any rule of law
(whether common law or statutory), agreement or arrangement, whether as to
action in an official capacity and as to action in another capacity while
holding such position or while employed by or acting as agent for the Company.
Indemnification under Section 10.3 will continue as to an Indemnitee who has
ceased to serve in any capacity on behalf of the Company and will inure to the
benefit of the heirs, successors, executors and administrators of such
Indemnitee.
(c) The Company may indemnify any employee or agent of the Company and any
employee or agent of the Managing Member serving in any capacity on behalf or at
the request of the Managing Member of the Company upon such terms and conditions
as the Managing Member considers appropriate.
(d) The Company may purchase and maintain insurance for the benefit of any
Person entitled to indemnification under Section 10.3(a) or to whom the Managing
Member may extend rights of indemnification under Section 10.3(c) against any
liability asserted against and incurred by such Person or on his behalf in any
such capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify such Person against such ability under the
provisions of Section 10.3.
In addition, subject to any mandatory requirements of law to the contrary,
any costs and expenses for which indemnification may be provided pursuant to
Section 10.3 may be paid by the Company in advance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1* Purchase and Sale Agreement, dated as of May 7, 1998, between Epic Resorts, Inc. and Scottsdale Links
Apartments Limited Partnership.
2.2* Purchase and Sale Agreement, dated as of May 20, 1998, between Epic Resorts--Palm Springs Marquis
Villas, Inc. and Palm Springs Marquis, Inc. and Mark A. Bragg.
2.3* Purchase and Sale Agreement, dated as of May 8, 1998, between Epic Resorts, Inc. and Westpark II
Partnership L.L.C.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.4* Purchase and Sale Agreement dated as of May 13, 1998 between Epic Resorts, Inc. and Planter's Preserve,
LLC.
3.1* Certificate of Formation of Epic Resorts, LLC.
3.2* Operating Agreement of Epic Resorts, LLC.
3.3* By-Laws of Epic Resorts, LLC.
3.4* Certificate of Incorporation of Epic Capital Corp.
3.5* By-Laws of Epic Capital Corp.
3.6* Form of Certificate of Formation of subsidiaries organized as Delaware limited liability companies.
3.7* Form of Operating Agreement of subsidiaries organized as Delaware limited liability companies.
3.8* Limited Partnership Agreement of Boardwalk Regency, Ltd. (predecessor to Daytona Beach Regency, Ltd.),
dated March 6, 1996 between Resort Management, Inc. and the limited partners named therein.
3.9* Certificate of Incorporation of Epic Warrant Co.
3.10* By-Laws of Epic Warrant Co.
4.1** Indenture, dated July 8, 1998 between Epic Resorts, LLC, Epic Capital Corp., the Subsidiary Guarantors
signatory thereto and United States Trust Company of New York, as Trustee relating to the 13% Senior
Secured Notes due 2005 (the form of which is included in such indenture).
4.2** Form of Global Exchange Note (included in Exhibit 4.1).
4.3** Exchange and Registration Rights Agreement, dated July 8, 1998, between Epic Resorts, LLC, Epic Capital
Corp., the Subsidiary Guarantors named therein and NatWest Capital Markets Limited.
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being offered.
8.1** Opinion of Jones, Day, Reavis & Pogue as to tax matters.
10.1* Employment Agreement between Epic Resorts, Inc. and Thomas F. Flatley, dated May 20, 1998.
10.2* Employment Agreement between Epic Resorts, Inc. and Scott J. Egelkamp, dated May 20, 1998.
10.3* Escrow and Disbursement Agreement, dated July 8, 1998 between United States Trust Company of New York,
as Trustee under the Indenture and as Escrow Agent, Epic Resorts, LLC and Epic Capital Corp.
10.4* Security Agreement, dated July 8, 1998 made by the Grantors named therein in favor of United States
Trust Company of New York, as trustee under the Indenture, Collateral Agent and Depository for the
benefit of the Noteholders of the 13% Senior Secured Notes due 2005 issued by Epic Resorts, LLC and Epic
Capital Corp.
10.5** Registration Rights and Members' Agreement, dated July 8, 1998 between Epic Resorts, LLC, Epic
Membership Corp., Members of Epic Resorts LLC, Epic Capital Corp., Epic Warrant Co. and NatWest Capital
Markets Limited, as Initial Purchaser.
10.6** Warrant Agreement, dated July 8, 1998 between Epic Warrant Co., as Issuer and United States Trust
Company of New York, as Warrant Agent.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.7** Warrant Agreement, dated July 8, 1998 between Epic Resorts, LLC, as Issuer and United States Trust
Company of New York, as Warrant Agent.
10.8** Form of Epic Warrant Co. Warrant Certificate (included in Exhibit 10.6).
10.9** Form of Epic Resorts, LLC Warrant Certificate (included in Exhibit 10.7).
10.10* Mortgage and Security Agreement, granted July 8, 1998 by Epic Resorts--Hilton Head, LLC, as mortgagor to
United States Trust Company of New York, as trustee under the Indenture and mortgagee.
10.11* Deed of Trust, granted July 8, 1998 by Epic Resorts--Westpark Resort, LLC, as trustor to United Title of
Nevada, as trustee for the benefit of United States Trust Company of New York, as trustee under the
Indenture.
10.12* Form of Leasehold Deed of Trust, Assignment of Leases and Rents Security Agreement and Fixture Filing,
granted July , 1998 by Epic Resorts--Palm Springs Marquis Villas, LLC, as trustor to Barbara J.
Goodman, Esq., as trustee for the benefit of United States Trust Company of New York, as trustee under
the Indenture.
10.13* Mortgage, granted July 8, 1998 by Daytona Beach Regency, Ltd., as mortgagor to United States Trust
Company of New York, as trustee under the Indenture and mortgagee.
10.14* Deed of Trust, granted July 8, 1998 by Epic Resorts--Scottsdale Links Resort, LLC, as trustor to Jones
Osborn, II, Esq., as trustee for the benefit of United States Trust Company of New York, as trustee
under the Indenture.
10.15** Receivables Loan and Security Agreement, dated October 11, 1996 between London Bridge Resort, Inc. and
Finova Capital Corporation.
10.16** Trust Indenture, dated September 28, 1998 between Epic Master Funding Corporation, Epic Resorts, LLC as
administrator and Marine Midland Bank, as trustee.
10.17** Credit Agreement, dated September 28, 1998 between Epic Master Funding Corporation, Epic Resorts, LLC
and Prudential Securities Credit Corporation.
12.1* Statement regarding computation of ratios.
21.1** Subsidiaries of Epic Resorts, LLC.
23.1* Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
23.2** Consent of Jones, Day, Reavis & Pogue, as special tax counsel (included in Exhibit 8.1)
23.3** Consent of Arthur Andersen LLP.
24.1* Power of Attorney--Epic Resorts, LLC.
24.2* Power of Attorney--Epic Capital Corp.
24.3* Power of Attorney--London Bridge, LLC.
24.4* Power of Attorney--Daytona Beach Regency, Ltd.
24.5* Power of Attorney--Resort Management, LLC.
24.6* Power of Attorney--Resort Investment, LLC.
24.7* Power of Attorney--Epic Resorts--Hilton Head, LLC.
24.8* Power of Attorney--Epic Resorts--Palm Springs Marquis Villas, LLC.
24.9* Power of Attorney--Epic Resorts--Scottsdale Links Resort, LLC.
24.10* Power of Attorney--Epic Resorts--Westpark Resort, LLC.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
24.11* Power of Attorney--Epic Warrant Co.
24.12* Power of Attorney--Epic Travel, LLC.
24.13** Power of Attorney--Epic Resorts--Vacation Showplace, LLC
24.14** Power of Attorney--Epic Marketing, LLC
24.15** Power of Attorney--Epic Resorts Management, LLC
25 * Statement of Eligibility of Trustee, United States Trust Company of New York, on Form T-1.
27 ** Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
*Previously be filed.
**Filed herewith.
(B) FINANCIAL DATA SCHEDULES
All financial data schedules have been omitted because they are either not
applicable or the required information has been included in the financial
statements or notes thereto appearing elsewhere in the Registration Statement.
ITEM 22. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
undersigned registrants pursuant to the foregoing provisions or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by such registrant of expenses
incurred or paid by a director, officer or controlling person of such registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of the prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
II-4
<PAGE>
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(3) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(4) The undersigned registrants hereby undertake to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President and Chief
/s/ THOMAS F. FLATLEY Executive Officer
- ------------------------------ (Principal Executive
Thomas F. Flatley Officer), Manager
Vice President, Chief
* Financial Officer and
- ------------------------------ Secretary (Principal
Scott J. Egelkamp Financial and Accounting
Officer), Manager
*
- ------------------------------
Epic Membership Corp. Managing Member
By: Thomas F. Flatley,
President
*
- ------------------------------ Manager
Gerald L. Clark
*
- ------------------------------ Manager
James A. Ditanna
*
- ------------------------------ Manager
Robert M. Kramer
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and managers of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and Managers.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC CAPITAL CORP.
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Director
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and Director of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and Director.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC WARRANT CO.
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Director
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and Director of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and Director.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
DAYTONA BEACH REGENCY, LTD.
By: Resort Management, LLC, its general
partner
By: /s/ THOMAS F. FLATLEY
-------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS--HILTON HEAD, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS--SCOTTSDALE LINKS RESORT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
LONDON BRIDGE RESORT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS--PALM SPRINGS MARQUIS VILLAS, LLC
By: /s/ THOMAS F. FLATLEY
------------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS--WESTPARK RESORT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC TRAVEL, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Managing Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
RESORT INVESTMENT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
RESORT MANAGEMENT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS--VACATION SHOWPLACE, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC RESORTS MANAGEMENT, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Sole Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and member of the Company and filed with
the Securities and Exchange Commission on behalf of such officers and member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of King of
Prussia, Commonwealth of Pennsylvania, on October 15, 1998.
<TABLE>
<S> <C> <C>
EPIC MARKETING, LLC
By: /s/ THOMAS F. FLATLEY
-----------------------------------------
Thomas F. Flatley
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------ President (Principal
Thomas F. Flatley Executive Officer)
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
*
- ------------------------------
Epic Resorts, LLC Managing Member
By: Thomas F. Flatley,
President
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and managing member of the Company and
filed with the Securities and Exchange Commission on behalf of such officers and
member.
<TABLE>
<C> <S>
/s/ THOMAS F. FLATLEY
- ------------------------------
Thomas F. Flatley,
ATTORNEY-IN-FACT
</TABLE>
II-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1* Purchase and Sale Agreement, dated as of May 7, 1998, between Epic Resorts, Inc. and Scottsdale Links
Apartments Limited Partnership.
2.2* Purchase and Sale Agreement, dated as of May 20, 1998, between Epic Resorts--Palm Springs Marquis
Villas, Inc. and Palm Springs Marquis, Inc. and Mark A. Bragg.
2.3* Purchase and Sale Agreement, dated as of May 8, 1998, between Epic Resorts, Inc. and Westpark II
Partnership L.L.C.
2.4* Purchase and Sale Agreement dated as of May 13, 1998 between Epic Resorts, Inc. and Planter's Preserve,
LLC.
3.1* Certificate of Formation of Epic Resorts, LLC.
3.2* Operating Agreement of Epic Resorts, LLC.
3.3* By-Laws of Epic Resorts, LLC.
3.4* Certificate of Incorporation of Epic Capital Corp.
3.5* By-Laws of Epic Capital Corp.
3.6* Form of Certificate of Formation of subsidiaries organized as Delaware limited liability companies.
3.7* Form of Operating Agreement of subsidiaries organized as Delaware limited liability companies.
3.8* Limited Partnership Agreement of Boardwalk Regency, Ltd. (predecessor to Daytona Beach Regency, Ltd.),
dated March 6, 1996 between Resort Management, Inc. and the limited partners named therein.
3.9* Certificate of Incorporation of Epic Warrant Co.
3.10* By-Laws of Epic Warrant Co.
4.1** Indenture, dated July 8, 1998 between Epic Resorts, LLC, Epic Capital Corp., the Subsidiary Guarantors
signatory thereto and United States Trust Company of New York, as Trustee relating to the 13% Senior
Secured Notes due 2005 (the form of which is included in such indenture).
4.2** Form of Global Exchange Note (included in Exhibit 4.1).
4.3** Exchange and Registration Rights Agreement, dated July 8, 1998, between Epic Resorts, LLC, Epic Capital
Corp., the Subsidiary Guarantors named therein and NatWest Capital Markets Limited.
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being offered.
8.1** Opinion of Jones, Day, Reavis & Pogue as to tax matters.
10.1* Employment Agreement between Epic Resorts, Inc. and Thomas F. Flatley, dated May 20, 1998.
10.2* Employment Agreement between Epic Resorts, Inc. and Scott J. Egelkamp, dated May 20, 1998.
10.3* Escrow and Disbursement Agreement, dated July 8, 1998 between United States Trust Company of New York,
as Trustee under the Indenture and as Escrow Agent, Epic Resorts, LLC and Epic Capital Corp.
10.4* Security Agreement, dated July 8, 1998 made by the Grantors named therein in favor of United States
Trust Company of New York, as trustee under the Indenture, Collateral Agent and Depository for the
benefit of the Noteholders of the 13% Senior Secured Notes due 2005 issued by Epic Resorts, LLC and Epic
Capital Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.5** Registration Rights and Members' Agreement, dated July 8, 1998 between Epic Resorts, LLC, Epic
Membership Corp., Members of Epic Resorts LLC, Epic Capital Corp., Epic Warrant Co. and NatWest Capital
Markets Limited, as Initial Purchaser.
10.6** Warrant Agreement, dated July 8, 1998 between Epic Warrant Co., as Issuer and United States Trust
Company of New York, as Warrant Agent.
10.7** Warrant Agreement, dated July 8, 1998 between Epic Resorts, LLC, as Issuer and United States Trust
Company of New York, as Warrant Agent.
10.8** Form of Epic Warrant Co. Warrant Certificate (included in Exhibit 10.6).
10.9** Form of Epic Resorts, LLC Warrant Certificate (included in Exhibit 10.7).
10.10* Mortgage and Security Agreement, granted July 8, 1998 by Epic Resorts--Hilton Head, LLC, as mortgagor to
United States Trust Company of New York, as trustee under the Indenture and mortgagee.
10.11* Deed of Trust, granted July 8, 1998 by Epic Resorts--Westpark Resort, LLC, as trustor to United Title of
Nevada, as trustee for the benefit of United States Trust Company of New York, as trustee under the
Indenture.
10.12* Form of Leasehold Deed of Trust, Assignment of Leases and Rents Security Agreement and Fixture Filing,
granted July , 1998 by Epic Resorts--Palm Springs Marquis Villas, LLC, as trustor to Barbara J.
Goodman, Esq., as trustee for the benefit of United States Trust Company of New York, as trustee under
the Indenture.
10.13* Mortgage, granted July 8, 1998 by Daytona Beach Regency, Ltd., as mortgagor to United States Trust
Company of New York, as trustee under the Indenture and mortgagee.
10.14* Deed of Trust, granted July 8, 1998 by Epic Resorts--Scottsdale Links Resort, LLC, as trustor to Jones
Osborn, II, Esq., as trustee for the benefit of United States Trust Company of New York, as trustee
under the Indenture.
10.15** Receivables Loan and Security Agreement, dated October 11, 1996 between London Bridge Resort, Inc. and
Finova Capital Corporation.
10.16** Trust Indenture, dated September 28, 1998 between Epic Master Funding Corporation, Epic Resorts, LLC as
administrator and Marine Midland Bank, as trustee.
10.17** Credit Agreement, dated September 28, 1998 between Epic Master Funding Corporation, Epic Resorts, LLC
and Prudential Securities Credit Corporation.
12.1* Statement regarding computation of ratios.
21.1** Subsidiaries of Epic Resorts, LLC.
23.1* Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
23.2** Consent of Jones, Day, Reavis & Pogue, as special tax counsel (included in Exhibit 8.1)
23.3** Consent of Arthur Andersen LLP.
24.1* Power of Attorney--Epic Resorts, LLC.
24.2* Power of Attorney--Epic Capital Corp.
24.3* Power of Attorney--London Bridge, LLC.
24.4* Power of Attorney--Daytona Beach Regency, Ltd.
24.5* Power of Attorney--Resort Management, LLC.
24.6* Power of Attorney--Resort Investment, LLC.
24.7* Power of Attorney--Epic Resorts--Hilton Head, LLC.
24.8* Power of Attorney--Epic Resorts--Palm Springs Marquis Villas, LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
24.9* Power of Attorney--Epic Resorts--Scottsdale Links Resort, LLC.
24.10* Power of Attorney--Epic Resorts--Westpark Resort, LLC.
24.11* Power of Attorney--Epic Warrant Co.
24.12* Power of Attorney--Epic Travel, LLC.
24.13** Power of Attorney--Epic Resorts--Vacation Showplace, LLC
24.14** Power of Attorney--Epic Marketing, LLC
24.15** Power of Attorney--Epic Resorts Management, LLC
25 * Statement of Eligibility of Trustee, United States Trust Company of New York, on Form T-1.
27 ** Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
*Previously filed.
**Filed herewith.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EPIC RESORTS, LLC
AND EPIC CAPITAL CORP.
as Issuers,
The Subsidiary Guarantors
named herein or
which become a party
hereto pursuant to
Article 10 hereof
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
$130,000,000
13% SENIOR SECURED NOTES DUE 2005, SERIES A
13% SENIOR SECURED NOTES DUE 2005, SERIES B
---------------------------------
--------------------
INDENTURE
Dated as of July 8, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.10
(b)............................................. 7.10
(c)............................................. N.A.
311(a)............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a)............................................. 2.05
(b)............................................. 12.03
(c)............................................. 12.03
313(a)............................................. 7.06
(b)(1).......................................... 7.06
(b)(2).......................................... 7.06
(c)............................................. 7.06
(d)............................................. 7.06
314(a)............................................. 4.03; 4.04
(b)............................................. 11.04.
(c)(1).......................................... 12.02
(c)(2).......................................... 12.04
(c)(3).......................................... N.A.
(d)............................................. 11.04
(e)............................................. 12.05
(f)............................................. N.A.
315(a)............................................. 7.01
(b)............................................. 7.05
(c)............................................. 7.01
(d)............................................. 6.05; 7.01
(e)............................................. 6.11
316(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07
(c)............................................. Exhibits A and B
317(a)(1).......................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318(a)............................................. 12.01
-i-
<PAGE>
(b)............................................. N.A.
(c)............................................. 12.01
</TABLE>
- --------------
*This Cross-Reference Table is not part of the Indenture.
N.A. means not applicable.
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
<S> <C>
BY REFERENCE ............................................................ 1
SECTION 1.01. DEFINITIONS ......................................... 1
SECTION 1.02. OTHER DEFINITIONS.................................... 20
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.... 21
SECTION 1.04. RULES OF CONSTRUCTION................................ 21
ARTICLE 2
THE SECURITIES........................................................... 21
SECTION 2.01. FORM AND DATING...................................... 22
SECTION 2.02. EXECUTION AND AUTHENTICATION......................... 23
SECTION 2.03. REGISTRAR AND PAYING AGENT........................... 23
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.................. 24
SECTION 2.05. SECURITYHOLDER LISTS................................. 24
SECTION 2.06. TRANSFER AND EXCHANGE................................ 24
SECTION 2.07. REPLACEMENT SECURITIES............................... 25
SECTION 2.08. OUTSTANDING SECURITIES............................... 25
SECTION 2.09. TREASURY SECURITIES.................................. 26
SECTION 2.10. TEMPORARY SECURITIES................................. 26
SECTION 2.11. CANCELLATION......................................... 26
SECTION 2.12. DEFAULTED INTEREST................................... 26
SECTION 2.13. CUSIP NUMBER......................................... 27
SECTION 2.14. DEPOSIT OF MONEYS.................................... 27
SECTION 2.15. RESTRICTIVE LEGENDS.................................. 27
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.......... 29
SECTION 2.17. SPECIAL TRANSFER PROVISIONS.......................... 30
SECTION 2.18. PERSONS DEEMED OWNERS................................ 31
SECTION 2.19. ALLOCATION OF PURCHASE PRICE......................... 32
ARTICLE 3
REDEMPTION.............................................................. 32
SECTION 3.01. NOTICES TO TRUSTEE................................... 32
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED............... 32
SECTION 3.03. NOTICE OF REDEMPTION................................. 33
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION....................... 34
-iii-
<PAGE>
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.......................... 34
SECTION 3.06. SECURITIES REDEEMED IN PART.......................... 34
SECTION 3.07. OPTIONAL REDEMPTION.................................. 34
SECTION 3.08. MANDATORY OFFER TO PURCHASE.......................... 35
SECTION 3.09. CERTAIN REDEMPTION PROCEDURES........................ 35
ARTICLE 4
COVENANTS................................................................ 37
SECTION 4.01. PAYMENT OF SECURITIES................................ 37
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY...................... 38
SECTION 4.03. SEC REPORTS.......................................... 38
SECTION 4.04. COMPLIANCE CERTIFICATES.............................. 39
SECTION 4.05. TAXES................................................ 40
SECTION 4.06. STAY, EXTENSION AND USURY LAWS....................... 40
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.................... 40
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES.............................. 43
SECTION 4.09. LIMITATION ON INDEBTEDNESS........................... 44
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK... 47
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS................. 48
SECTION 4.12. LIMITATION ON LIENS.................................. 49
SECTION 4.13. CORPORATE EXISTENCE.................................. 49
SECTION 4.14. CHANGE OF CONTROL.................................... 49
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES.............................. 51
SECTION 4.16. CONDUCT OF BUSINESS.................................. 51
SECTION 4.17. LIMITATION ON REPAYMENT UPON A CHANGE OF CONTROL..... 51
SECTION 4.18. LIMITATION ON SALE/LEASEBACK TRANSACTIONS............ 51
SECTION 4.19. LIMITATION ON DESIGNATIONS OF UNRESTRICTED
SUBSIDIARIES......................................... 52
SECTION 4.20. FUTURE NOTE GUARANTEES............................... 53
SECTION 4.21. FURTHER INSTRUMENTS AND ACTS......................... 53
SECTION 4.22. COLLATERAL DOCUMENTS................................. 53
SECTION 4.23. FILING OF PLANS...................................... 53
SECTION 4.26. VARIANCES AND REZONING............................... 54
ARTICLE 5
SUCCESSORS............................................................... 54
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE
OF ASSETS............................................ 54
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.................... 55
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ARTICLE 6
DEFAULTS AND REMEDIES.................................................... 55
SECTION 6.01. EVENTS OF DEFAULT.................................... 55
SECTION 6.02. ACCELERATION......................................... 57
SECTION 6.03. OTHER REMEDIES....................................... 57
SECTION 6.04. WAIVER OF PAST DEFAULTS.............................. 58
SECTION 6.05. CONTROL BY MAJORITY.................................. 58
SECTION 6.06. LIMITATION ON SUITS.................................. 58
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT......... 59
SECTION 6.08. COLLECTION SUIT BY TRUSTEE........................... 59
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM..................... 59
SECTION 6.10. PRIORITIES........................................... 60
SECTION 6.11. UNDERTAKING FOR COSTS................................ 61
ARTICLE 7
TRUSTEE.................................................................. 61
SECTION 7.01. DUTIES OF TRUSTEE.................................... 61
SECTION 7.02. RIGHTS OF TRUSTEE.................................... 63
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE......................... 64
SECTION 7.04. TRUSTEE'S DISCLAIMER................................. 64
SECTION 7.05. NOTICE OF DEFAULTS................................... 64
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS................ 64
SECTION 7.07. COMPENSATION AND INDEMNITY........................... 65
SECTION 7.08. REPLACEMENT OF TRUSTEE............................... 66
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC..................... 67
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION........................ 67
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
ISSUERS.............................................. 67
ARTICLE 8
DISCHARGE OF INDENTURE................................................... 67
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE..... 67
SECTION 8.02. CONDITIONS TO DEFEASANCE............................. 68
SECTION 8.03. APPLICATION OF TRUST MONEY........................... 70
SECTION 8.04. REPAYMENT TO THE ISSUERS............................ 70
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS................. 70
SECTION 8.06. REINSTATEMENT........................................ 70
ARTICLE 9
AMENDMENTS............................................................... 71
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS................... 71
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS...................... 72
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SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.................. 74
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.................... 74
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES................ 74
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. .................... 75
ARTICLE 10
SUBSIDIARY GUARANTEE OF SECURITIES....................................... 75
SECTION 10.01. SUBSIDIARY GUARANTEE................................ 75
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE...... 77
SECTION 10.03. SUBSIDIARY GUARANTEE UNCONDITIONAL, ETC. ........... 77
SECTION 10.04. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY...... 78
SECTION 10.05. CONTRIBUTION........................................ 78
SECTION 10.06. RELEASE............................................. 78
SECTION 10.07. ADDITIONAL SUBSIDIARY GUARANTORS.................... 79
SECTION 10.08. SUCCESSORS AND ASSIGNS.............................. 80
SECTION 10.09. WAIVER OF STAY, EXTENSION OR USURY LAWS............. 80
ARTICLE 11
COLLATERAL AND SECURITY.................................................. 81
SECTION 11.01. COLLATERAL DOCUMENTS; FURTHER ASSURANCES............ 81
SECTION 11.02. RECORDING AND OPINIONS.............................. 83
SECTION 11.03. RELEASE OF COLLATERAL............................... 83
SECTION 11.04. CERTIFICATES OF THE ISSUERS......................... 85
SECTION 11.05. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE
UNDER THE COLLATERAL DOCUMENTS...................... 85
SECTION 11.06. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE
UNDER THE COLLATERAL DOCUMENTS...................... 86
ARTICLE 12
MISCELLANEOUS............................................................ 86
SECTION 12.01. TRUST INDENTURE ACT CONTROLS........................ 86
SECTION 12.02. NOTICES............................................. 86
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER
SECURITYHOLDERS..................................... 87
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.. 87
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION....... 88
SECTION 12.06. RULES BY TRUSTEE AND AGENTS......................... 88
SECTION 12.07. LEGAL HOLIDAYS...................................... 88
SECTION 12.08. NO RECOURSE AGAINST OTHERS.......................... 88
SECTION 12.09. DUPLICATE ORIGINALS................................. 89
SECTION 12.10. GOVERNING LAW....................................... 89
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SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS....... 89
SECTION 12.12. SUCCESSORS.......................................... 89
SECTION 12.13. SEVERABILITY........................................ 89
SECTION 12.14. COUNTERPART ORIGINALS............................... 89
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC.................... 89
</TABLE>
EXHIBIT A - FORM OF INITIAL SECURITY
EXHIBIT B - FORM OF EXCHANGE SECURITY
EXHIBIT C - FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
EXHIBIT D - FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S
EXHIBIT E - FORM OF DEED OF TRUST
EXHIBIT E-1 - FORM OF LEASEHOLD MORTGAGE
EXHIBIT E-2 - FORM OF COLLATERAL ASSIGNMENT
EXHIBIT F - RESERVED
EXHIBIT G - FORM OF SECURITY AGREEMENT
EXHIBIT H - FORM OF ESCROW AND DISBURSEMENT AGREEMENT
EXHIBIT I-1 - FORM OF POWER OF ATTORNEY
SCHEDULE A - EXISTING LIENS
SCHEDULE B - EXISTING INDEBTEDNESS
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INDENTURE, dated as of July 8, 1998 by and among Epic Resorts, LLC,
a Delaware limited liability company (the "Company"), Epic Capital Corp.
("Epic Capital" and, together with the Company, the "Issuers"), the
Subsidiary Guarantors, and United States Trust Company of New York, a banking
corporation organized and existing under the laws of the State of New York,
in its capacity as trustee (the "Trustee").
The Issuers have duly authorized the creation of an issue of 13%
Senior Secured Notes due 2005, Series A (the "Initial Securities") and 13%
Senior Secured Notes due 2005, Series B (the "Exchange Securities") and, to
provide therefor, the Issuers have duly authorized the execution and delivery
of this Indenture. All things necessary to make the Securities (as defined),
when duly issued and executed by the Issuers, and authenticated and delivered
hereunder, the valid obligations of the Issuers, and to make this Indenture a
valid and binding agreement of the Issuers, have been done.
The Issuers and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the
Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACCOUNTANTS" means Arthur Andersen LLP or such other nationally
recognized firm of independent certified public accountants as is reasonably
acceptable to the Trustee.
"ACQUISITION" means any purchase or other acquisition of real
property by the Company or any Restricted Subsidiary.
"A&D FACILITY" means with respect to the Company and its Restricted
Subsidiaries, one or more debt facilities with banks or other institutional
lenders providing for borrowings, the proceeds of which are required to be
used for the acquisition and/or development of real property owned by the
Company or such Restricted Subsidiary, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced, in whole or in part,
from time to time.
"ADDITIONAL ASSETS" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or a Restricted Subsidiary
of the Company; (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary of the Company; or (iv)
Permitted Investments of the type and in the amounts described in clause
(viii) of the definition thereof; PROVIDED, HOWEVER, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Permitted Business.
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"ADJUSTED NET ASSETS" of a Subsidiary Guarantor at any date shall
mean the lesser of (x) the amount by which the fair value of the property of
such Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, the probable liability of such Subsidiary Guarantor with
respect to its contingent liabilities (after giving effect to all other fixed
and contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantees, of such Subsidiary Guarantor at
such date and (y) the amount by which the present fair salable value of the
assets of such Subsidiary Guarantor at such date exceeds the amount that will
be required to pay the probable liability of such Subsidiary Guarantor on its
debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection
from any Subsidiary by such Subsidiary Guarantor in respect of the
obligations of such Subsidiary under the Subsidiary Guarantees), excluding
debt in respect of the Subsidiary Guarantees, as they become absolute and
matured.
"AFFILIATE" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance or
other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of
(or any other equity interests in) a Restricted Subsidiary (other than
directors' qualifying shares) or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a sale, transfer or
disposition in the ordinary course of business of Vacation Ownership
Interests or Vacation Ownership Interests Receivables (including, without
limitation, direct sales to financial institutions and sales or transfers in
connection with securitization transactions in the ordinary course of
business), (iii) a disposition of obsolete or worn out equipment or equipment
that is no longer useful in the conduct of the business of the Company and
its Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business, (iv) dispositions of property for net proceeds
which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning
of the calendar year in which such disposition is consummated, do not exceed
$1.0 million, (v) transactions permitted under Section 5.01 hereunder; and
(vi) Permitted Investments. Notwithstanding anything to the contrary
contained above, a Restricted Payment made in compliance with Section 4.07
hereunder shall not constitute an Asset Disposition except for purposes of
determinations of the Consolidated Coverage Ratio.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate per annum equal to the
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discount rate which would be applicable to a Capitalized Lease Obligation
with a like term in accordance with GAAP) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect
to any indebtedness, the quotient obtained by dividing (i) the sum of the
product of the numbers of years (rounded upwards to the nearest month) from
the date of determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption multiplied by the amount of such
payment by (ii) the sum of all such payments.
"BANKRUPTCY CODE" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the board
of directors, board of managers or other analogous controlling body of such
Person or any committee thereof duly authorized, with respect to any
particular matter, to exercise the power of such body, or so long as the
Company is a limited liability company, the managing member of the Company.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"BRIDGE LOAN" means any loan made under the Bridge Loan Agreement.
"BRIDGE LOAN AGREEMENT" means the Bridge Loan Agreement, dated as
of June 29, 1998, among the Company, the Subsidiary Guarantors, various
lending institutions and National Westminster Bank Plc, as administrative
agent.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITAL STOCK" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount
of such obligation determined in accordance with GAAP, and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such obligation prior to the first date such obligation may
be terminated without penalty.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality
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thereof, (iii) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight
bank deposits, in each case with any commercial bank having capital and
surplus in excess of $500 million, (iv) repurchase obligations for underlying
securities of the types described in clauses (ii) and (iii) entered into with
any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper rated A-l or the equivalent thereof by
Moody's or S&P, and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing at least 95% of their assets in
securities of the types described in clauses (i)-(v) above, (vii) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (viii)
Indebtedness or Preferred Stock issued by Persons with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"CHANGE OF CONTROL" means (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries; (ii) a
majority of the Board of Directors of the Company shall consist of Persons
who are not Continuing Directors of the Company; (iii) if no Equity Offering
shall have occurred, the failure of Thomas F. Flatley to continue to
beneficially own more than 50% of the ordinary voting power for the election
of directors of the Company; (iv) if an Equity Offering shall have occurred,
the failure of Mr. Flatley to beneficially own at least 25% of the ordinary
voting power for the election of directors of the Company or (v) if any
Person or Group shall at any time beneficially own a greater percentage of
the ordinary voting power for the election of directors of the Company than
is then beneficially owned by Mr. Flatley.
"COLLATERAL" means, collectively, the Collateral as defined in the
Collateral Documents.
"COLLATERAL DOCUMENTS" means each Mortgage (a form of which is
attached hereto as Exhibit E), the Security Agreement (a form of which is
attached hereto as Exhibit G), the Escrow and Disbursement Agreement (a form
of which is attached hereto as Exhibit H) and any other agreements creating a
Lien in favor of the Trustee securing the Securities.
"COMMISSION" means the U.S. Securities and Exchange Commission or
its successor.
"COMMON EQUITY" of any Person means Capital Stock of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"COMPANY" means Epic Resorts, LLC, a Delaware limited liability
company, until a successor replaces it in accordance with Article 5 hereof
and thereafter means the successor.
"CONSOLIDATED CASH FLOW" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income:
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(i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, and (v) all other non-cash
items reducing Consolidated Net Income (excluding any non-cash item to the
extent it represents an accrual of or reserve for cash disbursements for any
subsequent period prior to the Stated Maturity of the Securities) and less,
(x) the aggregate amount of contingent and "earnout" payments in respect of
any Permitted Business acquired by the Company or any Restricted Subsidiary
that are paid in cash during such period and (y) to the extent added in
calculating Consolidated Net Income, non-cash items (excluding such non-cash
items to the extent they represent an accrual for cash receipts reasonably
expected to be received prior to the Stated Maturity of the Securities), in
each case for such period. Notwithstanding the foregoing, the income tax
expense, depreciation expense and amortization expense of a Subsidiary of the
Company shall be included in Consolidated Cash Flow only to the extent (and
in the same proportion) that the net income of such Subsidiary was included
in calculating Consolidated Net Income.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means
the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to
the date of such determination and as to which financial statements are
available to (ii) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that (A) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
and through the date of determination of the Consolidated Coverage Ratio that
remains outstanding or if the transaction giving rise to the need to
calculate Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to (1)
such Indebtedness as if such Indebtedness had been Incurred on the first day
of such period (provided that if such Indebtedness is Incurred under a
revolving credit facility (or similar arrangement or under any predecessor
revolving credit or similar arrangement) only that portion of such
Indebtedness that constitutes the one year projected average balance of such
Indebtedness (as determined in good faith by the Board of Directors of the
Company) shall be deemed outstanding for purposes of this calculation), and
(2) the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period any Indebtedness of the Company or any of its
Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and the underlying commitment terminated and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Indebtedness had been repaid,
repurchased, defeased or otherwise discharged on the first day of such period
and as if the Company or any Restricted Subsidiary has not earned the
interest income actually earned during such period in respect of cash or Cash
Equivalents used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (C) if since the beginning of such period the Company or any of
its Restricted Subsidiaries shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Asset Disposition, Consolidated Cash Flow for such period shall
be reduced by an amount equal to the Consolidated Cash Flow (if positive)
attributable to the assets which are the subject of such Asset Disposition
for such period or increased by an amount equal to the
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Consolidated Cash Flow (if negative) attributable thereto for such period,
and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (D)
if since the beginning of such period the Company or any of its Restricted
Subsidiaries (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary of the Company (or any Person which becomes a
Restricted Subsidiary of the Company as a result thereof) or an acquisition
of assets occurring in connection with a transaction causing a calculation to
be made hereunder which constitutes all or substantially all of an operating
unit of a business, Consolidated Cash Flow and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (E) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary of the Company or was merged with or into the Company or any
Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets
that would have required an adjustment pursuant to clause (C) or (D) above if
made by the Company or a Restricted Subsidiary of the Company during such
period, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries determined in
accordance with GAAP, PLUS, to the extent not included in such interest
expense (i) interest expense attributable to Capitalized Lease Obligations
and the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction, (ii) capitalized interest, (iii) amortization of
debt discount and debt issuance costs, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (vi) interest actually
paid by the Company or any such Restricted Subsidiary under any Guarantee of
Indebtedness or other obligation of any other Person, (vii) net costs
pursuant to Interest Rate Agreements and Currency Agreements (including
amortization of fees), (viii) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred
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by such plan or trust and (ix) cash and Disqualified Stock dividends in
respect of all Preferred Stock of Subsidiaries and Disqualified Stock of the
Company held by Persons other than the Company or a Wholly-Owned Subsidiary,
and LESS interest income. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary of the Company
that was not a Wholly-Owned Subsidiary shall be included only to the extent
(and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated
net income (loss) of the Company and its consolidated Subsidiaries determined
in accordance with GAAP; PROVIDED, HOWEVER, that there shall not be included
in such Consolidated Net Income: (i) any net income (loss) of any Person
acquired by the Company or any of its Restricted Subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition,
(ii) any net income of any Restricted Subsidiary of the Company if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company (other than restrictions
in effect on the Issue Date with respect to a Restricted Subsidiary of the
Company and other than restrictions that are created or exist in compliance
with Section 4.08), (iii) any gain or loss realized upon the sale or other
disposition of any assets of the Company or its consolidated Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which are
not sold or otherwise disposed of in the ordinary course of business (it
being understood that direct sales of Vacation Ownership Interests
Receivables to a financial institution or sales of Vacation Ownership
Interests Receivables in connection with securitization transactions shall be
deemed to be in the ordinary course of business) and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any
Person, (iv) any extraordinary gain or loss, (v) the cumulative effect of a
change in accounting principles, (vi) the net income of any Person, other
than a Restricted Subsidiary, except to the extent of the lesser of (A) cash
dividends or distributions actually paid to the Company or any of its
Restricted Subsidiaries by such Person and (B) the net income of such Person
(but in no event less than zero), and the net loss of such Person (other than
an Unrestricted Subsidiary) shall be included only to the extent of the
aggregate Investment of the Company or any of its Restricted Subsidiaries in
such Person and (vii) any non-cash expenses attributable to grants or
exercises of employee stock options. Notwithstanding the foregoing, for the
purpose of Section 4.07 hereunder only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted pursuant to clause (a)
(3) (D) thereof.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on
the balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as
of the end of the most recent fiscal quarter of the Company ending prior to
the taking of any action for the purpose of which the determination is being
made and for which financial statements are available (but in no event ending
more than 135 days prior to the taking of such action), as (i) the par or
stated value of all outstanding Capital Stock of the Company plus (ii) paid
in capital or capital surplus relating to such Capital Stock plus (iii) any
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retained earnings or earned surplus less (A) any accumulated deficit and (B)
any amounts attributable to Disqualified Stock.
"CONTINUING DIRECTOR" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of
such Person on the date of this Indenture or (ii) was nominated for election
or elected to the Board of Directors of such Person with the affirmative vote
of a majority of the Continuing Directors of such Person who were members of
such Board of Directors at the time of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of
the Trustee specified in Section 12.02 or such other address as to which the
Trustee may give notice to the Company.
"CURRENCY AGREEMENT" means, in respect of a Person, any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"DEFAULT" means any event which, after notice or passage of time or
both, would be an Event of Default.
"DEPOSITORY" means The Depository Trust Company, its nominees and
successors.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event (other than an event
which would constitute a Change of Control), (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the Securities, or (ii) is convertible
into or exchangeable (unless at the sole option of the issuer thereof) for
(a) debt securities or (b) any Capital Stock referred to in (i) above, in
each case at any time prior to the final Stated Maturity of the Securities.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means a primary public offering for cash by the
Company of its Common Equity.
"ESCROW AGENT" means United States Trust Company of New York, a
banking corporation organized and existing under the laws of the State of New
York, as escrow agent under the Escrow and Disbursement Agreement, and any
successors thereto in such capacity.
"ESCROW AND DISBURSEMENT AGREEMENT" means the Escrow and
Disbursement Agreement, dated as of July 8, 1998, among the Trustee, the
Escrow Agent and the Issuers.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means the Exchange and
Registration Rights Agreement dated July 8, 1998 between the Issuers and the
Initial Purchaser for the benefit of itself and the Securityholders, as the
same may be amended or modified from time to time in accordance with the
terms thereof.
"EXCHANGE OFFER" means the registration by the Issuers under the
Securities Act pursuant to a registration statement of the offer by the
Issuers to each Securityholder of the Initial Securities to exchange all the
Initial Securities held by such Securityholder for the Exchange Securities in
an aggregate principal amount equal to the aggregate principal amount of the
Initial Securities held by such Securityholder, all in accordance with the
terms and conditions of the Exchange and Registration Rights Agreement.
"EXCHANGE SECURITIES" has the meaning set forth in the preamble to
this Indenture.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issue Date, plus interest accrued
thereon, after application of the net proceeds of the Securities as described
in the Offering Memorandum.
"FAIR MARKET VALUE" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by
a Board Resolution of the Board of Directors of the Company delivered to the
Trustee.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards Board
or in such other statements by such other entity as approved by a significant
segment of the accounting profession. All ratios and computations based on
GAAP contained in this Indenture shall be computed in conformity with GAAP.
"GROUP" shall mean any "group" of related persons within the
meaning of Section 13(d) of the Exchange Act.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person, directly or indirectly, guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well,
to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered
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into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"GUARANTOR SUBORDINATED OBLIGATION" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter incurred) which is expressly
subordinate or junior in right of payment to the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee pursuant to a written
agreement.
"INCUR" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be incurred by such Restricted Subsidiary at the time it becomes a
Restricted Subsidiary.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations
(other than obligations described in clauses (i), (ii) and (v)) entered into
in the ordinary course of business of such Person to the extent that such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit), (iv) all obligations of such Person to pay the deferred
and unpaid purchase price of property or services (except (x) trade payables
and accrued expenses incurred in the ordinary course of business and (y)
contingent or "earnout" payment obligations in respect of any Permitted
Business acquired by the Company or any Restricted Subsidiary), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, (v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person, (vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person, (viii) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Restricted Subsidiary of the
Company, any Preferred Stock of such Restricted Subsidiary to the extent such
obligation arises on or before the Stated Maturity of the Securities (but
excluding, in each case, accrued dividends) with the amount of Indebtedness
represented by such Disqualified Stock or Preferred Stock, as the case may
be, being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price; PROVIDED that, for
purposes hereof the "maximum fixed repurchase price" of any Disqualified
Stock or Preferred Stock, as the case may be, which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock, as the case
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may be, as if such Disqualified Stock or Preferred Stock, as the case may be,
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based on the fair
market value of such Disqualified Stock or Preferred Stock, as the case may
be, such fair market value shall be determined in good faith by the Board of
Directors of the Company and (ix) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. Unless specifically set forth above, the amount of Indebtedness
of any Person at any date shall be the outstanding principal amount of all
unconditional obligations as described above, as such amount would be
reflected on a balance sheet prepared in accordance with GAAP, and the
maximum liability of such Person, upon the occurrence of the contingency
giving rise to the obligation, of any contingent obligations described above
at such date.
"INDENTURE" means this Indenture, as amended or supplemented from
time to time.
"INITIAL PURCHASER" means NatWest Capital Markets Limited.
"INITIAL SECURITIES" has the meaning set forth in the preamble to
this Indenture.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"INTEREST ESCROW ACCOUNT" means the account held by the Escrow
Agent for the benefit of the Trustee in accordance with the Escrow and
Disbursement Agreement.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment
of interest on the Securities, which shall be each June 15 and December 15 of
each year, commencing December 15, 1998.
"INTEREST RATE AGREEMENT" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"INVESTMENT" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business
that are recorded as accounts payable on the balance sheet of such Person) or
other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a
bank deposit other than a time deposit) or capital contribution to (by means
of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments
issued by such Person. For purposes of the definition of "Unrestricted
Subsidiary" and Section 4.07 hereunder, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of the Company at the
time that such Restricted Subsidiary
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is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of the original designation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time that such Subsidiary is so redesignated a Restricted Subsidiary; and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors and evidenced by a Board
Resolution.
"ISSUE DATE" means the date on which the Initial Securities are
originally issued.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"MOODY'S" means Moody's Investors Service, Inc., or any successor
thereto.
"MORTGAGE" means any mortgage, deed of trust or similar instrument
whereby interests in real property will be pledged to the Trustee.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets subject to such Asset
Disposition) therefrom in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
distributions and other payments required to be made to any Person owning a
beneficial interest in assets subject to sale or minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition, (iii)
the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition; provided however, that upon any
reduction in such reserves (other than to the extent resulting from payments
of the respective reserved liabilities), Net Available Cash shall be
increased by the amount of such reduction to reserves, and retained by the
Company or any Restricted Subsidiary of the Company after such Asset
Disposition and (iv) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition);
PROVIDED, HOWEVER, that upon the termination of such escrow, Net Available
Cash shall be increased by any portion of funds therein released to the
Company or any Restricted Subsidiary.
"NET CASH PROCEEDS", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
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incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the
Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is
directly or indirectly liable (as a guarantor, general partner or otherwise)
and (ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any Restricted Subsidiary to declare
a default under such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity.
"NON-U.S. PERSON" means a Person who is not a U.S. person, as
defined in Regulation S of the Securities Act.
"NOTE REGISTER" means the register of names and addresses of the
Holders of the Securities maintained by the Registrar.
"OBLIGATIONS" means any principal, premium, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"OFFERING MEMORANDUM" means the Offering Memorandum dated June 30,
pursuant to which the Initial Securities were offered, and any supplements
thereto.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Vice-Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer, the President, any Vice-President, the Treasurer or the
Secretary of such Person.
"OFFICER'S CERTIFICATE" shall mean a certificate signed by two
Officers of a Person, at least one of whom shall be the principal executive,
financial or accounting officer of such Person.
"OPINION OF COUNSEL" means a written opinion, in form and substance
acceptable to the Trustee, from legal counsel who is acceptable to the
Trustee.
"PERMITTED BUSINESS" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company
and its Restricted Subsidiaries on the date of this Indenture, as reasonably
determined by the Company's Board of Directors.
"PERMITTED INVESTMENT" means an Investment by the Company or any of
its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
PROVIDED, HOWEVER, that the primary business of such Wholly-Owned Subsidiary
is a Permitted Business and upon the making of such Investment, such Person
becomes a Restricted Subsidiary; (ii) another Person if as a result of such
Investment such other Person becomes a Wholly-Owned Subsidiary of the Company
or is merged or consolidated with or into, or transfers or conveys all or
substantially all
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its assets to, the Company or a Wholly-Owned Subsidiary of the Company and
upon the making of such Investment, such Person becomes a Restricted
Subsidiary; PROVIDED, HOWEVER, that in each case such Person's primary
business is a Permitted Business; (iii) Temporary Cash Investments; (iv) a
Receivables Subsidiary; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary in an aggregate amount outstanding at any one time not
to exceed $250,000 to any one employee or $1.0 million in the aggregate;
(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any of
its Restricted Subsidiaries or in satisfaction of judgments or claims; (viii)
Persons to the extent such Investment is received by the Company or any
Restricted Subsidiary as consideration for asset dispositions effected in
compliance with Section 4.10; (ix) prepayments and other credits to suppliers
made in the ordinary course of business consistent with the past practices of
the Company and its Restricted Subsidiaries; and (x) Investments in
connection with pledges, deposits, payments or performance bonds made or
given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations.
"PERMITTED LIENS" means: (i)(A) Liens granted by the Company and
the Subsidiary Guarantors which secure Indebtedness to the extent the
Indebtedness is permitted to be Incurred pursuant to clause (xii) of Section
4.09(b), PROVIDED that the only assets covered by such Liens are assets that
are acquired or developed with the proceeds of the Indebtedness secured
thereby, and (B) Liens granted to the Trustee securing the Obligations of the
Issuers under the Securities or any Subsidiary Guarantors under their
respective Subsidiary Guarantees; (ii) Liens in favor of the Company or any
Subsidiary Guarantor or the Trustee for the benefit of the Holders of the
Securities; (iii) Liens on property of a Person existing at the time such
Person is acquired by or merged into or consolidated with the Company or any
Restricted Subsidiary thereof; provided that such Liens were in existence
prior to the contemplation of such acquisition and do not extend to any
assets of the Company or its Restricted Subsidiaries other than those
acquired in connection with such merger or consolidation; (iv) Liens to
secure the performance of obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business; (v) Liens existing on the Issue Date; (vi) Liens in respect of
extensions, renewals, refundings or refinancings of any Indebtedness secured
by the Liens referred to in clauses (i), (ii), and (iv) above and (vii)
below; provided that the Liens in connection with such renewal, extensions,
renewals, refundings or refinancing shall be limited to all or part of the
specific property which was subject to the original Lien; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provisions as shall be required in conformity
with GAAP shall have been made therefor; (viii) any Lien securing purchase
money obligations Incurred in compliance with paragraph (b)(i) of Section
4.09, PROVIDED that such Liens do not extend to any property (other than the
property so purchased) owned by the Company or its Restricted Subsidiaries
and is not incurred more than 30 days after the Incurrence of such
Indebtedness secured by such Lien; (ix) Liens to secure Capitalized Lease
Obligations (except in respect of Sale/Leaseback Transactions) on real or
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personal property of the Company to the extent consummated in compliance with
paragraph (b)(i) of Section 4.09, PROVIDED that such Liens do not extend to
or cover any property of the Company or any of its Subsidiaries other than
the property subject to such Capitalized Lease Obligation; (x) any Lien
securing Indebtedness Incurred in compliance with clauses (x) or (xi) of
paragraph (b) of Section 4.09, PROVIDED, that such Liens cover only the
Vacation Ownership Interests Receivable; and (xi) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary
thereof with respect to obligations that do not exceed $1 million at any one
time outstanding and that (A) are not Incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (B) do not in the aggregate
materially detract from the value of the property or materially impair the
use thereof in the operation of the business by the Company or such
Restricted Subsidiary.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision hereof or any other entity.
"PHYSICAL SECURITY" means Securities issued in definitive,
certificated form.
"PLAN" means the Public Report for a Time Share Offering or other
similar report issued by the appropriate State regulatory authority with
respect to allowing sales of vacation ownership interests at the relevant
vacation ownership interest resort or proposed vacation ownership interest
resort.
"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution
of assets upon any voluntary or involuntary liquidation or dissolution of
such corporation, over shares of Capital Stock of any other class of such
corporation.
"QUALIFIED CAPITAL STOCK" shall mean any Capital Stock which is not
Disqualified Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"RECORD DATE" means the record dates specified in the Securities,
whether or not a Legal Holiday.
"RECEIVABLES" means any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by the Company or any Restricted Subsidiary and,
in any event, shall include, but not be limited to, all the Company's or any
Restricted Subsidiary's rights to payment for goods sold or leased or
services performed by the Company or any Restricted Subsidiary, whether now
in existence or arising from time to time hereafter, including without
limitation, rights evidenced by an account, note, contract, security
agreement, chattel paper or other evidence of indebtedness or security,
together with (a) all security pledged, assigned, hypothecated or granted to
or held by the Company or any Restricted Subsidiary to secure the foregoing,
(b) all of the Company's or any Restricted Subsidiary's right, title and
interest in and to any goods, the sale of which gave rise thereto, (c) all
Guarantees, endorsements and indemnifications on, or of, any of the
foregoing, (d) all powers of attorney for the execution of any evidence of
Indebtedness or
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security or other writing in connection therewith, (e) all books, records,
ledger cards and invoices related thereto, (f) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other
registration officers, (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the
foregoing.
"RECEIVABLES AND RELATED ASSETS" means Vacation Ownership Interests
Receivable and instruments, chattel paper, obligations, general intangibles,
mortgages, deeds, records and other similar assets, in each case relating to
such Vacation Ownership Interests Receivable.
"RECEIVABLES SUBSIDIARY" means a Restricted Subsidiary which is
established and continues to operate for the limited purpose of acquiring,
selling and financing Receivables and Related Assets in connection with
receivables securitization or financing transactions.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of this Indenture or Incurred in compliance with this Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; PROVIDED, HOWEVER,
that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than
the earlier of (A) the first anniversary of the Stated Maturity of the
Securities and (B) Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the lesser of (A)
the Average Life of the Securities and (B) the Average Life of the
Indebtedness being refinanced and (iii) the Refinancing Indebtedness is in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to (or 101% of, in the case of a
refinancing of the Securities in connection with a Change of Control) or less
than the sum of the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced (plus the amount of any premium required to be
paid in connection therewith and reasonable fees and expenses therewith);
PROVIDED, FURTHER, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary which refinances Indebtedness of the Company.
"REGULATION S" means Regulation S under the Securities Act.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means
any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
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"RESTRICTED SECURITY" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Services, or any successor
organization thereto.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a
Subsidiary leases it from such Person.
"SECURED INDEBTEDNESS" means any Senior Indebtedness of the Company
or a Subsidiary Guarantor secured by a Lien.
"SECURITIES" means the Initial Securities and the Exchange
Securities treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement dated as of July
8, 1998 among the Grantors listed on the signature page thereto, United
States Trust Company of New York, as Depositary, and the Trustee.
"SECURITYHOLDER" or "HOLDER" means a registered holder of one or
more Securities.
"SENIOR INDEBTEDNESS" in the case of the Securities means
Indebtedness that is not by its terms expressly subordinate or junior in
right of payment to any other Indebtedness of the Company or the Subsidiary
Guarantee of a Restricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would
be a "significant subsidiary" of the Company within the meaning of Rule 1-02
under Regulation S-X promulgated by the Commission.
"STATED MATURITY" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"SUBORDINATED OBLIGATIONS" means Indebtedness that is expressly
subordinate or junior in right of payment to any other Indebtedness of the
Company or the Subsidiary Guarantee of a Restricted Subsidiary.
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"SUBSIDIARY" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person. Unless otherwise specified
herein, each reference to a Subsidiary shall refer to a Subsidiary of the
Company.
"SUBSIDIARY GUARANTEE" means the Guarantee of the Securities by a
Subsidiary Guarantor.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Company in
existence on the Issue Date and each Subsidiary (other than an Unrestricted
Subsidiary) created or acquired by the Company after the Issue Date, other
than Hilton Head, Inc. and any Receivables Subsidiary.
"TAX ALLOWANCE AMOUNT" means, with respect to any Member (including
a holder of EPIC Warrants if such holder is treated as holding an equity
interest in the Company for federal, state or local income tax purposes), for
any calendar quarter, (i) forty percent (40%) of the excess of (a) the
estimated taxable income allocable to such Member arising from its ownership
of an interest in the Company for the fiscal year through such calendar
quarter over (b) any losses of the Company for prior fiscal years and such
fiscal year that are allocable to such Member (or the predecessor in interest
to such Member) that were not previously utilized in the calculation of Tax
Allowance Amounts for any period minus (ii) prior distributions of Tax
Allowance Amounts for such fiscal year, all as determined by the Accountants
in good faith. The amount so determined by the Accountants shall be the Tax
Allowance Amount for each period and shall be final and binding on all
Members.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any
Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or
any agency thereof, (ii) Investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, having capital
surplus and undivided profits aggregating in excess of $250 million (or the
foreign currency equivalent thereof) and whose long-term debt, or whose
parent holding company's long-term debt, is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act), (iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, (iv)
Investments in commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a Person (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-l"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, (v)
Investments in securities with maturities of six months or less from the date
of acquisition issued or fully
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guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or "A" by Moody's and (vi) Investments in mutual
funds whose investment guidelines restrict such funds' investments to those
satisfying the provisions of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection 77aaa-77bbbb) and the rules and regulations thereunder as in
effect on the date on which this Indenture is qualified under the TIA, except
as provided in Section 9.03 hereof; PROVIDED, HOWEVER, that, in the event the
Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939 as so
amended.
"TRUSTEE" means United States Trust Company of New York, a banking
corporation organized and existing under the laws of the State of New York,
until a successor replaces it in accordance with Article 7 and thereafter
means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that each Subsidiary to be
so designated and each of its Subsidiaries has not at the time of such
designation, and does not thereafter create, Incur, issue, assume, guarantee
or otherwise becomes liable with respect to any Indebtedness other than
Non-Recourse Debt and either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 4.07. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary subject to the
limitations contained in Section 4.19
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof)
for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the issuer's
option.
"VACATION OWNERSHIP INTERESTS" means the right to use (whether
arising by virtue of a deeded interest in real property or otherwise) a
fully-furnished vacation residence for a specified period each year or
otherwise, sold by the Company and its Restricted Subsidiaries in the
ordinary course of their resorts business.
"VACATION OWNERSHIP INTERESTS RECEIVABLE" means the receivables of
the Company and its Restricted Subsidiaries arising from sales by the Company
and its Restricted Subsidiaries of Vacation Ownership Interests or otherwise
acquired by the Company or a Restricted Subsidiary (but excluding any fees
for service or other fees in respect of such Vacation Ownership Interests)
determined on a consolidated basis in accordance with GAAP.
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"VOTING STOCK" with respect to any Person means all classes of
Capital Stock of such Person then outstanding and normally entitled to vote
in elections of directors of such Person.
"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction".................... 4.11
"Agent".................................... 11.03
"Agent Members"............................ 2.16
"Bankruptcy Law"........................... 6.01
"Change of Control Payment Date"........... 4.14
"Change of Control Purchase Price"......... 4.14
"Code"..................................... 2.03
"covenant defeasance option"............... 8.01
"Custodian"................................ 6.01
"Declaration of Acceleration".............. 6.02
"Default Amount"........................... 6.02
"Designation".............................. 4.19
"Designation Amount"....................... 4.19
"Event of Default"......................... 6.01
"Funding Subsidiary Guarantor"............. 10.05
"Global Note".............................. 2.01
"Guaranteed Obligations"................... 10.01
"IRS"...................................... 2.03
"judgment default provision"............... 6.01
"legal defeasance option".................. 8.01
"Legal Holiday"............................ 12.07
"Mandatory Purchase Offer"................. 3.08
"Mandatory Purchase Period"................ 6.01
"Maximum Mandatory Purchase Amount"........ 3.08
"Member"................................... 4.07
"Notice of Default"........................ 6.01
"Offer Amount"............................. 3.09
"Offer Period"............................. 3.09
"Paying Agent"............................. 2.03
"Power of Attorney"........................ 11.03
"Private Placement Legend"................. 2.15
"Purchase Agreement"....................... 11.03
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"Purchase Date"............................ 3.09
"Purchase Offer"........................... 3.09
"Registrar"................................ 2.03
"Restricted Payment"....................... 4.07
"Revocation"............................... 4.19
"Successor Company"........................ 5.01
"Taxes".................................... 4.05
"Time Share Documents"..................... 11.03
"Transfer"................................. 11.03
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities and the Subsidiary
Guarantees;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company, the Subsidiary
Guarantors and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the plural
include the singular; and
(v) provisions apply to successive events and transactions.
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ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of
authentication thereon shall be substantially in the form of Exhibit A hereto.
The Exchange Securities and the Trustee's certificate of authentication thereon
shall be substantially in the form of Exhibit B hereto. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
Depository rule or usage. The Issuers and the Trustee shall approve the form
of the Securities and any notation, legend or endorsement on them. Each
Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of the Securities,
annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly
made, a part of this Indenture and, to the extent applicable, the Issuers and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
The Securities shall be issued initially in the form of one or more
permanent global notes in registered form, in substantially the form set forth
in Exhibit A (a "Global Note"), deposited with the Trustee, as custodian for
the Depository, duly executed by the Issuers and authenticated by the Trustee
as hereinafter provided. The aggregate principal amount of the Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depository, as hereinafter
provided.
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SECTION 2.02. EXECUTION AND AUTHENTICATION.
(a) Two Officers of each of the Issuers (each of whom shall, in
each case, have been duly authorized by all requisite corporate actions)
shall sign the Securities for the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that office at
the time the Security is authenticated, the Security shall nevertheless be
valid.
(b) A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
(c) The Trustee shall authenticate (i) Initial Securities for
original issue in the aggregate principal amount not to exceed $130,000,000;
and (ii) Exchange Securities from time to time for issue only in exchange for
a like principal amount of Initial Securities, in each case upon receipt of a
written order of the Issuers signed by one Officer.
(d) The Trustee may appoint an authenticating agent acceptable to
the Issuers to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Issuers or an Affiliate.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
(a) The Issuers shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New
York) where (i) Securities may be presented for registration of transfer or
for exchange ("Registrar"), (ii) Securities may be presented for payment
("Paying Agent") and (iii) notices and demands to or upon the Issuers in
respect of the Securities and this Indenture may be served. The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents. The term "Paying Agent" includes any additional paying agent.
The Issuers may change any Paying Agent, Registrar or co-registrar without
prior notice to any Securityholder. The Issuers shall notify the Trustee and
the Trustee shall notify the Securityholders of the name and address of any
Agent not a party to this Indenture. If the Issuers fail to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act
as such. The Issuers or any Subsidiary Guarantor may act as Paying Agent,
Registrar or co-registrar. The Issuers shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Issuers shall
notify the Trustee of the name and address of any such Agent. If the Issuers
fail to maintain a Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such, and shall be entitled to appropriate
compensation in accordance with Section 7.07 hereof.
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(b) The Issuers initially appoint the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the
Securities.
(c) The Issuers shall, or shall cause the Paying Agent to, comply
with all withholding tax, information reporting and backup withholding tax
requirements under the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations issued thereunder in respect of any
payment on, or in respect of, a Security (including, without limitation, the
collection of Internal Revenue Service ("IRS") Forms 1001, 4224, W-8 or W-9
(or any successor form), as the case may be, and the filing of IRS Form
1042-S with respect thereto).
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Issuers, the Subsidiary Guarantors or any other obligor on the
Securities shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent shall hold in trust for the benefit of the
Securityholders and the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Issuers, any of the Subsidiary
Guarantors or any other obligor on the Securities in making any such payment.
While any such Default continues, the Trustee may require a Paying Agent to
pay all money held by it to the Trustee. The Issuers, the Subsidiary
Guarantors or any other obligor on the Securities at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over
to the Trustee, the Paying Agent (if other than the Issuers or a Subsidiary
Guarantor) shall have no further liability for the money delivered to the
Trustee. If the Issuers, the Subsidiary Guarantors or any other obligor on
the Securities acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Securityholders all money held by
it as Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Securityholders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Issuers, the Subsidiary Guarantors or
any other obligor on the Securities shall furnish to the Trustee at least
seven Business Days before each Interest Payment Date and at such other times
as the Trustee may request in writing a list in such form and as of such date
as the Trustee may reasonably require of the names and addresses of
Securityholders, including the aggregate principal amount of the Securities
held by each thereof, and the Issuers, the Subsidiary Guarantors or any other
obligor on the Securities shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Where Securities are presented to the Registrar or a
co-registrar with a request to register the transfer thereof or exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall, subject to Section 2.17, register the transfer or make the
exchange if its requirements for such transactions are met; PROVIDED, that
any Security presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar
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and the Trustee duly executed by the Securityholder thereof or his attorney
duly authorized in writing. To permit registrations of transfer and
exchanges, the Issuers shall issue and the Trustee shall authenticate
Securities at the Registrar's request.
(b) Neither the Registrar nor the Issuers shall be required (i) to
issue, to register the transfer of or to exchange Securities during a period
beginning at the opening of business on a Business Day 15 days before the day
of any selection of Securities for redemption under Section 3.02 hereof and
ending at the close of business on the day of selection, (ii) to register the
transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in part
or (iii) to register the transfer or exchange of a Security between the
Record Date and the next succeeding Interest Payment Date.
(c) No service charge by the Issuers shall be made for any
registration of a transfer or exchange (except as otherwise expressly
permitted herein), but the Registrar may require payment by the
Securityholder of a sum sufficient to cover any transfer tax or similar
governmental charge payable, or fee in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant
to Section 2.10, 3.06, 3.09, 4.14 or 9.05 hereof).
(d) Each Holder of the Global Note shall, by acceptance of such
Global Note, agree that transfers of beneficial interests in such Global Note
may be effected only through a book entry system maintained by the Holder of
such Global Note (or its agent), and that ownership of a beneficial interest
in the Global Note shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee, or
the Issuers and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Issuers shall issue and the
Trustee, upon receipt by it of the written order of the Issuers signed by two
Officers of each of the Issuers, shall authenticate a replacement Security if
the Trustee's requirements for replacements of Securities are met. If
required by the Trustee or the Issuers, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Issuers
to protect the Issuers, the Subsidiary Guarantors, the Trustee, any Agent or
any authenticating agent from any loss which any of them may suffer if a
Security is replaced. The Issuers and the Trustee may charge a
Securityholder for reasonable out-of-pocket expenses in replacing a Security.
(b) Every replacement Security is an obligation of each of the
Issuers and each of the Subsidiary Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
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(a) The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by the Trustee, those
delivered to the Trustee for cancellation and those described in this Section
as not outstanding.
(b) If a Security is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a bona fide purchaser.
(c) If the principal amount of any Security is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
(d) Subject to Section 2.09 hereof, a Security does not cease to
be outstanding because the Issuers or an Affiliate of the Issuers or a
Subsidiary Guarantor holds the Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Subsidiary Guarantors, or any of their respective
Affiliates shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which a Responsible
Officer of the Trustee has actual knowledge are so owned shall be so
disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Issuers may
prepare and the Trustee shall authenticate temporary Securities upon written
order of the Issuers signed by one Officer of each of the Issuers. Temporary
Securities shall be substantially in the form of definitive Securities but
may have variations that the Issuers, the Subsidiary Guarantors and the
Trustee consider appropriate for temporary Securities. Without unreasonable
delay, the Issuers shall prepare and the Trustee, upon receipt of the written
order of the Issuers signed by one Officer of each of the Issuers, shall
authenticate definitive Securities in exchange for temporary Securities.
Until such exchange, temporary Securities shall be entitled to the same
rights, benefits and privileges as definitive Securities.
SECTION 2.11. CANCELLATION.
The Issuers at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) shall cancel all Securities, if not
already canceled, surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy canceled Securities
(subject to the record retention requirement of the Exchange Act), and
deliver certification of their destruction to the Company, unless by a
written order, signed by two Officers of each of the Issuers, the Issuers
shall direct that canceled Securities be returned to it. The Issuers may not
issue new Securities to replace Securities that it has redeemed or paid or
that have been delivered to the Trustee for cancellation.
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If the Issuers acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless or until the same are surrendered to the Trustee (or
its Agent) for cancellation pursuant to this Section.
SECTION 2.12. DEFAULTED INTEREST.
If the Issuers default in a payment of interest on the Securities,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date, which date shall be at
the earliest practicable date but in all events at least five Business Days
prior to the payment date, in each case at the rate provided in the
Securities and in Section 4.01 hereof. The Issuers shall, with the consent
of the Trustee, fix or cause to be fixed each such special record date and
payment date. At least 15 days before the special record date, the Issuers
(or, upon the written request of the Issuers, the Trustee, in the name of and
at the expense of the Issuers) shall mail to Securityholders a notice that
states the special record date, the related payment date and the amount of
such interest to be paid.
SECTION 2.13. CUSIP NUMBER.
The Issuers in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Securityholders; PROVIDED that no representation
shall be deemed to be made by the Trustee as to the correctness or accuracy
of the CUSIP number printed in the notice or on the Securities, and that
reliance may be placed only on the other identification numbers printed on
the Securities. The Issuers shall promptly notify the Trustee of any change
in the CUSIP number.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 10:00 a.m. New York City time on each Interest Payment
Date and at Stated Maturity, the Company shall deposit with the Paying Agent
in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Stated Maturity, as the case may
be, in a timely manner which permits the Paying Agent to remit payment to the
Securityholders on such Interest Payment Date or Stated Maturity, as the case
may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and Physical Security that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") unless otherwise agreed by the Company and the Securityholder
thereof:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS,
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EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY
FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON, AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT
AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, ON THE DATE OF THE TRANSFER OF
THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
EPIC RESORTS, LLC ("EPIC") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000,
AN OPINION OF COUNSEL ACCEPTABLE TO EPIC THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO EPIC), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO EPIC) AND IN EACH CASE, IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE
TO REGISTER ANY
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TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THIS INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) Each Global Note initially shall (i) be registered in the name
of the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth
in Section 2.15.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note
held on their behalf by the Depository, or the Trustee as its custodian, or
under any Global Note, and the Depository may be treated by the Issuers, the
Trustee and any agent of the Issuers or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Issuers, the Trustee or any agent of the
Issuers or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
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(b) Transfers of a Global Note shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interest of beneficial owners in the Global Note may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.17. In
addition, Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in the Global Note if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note and a successor depository is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request
from the Depository or the Trustee to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b) above, the Registrar shall (if one or more Physical Securities
are to be issued) reflect on its books and records the date and a decrease in
the principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Securities of like tenor and
amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Note, an equal aggregate principal amount of Physical Securities
of authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to
paragraph (b) or (c) above shall, except as otherwise provided by paragraphs
(a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Securityholder is
entitled to take under this Indenture or the Securities.
SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS AND
NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to
any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after more than
two years after the date such security was acquired from an Issuer or any of
its Affiliates or (y) (1) in the case of a transfer to an Institutional
Accredited
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Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Registrar a certificate substantially in the
form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S.
Person, the proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of (x)
the certificate, if any, required by paragraph (i) above and (y) instructions
given in accordance with the Depository's and the Registrar's procedures,
whereupon the Registrar shall reflect on its books and records the date and,
if applicable, appropriate increases and decreases in the principal amount of
the Global Note affected thereby.
(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) The Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Issuers and the
Registrar in writing, that the sale has been effected in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised the
Issuers and the Registrar in writing, that it is purchasing the Security for
its own account or an account with respect to which it exercises sole
investment discretion and that any such account is a QIB within the meaning
of Rule 144A, and it is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Issuers as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A,
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of the
transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the registration of the transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the Registrar
shall deliver only Securities that bear the Private Placement Legend unless
(i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17
exists or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Issuers and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Security
only as provided in this Indenture.
The Registrar shall retain for at least two years copies of all
letters, notices and other written communications received pursuant to
Section 2.16 or this Section 2.17. The Issuers
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shall have the right to inspect and make copies of all such letters, notices
or other written communications at any reasonable time upon the giving of
reasonable written notice to the Registrar.
SECTION 2.18. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer
and subject to Section 2.12, the Issuers, the Trustee, any Paying Agent, any
Registrar and any co-registrar and Agent of the foregoing shall deem and
treat the Person in whose name any Security shall be registered upon the
register of Securities kept by the Registrar as the absolute owner of such
Security (whether or not such Security shall be overdue and notwithstanding
any notation of the ownership or other writing thereon made by anyone other
than the Issuers, any Registrar or any co-registrar) for the purpose of
receiving payments of principal of or interest on such Security and for all
other purposes; and none of the Issuers, the Trustee, any Paying Agent, any
Registrar or any co-registrar or any Agent of the foregoing shall be affected
by any notice to the contrary.
SECTION 2.19. ALLOCATION OF PURCHASE PRICE.
Based on their estimate of the relative fair market values of the
Securities and the Warrants (as defined in the Offering Memorandum), the
Issuers and the Trustee agree to treat for U.S. federal income tax purposes
$978.79 of each $1,000 of principal amount of Securities as allocable to the
Securities (which amount the Issuers will treat as the issue price of such
Securities for U.S. federal income tax purposes) and $21.21 as allocable to
the Warrants.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
(a) If the Issuers elect to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, they shall furnish to
the Trustee, at least 45 days (unless a shorter period is acceptable to the
Trustee) but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Securities to be redeemed, (iv) the redemption price and accrued
and unpaid interest and (v) whether they request the Trustee to give notice
of such redemption.
(b) If the Issuers are required to make an offer to purchase
Securities pursuant to the provisions of Sections 3.08, 3.09 or 4.14 hereof,
they shall each furnish to the Trustee at least 30 days but not more than 60
days before a purchase date, an Officers' Certificate setting forth (i) the
Section of this Indenture pursuant to which the offer to purchase shall
occur, (ii) the proposed purchase date, (iii) the maximum principal amount of
Securities to be purchased, (iv) the purchase price and accrued and unpaid
interest, and (v) further setting forth a statement to the effect that (a)
the Issuers or one of their Subsidiaries has effected an Asset Disposition
and the conditions set forth in Section 4.10 have been satisfied or (b) a
Change of Control has occurred and the conditions set forth in Section 4.14
have been satisfied, as applicable.
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SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
(a) If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed among the Securityholders
on a PRO RATA basis or in accordance with any other method the Trustee
considers fair and appropriate (and in such manner as complies with
applicable legal and stock exchange requirements, if any), unless such method
is otherwise prohibited. In the event of partial redemption, the particular
Securities to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date
by the Trustee from the outstanding Securities not previously called for
redemption.
(b) The Trustee shall promptly notify the Issuers in writing of
the Securities selected for redemption and, in the case of any Security
selected for partial redemption, the principal amount thereof to be redeemed.
Securities may be redeemed in part in multiples of $1,000 principal amount
only. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
(a) Subject to the provisions of Section 3.09 hereof, at least 30
days before a redemption date, the Issuers shall mail or cause to be mailed a
notice of redemption by first class mail, postage prepaid to each Holder
whose Securities are to be redeemed at the last address for such Holder then
shown on the Note Register.
The notice shall identify the Securities to be redeemed and shall
state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Security is being redeemed in part only, the portion
of the principal amount of such Security to be redeemed and that, after the
redemption date upon surrender of such Security, a new Security or Securities
in principal amount equal to the unredeemed portion shall be issued;
(iv) the name and address of the Paying Agent;
(v) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(vi) that, unless the Issuers default in making such redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the redemption date;
(vii) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are being
redeemed; and
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(viii) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption.
(b) At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' names and at the Issuers' expense; PROVIDED,
HOWEVER, that the Issuers shall each have delivered to the Trustee at least
45 days (unless a shorter period is acceptable to the Trustee) prior to the
proposed redemption date an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Securities called for redemption become due and payable on the
redemption date at the redemption price plus accrued and unpaid interest, if
any.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
(a) Prior to 10:00 a.m., New York City time, on the redemption
date, the Issuers shall deposit with the Paying Agent (other than the Issuers
or any of their Subsidiaries) money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date. The
Paying Agent shall promptly return to the Issuers any money deposited with
the Paying Agent by the Issuers in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Securities to be redeemed.
(b) If the Issuers comply with the provisions of the preceding
paragraph, on and after the redemption date, interest ceases to accrue on the
Securities or the portions of Securities called for redemption whether or not
such Securities are presented for payment, and the only remaining right of
the Holders of such Securities shall be to receive payment of the redemption
price upon surrender to Paying Agent if the Securities are redeemed. If a
Security is redeemed on or after a Record Date but on or prior to the related
Interest Payment Date, then any accrued and unpaid interest shall be paid to
the Person in whose name such Security was registered at the close of
business on such Record Date. If any Security called for redemption shall
not be so paid upon surrender for redemption because of the failure of the
Issuers to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid and,
to the extent lawful, on any interest not paid on such unpaid principal, in
each case at the rate provided in the Securities and in Section 4.01 hereof.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Issuers
shall issue and upon the Issuers' written request, the Trustee shall
authenticate for the Securityholder at the expense of the Issuers a new
Security equal in principal amount to the unredeemed portion of the Security
surrendered.
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SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as provided in Section 3.07(b), the Securities will not
be redeemable at the option of the Issuers prior to June 15, 2003. On and
after such date, the Securities will be redeemable, at the Issuers' option,
in whole or in part, at any time upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address,
at the following redemption prices (expressed in percentages of principal
amount), if redeemed during the 12-month period commencing on June 15 of the
years set forth below, plus accrued and unpaid interest to the redemption
date (subject to the right of Holders of record on the relevant Record Date
to receive interest due on the relevant Interest Payment Date):
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ -----
<S> <C>
2003............................................... 106.50%
2004 and thereafter................................ 103.25%
</TABLE>
(b) At any time, or from time to time, on or prior to June 15,
2001, the Issuers may, at their option, redeem up to 35% of the aggregate
principal amount of the Securities, with Net Cash Proceeds of one or more
Equity Offerings, at a redemption price equal to 113% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED, HOWEVER, that at least 65% of the original aggregate
principal amount of the Securities remains outstanding after each such
redemption. In order to effect the foregoing redemption with the proceeds of
any Equity Offering, the Issuers shall make such redemption not more than 90
days after the consummation of any such Equity Offering.
SECTION 3.08. MANDATORY OFFER TO PURCHASE.
Not earlier than June 15, 2000 nor later than June 15, 2002 (the
"Mandatory Purchase Period"), the Issuers shall make one or more offers to
all Securityholders to purchase up to the Maximum Mandatory Purchase Amount
of Securities (the "Mandatory Purchase Offer") at a price equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase. The "Maximum Mandatory Purchase Amount"
shall equal $65,000,000 less an amount equal to the sum of the aggregate
principal amount of Securities, if any, theretofore redeemed or purchased in
accordance with Sections 3.07(b) or 4.14, plus the aggregate principal amount
of Securities, if any, theretofore repurchased by any of the Issuers. The
Issuers may make one or more Mandatory Purchase Offers; PROVIDED, that
Mandatory Purchase Offers may only be made on Interest Payment Dates during
the Mandatory Purchase Period; PROVIDED, FURTHER, that each Mandatory
Purchase Offer must be for a minimum of $10,000,000 principal amount of
Securities (or such lesser amount as shall result in the Issuers' having
offered to purchase during the Mandatory Purchase Period, in the aggregate,
the maximum Mandatory Purchase Amount of the Securities.
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SECTION 3.09. CERTAIN REDEMPTION PROCEDURES.
(a) In the event that, pursuant either to Section 3.08 or Section
4.10 hereof, the Issuers shall commence an offer to all Securityholders to
purchase Securities (a "Purchase Offer"), they shall follow the procedures
specified below:
(i) The Purchase Offer shall remain open for a period of 30
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Issuers shall purchase the principal amount of
Securities required to be purchased pursuant to Section 3.08 or Section 4.10
hereof, as applicable (the "Offer Amount"), or, if less than the Offer Amount
has been tendered, all Securities tendered in response to the Purchase Offer.
(ii) If the Purchase Date is on or after a Record Date and on or
before the related Interest Payment Date, any accrued interest shall be paid
to the Person under whose name a Security is registered at the close of
business on such Record Date, and no additional interest shall be payable to
Holders who tender Securities pursuant to the Purchase Offer, as the case may
be.
(iii) Upon the commencement of any Purchase Offer, the Issuers
shall send or cause to be sent in accordance with Section 3.03, a notice to
each Securityholder. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the
Purchase Offer. The notice, which shall govern the terms of the Purchase
Offer, shall state:
(1) that the Purchase Offer is being made pursuant to this Section
3.09 and Section 3.08 or 4.10 hereof, as applicable, and the length of time
the Purchase Offer shall remain open;
(2) the Offer Amount, the purchase price and the Purchase Date;
(3) that any Security not tendered or accepted for payment shall
continue to accrue interest;
(4) that any Security accepted for payment pursuant to the
Purchase Offer shall cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to
any Purchase Offer shall be required to surrender the Security, with the form
entitled "Option of Securityholder to Elect Purchase" on the reverse of the
Security completed, to the Issuers, a depository, if appointed by the
Issuers, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(6) that Holders shall be entitled to withdraw their election if
the Issuers, depository or Paying Agent, as the case may be, receives, not
later than the expiration of the
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Offer Period, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have the Security purchased;
(7) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Issuers shall select the
Securities to be purchased on a PRO RATA basis (with such adjustments as may
be deemed appropriate by the Issuers so that only Securities in denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(8) that Holders whose Securities were purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
(iv) On or before the Purchase Date, the Issuers shall, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent
necessary, the Offer Amount of Securities or portions thereof tendered
pursuant to the Purchase Offer or, if less than the Offer Amount has been
tendered, all Securities or portions thereof tendered, and deliver to the
Trustee an Officers' Certificate stating that such Securities or portions
thereof were accepted for payment by the Issuers in accordance with the terms
of this Section 3.09. The Paying Agent shall promptly (but in any case not
later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Security
tendered by such Holder and accepted by the Issuers for purchase, and the
Issuers shall promptly issue a new Security, and at the written request of
the Issuers the Trustee shall authenticate and mail or deliver such new
Security to such Holder equal in principal amount to any unpurchased portion
of the Security surrendered. Any Security not so accepted shall be promptly
mailed or delivered by the Issuers to the Holder thereof. The Issuers shall
publicly announce the results of the Purchase Offer on the Purchase Date.
(b) In the event the Issuers are required to make an offer to
purchase Securities pursuant to Section 4.10 hereof and the amount of the
Excess Proceeds from the Asset Disposition are not evenly divisible by
$1,000, the Trustee shall promptly refund to the Company any remaining Excess
Proceeds.
(c) Other than as specifically provided in this Section 3.09, any
Purchase Offer pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
(a) The Issuers shall pay the principal of, premium, if any, and
interest on the Securities on the dates and in the manner provided in the
Securities and in this Indenture. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than
the Issuers or a Subsidiary, holds as of 10:00 a.m. New York City time on
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the due date money deposited by the Issuers in immediately available funds
and designated for and sufficient to pay all principal, premium, if any, and
interest then due. Such Paying Agent shall return to the Issuers, no later
than five Business Days following the date of payment, any money that exceeds
such amount of principal, premium, if any, and interest paid or payable on
the Securities.
(b) The Issuers shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 2% per annum in excess of the then applicable interest rate
on the Securities to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at
the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Issuers shall maintain in the Borough of Manhattan, in the
City of New York, an office or agency (which may be an office of the Trustee
or an affiliate of the Trustee, Registrar or co-registrar) where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Issuers in respect of the Securities and this
Indenture may be served. The Issuers shall give prior written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
(b) The Issuers may also from time to time designate one or more
other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind
such designations; PROVIDED, HOWEVER, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an
office or agency in the Borough of Manhattan, in the City of New York for
such purposes. The Issuers shall give prior written notice to the Trustee of
any such designation or rescission and of any change in the location of any
such other office or agency.
(c) The Issuers hereby designate the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03. SEC REPORTS.
(a) Upon consummation of the Exchange Offer and the issuance of
the Exchange Securities, the Issuers (at their own expense) shall file with
the Commission and shall furnish to the Trustee and each Securityholder
within 15 days after it files them with the Commission copies of the
quarterly and annual reports and of the information, documents, and other
reports (or copies of such portions of any of the foregoing as the Commission
may by rules and regulations prescribe) to be filed pursuant to Section 13 or
15(d) of the Exchange Act (without regard to whether the Company is subject
to the requirements of such Section 13 or 15(d) of the Exchange Act);
PROVIDED, that prior to the consummation of the Exchange Offer and
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the issuance of the Exchange Securities, the Issuers (at their own expense),
will mail to the Trustee and the Securityholders in accordance with paragraph
(b) of this Section 4.03 substantially the same information that would have
been required by the foregoing documents within 15 days of when any such
document would otherwise have been required to be filed with the Commission.
Upon qualification of this Indenture under the TIA, the Issuers shall also
comply with the provisions of TIA Section 314(a).
(b) At the Issuers' expense, the Issuers shall cause an annual
report if furnished by it to stockholders generally and each quarterly or
other financial report if furnished by it to stockholders generally to be
filed with the Trustee and mailed to the Securityholders at their addresses
appearing in the register of Securities maintained by the Registrar at the
time of such mailing or furnishing to stockholders.
(c) The Issuers shall provide to any Securityholder any
information reasonably requested by such Securityholder concerning the
Issuers (including financial statements) necessary in order to permit such
Securityholder to sell or transfer Securities in compliance with Rule 144A
under the Securities Act.
(d) If the Issuers instruct the Trustee to distribute any of the
documents described in Section 4.03(a) to the Securityholders, the Issuers
shall provide the Trustee with a sufficient number of copies of all such
documents.
SECTION 4.04. COMPLIANCE CERTIFICATES.
(a) The Issuers and their Subsidiary Guarantors shall each deliver
to the Trustee, within 90 days after the end of each fiscal year, an
Officers' Certificate signed by its principal executive officer, principal
financial officer or principal accounting officer stating that a review of
the activities of such company and its Subsidiaries, as the case may be,
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether each has kept, observed,
performed and fulfilled its Obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best
of his or her knowledge each has kept, observed, performed and fulfilled each
and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action each is taking or proposes to take with respect
thereto).
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03 above shall be
accompanied by a written statement of (x) the Issuers' independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements nothing has come to their attention which would lead them to
believe that the Issuers have violated any provisions of Article 4, 5 or 6 of
this Indenture insofar as they relate to accounting matters or, if any such
violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to
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obtain knowledge of any such violation and (y) if any Restricted Subsidiary's
financial statements are not prepared on a consolidated basis with the
Company's, such Restricted Subsidiary's independent public accountants (who
shall be a firm of established national reputation) that in making the
examination necessary for certification of such financial statements nothing
has come to their attention which would lead them to believe that a Default
or an Event of Default has occurred or, if any such Default or Event of
Default has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
Default or Event of Default.
(c) The Issuers shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of (i) any Default or Event of Default or (ii) any event of default
under any other mortgage, indenture or instrument to which an Issuer is a
party, an Officers' Certificate specifying such Default, Event of Default or
event of default and what action the Company is taking or proposes to take
with respect thereto.
(d) The Issuers shall also comply with TIA Section 314(a)(4).
SECTION 4.05. TAXES.
The Company will, and will cause its Restricted Subsidiaries to, pay and
discharge when due and payable all taxes, levies, imposts, duties or other
governmental charges ("Taxes") imposed on it or on its income or profits or
on any of its properties except such Taxes which are being contested in good
faith in appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Issuers covenant (to the extent that they may lawfully do so)
that they shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture (including, but not
limited to, the payment of the principal of or interest on the Securities);
and the Issuers and each Subsidiary Guarantor (to the extent that they may
lawfully do so) hereby expressly waive all benefit or advantage of any such
law, and covenant that they shall not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such
law has been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) except (A)
dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock and (B) dividends or distributions payable to the Company or a
Restricted
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Subsidiary of the Company which holds any equity interest in the paying
Restricted Subsidiary (and if the Restricted Subsidiary paying the dividend
or making the distribution is not a Wholly-Owned Subsidiary, to its other
holders of Capital Stock on a PRO RATA basis), (ii) purchase, redeem, retire
or otherwise acquire for value any Capital Stock of the Company held by
Persons other than a Wholly-Owned Subsidiary of the Company or any Capital
Stock of a Restricted Subsidiary of the Company held by any Affiliate of the
Company, other than a Wholly-Owned Subsidiary (in either case, other than in
exchange for its Capital Stock (other than Disqualified Stock)), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations or (iv) make any Investment (other
than a Permitted Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement
or Investment as described in preceding clauses (i) through (iv) being
referred to as a "Restricted Payment"); if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) the Company is
not able to incur an additional $1.00 of Indebtedness pursuant to paragraph
(a) under Section 4.09; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments declared or made subsequent to the
Issue Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the first
day of the fiscal quarter beginning on or after the Issue Date to the end of
the most recent fiscal quarter ending prior to the date of such Restricted
Payment as to which financial results are available (but in no event ending
more than 135 days prior to the date of such Restricted Payment) (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate net proceeds received by the Company from the issue or sale
of its Capital Stock (other than Disqualified Stock) or other capital
contributions subsequent to the Issue Date (other than net proceeds received
from an issuance or sale of such Capital Stock to (x) a Subsidiary of the
Company, (y) an employee stock ownership plan or similar trust or (z)
management employees of the Company or any Subsidiary of the Company (other
than sales of Capital Stock (other than Disqualified Stock) to management
employees of the Company pursuant to BONA FIDE employee stock option plans of
the Company); PROVIDED, HOWEVER, that the value of any non-cash net proceeds
shall be as determined by the Board of Directors in good faith, except that
in the event the value of any non-cash net proceeds shall be $2.0 million or
more, the value shall be as determined in writing by an independent
investment banking firm of nationally recognized standing); (C) the amount by
which Indebtedness of the Company is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Restricted Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock of the Company (less the amount
of any cash, or other property, distributed by the Company upon such
conversion or exchange); and (D) the amount equal to the net reduction in
Investments (other than Permitted Investments) made after the Issue Date by
the Company or any of its Restricted Subsidiaries in any Person resulting
from (i) repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of assets by
such Person to the Company or any Restricted Subsidiary of the Company or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously included
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in the calculation of the amount of Restricted Payments; PROVIDED, HOWEVER,
that no amount shall be included under this Clause (D) to the extent it is
already included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary, an
employee stock ownership plan or similar trust or management employees of the
Company or any Subsidiary of the Company); PROVIDED, HOWEVER, that (A) such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3)(B) of paragraph (a); (ii) any purchase or redemption
of Subordinated Obligations of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Subordinated
Obligations of the Company in compliance with Section 4.09 hereof; PROVIDED,
HOWEVER, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations as a result of a Change of Control
(provided that the provisions described in Section 4.17 are complied with);
(iv) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under Section 4.10; PROVIDED, HOWEVER,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments; (v) dividends paid within 60 days after the
date of declaration if at such date of declaration such dividend would have
complied with this provision; PROVIDED, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments; and (vi) so
long as the Company is not treated for federal income tax purposes as a
corporation or an association taxable as a corporation or other entity that
is subject to an entity level tax for income tax purposes, distributions to
any holder of membership interests in the Company (each, a "Member"), as soon
as practicable after the end of each calendar quarter, of an amount (A)
reasonably determined to be sufficient to pay any federal and, if such an
election is in effect for state and local income tax purposes, state and
local income taxes actually imposed on such Member's allocable share of
income from the Company, or (B) if Thomas F. Flatley and his Affiliates cease
to own beneficially 90% or more of the ordinary voting power for the election
of directors of the Company, equal to such Member's Tax Allowance Amount in
respect of such quarter, and the Company shall cause the Accountants to
deliver to the Trustee a certificate setting forth the determination of each
Member's Tax Allowance Amount within 60 days of the end of each fiscal year;
PROVIDED, HOWEVER, such Tax Allowance Amounts shall be excluded in the
calculation of the amount of Restricted Payments; PROVIDED, FURTHER, that in
the case of clauses (i), (ii), (iii) and (iv), no Default or Event of Default
shall have occurred or be continuing at the time of such payment or as a
result thereof.
(c) For purposes of determining compliance with the foregoing
covenant, Restricted Payments may be made with cash or non-cash assets,
provided that any Restricted Payment made other than in cash shall be valued
at the fair market value (determined, subject to the additional requirements
of the immediately succeeding proviso, in good faith by the Board of
Directors) of the assets so utilized in making such Restricted Payment;
PROVIDED, HOWEVER, that (i) in the case of any Restricted Payment made with
Capital Stock or Indebtedness, such Restricted Payment shall be deemed to be
made in an amount equal to the greater of the fair market value thereof and
the liquidation preference (if any) or principal amount of the Capital Stock
or Indebtedness, as the case
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may be, so utilized, and (ii) in the case of any Restricted Payment in an
aggregate amount in excess of $2.0 million, a written opinion as to the
fairness of the valuation thereof (as determined by the Company) for purposes
of determining compliance with this Section 4.07 shall be issued by an
independent investment banking firm of national standing.
(d) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officer's Certificate stating that
such Restricted Payment complies with this Indenture and setting forth in
reasonable detail the basis upon which the required calculations were
computed, which calculations may be based upon the Company's latest available
quarterly financial statements, and a copy of any required investment
banker's opinion. The Trustee shall have no duty to independently verify or
recalculate any such calculations.
SECTION 4.08. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary
to (i) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligation owed to the Company, (ii) make any
loans or advances to the Company or (iii) transfer any of its property or
assets to the Company or Guarantee the Securities, except: (a) any
encumbrance or restriction pursuant to an agreement in effect at or entered
into on the Issue Date; (b) any encumbrance or restriction with respect to
such a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness issued by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company and outstanding
on such date (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary of the
Company or was acquired by the Company); (c) any encumbrance or restriction
with respect to such a Restricted Subsidiary pursuant to an agreement
evidencing Indebtedness Incurred without violation of this Indenture or
effecting a refinancing of Indebtedness issued pursuant to an agreement
referred to in clauses (a) or (b) or this clause (c) or contained in any
amendment to an agreement referred to in clauses (a) or (b) or this clause
(c); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any of such agreement, refinancing
agreement or amendment, taken as a whole, are no less favorable to the
Holders of the Securities in any material respect, as determined in good
faith by the Board of Directors of the Company, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
agreements in effect at, or entered into on, the Issue Date; (d) in the case
of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, (B) by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or
any Restricted Subsidiary not otherwise prohibited by this Indenture, (C)
that is included in a licensing agreement to the extent such restrictions
limit the transfer of the property subject to such licensing agreement or (D)
arising or agreed to in the ordinary course of business and that does not,
individually or in the aggregate, detract from the value of property or
assets of the Company or any of its Subsidiaries in any manner
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material to the Company or any such Restricted Subsidiary; (e) in the case of
clause (iii) above, restrictions contained in security agreements, mortgages
or similar documents securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to
such security agreements; (f) in the case of clause (iii) above, any
instrument governing or evidencing Indebtedness of a Person acquired by the
Company or any Restricted Subsidiary of the Company at the time of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person so
acquired; PROVIDED, HOWEVER, that such Indebtedness is not incurred in
connection with or in contemplation of such acquisition; (g) any restriction
with respect to such a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (h) encumbrances or restrictions arising or
existing by reason of applicable law; (i) any encumbrance or restriction
pursuant to Indebtedness of Restricted Subsidiaries that is permitted to be
incurred subsequent to the Issue Date pursuant to the provisions of Section
4.09; and (j) restrictions on cash or other deposits imposed by customers
under contracts incurred in the ordinary course of business consistent with
past practices.
SECTION 4.09. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED, HOWEVER, that
the Company and its Restricted Subsidiaries may Incur Indebtedness if (i) no
Default or Event of Default shall have occurred and be continuing at the time
of such Incurrence or would occur as a consequence of such Incurrence and
(ii) the Consolidated Coverage Ratio would be equal to at least (x) 2.00 to
1.00 if such Indebtedness is incurred on or prior to June 1, 2000, (y) 2.25
to 1.00 if such Indebtedness is incurred after June 1, 2000 but on or prior
to June 1, 2002 and (z) 2.50 to 1.00 if such Indebtedness is Incurred after
June 1, 2002.
(b) Notwithstanding the foregoing paragraph (a), the Company and
its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness represented by Capitalized Lease Obligations,
mortgage financing or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property used in a Permitted Business or
Incurred to refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the date
of such acquisition or the date of completion of such construction or
improvement; PROVIDED, HOWEVER, that the principal amount of any
Indebtedness Incurred pursuant to this clause (i) shall not exceed $2.0
million at any time outstanding;
(ii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing
to and held by the Company or any Wholly-Owned Subsidiary; PROVIDED,
HOWEVER, that any subsequent issuance or transfer of any Capital Stock or
any other event which results in any such Wholly-Owned Subsidiary ceasing
to be a Wholly-Owned Subsidiary or any subsequent transfer of any
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such Indebtedness (except to the Company or any Wholly-Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(iii) Indebtedness represented by (A) the Securities and any
Exchange Securities issued in exchange for the Securities for any equal
principal amount, (B) the Subsidiary Guarantees, (C) Existing Indebtedness
and (D) any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in clause (i) or this clause (iii) or Incurred
pursuant to paragraph (a) above;
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired
by the Company (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); PROVIDED, HOWEVER, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to paragraph
(a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (iv) and (B) Refinancing Indebtedness Incurred by
a Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations and (C) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchises or customers of obligations (other than
Indebtedness) incurred in the ordinary course of business;
(vi) Indebtedness under Currency Agreements and Interest Rate
Agreements; PROVIDED, HOWEVER, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the Company
or its Restricted Subsidiaries (as determined in good faith by the Board
of Directors of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates as applicable, to Indebtedness of
the Company or its Restricted Subsidiaries Incurred without violation of
this Indenture or to business transactions of the Company or its
Restricted Subsidiaries on customary terms entered into in the ordinary
course of business;
(vii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credits, surety bonds or performance bonds
securing any obligations of the Company or any of its
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Restricted Subsidiaries pursuant to such agreements, in each case
Incurred in connection with the disposition of any business assets or
Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness or other obligations incurred by any Person acquiring all
or any portion of such business assets or Restricted Subsidiary of the
Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the Company
or any of its Restricted Subsidiaries in connection with such disposition;
PROVIDED, HOWEVER, that the principal amount of any Indebtedness Incurred
pursuant to this clause (vii) when taken together with all Indebtedness
Incurred pursuant to this clause (vii) and then outstanding, shall not
exceed $2.0 million;
(viii) Indebtedness consisting of (A) Guarantees by the Company of
Indebtedness incurred by a Restricted Subsidiary without violation of this
Indenture (so long as the Company could have Incurred such Indebtedness
directly without violation of this Indenture) and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness incurred by the Company
without violation of this Indenture (so long as such Restricted Subsidiary
could have Incurred such Indebtedness directly without violation of this
Indenture);
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by
the Company or its Subsidiaries drawn against insufficient funds in the
ordinary course of business in an amount not to exceed $250,000 in the
aggregate at any time; provided that such Indebtedness is extinguished
within two Business Days of its Incurrence;
(x) Indebtedness representing borrowings against Vacation Ownership
Interests Receivable relating to property as to which no certificate of
occupancy has been received; PROVIDED, that the aggregate amount of
Indebtedness permitted under this clause (x) shall at no time exceed $5
million;
(xi) Indebtedness Incurred pursuant to credit facilities (A) in an
amount not to exceed 85% of Vacation Ownership Interests Receivable
outstanding at the time of Incurrence or (B) by a Receivables Subsidiary
in an amount not to exceed 100% of the total amount of Vacation Ownership
Interests Receivable outstanding as of the time of Incurrence as long as
all such Indebtedness is not Guaranteed by the Company or any Subsidiary;
PROVIDED that in either case such Indebtedness is secured by a Lien on
such Vacation Ownership Interests Receivable; and
(xii) Indebtedness Incurred under A&D Facilities; PROVIDED, that
if the Consolidated Coverage Ratio at the time of such Incurrence is at
least 2.00 to 1.00 but less than 3.00 to 1.00, the total amount of
Indebtedness Incurred pursuant to this clause (xii) shall not exceed $30.0
million at any on time outstanding; PROVIDED, FURTHER, that if the
Consolidated Coverage Ratio at the time of such Incurrence is less than
2.00 to 1.00, the total amount of Indebtedness Incurred pursuant to this
clause (xii) shall not exceed $15.0 million at any one time outstanding.
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For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses at the time of
incurrence, the Company shall, in its sole discretion, classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in the applicable clause(s) so selected by the Company. No
fluctuation in currency exchange rates or interest rates following the
incurrence of any Indebtedness shall result in a Default or Event of Default
hereunder if the Indebtedness itself was incurred in compliance with this
Indenture at the time of the incurrence.
(c) Neither the Company nor any Restricted Subsidiary shall Incur
any Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of the
Company unless such Indebtedness shall be subordinated to the Securities to
at least the same extent as such Subordinated Obligations. No Restricted
Subsidiary shall Incur any Indebtedness under paragraph (b) above if the
proceeds thereof are used, directly or indirectly, to refinance any Guarantor
Subordinated Obligation of such Subsidiary Guarantor unless such Indebtedness
shall be subordinated to the obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee to at least the same extent as such Guarantor
Subordinated Obligation.
(d) The Company will not permit any Unrestricted Subsidiary to
Incur any Indebtedness other than Non-Recourse Debt.
SECTION 4.10. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such
Asset Disposition at least equal to the fair market value, as determined in
good faith by the Company's Board of Directors (including as to the value of
all non-cash consideration), of the shares and assets subject to such Asset
Disposition, (ii) at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents and (iii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) FIRST, to the extent the Company or any
Restricted Subsidiary elects (or is required by the terms of any Secured
Indebtedness), (x) to prepay, repay or purchase Secured Indebtedness within
45 days from the later of the date of such Asset Disposition or the receipt
of such Net Available Cash or (y) to the investment in or acquisition of
Additional Assets within 360 days from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) SECOND, within 360
days from the receipt of such Net Available Cash, to the extent of the
balance of such Net Available Cash after application in accordance with
clause (A), to make an offer to purchase Securities at 100% of their
principal amount plus accrued and unpaid interest, if any, thereon; and (C)
THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to (w) the investment in
or acquisition of Additional Assets, (x) the making of Temporary Cash
Investments or (y) any other purpose otherwise permitted under this
Indenture, in each case within the later of 45 days after the application of
Net Available Cash in accordance with clauses (A) and (B) or the date that is
one year from the receipt of such Net Available Cash; PROVIDED, HOWEVER,
that, in connection with any prepayment, repayment or purchase of
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Indebtedness pursuant to clause (A) or (B) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions, the Company and its Restricted Subsidiaries shall not
be required to apply any Net Available Cash in accordance herewith except to
the extent that the aggregate Net Available Cash from all Asset Dispositions
which are not applied in accordance with this covenant at any time exceed
$10.0 million. The Company shall not be required to make an offer for
Securities pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clause (A)) is
less than $10.0 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an offer
is required with respect to the Net Available Cash from any subsequent Asset
Disposition).
For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Senior Indebtedness of the
Company or Senior Indebtedness of any Restricted Subsidiary of the Company
and the release of the Company or such Restricted Subsidiary from all
liability on such Senior Indebtedness in connection with such Asset
Disposition (in which case the Company shall, without further action, be
deemed to have applied such assumed Indebtedness in accordance with clause
(A) of the preceding paragraph) and (y) securities received by the Company or
any Restricted Subsidiary of the Company from the transferee that are
promptly (and in any event within 90 days) converted by the Company or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (a)(iii)(B), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities at a purchase price of 100% of their principal amount plus accrued
and unpaid interest, if any, to the purchase date in accordance with the
procedures (including prorating in the event of oversubscription) set forth
in this Indenture. If the aggregate purchase price of the Securities tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(C) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to this Indenture. To the extent that the provisions of any securities laws
or regulations conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Indenture by virtue
thereof.
SECTION 4.11. LIMITATION ON AFFILIATE TRANSACTIONS.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or conduct any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with or
for the benefit of any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (an
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"Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction
are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the
Company and by a majority of the disinterested members of such Board, if any
(and such majorities each determine that such Affiliate Transaction satisfies
the criteria in (i) above); and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $2.0 million, the Company has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Affiliate Transaction is fair to the
Company or such Restricted Subsidiary, as the case may be, from a financial
point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to Section 4.07, (ii) any
issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, or any stock options and stock ownership plans for the benefit
of employees, officers and directors, consultants and advisors approved by
the Board of Directors of the Company, (iii) loans or advances to employees
in the ordinary course of business of the Company or any of its Restricted
Subsidiaries in aggregate amount outstanding not to exceed $250,000 to any
employee or $500,000 in the aggregate at any time, (iv) any transaction
between Wholly-Owned Subsidiaries, (v) indemnification agreements with, and
the payment of fees and indemnities to, directors, officers and employees of
the Company and its Restricted Subsidiaries, in each case in the ordinary
course of business, (vi) transactions pursuant to agreements in existence on
the Issue Date which are (x) described in the Offering Memorandum or (y)
otherwise, in the aggregate, immaterial to the Company and its Restricted
Subsidiaries taken as a whole, (vii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its
Restricted Subsidiaries with its employees in the ordinary course of
business, (viii) the issuance of Capital Stock of the Company (other than
Disqualified Stock), (ix) the payment of reasonable and customary fees to
directors of the Company who are not employees of the Company (including,
without limitation, the grant of stock options), and (x) Affiliate
Transactions between either the Company or a Restricted Subsidiary and a
Receivables Subsidiary involving the transfer or sale of Vacation Ownership
Interests Receivable.
SECTION 4.12. LIMITATION ON LIENS.
The Company will not and will not permit any Restricted Subsidiary
to, directly or indirectly, create or permit to exist any Liens on any of its
or their property or assets except for Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Issuers shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate or other organizational existence in accordance with their
respective organizational documents (as the same may be
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amended from time to time) and the rights (charter and statutory), licenses
and franchises of the Issuers.
SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of any of a Change of Control, each
Securityholder will have the right to require the Company to repurchase all
or any part of such Securityholder's Securities at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of
Securityholders of record on the relevant Record Date to receive interest due
on the relevant Interest Payment Date) (such applicable purchase price being
thereafter referred to as the "Change of Control Purchase Price"):
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail
a notice to each Holder with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to the Change of Control Purchase Price
(subject to the right of Holders of record on a Record Date to receive
interest on the relevant Interest Payment Date);
(ii) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of
Control Payment Date"); and
(iii) the procedures determined by the Company, consistent with this
Indenture, that a Holder must follow in order to have its Securities
purchased.
(c) Securityholders electing to have a Security repurchased will
be required to surrender the Security, with the form entitled "Option of
Securityholder to Elect Purchase" on the reverse of the Security completed,
to the Company at the address specified in the notice at least 10 Business
Days prior to the Change of Control Payment Date. Securityholders will be
entitled to withdraw their election if the Trustee or the Company receives
not later than three Business Days prior to the Change of Control Payment
Date a telegram, telex, facsimile transmission or letter setting forth the
name of the Securityholder, the principal amount of the Security which was
delivered for repurchase by the Securityholder and a statement that such
Securityholder is withdrawing his election to have such Security purchased.
(d) On the Change of Control Payment Date, the Company will, to
the extent lawful, (i) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with
the Trustee an amount equal to the Change of Control Payment in respect of
all Securities or portions thereof so tendered and (iii) deliver or cause to
be delivered to the Trustee the Securities so accepted together with an
Officers' Certificate stating the aggregate principal amount of Securities or
portions thereof being purchased by the Company. The Trustee will promptly
mail to each Securityholder so tendered the Change of Control Payment for
such Securities, and the Trustee will promptly authenticate and mail (or
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cause to be transferred by book entry) to each Securityholder a new Security
equal in principal amount to any unpurchased portion of the Securities
surrendered, if any; PROVIDED that each such new Security will be in a
principal amount of $1,000 or an integral multiple thereof. Unless the
Company defaults in the payment for any Securities properly tendered pursuant
to the Change of Control Offer, any Securities accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Indenture, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.
SECTION 4.15. LIMITATION ON ISSUANCES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES.
The Company will not permit any of its Restricted Subsidiaries to
issue any Capital Stock to any Person (other than to the Company or a
Wholly-Owned Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly-Owned Subsidiary of the Company) to own any Capital Stock
of a Restricted Subsidiary of the Company, if in either case as a result
thereof such Restricted Subsidiary would no longer be a Restricted Subsidiary
of the Company; PROVIDED, HOWEVER, that this provision shall not prohibit (x)
the Company or any of its Restricted Subsidiaries from selling, leasing or
otherwise disposing of all of the Capital Stock of any Restricted Subsidiary
or (y) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary in compliance with this Indenture.
SECTION 4.16. CONDUCT OF BUSINESS.
The Company shall not, nor shall permit any of its Subsidiaries,
directly or indirectly, to engage in any business other than a Permitted
Business.
SECTION 4.17. LIMITATION ON REPAYMENT UPON A CHANGE OF CONTROL.
The Company will not make an offer to repurchase any Subordinated
Obligations if required to do so pursuant to a Change of Control until at
least 60 days after the occurrence of such Change of Control and shall not
purchase any Subordinated Obligations for 30 days following the time the
Company is required to make purchases of the Securities under this Indenture
following such Change of Control.
SECTION 4.18. LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, Guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction with respect to any property
or assets unless (i) the Company or such Restricted Subsidiary, as the case
may be, would be entitled pursuant to this Indenture to Incur Indebtedness
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secured by a Permitted Lien on such property or assets in an amount equal to
the Attributable Indebtedness with respect to such Sale/Leaseback
Transaction, (ii) the Net Cash Proceeds from such Sale/Leaseback Transaction
are at least equal to the fair market value of the property or assets subject
to such Sale/Leaseback Transaction (such fair market value determined, in the
event such property or assets have a fair market value in excess of $1.0
million, no more than 30 days prior to the effective date of such
Sale/Leaseback Transaction, by the Board of Directors of the Company as
evidenced by a Board Resolution) and (iii) the Net Cash Proceeds of such
Sale/Leaseback Transaction are applied in accordance with the provisions
described under Section 4.10.
SECTION 4.19. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
(a) The Company may designate any Subsidiary of the Company (other
than a Subsidiary of the Company which owns Capital Stock of a Restricted
Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and
(ii) the Company would be permitted under this Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the
aggregate amount of other Investments of the Company and the Restricted
Subsidiaries in such Subsidiary on such date; and
(iii) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.09
of this Indenture at the time of Designation (assuming the effectiveness
of such Designation).
(b) In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant
to Section 4.07 hereunder for all purposes of this Indenture in the
Designation Amount. The Company shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a Guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse
of time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under Section 4.07 hereunder.
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(c) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall
then constitute a Restricted Subsidiary, if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of this
Indenture.
(d) Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
SECTION 4.20. FUTURE NOTE GUARANTEES.
The Issuers will cause each newly organized or acquired Restricted
Subsidiary to execute and deliver to the Trustee pursuant to Section 10.02 a
Subsidiary Guarantee of the Securities in form and substance satisfactory to
the Trustee. Such Guaranty will be secured in accordance with Section 11.01.
SECTION 4.21. FURTHER INSTRUMENTS AND ACTS.
The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee
may require of the Company full information and advice as to the performance
of the covenants, conditions and agreements contained herein, and upon
request of the Trustee, the Company will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper
to carry out more effectively the purposes of this Indenture.
SECTION 4.22. COLLATERAL DOCUMENTS.
Neither the Issuers nor any Subsidiary Guarantor will amend, waive
or modify, or take or refrain from taking any action which has the effect of
amending, waiving or modifying, any provision of the Collateral Documents
unless, in connection therewith, the Company shall have furnished to the
Trustee an Opinion of Counsel to the effect that such amendment, waiver,
modification or action would not have an adverse effect on the rights of the
Trustee or the Securityholders (as provided in the Collateral Documents),
PROVIDED that:
(1) Collateral may be released or modified as expressly provided
herein and in the Collateral Documents;
(2) Subsidiary Guarantees, Liens, and pledges may be released as
expressly provided herein and in the Collateral Documents; and
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(3) this Indenture and any of the Collateral Documents may be
otherwise amended, waived or modified pursuant to Article 9 hereof.
SECTION 4.23. FILING OF PLANS
With respect to each property suitable for Vacation Ownership
Interest development owned or acquired by the Issuers or the Subsidiary
Guarantors, the Issuers shall file or cause to be filed, as promptly as
practicable and to the extent required by applicable law, a Plan with any
applicable governmental authority.
SECTION 4.26. VARIANCES AND REZONING
To the extent that the sale of Vacation Ownership Interests at any
real property owned by the Issuers or the Subsidiary Guarantors is not
permitted under applicable zoning laws or similar laws, statutes, ordinances or
regulations, the Issuers shall, as promptly as practicable, seek a variance or
other relief in order that such sales may commence. In addition, the Issuers
shall, as promptly as practicable, seek to have such property rezoned so that
such sales will be permitted on a going-forward basis.
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all of its assets to, any
Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation, partnership, trust or limited liability
company organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor Company
or any Subsidiary of the Successor Company as a result of such transaction as
having been Incurred by the Successor Company or such Restricted Subsidiary at
the time of such transaction), no Default or Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company (A) shall have a Consolidated Net Worth equal or greater to
the Consolidated Net Worth of the Issuers immediately prior to such transaction
and (B) shall be able to incur at least an additional $1.00 of Indebtedness
pursuant to paragraph (a) of Section 4.09;
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(iv) Each Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with this
Indenture; and
(v) there has been delivered to the Trustee an Opinion of Counsel to
the effect that Holders of the Securities will not recognize income, gain or
loss for U.S. Federal income tax purposes as a result of such consolidation,
merger, conveyance, transfer or lease and will be subject to U.S. Federal
income tax with respect to the Securities in the same amount and in the same
manner and at the same times as would have been the case if such consolidation,
merger, conveyance, transfer or lease had not occurred.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
The Successor Company will succeed to, and be substituted for, and
may exercise every right and power of, the applicable Issuer under this
Indenture, but, in the case of a lease of all or substantially all its assets,
an Issuer will not be released from the obligation to pay the principal of and
interest on the Securities.
Notwithstanding any other provision of this Indenture, any Restricted
Subsidiary other than Epic Capital and Warrant Co. may consolidate with, merge
into or transfer all or part of its properties and assets to the Company or any
other Wholly-Owned Subsidiary. Notwithstanding any other provisions of this
Indenture, neither Epic Capital nor Warrant Co. may merge with or into any
other Person.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
(a) Each of the following constitutes an Event of Default:
(i) a default in any payment of interest on any Security when due,
continued for 30 days;
(ii) a default in the payment of principal of any Security when due
at its Stated Maturity, upon required redemption or repurchase, upon
declaration or otherwise;
(iii) the failure by the Issuers to comply with their obligations
under Section 5.01 hereof;
(iv) the failure by the Company or the Issuers, as applicable, to
comply for 30 days after notice with any of its or their obligations under
Sections 4.01, 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16
or 4.18 hereof (in each case, other than a failure to purchase Securities which
shall constitute an Event of Default under clause (ii) above);
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(v) the failure by the Issuers or any Subsidiary Guarantor to comply
for 60 days after notice with their other agreements contained in this
Indenture or in any Collateral Documents;
(vi) Indebtedness of the Issuers or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $2.0 million and such default shall
not have been cured or such acceleration rescinded after a 20-day period;
(vii) any judgment or decree for the payment of money in excess
of $2.0 million (to the extent not covered by insurance) is rendered against
the Issuers or a Significant Subsidiary and such judgment or decree shall
remain undischarged or unstayed for a period of 60 days after such judgment
becomes final and non-appealable (the "judgment default provision"); or
(viii) any Subsidiary Guarantee by a Restricted Subsidiary ceases
to be in full force and effect (except as contemplated by the terms of this
Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations
under this Indenture or its Subsidiary Guarantee and such Default continues for
10 days.
(ix) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
(E) consents to or acquiesces in the institution of a bankruptcy or
an insolvency proceeding against it, or
(F) takes any corporate action to authorize or effect any of the
foregoing;
(x) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its Subsidiaries in
an involuntary case,
(B) appoints a Custodian of the Company or any of its Subsidiaries
or for all or substantially all of the property of the Company or any of its
Subsidiaries, or
(C) orders the liquidation of the Company or any of its
Subsidiaries, and the order or decree remains unstayed and in effect for 60
consecutive days.
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(b) The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
(c) A Default under clause (iv) or (v) of Section 6.01(a) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Securities notify the Issuers (and the
Trustee in the case of notices by Holders) of the Default and the Issuers do
not cure such Default within the time specified in clause (iv) or (v), as
applicable, after receipt of such notice. The written notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clause (ix) or (x) of Section 6.01(a) with respect to the Issuers or any
Subsidiary Guarantor) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the then outstanding
Securities by notice to the Issuers (and to the Trustee if given by the
Holders), may declare (a "Declaration of Acceleration") the principal amount
of, and any accrued and unpaid interest on, all the Securities to be due and
payable (the "Default Amount"). Upon any such Declaration of Acceleration the
Default Amount shall be due and payable immediately. If an Event of Default
specified in clause (ix) or (x) of Section 6.01(a) occurs with respect to an
Issuer or any of the Subsidiary Guarantors, the Default Amount shall IPSO FACTO
become and be immediately due and payable without any Declaration of
Acceleration or other act on the part of the Trustee or any Securityholder.
The Holders of a majority in aggregate principal amount of the then outstanding
Securities by written notice to the Trustee and to the Issuers may rescind any
Declaration of Acceleration if (i) the rescission would not conflict with any
judgment or decree and (ii) if all Events of Default then continuing (other
than any Events of Default with respect to the nonpayment of principal of or
interest on any Security which has become due solely as a result of such
Declaration of Acceleration) have been and (iii) all amounts due to the Trustee
under Section 7.07 have been paid, and may waive any Default other than a
Default with respect to a covenant or provision that cannot be modified or
amended without the consent of each Securityholder pursuant to Section 9.02
hereof.
SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the Trustee and
the Securityholders may pursue any available remedy (under this Indenture, the
Collateral Documents or otherwise) to collect the payment of principal,
premium, if any, or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
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(c) If the Securities become due and payable prior to the Stated
Maturity thereof or not paid in full at the Stated Maturity thereof and after
any applicable grace period has expired, the Trustee has a right to foreclose
upon the Collateral in accordance with the instructions from the Holders of 25%
percent in aggregate principal amount of the Securities or, in the absence of
such instructions, in such manner as the Trustee deems appropriate in its
absolute discretion; PROVIDED, HOWEVER, that in any event such foreclosure
shall be done in a manner consistent with the Collateral Documents.
(d) If an Event of Default occurs and is continuing, the Trustee
shall, without limiting any of its other obligations under this Indenture,
comply with its obligations under Section 7.01 and 11.03.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Prior to a Declaration of Acceleration, Securityholders of not less
than a majority in aggregate principal amount of the then outstanding
Securities by notice to the Trustee may, on behalf of all the Securityholders,
waive an existing Default or Event of Default and its consequences, except a
continuing Default or Event of Default in the payment of the principal,
premium, if any, or interest on any Security (other than principal, premium (if
any) or interest which has become due solely as a result of a Declaration of
Acceleration) or a Default or Event of Default that cannot be modified or
amended without the consent of the Holder of each outstanding Security
affected. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Securityholders of a majority in principal amount of the Securities
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Securityholders or that may involve
the Trustee in personal liability. The Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction.
SECTION 6.06. LIMITATION ON SUITS.
(a) A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:
(i) the Securityholder has previously given to the Trustee written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
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(iii) such Securityholder or Securityholders offer, and, if
requested, provide, to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee, in the
reasonable opinion of such Trustee, a direction inconsistent with the request.
(b) A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
(c) NOTWITHSTANDING THE FOREGOING SUBSECTION (a), AT ANY TIME THAT
ANY OBLIGATION SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO
SECURITYHOLDER SHALL EXERCISE A RIGHT OF SETOFF, LENDER'S LIEN OR COUNTERCLAIM
OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO
ENFORCE ANY PROVISION OF THIS INDENTURE UNLESS IT IS TAKEN WITH THE CONSENT OF
AT LEAST A MAJORITY OF THE SECURITYHOLDERS, IF SUCH SETOFF OR ACTION OR
PROCEEDING WOULD OR MIGHT (PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE
SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR
SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT
OR IMPAIR THE VALIDITY, PRIORITY OR ENFORCEABILITY OF THE LIENS GRANTED TO THE
TRUSTEE PURSUANT TO THE RELEVANT MORTGAGE OR OTHER COLLATERAL DOCUMENTS, AND
ANY ATTEMPTED EXERCISE BY ANY SECURITYHOLDER OF ANY SUCH RIGHT WITHOUT
OBTAINING THE CONSENT OF A MAJORITY OF THE SECURITYHOLDERS SHALL BE NULL AND
VOID. THIS SUBSECTION (C) SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE
SECURITYHOLDERS.
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Securityholder to receive payment of principal, premium, if any, or
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Securityholder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or (ii) or an
acceleration pursuant to Section 6.02 occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Issuers or any Subsidiary Guarantor or any other obligor on
the Securities for the whole amount of principal, premium, if any, and accrued
interest remaining unpaid on the Securities and interest on overdue principal,
premium,
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if any, and, to the extent lawful, interest on overdue installments of
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including any advances made by the Trustee and the
reasonable compensation, expenses and disbursements of the Trustee, its agents
and counsel, and any other amounts due to the Trustee under Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due to the Trustee under Section 7.07) and the
Securityholders allowed in any judicial proceedings relative to the Issuers or
any Subsidiary Guarantor (or any other obligor on the Securities), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on
any such claims and any custodian in any such judicial proceeding is hereby
authorized by each Securityholder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Securityholders may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Securityholder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES.
(a) If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
(i) First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
(ii) Second: if the Securityholders are forced to proceed against the
Issuers directly without the Trustee, to the Securityholders for their
collection costs;
(iii) Third: to the Securityholders for amounts due and unpaid on
the Securities for principal, premium, if any, and interest, ratably, without
preference or priority of any kind,
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according to the amounts due and payable on the Securities for principal,
premium, if any, and interest, respectively; and
(iv) Fourth: to the Issuers or, to the extent the Trustee collects
any amount pursuant to a Collateral Document from any Subsidiary Guarantor, to
such Subsidiary Guarantor, or to such party as a court of competent
jurisdiction shall direct.
(b) The Trustee may fix a record date and payment date for any
payment to Securityholders. At least 15 calendar days before such record date,
the Issuers shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and the amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a
Securityholder pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Collateral Documents, and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances and in the conduct of his own affairs. In considering what
actions are or are not prudent in the circumstances, the Trustee shall consider
whether or not:
(i) to take such action as may be necessary or proper to sequester
the rents and income of any Pledged Real Property or Pledged Vacation
Ownership Interests (each as defined in the Offering Memorandum);
(ii) to procure from the owner of any Pledged Real Property or
Pledged Vacation Ownership Interests an assignment of rents and/or a
consent to enter into possession of such property and to collect the
rents therefrom;
(iii) to apply to the court for the appointment of a receiver of the
rents and income of any Pledged Real Property or Pledged Vacation
Ownership Interests;
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(iv) to declare due and payable forthwith any principal amount
remaining due and unpaid and commence an action of foreclosure;
(v) to apply the moneys received as rents and income from any Pledged
Real Property or Pledged Vacation Ownership Interests as well as
moneys received by the Trustee from any receiver appointed for such
Pledged Real Property or Pledged Vacation Ownership Interests in his
discretion, to the maintenance and operation of such Pledged Real
Property or Pledged Vacation Ownership Interests, the payment of
taxes, water rents and assessments levied thereon and any arrears
thereof, to the payment of underlying liens, and to the creation and
maintenance of a reserve or sinking fund.
(b) If an Event of Default has occurred and is continuing, the
Trustee shall comply with the applicable terms, if any, of Section 126(3) of
Article 4-A of the Real Property Law of the State of New York.
(c) If an Event of Default has occurred and is continuing, the
Trustee shall distribute the proceeds of any sale or other disposition of any
Pledged Real Property or Pledged Vacation Ownership Interests in accordance
with applicable requirements, if any, of Section 126(4) of Article 4-A of the
Real Property Law of the State of New York.
(d) The Trustee shall permit the obligor or other Person in
possession or control of any Pledged Real Property or Pledged Vacation
Ownership Interests, or his successors in interest, to be free to select the
insurance broker or agent through whom any insurance of any kind is to be
placed or written on such Pledged Real Property or Pledged Vacation Ownership
Interests affected or covered by a Mortgage held by the Trustee.
(e) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform only those duties as are
specifically set forth in this Indenture and the duties of the Trustee shall be
determined solely by the express provisions of this Indenture, the Trustee need
perform only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, but in the case
of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall examine
the same to determine whether or not they conform to the requirements of this
Indenture.
(f) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liabilities for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
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(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(g) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (e), and (f) of this Section 7.01.
(h) No provision of this Indenture or the Collateral Documents shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or
thereunder or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(i) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Assets held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(j) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of Section 7.01 and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith reliance
on such Officers' Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights
or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuers or any Subsidiary
Guarantor shall be sufficient if signed by an Officer of the Issuers or any
Subsidiary Guarantor.
(f) The permissive rights of the Trustee to do certain things
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or willful default with
respect to such permissive rights.
(g) Except for an Event of Default under 6.01(a)(i) (other than with
respect to Additional Interest) or (ii) hereof, the Trustee shall not be deemed
to have notice of any Default or Event of Default, or the identity of any
Restricted Subsidiary or of the existence of any Asset Sale or Change of
Control unless specifically notified in writing of such event by the Issuers or
the Securityholders of not less than 25% in aggregate principal amount of
Securities outstanding.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Issuers, any
Subsidiary Guarantor or any Affiliate of the Issuers or any Subsidiary
Guarantor with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Collateral Documents, the
Securities or the Subsidiary Guarantees, it shall not be accountable for the
Issuers' use of the proceeds from the Securities or any money paid to the
Issuers or upon the Issuers' direction under any provision of this Indenture,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be responsible for
any statement or recital herein or any statement in the Securities or the
Subsidiary Guarantees or any other document in connection with the sale of the
Securities or pursuant to this Indenture other than its certificate of
authentication. The Trustee makes no representation as to the validity, value
or condition of any property covered or intended to be covered by the Lien of
the Collateral Documents or any part thereof or as to the title of the Issuers
or any Subsidiary Guarantor to such property or as to the security afforded by
the Collateral Documents or hereby, including the perfection or priority of any
security interest granted to the Trustee.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder a notice
of the Default or Event of Default
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within 90 days after it occurs. Except in the case of a Default or Event of
Default in any payment of principal or interest on any Security, the Trustee
may withhold the notice so long as its board of directors, a committee of its
board of directors or a committee of its trust officers in good faith
determines that withholding the notice is in the interest of the
Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.
(a) Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as the Securities remain
outstanding, the Trustee shall mail to the Securityholders a brief report dated
as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b) and (c).
(b) A copy of each report at the time of its mailing to the
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed, in accordance with and to the extent
required by TIA Section 313(d). The Issuers shall promptly notify the Trustee
if and when the Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
(a) The Issuers and the each of the Subsidiary Guarantors, jointly
and severally, shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder and
under the Collateral Documents, including extraordinary services such as
default administration. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Issuers and each of
the Subsidiary Guarantors, jointly and severally, shall reimburse the Trustee
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
(b) The Issuers and each of the Subsidiary Guarantors, jointly and
severally, shall indemnify the Trustee against any and all losses, liabilities
or expenses incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture and the Collateral
Documents, including the costs and expenses of enforcing this Indenture and the
Collateral Documents against the Issuers (including this Section 7.07) and
defending itself against any claim (whether asserted by the Issuers, any Holder
or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except as set forth below
in subparagraph (d). The Trustee shall notify the Issuers and each of the
Subsidiary Guarantors promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Issuers or any Subsidiary Guarantor
shall not relieve the Issuers or any of the Subsidiary Guarantors of their
Obligations hereunder. The Trustee may have separate counsel and the Issuers
and each of the Subsidiary Guarantors, jointly and severally, shall pay the
reasonable fees and expenses of such counsel. Neither the Issuers nor any
Subsidiary Guarantor need pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
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(c) The obligations of the Issuers and each of the Subsidiary
Guarantors under this Section 7.07 shall survive the resignation or removal of
the Trustee and the satisfaction and discharge or termination of this
Indenture.
(d) Notwithstanding subparagraphs (a) or (b) above, neither the
Issuers nor any Subsidiary Guarantor need reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own
negligence, bad faith or willful misconduct.
(e) To secure the Issuers' and each of the Subsidiary Guarantor's
payment obligations in this Section, the Trustee shall have a Lien prior to the
Securities on all money or property held or collected by the Trustee, except
that held in trust to pay principal, premium, if any, and interest on
particular Securities. This Section 7.07 and such Lien shall survive the
resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture.
(f) When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(ix) or (x) hereof occurs, the
expenses and the compensation for such services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
(a) A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
(b) The Trustee may resign at any time and be discharged from the
trust hereby created by so notifying the Issuers. The Securityholders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Issuers. The Issuers may remove
the Trustee if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(iii) a Custodian, receiver or other public officer takes charge
of the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Issuers shall notify each
Securityholder of such event and promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Issuers.
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(d) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to each Securityholder. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Issuers' and each of the Subsidiary
Guarantor's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
(e) If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers,
any of the Subsidiary Guarantors or the Securityholders of at least 10% in
principal amount of the then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee after written request by any Securityholder who
has been a Securityholder for at least six months fails to comply with Section
7.10, such Securityholder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
(a) There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or any State or Territory thereof or the District of Columbia
authorized under such laws to exercise corporate trustee power, shall be
subject to supervision or examination by Federal, State, Territorial, or
District of Columbia authority and shall have (or be a part of a holding
company with) a combined capital and surplus of at least $100 million as set
forth in its most recent published annual report of condition.
(b) This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee shall comply
with TIA Section 310(b); including, but not limited to the provisions regarding
"conflicting interest".
The provisions of TIA Section 310 shall also apply to the Issuers and each of
the Subsidiary Guarantors, as obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUERS.
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The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Issuers and each
of the Subsidiary Guarantors as obligors on the Securities.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Issuers deliver to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07 hereof)
canceled or for cancellation or (ii) all outstanding Securities have become due
and payable and the Issuers irrevocably deposit with the Trustee funds
sufficient to pay at maturity all outstanding Securities, including interest
thereon (other than Securities replaced pursuant to Section 2.07 hereof), and
if in either case the Issuers pay all other sums payable hereunder by the
Issuers, then this Indenture shall, subject to Sections 8.01(e) and 8.06
hereof, cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Issuers
accompanied by an Officers' Certificate and an Opinion of Counsel reasonably
acceptable to the Trustee and at the cost and expense of the Issuers.
(b) Subject to Sections 8.01(e), 8.02 and 8.06 hereof, the Issuers
at any time may terminate (i) all their obligations under the Securities and
this Indenture ("legal defeasance option") or (ii) all obligations under
Sections 3.09, 4.04(a), (b) and (c), 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.16, 4.18, 4.19, 4.20, 5.01(iii) and the operation of Sections
6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi), 6.01(a)(vii), 6.01(viii), 6.01(a)(xi) as
well as 6.01(a)(ix) and 6.01(a)(x) hereof (but only with respect to
Subsidiaries) ("covenant defeasance option"). The Issuers may exercise their
legal defeasance option notwithstanding their prior exercise of its covenant
defeasance option.
(c) If the Issuers exercise their legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If
the Issuers exercise their covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Section 6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi), 6.01(a)(vii), 6.01(a)(viii),
6.01(a)(xi) as well as 6.01(a)(ix) and 6.01(a)(x) (but only with respect to
Subsidiaries) or because of the failure of the Issuers or the Subsidiary
Guarantors to comply with Sections 5.01(iii). If the Issuers exercise either
defeasance option, the Trustee shall release all Collateral pursuant to Section
11.03.
(d) Upon satisfaction of the conditions set forth herein and Section
8.02 and upon request of the Issuers, the Trustee shall acknowledge in writing
the discharge of those obligations that the Issuers terminate.
(e) Notwithstanding clauses (a) and (b) above, the Issuers'
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.01(d),
8.04, 8.05 and 8.06 hereof shall survive
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until the Securities have been paid in full. Thereafter, the Issuers'
obligations in Sections 7.07, 8.04 and 8.05 hereof shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE.
(a) The Issuers may exercise its legal defeasance option or its
covenant defeasance option only if:
(i) the Issuers irrevocably deposit in trust with the Trustee money
or U.S. Government Obligations in amounts (including interest, but without
consideration of any reinvestment of such interest) and maturities sufficient,
but in the case of the legal defeasance option only, not more than such amounts
(in each case as certified by a nationally recognized firm of independent
public accountants), to pay and discharge at their Stated Maturity (or such
earlier redemption date as the Issuers shall have specified to the Trustee) the
principal of, premium, if any, interest on all outstanding Securities to
maturity or redemption, as the case may be, and to pay all of the sums payable
by it hereunder; PROVIDED, that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of said principal, premium, if any, and interest
with respect to the Securities;
(ii) in the case of the legal defeasance option only, 123 days pass
after the deposit is made and during the 123 day period no Default or Event of
Default specified in Section 6.01(ix) or (x) hereof with respect to the Issuers
or any Subsidiary Guarantor occurs which is continuing at the end of the
period;
(iii) no Default or Event of Default has occurred and is
continuing on the date of such deposit and after giving effect thereto;
(iv) the deposit does not constitute a default under any other
agreement binding on the Issuers;
(v) the Issuers deliver to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act
of 1940, as amended;
(vi) in the case of the legal defeasance option, the Issuers shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Issuers have received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that, the
Securityholders will not recognize income, gain or loss for U.S. Federal income
tax purposes as a result of such defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant
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defeasance and will be subject to Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(viii) the Issuers deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article 8
have been complied with.
(b) In order to have money available on a payment date to pay
principal, premium, if any, or interest on the Securities, the U.S. Government
Obligations deposited pursuant to preceding clause (a) shall be payable as to
principal or interest at least one Business Day before such payment date in
such amounts as shall provide the necessary money. U.S. Government Obligations
shall not be callable at the issuer's option.
(c) Before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3 hereof.
SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal, premium, if
any, and interest on the Securities.
SECTION 8.04. REPAYMENT TO THE ISSUERS.
(a) The Trustee and the Paying Agent shall promptly pay to the
Issuers upon written request any excess money or securities held by them at any
time; PROVIDED, HOWEVER, that the Trustee shall not pay any such excess to the
Issuers unless the amount remaining on deposit with the Trustee, after giving
effect to such transfer are sufficient to pay principal, premium, if any, and
interest on the outstanding Securities, which amount shall be certified to the
Trustee by independent public accountants.
(b) The Trustee and the Paying Agent shall pay to the Issuers upon
written request any money held by them for the payment of principal, premium,
if any, or interest that remains unclaimed for two years after the date upon
which such payment shall have become due; PROVIDED, HOWEVER, that the Issuers
shall have either caused notice of such payment to be mailed to each
Securityholder entitled thereto no less than 30 days prior to such repayment or
within such period shall have published such notice in a financial newspaper of
widespread circulation published in the City of New York. After payment to the
Issuers, Securityholders entitled to the money must look to the Issuers and the
Subsidiary Guarantors for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
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The Issuers and the Subsidiary Guarantors, jointly and severally,
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuers' and each of the Subsidiary Guarantor's Obligations under this
Indenture and the Securities and the Subsidiary Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 8 until
such time as the Trustee or Paying Agent is permitted to apply all such money
or U.S. Government Obligations in accordance with this Article 8; PROVIDED,
HOWEVER, that if the Issuers or any Subsidiary Guarantor has made any payment
of principal of, premium, if any, or interest on any Securities because of the
reinstatement of its Obligations, the Issuers or any of the Subsidiary
Guarantors, as the case may be, shall be subrogated to the rights of the
Securityholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
(a) Notwithstanding Section 9.02 of this Indenture, the Issuers, the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture,
any Collateral Document or the Securities without the consent of any
Securityholder:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to comply with Article 5 hereof and Section 11.01 (concerning
amendments to the Collateral Documents expressly called for therein);
(iii) to provide for uncertificated Securities in addition to or
in place of certificated Securities (PROVIDED that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code);
(iv) to add Subsidiary Guarantees with respect to the Securities;
(v) to add to the covenants of the Issuers for the benefit of the
Securityholders or to surrender any right or power conferred upon the Issuers;
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(vi) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA;
(vii) to make any change that would provide additional rights or
benefits to the Holders of the Securities or that does not, as evidenced by an
Opinion of Counsel delivered to the Trustee, adversely affect the rights of any
Securityholder in any respect;
(viii) to evidence or provide for a replacement Trustee under
Section 7.08 hereof;
(ix) to execute and deliver any documents necessary or appropriate to
release Liens on any Collateral as permitted by Section 11.03 hereof; or
(x) to provide a security interest in any additional Collateral for
the benefit of the Securityholders;
PROVIDED, that the Issuers have delivered to the Trustee an Opinion of Counsel
stating that any such amendment or supplement complies with the provisions of
this Section 9.01.
(b) Upon the request of the Issuers and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 7.02 and Section 9.06
hereof, the Trustee shall join with the Issuers and the Subsidiary Guarantors
in the execution of any supplemental indenture authorized or permitted by the
terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such supplemental indenture which affects its own
rights, duties or immunities under this Indenture, the Collateral Documents or
otherwise.
(c) After an amendment or supplement under this Section 9.01 becomes
effective, the Issuers shall mail to all Securityholders a notice briefly
describing such amendment or supplement. The failure to give such notice to
all Securityholders, or any defect therein, shall not impair or affect the
validity of an amendment or supplement under this Section.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a) Except as provided below in this Section 9.02, the Issuers and
the Trustee may amend or supplement this Indenture, any Collateral Document or
the Securities with the written consent of the Securityholders of not less than
a majority in aggregate principal amount of the Securities then outstanding
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Securities) and subject to Section 6.04 and 6.07 any
existing Default or Event of Default and its consequences (other than a Default
or Event of Default in the payment of principal premium, if any, or interest,
if any, on the Securities except a payment default resulting from an
acceleration of the Securities that has been rescinded) or compliance with any
provision of this Indenture or the Securities may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Securities
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(including consents obtained in connection with a purchase of, or tender
offer or exchange offer for the Securities). Furthermore, subject to
Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate
principal amount of the Securities then outstanding (including consents
obtained in connection with a purchase of, or tender offer or exchange offer
for the Securities) may waive compliance in a particular instance by the
Issuers with any provision of this Indenture, any Collateral Document or the
Securities. However, without the consent of each Securityholder affected, an
amendment, supplement or waiver under this Section 9.02 may not (with respect
to any Securities held by a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the stated rate of or extend the stated time for payment
of any interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity of
any Security or alter the redemption provisions (including, without limitation,
Sections 3.07, 3.09, 4.11 and 4.14 hereof) with respect thereto;
(iv) reduce the premium payable upon the redemption or repurchase of
any Security or change the time at which any Security may be redeemed in
accordance with Section 3.07;
(v) make any Security payable in money other than that stated in the
Security;
(vi) make any change in Section 6.04 or 6.07 hereof or in this
Section 9.02(a);
(vii) waive a Default or Event of Default in the payment of
principal of premium, if any, or interest, if any, on, or redemption payment
with respect to, any or Security (except a rescission of acceleration of the
Securities by the Holders of at least a majority in aggregate principal amount
of the Securities and a waiver of the payment default that resulted from such
acceleration);
(viii) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Securities on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Securities;
(ix) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or requiring any Guaranty hereof
or in the provisions of any such Guaranty;
(x) release Collateral from the Lien of the Escrow and Disbursement
Agreement, except in accordance with terms thereof, or amend terms thereof
relating to release;
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(xi) release any Subsidiary Guarantor from its Subsidiary Guarantee,
except as provided herein; or
(xii) directly or indirectly release Liens on all or
substantially all of the Collateral securing the obligations under this
Indenture, the Securities or any Guaranty thereof.
(b) Upon the request of the Issuers and the Subsidiary Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent
of the Securityholders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 7.02 and Section 9.06 hereof, the Trustee shall
join with the Issuers and the Subsidiary Guarantors in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
(c) It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
(d) After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Issuers shall mail to all Securityholders a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Issuers to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Securityholder is a continuing consent by the Securityholder
and every subsequent Securityholder or portion of a Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
is not made on any Security. However, any such Securityholder or subsequent
Securityholder may revoke the consent as to its Security if the Trustee
receives written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective when approved by the requisite Holders and executed by the Trustee
(or, if otherwise provided in such waiver, amendment or supplement, in
accordance with its terms) and thereafter binds every Securityholder, unless it
makes a change described in any of clauses (i) through (xi) of Section 9.02, in
which case, the amendment, supplement or waiver shall bind only each Holder of
a Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same indebtedness as the consenting
Holder's Security.
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(b) The Issuers may fix a record date for determining which
Securityholders must consent to such amendment, supplement or waiver. If the
Issuers fix a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Securityholders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof, or (ii) such other date as the
Issuers shall designate. If a record date is fixed, then notwithstanding the
last sentence of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than
90 days after such record date except to the extent that the requisite number
of consents to the amendment, supplement or waiver have been obtained within
such 90-day period or as set forth in the preceding paragraph of this Section
9.04.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
(a) Securities authenticated and delivered after the execution of
any supplemental indenture may bear a notation in form approved by the Trustee
as to any matter provided for in such amendment, supplement or waiver on any
Security thereafter authenticated. The Issuers in exchange for all Securities
may issue and the Trustee shall authenticate new Securities that reflect the
amendment, supplement or waiver.
(b) Failure to make the appropriate notation or issue a new Security
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, waiver or supplemental
indenture authorized pursuant to this Article 9 if the amendment, waiver or
supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but
need not, sign it. In signing or refusing to sign such amendment, waiver or
supplemental indenture, the Trustee shall be entitled to receive and, subject
to Section 7.01, shall be fully protected in relying upon, in addition to the
documents required by Sections 7.02 and 12.04, an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that such amendment, waiver or
supplemental indenture is authorized or permitted by this Indenture and the
Collateral Documents, that it is not inconsistent herewith, and that it will be
valid and binding upon the Issuers and each Subsidiary Guarantor in accordance
with its terms.
ARTICLE 10
SUBSIDIARY GUARANTEE OF SECURITIES
SECTION 10.01. SUBSIDIARY GUARANTEE.
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(a) Each Subsidiary Guarantor, by its execution and delivery of this
Indenture, and each Subsidiary Guarantor created or acquired after the date
hereof, by its execution and delivery of a supplemental Indenture pursuant to
Section 9.01(a)(iv) and 10.07 agreeing to be bound by the terms hereof, jointly
and severally irrevocably and unconditionally guarantees, as a primary obligor
and not a surety, to each Securityholder of a Security now or hereafter
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Securities or the Obligations of the Issuers hereunder or
thereunder, (i) the due and punctual payment of the principal, premium, if any,
interest (including post-petition interest in any proceeding under any
Bankruptcy Law whether or not an allowed claim in such proceeding) on overdue
principal, premium, if any, and interest, if lawful on such Security, and (ii)
all other monetary Obligations payable by the Issuers under this Indenture
(including under Section 7.07 hereof) and the Securities (all of the foregoing
being hereinafter collectively called the "Guaranteed Obligations"), when and
as the same shall become due and payable, whether by acceleration thereof, call
for redemption or otherwise (including amounts that would become due but for
the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code), in accordance with the terms of any such Security and of this Indenture,
subject, however, in the case of (i) and (ii) above, to the limitations set
forth in Section 10.04 hereof. Each Subsidiary Guarantor hereby agrees that
its Obligations hereunder shall be absolute and unconditional, irrespective of,
and shall be unaffected by, any failure to enforce the provisions of any such
Security or this Indenture, any waiver, modification or indulgence granted to
the Issuers with respect thereto, the recovery of any judgment against the
Issuers, any action to enforce the same, by the Securityholders or the Trustee,
the recovery of any judgment against the Issuers, any action to enforce the
same, or any other circumstances which may otherwise constitute a legal or
equitable discharge of a surety or guarantor. Each Subsidiary Guarantor hereby
waives diligence, presentment, filing of claims with a court in the event of a
merger or bankruptcy of the Issuers, any right to require a proceeding first
against the Issuers, the benefit of discussion, protest or notice with respect
to any such Security or the Indebtedness evidenced thereby and all demands
whatsoever, and covenants that its Subsidiary Guarantee shall not be discharged
as to any such Security except by payment in full of the principal thereof,
premium, if any, and all accrued interest thereon.
(b) Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Securityholder or the Trustee to any security
held for payment of the Guaranteed Obligations.
(c) Each Subsidiary Guarantor agrees that it shall not be entitled
to, and hereby irrevocably waives, any right of subrogation in relation to the
Securityholders or the Trustee in respect of any Guaranteed Obligations. Each
Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor,
on the one hand, and the Securityholders and the Trustee, on the other hand,
(x) the maturity of the Guaranteed Obligations may be accelerated as provided
in Article 6 for the purposes of such Subsidiary Guarantor's Subsidiary
Guarantee herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Guaranteed Obligations, and (y)
in the event of any Declaration of Acceleration of such
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Guaranteed Obligations as provided in Article 6 hereof, such Guaranteed
Obligations (whether or not due and payable) shall forthwith become due and
payable by such Subsidiary Guarantor for the purpose of this Article 10.
(d) Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Securityholder in enforcing any rights under this Article 10.
(e) Each Subsidiary Guarantor also agrees that the Guaranteed
Obligations will be secured as provided in Article 11.
(f) Each Subsidiary Guarantor agrees to become a party to the
Collateral Documents whereby the Guaranteed Obligations will be secured in the
manner set forth in such Collateral Documents.
(g) The Subsidiary Guarantee set forth in this Article 10 shall not
be valid or become obligatory for any purpose with respect to a Security until
the certificate of authentication on such Security shall have been signed by or
on behalf of the Trustee.
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
(a) [Reserved]
(b) This Indenture shall be executed on behalf of each Subsidiary
Guarantor, by manual or facsimile signature, and such execution by a Subsidiary
Guarantor shall fully evidence such Subsidiary Guarantor's Subsidiary
Guarantee.
(c) The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of each Subsidiary
Guarantor.
SECTION 10.03. SUBSIDIARY GUARANTEE UNCONDITIONAL, ETC.
Upon failure of payment when due of any Guaranteed Obligation for
whatever reason, each Subsidiary Guarantor will be obligated to pay the same
immediately. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be continuing, absolute and unconditional, irrespective of: the
recovery of any judgment against the Issuers or any Subsidiary Guarantor; any
extension, renewal, settlement, compromise, waiver or release in respect of any
obligation of the Issuers under this Indenture or any Security, by operation of
law or otherwise; any modification or amendment of or supplement to this
Indenture or any Security; any change in the corporate existence, structure or
ownership of the Issuers, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Issuers or any of their assets or any
resulting release or discharge of any obligation of the Issuers contained in
this Indenture or any Security; the existence of any claim, set-off or other
rights which any Subsidiary Guarantor may have at any time against the Issuers,
the Trustee, any Securityholder or any other Person, whether in connection
herewith or any unrelated transactions; PROVIDED, that nothing
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herein shall prevent the assertion of any such claim by separate suit or
compulsory counterclaim; any invalidity or unenforceability relating to or
against the Issuers for any reason of this Indenture or any Security, or any
provision of applicable law or regulation purporting to prohibit the payment
by the Issuers of the principal, premium, if any, or interest on any Security
or any other Guaranteed Obligation; or any other act or omission to act or
delay of any kind by the Issuers, the Trustee, any Securityholder or any
other Person or any other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or equitable discharge of
the Subsidiary Guarantors' obligations hereunder. Each Subsidiary Guarantor
hereby waives diligence, presentment, demand of payment, filing of claims
with a court in the event of insolvency or bankruptcy of the Issuers, any
right to require a proceeding first against the Issuers, protest, notice and
all demand whatsoever and covenants that this Subsidiary Guarantee will not
be discharged except by the complete performance of the obligations contained
in the Securities, this Indenture and in this Article 10. Each Subsidiary
Guarantor's obligations hereunder shall remain in full force and effect until
this Indenture shall have terminated and the principal of and interest on the
Securities and all other Guaranteed Obligations shall have been paid in full.
If at any time any payment of the principal of or interest on any Security
or any other payment in respect of any Guaranteed Obligation is rescinded or
must be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Issuers or otherwise, each Subsidiary Guarantor's
obligations hereunder with respect to such payment shall be reinstated as
though such payment had been due but not made at such time, and this Article
10, to the extent theretofore discharged, shall be reinstated in full force
and effect. Each Subsidiary Guarantor irrevocably waives any and all rights
to which it may be entitled, by operation of law or otherwise, upon making
any payment hereunder to be subrogated to the rights of the payee against the
Issuers with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by the Issuers in respect thereof.
SECTION 10.04. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor, and by its acceptance of a Security each
Securityholder, hereby confirms that it is the intention of all such parties
that the guarantee by such Subsidiary Guarantor pursuant to its Subsidiary
Guarantee not constitute a fraudulent transfer or conveyance for purposes of
the Bankruptcy Law, Federal and state fraudulent conveyance laws or other legal
principles. To effectuate the foregoing intention, the Securityholders and
each Subsidiary Guarantor hereby irrevocably agree that the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to Section 10.05 hereof, result in
the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting such fraudulent transfer or conveyance under federal or state law.
SECTION 10.05. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary
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Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the event any
payment or distribution is made by any Subsidiary Guarantor (a "Funding
Subsidiary Guarantor") under the Subsidiary Guarantee, such Funding
Subsidiary Guarantor shall be entitled to a contribution from all other
Subsidiary Guarantors in a PRO RATA amount based on the Adjusted Net Assets
of each Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for
all payments, damages and expenses incurred by that Funding Subsidiary
Guarantor in discharging the Issuers' obligations with respect to the
Securities or any other Subsidiary Guarantor's obligations with respect to
the Subsidiary Guarantee.
SECTION 10.06. RELEASE.
Upon the sale or disposition of all of the Equity Interests of a
Subsidiary Guarantor to a Person which is not an Issuer or a Subsidiary of an
Issuer, which is otherwise in compliance with this Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under this
Indenture without any further action required on the part of the Trustee or any
Securityholder; PROVIDED, HOWEVER, that any such termination shall occur if and
only to the extent that all Obligations of each Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, Indebtedness of the Issuers and the other Subsidiary
Guarantors shall also terminate upon such release, sale or transfer; PROVIDED
FURTHER, that without limiting the foregoing, any proceeds received by the
Issuers or any Subsidiary of the Issuers from such transaction shall be applied
as provided in Section 4.10 and Section 3.09. The Trustee shall execute an
appropriate instrument prepared by the Issuers evidencing such release upon
receipt of a request by the Issuers accompanied by an Officers' Certificate
certifying as to the compliance with this Section 10.06. Any Subsidiary
Guarantor not so released remains liable for the full amount of principal,
premium, if any, and interest on the Securities as provided in this Article 10.
SECTION 10.07. ADDITIONAL SUBSIDIARY GUARANTORS.
Any Person that was not a Subsidiary Guarantor on the date of this
Indenture may become a Subsidiary Guarantor by executing and delivering to the
Trustee (a) a supplemental indenture in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions of this Indenture as a
Subsidiary Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning creditors' rights and equit
able principles as may be acceptable to the Trustee in its discretion). The
Subsidiary Guarantee of each Person described in this Section 10.07 shall apply
to all Securities theretofore executed and delivered, notwithstanding any
failure of such Securities to contain a notation of such Subsidiary Guarantee
thereon.
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SECTION 10.08. SUCCESSORS AND ASSIGNS.
This Article 10 shall be binding upon each Subsidiary Guarantor and
its successors and assigns and shall inure to the benefit of the successors
and assigns of the Trustee and the Securityholders and, in the event of any
transfer or assignment of rights by any Securityholder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 10.09. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive
each such Subsidiary Guarantor from performing its Subsidiary Guarantee as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and
(to the extent that it may lawfully do so) each such Subsidiary Guarantor
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 10.10. WAIVER OF CERTAIN PROVISIONS OF CALIFORNIA LAW.
(a) Each Subsidiary Guarantor hereby acknowledges and affirms that
it understands that to the extent the Issuers' Obligations under the
Securities and/or the Subsidiary Guarantors' Obligations under the Subsidiary
Guarantees are secured by real property located in the State of California,
such Subsidiary Guarantor shall be liable for the full amount of the
liability hereunder notwithstanding foreclosure on such real property by
trustee sale or any other reason impairing the Subsidiary Guarantor's or any
secured creditors' right to proceed against the Issuers or any other
Subsidiary Guarantor of the Securities.
(b) Each Subsidiary Guarantor hereby waives, to the fullest extent
permitted by applicable law, all rights and benefits under Sections 580a,
580d and 726 of the California Code of Civil Procedure. Each Subsidiary
Guarantor hereby further waives, to the fullest extent permitted by
applicable law, without limiting the generality of the foregoing or any other
provision hereof, all rights and benefits which might otherwise be available
to such Subsidiary Guarantor under Sections 2809, 2810, 2815, 2819, 2821,
2839, 2845, 2848, 2849, 2850, 2899 and 3433 of the California Civil Code.
(c) Each Subsidiary Guarantor waives its rights of subrogation and
reimbursement and any other rights and defenses available to such Subsidiary
Guarantor by reason of Sections 2787 to 2855, inclusive, of the California
Civil Code, including, without limitation, (1) any defenses such Subsidiary
Guarantor may have by reason of an election of remedies by any
Securityholders or the Trustee and (2) any rights or defenses such Subsidiary
Guarantor may have by reason of protection afforded to the Issuers pursuant
to the antideficiency
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or other laws of California limiting or discharging the Issuers'
indebtedness, including, without limitation, Section 580a, 580b, 580d or 726
of the California Code of Civil Procedure. In furtherance of such
provisions, each Subsidiary Guarantor hereby waives all rights and defenses
arising out of an election of remedies by the Securityholders or the Trustee,
even though that election of remedies, such as a nonjudicial foreclosure,
destroys such Subsidiary Guarantor's rights of subrogation and reimbursement
against the Issuers by the operation of Section 580d of the California Code
of Civil Procedure or otherwise.
(d) Each Subsidiary Guarantor warrants and agrees that each of the
waivers set forth above is made with full knowledge of its significance and
consequences and that if any of such waivers are determined to be contrary to
any applicable law or public policy, such waivers shall be effective only to
the maximum extent permitted by law.
ARTICLE 11
COLLATERAL AND SECURITY
SECTION 11.01. COLLATERAL DOCUMENTS; FURTHER ASSURANCES.
(a) The performance of all Obligations of the Issuers and the
Subsidiary Guarantors to the Securityholders or the Trustee under the
Securities and the Subsidiary Guarantees, according to the terms thereof,
shall be secured as provided in the Collateral Documents. Each
Securityholder, by its acceptance of a Security, consents and agrees to the
terms of the Collateral Documents (including, without limitation, the
provisions providing for foreclosure and release of Collateral) as the same
may be in effect or may be amended from time to time in accordance with the
terms thereof and hereof and authorizes and directs the Trustee as collateral
agent to enter into each of the Collateral Documents and to perform its
respective obligations and exercise its respective rights thereunder in
accordance therewith. The Issuers and the Subsidiary Guarantors will do or
cause to be done all such acts and things as may be necessary or proper, or
as may be required by the provisions of the Collateral Documents, to assure
and confirm to the Trustee the Liens on and security interests in the
Collateral contemplated hereby and by the Collateral Documents. Each of the
Issuers and the Subsidiary Guarantors shall take any and all actions required
to cause the Collateral Documents to create and maintain, as security for the
Obligations of the Issuers and the Subsidiary Guarantors under the Securities
and the Subsidiary Guarantees, valid and enforceable, perfected Liens on all
the Collateral, in favor of the Trustee, superior to and prior to the rights
of all third persons, and subject to no other Liens, other than Permitted
Liens.
(b) The Issuers will give the Trustee not less than 15 days prior
written notice of the scheduled closing date for any Acquisition occurring
after the Issue Date. Subject to Section 11.03(d), the Company or the
Restricted Subsidiary making the Acquisition, as applicable, shall grant to
the Trustee, within 60 days of the date of the Acquisition, for the benefit
of the Securityholders a Mortgage on the real property being acquired. Each
such Mortgage shall be granted pursuant to documentation reasonably
satisfactory in form and substance to the Trustee, shall be substantially in
the form attached hereto as Exhibit E and shall constitute a valid and
enforceable perfected Lien upon the property so acquired, superior to and
prior to all other Liens
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other than Permitted Liens. In connection with the closing of any such
Acquisition, a mortgage policy relating to such Mortgage shall be delivered
to the Trustee and shall be reasonably satisfactory in form and substance to
the Trustee. Any such Mortgage shall be duly recorded or filed by the
Issuers in such manner and in such places as are required by law to
establish, perfect, preserve and protect the Liens created thereby, and all
taxes, fees and other charges payable in connection therewith shall have been
paid in full.
(c) The Issuers and each Subsidiary Guarantor shall execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing
statements and continuations thereof, termination statements, notices of
assignment, transfers, certificates, assurances and other instruments as may
be reasonably required from time to time in order (i) to carry out more
effectively the purposes of the Collateral Documents, (ii) to subject to the
Liens created by any of the Collateral Documents any of the properties,
rights or interests covered by any of the Collateral Documents, (iii) to
perfect and maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created thereby and (iv) to
better assure, convey, grant, assign, transfer, preserve, protect and confirm
to the Trustee any of the rights granted or now or hereafter intended to be
granted to the Trustee or under any other instrument executed in connection
therewith or granted to the Company under the Collateral Documents or under
any other instrument executed in connection therewith.
(d) In the event that the recording tax applicable to a particular
Mortgage exceeds $1,000, the amount of Obligations secured by such Mortgage
shall equal two times the aggregate acquisition and development cost of the
property subject to such Mortgage as computed in good faith by the Issuers
and certified to the Trustee in an Officers' Certificate, not to exceed
$130,000,000. The amount of the Obligations so secured shall initially equal
two times the purchase price of such property. [Upon the filing of a Plan,]
such amount shall be increased by two times the development cost of such
property.
(e) Each Issuer covenants and agrees that it will use its
reasonable best efforts to obtain a consent from the Department of the
Interior - Bureau of Indian Affairs (the "Bureau") to the imposition of a
leasehold mortgage on the leasehold interest of Epic Resorts - Palm Springs
Marquis Villas, LLC in the real property leased by it. Promptly upon receipt
of such consent, the Issuers shall grant, or cause to be granted, such
leasehold mortgage, substantially in the form of Exhibit E-1 hereto, to the
Trustee to secure the Obligations of Epic Resorts - Palm Springs Marquis
Villas, LLC under its Subsidiary Guarantee; PROVIDED, that (a) the amount of
the Obligations secured by such leasehold mortgage may be limited to the
amount of the acquisition price of the leasehold as determined in good faith
by the Issuers and approved by the Bureau, and (b) such leasehold mortgage
may be subordinate to any instrument creating the Vacation Ownership
Interests created or to be created at such property. In addition, the
Issuers shall execute, or cause to be executed, as further security for such
Subsidiary Guarantee, a collateral assignment, substantially in the form of
Exhibit E-2 hereto, of the developer rights of Epic Resorts - Palm Springs
Marquis Villas, LLC under the time share declaration relating to such
property.
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(f) The Issuers hereby covenant that in the event that the New
Receivables Facility, or a similar receivables financing facility, is entered
into, the Issuers shall refinance the Existing Receivables Facility (as
defined in the Offering Memorandum) or otherwise procure that a Mortgage on
the real property owned by London Bridge Resorts, LLC may be granted to the
Trustee to secure the Obligations of London Bridge Resorts, LLC under its
Subsidiary Guarantee. Promptly thereafter, subject to Section 11.03(d), the
Issuers shall grant, or cause to be granted, to the Trustee a Mortgage on
such property in substantially the form annexed hereto as Exhibit E.
(g) The Issuers and the Subsidiary Guarantors each agree that,
unless another time period is specified herein, each action required above by
this Section 11.01 shall be completed as soon as practicable, but in no event
later than 60 days after such action is required by the terms hereof or
requested to be taken by the Trustee.
SECTION 11.02. RECORDING AND OPINIONS.
(a) The Issuers shall furnish to the Trustee promptly after the
execution and delivery of this Indenture or any Collateral Documents executed
and delivered after the date of this Indenture, including pursuant to Section
11.01(b), an Opinion of Counsel either (i) stating that in the opinion of
such counsel all action has been taken with respect to the recording,
registering and filing of this Indenture, the Collateral Documents, financing
statements or other instruments necessary to make effective the Liens
intended to be created by the Collateral Documents, and reciting the details
of such action or (ii) stating that, in the opinion of such counsel, no such
action is necessary to make such Liens effective.
(b) The Issuers shall furnish to the Trustee within three months
after each anniversary of the date of this Indenture, an Opinion of Counsel,
dated as of such date, stating either that (i) in the opinion of such
counsel, all action has been taken with respect to the recording,
registering, filing, re-recording, re-registering and refiling of all
supplemental indentures, financing statements, continuation statements or
other instruments of further assurance as is necessary to maintain the Liens
of the Collateral Documents and reciting the details of such action or (ii)
in the opinion of such counsel, no such action is necessary to maintain such
Liens.
SECTION 11.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c), (d), (e), (f) and (g) of this
Section 11.03, Collateral may be released from the Lien and security interest
created by the Collateral Documents at any time or from time to time at the
sole cost and expense of the Issuers (x) upon payment in full of the
Securities in accordance with the terms thereof and of this Indenture and all
other Obligations of the Issuers and the Subsidiary Guarantors then due and
owing under this Indenture, the Securities and the Collateral Documents,
including any defeasance pursuant to Section 8.01 and (y) the delivery to the
Trustee of an Opinion of Counsel that such release of the Collateral is
authorized and permitted by this Section 11.03 and the applicable Collateral
Documents and that all conditions precedent to such release contained in this
Indenture and the Collateral Documents have been satisfied. Upon compliance
with the above provisions and the
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provisions of Section 12.04 hereof, the Trustee shall execute, deliver or
acknowledge any necessary or proper instruments or termination, satisfaction
or release provided by or on behalf of the Issuers to evidence the release of
any Collateral permitted to be released pursuant to this Indenture or the
Collateral Documents.
(b)(1) The Trustee shall release the Lien and security interest
created by the Collateral Documents from each Pledged Vacation Ownership
Interest covered thereby at the time of the transfer of title to such Pledged
Vacation Ownership Interest (a "Transfer") by an Issuer or Subsidiary
Guarantor upon receipt of an Officer's Certificate stating that the following
conditions have been met with respect to such Transfer:
(A) The Transfer must be pursuant to a written agreement (a
"Purchase Agreement") providing for the purchase and sale of one or
more Pledged Vacation Ownership Interests (any Pledged Vacation
Ownership Interest which is the subject of a Purchase Agreement is
referred to in this Section 11.03 as a "Sold Interest").
(B) The Transfer must be in the ordinary course of business.
(C) The Transfer must be to a Person who is not an Affiliate
of the Issuers or the Subsidiary Guarantors.
(2) The releases described in subsection 11.03(b)(1) above
("Partial Releases") shall be effectuated pursuant to an instrument prepared
by the Issuers or such Subsidiary Guarantor which shall specifically recite
that the partial release of the Mortgage on the sold Pledged Vacation
Ownership Interest shall not otherwise affect or impair the liens created by
the Collateral Documents on any other Pledged Vacation Ownership Interests
encumbered thereby.
(3) In order to facilitate Partial Releases of Sold Interests, the
Trustee from time to time shall, upon the written request of the Issuers or a
Subsidiary Guarantor, execute, acknowledge, and deliver powers of attorney in
the form provided by the Issuers (each, a "Power of Attorney"), which form
shall conform substantially to Exhibit I-1 annexed hereto, appointing such
title company or title agency (each, an "Agent") as is designated by the
Issuers or a Subsidiary Guarantor which owns the real property of which any
Sold Interest is a part as the Trustee's attorney-in-fact for the purpose of
executing, acknowledging and delivering Partial Releases of such Sold
Interests. Each Power of Attorney shall be delivered by the Trustee to the
Agent within five days of the Issuers' or Subsidiary Guarantor's request
therefor, and shall be delivered with written authorization prepared by the
Issuers and executed and delivered by the Trustee to the Agent to record the
Power of Attorney and to execute Partial Releases pursuant thereto in
connection with the Transfers of Sold Interests upon receipt by such Agent
of the Officer's Certificate described in subsection 11.03(b)(1) above. Each
Power of Attorney by its terms shall be revocable only by the recording in
the county in which the Power of Attorney is recorded of an instrument
executed by the Trustee specifically revoking the Power of Attorney. The
Trustee shall revoke each Power of Attorney promptly after obtaining
knowledge of the occurrence and continuance of an Event of Default; PROVIDED,
that if an Event of Default is no
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longer continuing, the Trustee may execute new Powers of Attorney in
accordance with this clause (3). The Trustee shall revoke a Power of
Attorney promptly after obtaining knowledge that the Agent thereunder has
failed to comply with its obligations hereunder as assigned pursuant to such
Power of Attorney; PROVIDED, that if a Power of Attorney is so revoked, the
Trustee may execute a new Power of Attorney in accordance with this clause
(3); PROVIDED, FURTHER, that no Agent as to whom a Power of Attorney has been
revoked may thereafter be appointed as an Agent.
(4) Notwithstanding the revocation of a Power of Attorney by the
Trustee as permitted in subsection 11.03(b)(3) above, the Trustee shall
deliver or cause to be delivered Partial Releases with respect to Transfers
of Sold Interests pursuant to Purchase Agreements entered into prior to the
occurrence of an Event of Default.
(5) In connection with any release of Liens on a Pledged Vacation
Ownership Interest by an Agent pursuant to this subsection 11.03(b), the
Issuers or the applicable Subsidiary Guarantor shall deliver or cause to be
delivered to such Agent any certificates, opinions of counsel or other
documents or instruments required to be delivered to the Trustee under
applicable law. The Issuers or the applicable Subsidiary Guarantor shall
then cause such Agent to deliver to the Trustee originals or photostatic
copies of each of the documents relating to such release, including any such
certificates or opinions of counsel, as promptly as is reasonably practicable.
(6) In connection with any Partial Release, the Trustee and, if
applicable, any Agent shall not be required to obtain any other certificates,
opinions of counsel or other documents and instruments except such as are
specifically required by subsection 11.03(b).
(c) In the event that (i) real property is acquired and/or
developed with Indebtedness Incurred under an A&D Facility, (ii) the lender
or lenders thereunder requires the Indebtedness under such A&D Facility to be
secured by a first priority Lien on such real property and (iii) such
property is not subject to a Mortgage in favor of the Trustee, the provisions
of Section 11.01(b) requiring that a Mortgage on such property be granted to
the Trustee shall, subject to Section 11.03(e), not apply.
(d) In the event that the Trustee is furnished with an Officer's
Certificate certifying that (i) real property is to be acquired and/or
developed with Indebtedness Incurred under an A&D Facility, (ii) the lender
or lenders thereunder require the Indebtedness under such A&D Facility to be
secured by a first priority Lien on such real property and (iii) such
property is already subject to a Mortgage in favor of the Trustee, the
Trustee shall, upon receipt of an Opinion of Counsel to the effect set forth
in clause (a)(y) above, release such Mortgage to the extent required by such
lender or lenders in accordance with instructions set forth in such Officer's
Certificate.
(e) Upon the repayment in full of any A&D Facility secured by a
Lien, the Issuers or the applicable Subsidiary Guarantor will promptly cause
such Lien to be removed and shall grant to the Trustee a Mortgage in
accordance with Section 11.01(b).
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(f) Notwithstanding any other provisions of this Section 11.03,
absent the occurrence and continuance of an Event of Default, Collateral in
the Cash Collateral Account (as defined in the Security Agreement) may be
released solely in accordance with the terms of the Security Agreement.
(g) In order to facilitate the sale of Pledged Vacation Ownership
Interests, the Trustee shall subordinate the Collateral Documents encumbering
any real property to the documents or instruments creating time share
interest therein (the "Time Share Documents") as permitted by the terms of
the Collateral Documents, whereupon the Collateral Documents shall be subject
and subordinate to the Time Share Documents and the provisions therein
dealing with insurance and the use and application of insurance and
condemnation proceeds. Before taking any actions required pursuant to this
subsection 11.03(g), the Trustee shall be entitled to receive an Officer's
Certificate setting forth the actions that the Trustee is to take and an
Opinion of Counsel to the effect that such actions are permitted by
applicable law and by the terms of the Indenture and the Collateral Documents.
(h) The Trustee have no liability for any act or failure to act of
any Agent except as may result from the Trustee's willful or grossly
negligent failure to fulfill its obligations under Section 11.03(b)(3).
SECTION 11.04. CERTIFICATES OF THE ISSUERS.
To the extent applicable, the Issuers and the Subsidiary Guarantors
shall comply with (a) TIA Section 314(b), relating to Opinions of Counsel
regarding the Lien of the Collateral Documents and (b) TIA Section 314(d),
relating to the release of Collateral from the Lien of the Collateral
Documents and Officers' Certificates or other documents regarding fair value
of the Collateral. Any certificate or opinion required by TIA Section 314(d)
may be made by an Officer of the Issuers or any other obligor upon the
Securities, as applicable, to the extent permitted by TIA Section 314(d);
PROVIDED, that to the extent required by Section 314(d) of the TIA, any such
certificate or opinion shall be made by an independent appraiser or other
expert (as such terms are used in Section 314(d) of the TIA).
SECTION 11.05. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
The Trustee may, in its sole discretion and without the consent of
the Securityholders, on behalf of the Securityholders, take all actions it
deems necessary or appropriate in order to (a) enforce any of the terms of
the Collateral Documents and (b) collect and receive any and all amounts
payable in respect of the Obligations of the Subsidiary Guarantors hereunder.
The Trustee shall have the power to institute and to maintain such suits and
proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Collateral
Documents or this Indenture, and such suits and proceedings as the Trustee
may deem expedient to preserve or protect its interests and the interests of
the Securityholders in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may
be unconstitutional or otherwise invalid if the
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enforcement of, or compliance with, such enactment, rule or order would
impair the security interest hereunder or be prejudicial to the interests of
the Securityholders or of the Trustee).
SECTION 11.06. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of
the Securityholders distributed under the Collateral Documents, and to make
further distributions of such funds to the Securityholders according to the
provisions of this Indenture and the Collateral Documents.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control. Until such time as this
Indenture becomes qualified under the TIA, the Issuers, the Subsidiary
Guarantors and the Trustee shall be deemed subject to and governed by the TIA
as if this Indenture were so qualified on the date hereof.
SECTION 12.02. NOTICES.
(a) Any notice or communication by the Issuers, any Subsidiary
Guarantor or the Trustee to the other is duly given if in writing and
delivered in person or mailed by first class mail (registered or certified,
return receipt requested), confirmed facsimile transmission or overnight air
courier guaranteeing next day delivery, to the other's address:
If to the Issuers or any of the Subsidiary Guarantors:
Epic Resorts, LLC
1150 First Avenue
Suite 900
King of Prussia, PA 19406
Attention: President
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, NY 10036
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Attention: Corporate Trust Department
(b) The Issuers or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications.
(c) All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged,
if by facsimile transmission; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery.
(d) Any notice or communication to a Securityholder shall be
mailed by first class mail, postage prepaid, to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
(e) If a notice or communication is mailed to any Person in the
manner provided above within the time prescribed, it is duly given, whether
or not the addressee receives it.
(f) If the Issuers mail a notice or communication to
Securityholders, they shall mail a copy to the Trustee and each Agent at the
same time.
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or
the Securities. The Issuers, the Subsidiary Guarantors, the Trustee, the
Registrar and anyone else shall have the protection of TIA Section 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Issuers and/or any of the
Subsidiary Guarantors to the Trustee to take any action under this Indenture,
the Issuers and/or any of the Subsidiary Guarantors, as the case may be,
shall furnish to the Trustee:
(i) an Officer's Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
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SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the
provisions of TIA Section 314(e), shall comply with the definition of the
term "Officers' Certificate" and shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 12.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York City, or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 12.08. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee, agent,
manager, stockholder or partner of the Issuers or their predecessors shall
have any liability for any Obligations of the Issuers under the Securities or
this Indenture or for any claim based on, in respect of, or by reason of such
Obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. This waiver and release are part of
the consideration for issuance of the Securities.
SECTION 12.09. DUPLICATE ORIGINALS.
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The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 12.10. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Subsidiary Guarantors, the Issuers or their
respective Subsidiaries. Any such indenture, loan or debt agreement may not
be used to interpret this Indenture.
SECTION 12.12. SUCCESSORS.
All agreements of the Issuers and the Subsidiary Guarantors in this
Indenture and the Securities shall bind their successors. All agreements of
the Trustee in this Indenture shall bind its successor.
SECTION 12.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.14. COUNTERPART ORIGINALS.
This Indenture may be executed in any number of counterparts, each
of which so executed shall be an original, but all of them together represent
the same agreement.
SECTION 12.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.
EPIC RESORTS, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC CAPITAL CORP.
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC WARRANT CO.
By /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC TRAVEL, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
LONDON BRIDGE RESORT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
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DAYTONA BEACH REGENCY, LTD
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
RESORT MANAGEMENT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
RESORT INVESTMENT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS - WESTPARK RESORT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
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<PAGE>
EPIC RESORTS - SCOTTSDALE LINKS RESORT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS - PALM SPRINGS MARQUIS VILLAS, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS - HILTON HEAD, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
RESORT MANAGEMENT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
RESORT INVESTMENT, LLC
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
-93-
<PAGE>
DAYTONA BEACH REGENCY, LTD
By: /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: /s/ James Nesci
-------------------------------------
Name: James D. Nesci
Title: Assistant Vice President
-94-
<PAGE>
EXHIBIT A
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED,
SOLD OR PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR THE ACCOUNT
OR BENEFIT OF A U.S. PERSON, AND IS ACQUIRING THIS SECURITY
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS
IN EFFECT WITH RESPECT TO SUCH TRANSFER, ON THE DATE OF THE
TRANSFER OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO EPIC RESORTS, LLC ("EPIC") OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QIB
IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO EPIC THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (D)
<PAGE>
Exhibit A
Page 2
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO EPIC, (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO EPIC
AND IN EACH CASE, IN ACCORDANCE WITH APPLICABLE CASE SECURITIES
LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING
THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN
VIOLATION OF THE FOREGOING RESTRICTIONS.
THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH
ORIGINAL ISSUE DISCOUNT ("OID") FOR PURPOSES OF SECTIONS
1271 ET SEQ. OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE ISSUE DATE OF THIS NOTE IS JULY 8, 1998. FOR
INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF OID PER
$1,000 OF PRINCIPAL AMOUNT AND YIELD TO MATURITY FOR
PURPOSES OF THE OID RULES, PLEASE CONTACT THE TREASURER OF
THE COMPANY AT 1150 FIRST AVENUE, SUITE 900, KING OF
PRUSSIA, PA 19406.
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY, OR BY ANY SUCH NOMINEE OF THE DEPOSITARY, OR BY
THE DEPOSITARY OR NOMINEE OF SUCH SUCCESSOR
<PAGE>
Exhibit A
Page 3
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THIS INDENTURE.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
<PAGE>
Exhibit A
Page 4
CUSIP No:
(Front of Security)
No. 1 $___________
EPIC RESORTS, LLC
EPIC CAPITAL CORP.
13% Senior Secured Note Due 2005, Series A
EPIC RESORTS, LLC, a Delaware limited liability company (the "Company"), and
EPIC CAPITAL CORP., a Delaware corporation (together with the Company, the
"Issuers"), jointly and severally promise to pay to ____________, or its
registered assigns, the principal sum of $___________ [in the case of a Global
Security, insert --, as such amount may be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depository,] on June 15, 2005.
Interest Payment Dates: June 15 and December 15, commencing December 15, 1998.
Record Dates: June 1 and December 1 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
EPIC RESORTS, LLC.
By
---------------------------
Name:
Title:
By
---------------------------
Name:
Title:
EPIC CAPITAL CORP.
By
---------------------------
Name:
Title:
By
---------------------------
Name:
Title:
<PAGE>
Exhibit A
Page 5
<PAGE>
Exhibit A
Page 6
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
By
----------------------------
Authorized Signatory
<PAGE>
Exhibit A
Page 7
(Reverse of Security)
13% SENIOR SECURED NOTE DUE 2005, Series A
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. EPIC RESORTS, LLC, a Delaware limited liability
company (the "Company"), and EPIC CAPITAL CORP., a Delaware corporation
(together with the Company, the "Issuers"), jointly and severally promise to
pay interest on the principal amount of this Security at the rate and in the
manner specified below. The Issuers shall pay, in cash, interest on the
principal amount of this Security at the rate per annum of 13%. The Issuers
will pay interest semiannually in arrears on June 15 and December 15 of each
year (each an "Interest Payment Date"), commencing December 15, 1998, or if
any such day is not a Business Day, on the next succeeding Business Day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent Interest Payment
Date to which interest has been paid or, if no interest has been paid, from
the date of the original issuance of this Security. To the extent lawful,
the Issuers shall pay interest on overdue principal at the rate of 2% per
annum in excess of the then applicable interest rate on the Securities; it
shall pay interest on overdue installments of interest (without regard to any
applicable grace periods) at the same rate to the extent lawful. The rate of
interest payable on this Security shall be subject to the assessment of
additional interest (the "Additional Interest") as follows:
(i) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not filed within 75 days following the Issue Date,
Additional Interest shall accrue on the Securities over and above the stated
interest at a rate of 0.50% per annum for the first 30 days commencing on the
76th day after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 30-day period;
or
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 135 days following
the Issue Date, Additional Interest shall accrue on the Securities over and
above the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 136th day after the Issue Date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period; or
(iii) if (A) the Issuers and the Subsidiary Guarantors have not
exchanged all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to 165 days after the Issue Date or (B) the
Exchange Offer Registration Statement ceases to be effective at any time
prior to the time that the Exchange offer is consummated or (C) if
applicable, the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior to
the second anniversary of the Issue Date (unless all the Securities have been
sold thereunder), then Additional Interest shall accrue on the Securities
over and above the stated interest at a rate of 0.50% per annum for the first
30 days commencing on (x) the 166th day after the Issue Date with respect to
the Securities validly tendered and nor exchanged by the Issuers, in the case
of (A) above, or (y) the day the Exchange Offer Registration ceases to be
<PAGE>
Exhibit A
Page 8
effective or usable for its intended purpose in the case of (B) above, or (z)
the day such Shelf Registration Statement ceases to be effective in the case
of (C) above, such Additional Interest rate increasing by an additional 0.50%
per annum at the beginning of each subsequent 30-day period; PROVIDED
HOWEVER, that the Additional Interest rate under Clauses (i), (ii) or (iii)
above, may not exceed in the aggregate 1.50% per annum; and PROVIDED FURTHER,
that (1) upon the filing of the Exchange Offer Registration Statement or
Shelf Registration Statement (in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement or Shelf
Registration Statement (in the case of (ii) above), or (3) upon the exchange
of Exchange Offer Securities for all Securities tendered (in the case of
clause (iii)(a) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective in the case of
clause (iii)(B) above, or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause
(iii)(C) above), Additional Interest on the Securities as a result of such
clause (or the relevant subclause thereof), as the case may be, shall cease
to accrue. Any amounts of Additional Interest due pursuant to clauses (i),
(ii) or (iii) above will be payable and will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Securities
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
"EXCHANGE OFFER" shall mean the exchange offer by the Issuers of
Initial Securities for Exchange Securities pursuant to Section 2(a) of the
Exchange and Registration Rights Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Offering Memorandum or prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"RECORD DATE" shall have the meaning provided on the front of this
Security.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Issuers and the Subsidiary Guarantors pursuant to the
provisions of the Exchange and Registration Rights Agreement which covers all
of the Initial Securities and the Subsidiary Guarantees on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
2. METHOD OF PAYMENT. The Issuers shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are canceled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. Except as provided above, the Issuers shall pay
principal, premium, if any, and interest in money of the United States
<PAGE>
Exhibit A
Page 9
that at the time of payment is legal tender for payment of public and private
debts ("U.S. Legal Tender"). However, the Issuers may pay principal,
premium, if any, and interest by its check payable in such U.S. Legal Tender.
The Issuers may deliver any such interest payment to the Paying Agent or to a
Securityholder at the Securityholder's registered address.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as
Paying Agent and Registrar. The Issuers may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Issuers or any Guarantor of the Issuers may act in any such capacity, except
that none of the Issuers, the Subsidiaries or their Affiliates shall act (i)
as Paying Agent in connection with any redemption, offer to purchase,
discharge or defeasance, as otherwise specified in the Indenture, and (ii) as
Paying Agent or Registrar if a Default or Event of Default has occurred and
is continuing.
4. INDENTURE. The Issuers issued the Securities under an
Indenture, dated as of __________, 1998 (the "Indenture"), between the
Issuers, the Subsidiary Guarantors and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the TIA as in effect on the date the Indenture is
qualified, except as the Indenture otherwise provides. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the TIA for a statement of such terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities. The
Securities are senior Obligations of the Issuers limited to $130,000,000 in
aggregate principal amount.
5. OPTIONAL REDEMPTION. The Issuers may not redeem the Securities
prior to June 15, 2003. On or after such date, the Securities will be
redeemable, at the option of the Issuers, in whole or in part, upon not less
than 30 nor more than 60 days prior notice mailed by first class mail to each
holder's registered address, at the redemption prices (expressed as
percentages of the principal amount of the Securities) set forth below, if
redeemed during the 12-month period commencing on June 15 of the years set
forth below, plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
Redemption
Period Price
------ -----
<S> <C>
2003................................... 106.50%
2004 and thereafter.................... 103.25%
</TABLE>
6. MANDATORY PURCHASE OFFER. The Issuers must make one or more
offers to purchase at least $65,000,000 aggregate principal amount of the
Securities (subject to adjustment) between June 15, 2000 and June 15, 2002 at
a price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
7. REPURCHASE AT OPTION OF SECURITYHOLDER. (a) If there is a
Change of Control, each Holder of Securities will have the right to require
the Issuers to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right
of Holders of record on the relevant Record Date to receive interest due on
the relevant Interest Payment Date).
<PAGE>
Exhibit A
Page 10
Within 30 days following any Change of Control, unless the Issuers have
mailed a redemption notice with respect to all of the outstanding Securities
in connection with such Change in Control, the Issuers will mail a notice to
each Securityholder stating (i) that a Change of Control has occurred and
that such Securityholder has the right to require the Issuers to repurchase
all or any part of such Securityholder's Securities at a repurchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant Record Date to receive interest due on the relevant
Interest Payment Date); (ii) the repurchase date (which will be no earlier
then 30 days nor later than 60 days from the date such notice is mailed); and
(iii) the procedures, determined by the Issuers consistent with the
Indenture, that a Securityholder must follow in order to have its Securities
repurchased. Securityholders that are subject to an offer to repurchase may
elect to have such Securities repurchased by completing the form entitled
"Option of Securityholder to Elect Purchase" appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds $10,000,000, the Issuers shall be required to offer
to purchase the maximum principal amount of Securities, that is in an
integral multiple of $1,000, that may be purchased out of the Net Available
Cash at 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer in
accordance with the procedures set forth in the Indenture. If the aggregate
purchase price of Securities surrendered by Holders thereof pursuant to the
offer exceeds the amount of Net Available Cash, the Securities to be redeemed
shall be selected on a PRO RATA basis, subject to the terms of the Indenture.
Securityholders that are the subject of an offer to purchase will receive an
Asset Disposition Offer from the Issuers prior to any related purchase date
and may elect to have such Securities purchased by completing the form
entitled "Option of Securityholder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 30 but not more than 60 days before the redemption date to each Holder
whose Securities are to be redeemed at its registered address. Securities
may be redeemed in part but only in whole multiples of $1,000, unless all of
the Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption as long as the Issuers have deposited with the Paying
Agent funds for such redemption.
9. REGISTRATION RIGHTS. Pursuant to the Exchange and Registration
Rights Agreement, and subject to certain terms and conditions stated therein,
the Issuers will be obligated to consummate an Exchange Offer pursuant to
which the Holders of the Initial Securities shall have the right to exchange
this Security for Exchange Securities, which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respect to this Security.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The
<PAGE>
Exhibit A
Page 11
Registrar and the Trustee may require a Securityholder among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need
not exchange or register the transfer of any Security or portion of a
Security selected for redemption. Also, it need not exchange or register the
transfer of any Securities during a period beginning at the opening of
business on a Business Day 15 days before the day of any selection of
Securities to be redeemed and ending at the close of business on the day of
selection or during the period between a Record Date and the corresponding
Interest Payment Date.
11. PERSONS DEEMED OWNERS. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Paying Agent, any Registrar, any Co-Registrar and agent of the foregoing and
the Issuers shall deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all
other purposes whatsoever, whether or not this Security is overdue, and none
of the Trustee, any such agent nor the Issuers shall be affected by notice to
the contrary. The registered Securityholder shall be treated as its owner
for all purposes; and none of the Issuers, the Trustee, any Paying Agent, any
Registrar or Co-Registrar or any agent of the foregoing shall be affected by
any notice to the contrary.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions
provided in the Indenture, the Indenture or the Securities may be amended
with the consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing Default or Event of Default (except
a payment default) may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Securities. Without the
consent of any Securityholder the Indenture or the Securities may be amended
to, among other things, cure any ambiguity, defect or inconsistency, to
comply with the requirements of the Commission in order to effect or maintain
qualification of the Indenture under the TIA or to make any change that does
not adversely affect the rights of any Securityholder.
13. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities voting as a single class by notice to the
Issuers may declare the unpaid principal of, and any accrued and unpaid
interest on, all the Securities to be due and payable immediately; PROVIDED,
that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Issuers or any Subsidiary
Guarantor, all outstanding Securities shall become due and payable
immediately without further action or notice. Securityholders may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Securities may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Securityholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is
in their interests. The Issuers must furnish an annual compliance
certificate to the Trustee.
<PAGE>
Exhibit A
Page 12
14. TRUSTEE DEALINGS WITH THE ISSUERS. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Issuers, the Subsidiary
Guarantors or any Affiliate of the Issuers or the Subsidiary Guarantors, and
may otherwise deal with the Issuers, the Subsidiary Guarantors and their
respective Affiliates as if it were not Trustee.
15. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect
of its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its assets or adopt a plan of liquidation. Such limitations are subject to a
number of important qualifications and exceptions provided for in the
Indenture. The Issuers must annually report to the Trustee on compliance
with such limitations.
16. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. FUTURE NOTE GUARANTEES. The Company will cause each newly
organized or acquired Subsidiary (other than any Unrestricted Subsidiary) to
execute and deliver to the Trustee a Guarantee of the Securities in form and
substance satisfactory to the Trustee.
18. SECURITY. The Securities will be secured to the extent set
forth in the Indenture.
19. DEFEASANCE. Subject to certain conditions provided for in the
Indenture, the Issuers at any time may terminate some or all of their
obligations under the Securities and the Indenture if the Issuers deposit
with the Trustee money or U.S. Government Obligations for the payment of
principal, premium (if any) and interest on the Securities to redemption or
maturity, as the case may be.
20. GOVERNING LAW. The laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
21. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Issuers have
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such
numbers either as printed on the Securities or as contained in any notice of
redemption.
<PAGE>
Exhibit A
Page 13
The Issuers will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Epic Resorts, LLC
1150 First Avenue
Suite 900
King of Prussia, PA 19406
Attn.: President
<PAGE>
Exhibit A
Page 14
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- -------------------------------------------------------------------------------
(Insert assignee's Soc. sec. or tax ID no.)
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
______________________________________________________________
agent to transfer this Security on the books of the Issuers. The agent may
substitute another to act for him.
Date:
---------------
Your Signature:
------------------------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
- ---------------------------------
(Signatures must be guaranteed by
an "eligible guarantor institution"
meeting the requirements of the
Registrar, which requirements will
include membership or participation
in the Securities Transfer Agents
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to,
<PAGE>
Exhibit A
Page 15
or in substitution for, STAMP, all
in accordance with the Securities
Exchange Act of 1934, as amended.)
<PAGE>
Exhibit A
Page 16
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") covering resales of
this Security (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) two years after the date of
the acquisition of this Security by the undersigned from the Issuers or an
Affiliate of the Issuers, the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the
transfer and that this Security is being transferred:
CHECK ONE
(1) ___ to the Issuers or one of their subsidiaries; or
(2) ___ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) ___ to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form
of which letter can be obtained from the Trustee); or
(4) ___ outside the United States to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration provided
by Rule 144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement under
the Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any Person
other than the registered Securityholder thereof; PROVIDED that if box (3),
(4), (5) or (7) is checked, the Issuers or the Trustee may require, prior to
registering any such transfer of the Securities, in its sole discretion, such
legal opinions, certifications (including an investment letter in the case of
box (3) or (4)) and other information as the Trustee or the Issuers has
reasonably requested to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. If none of the foregoing boxes is
checked, the Trustee or Registrar shall not be obligated to register this
Security in the name of any Person other than the Securityholder hereof
unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.17 of the Indenture shall have been satisfied.
<PAGE>
Exhibit A
Page 17
Dated: Signed:
---------------------- -------------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:
-----------------------------------------------------
- ---------------------------------
(Signatures must be guaranteed by
an "eligible guarantor institution"
meeting the requirements of the
Registrar, which requirements will
include membership or participation
in the Securities Transfer Agents
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.)
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Issuers as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
------------------ -----------------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
Exhibit A
Page 18
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Issuers pursuant to Section 3.08, Section 4.10 or Section
4.14 of the Indenture check the appropriate box:
__ Section 3.08 __ Section 4.10 __ Section 4.14
If you want to have only part of the Security purchased by the
Company pursuant to Section 3.08, Section 4.10 or Section 4.14 of the
Indenture, state the amount you elect to have purchased:
$______________________
Date:
------------------
Your Signature:
----------------------------------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
- ------------------------------------
(Signatures must be guaranteed by an
"eligible guarantor institution" meeting
the requirements of the Registrar, which
requirements will include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.)
<PAGE>
EXHIBIT B
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY
SUCH NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF
SUCH SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN THE INDENTURE.
THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH ORIGINAL ISSUE
DISCOUNT ("OID") FOR PURPOSES OF SECTIONS 1271 ET SEQ. OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE DATE OF THIS
NOTE IS JULY 8, 1998. FOR INFORMATION REGARDING THE ISSUE PRICE,
AMOUNT OF OID PER $1,000 OF PRINCIPAL AMOUNT AND YIELD TO MATURITY
FOR PURPOSES OF THE OLD RULES, PLEASE CONTACT THE TREASURER OF THE
COMPANY AT 1150 FIRST AVENUE, SUITE 900, KING OF PRUSSIA, PA 19406.
<PAGE>
Exhibit B
Page 2
CUSIP No:
(Front of Security)
No. 1 $___________
EPIC RESORTS, LLC
EPIC CAPITAL CORP.
13% SENIOR SECURED NOTE DUE 2005, Series B
EPIC RESORTS, LLC, a Delaware limited liability company (the "Company"), and
EPIC CAPITAL CORP., a Delaware corporation (together with the Company, the
"Issuers"), jointly and severally promise to pay to ____________, or its
registered assigns, the principal sum of $___________ [in the case of a Global
Security, insert --, as such amount may be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depository,] on June 15, 2005.
Interest Payment Dates: June 15 and December 15, commencing December 15, 1998.
Record Dates: June 1 and December 1 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
EPIC RESORTS, LLC.
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
EPIC CAPITAL CORP.
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
<PAGE>
Exhibit B
Page 3
<PAGE>
Exhibit B
Page 4
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
By
------------------------------------
Authorized Signatory
<PAGE>
Exhibit B
Page 5
(Reverse of Security)
13% SENIOR SECURED NOTE DUE 2005, SERIES B
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. EPIC RESORTS, LLC, a Delaware limited liability company
(the "Company"), and EPIC CAPITAL CORP., a Delaware corporation (together with
the Company, the "Issuers"), jointly and severally promise to pay interest on
the principal amount of this Security at the rate and in the manner specified
below. The Issuers shall pay, in cash, interest on the principal amount of
this Security at the rate per annum of 13%. The Issuers will pay interest
semiannually in arrears on June 15 and December 15 of each year (each an
"Interest Payment Date"), commencing December 15, 1998, or if any such day is
not a Business Day, on the next succeeding Business Day. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Interest shall accrue from the most recent Interest Payment Date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of this Security. To the extent lawful, the Issuers shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Securities; it shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods) at the same rate to the extent lawful.
2. METHOD OF PAYMENT. The Issuers shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are canceled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. Except as provided above, the Issuers shall pay principal,
premium, if any, and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts ("U.S.
Legal Tender"). However, the Issuers may pay principal, premium, if any, and
interest by its check payable in such U.S. Legal Tender. The Issuers may
deliver any such interest payment to the Paying Agent or to a Securityholder
at the Securityholder's registered address.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as
Paying Agent and Registrar. The Issuers may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Issuers or any Guarantor of the Issuers may act in any such capacity, except
that none of the Issuers, the Subsidiaries or their Affiliates shall act (i)
as Paying Agent in connection with any redemption, offer to purchase,
discharge or defeasance, as otherwise specified in the Indenture, and (ii) as
Paying Agent or Registrar if a Default or Event of Default has occurred and is
continuing.
4. INDENTURE. The Issuers issued the Securities under an
Indenture, dated as of July 8, 1998 (the "Indenture"), between the Issuers,
the Subsidiary Guarantors and the Trustee. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the TIA as in effect on the date the Indenture is qualified,
except as the
<PAGE>
Exhibit B
Page 6
Indenture otherwise provides. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the TIA for a statement
of such terms. The terms of the Indenture shall govern any inconsistencies
between the Indenture and the Securities. The Securities are senior
Obligations of the Issuers limited to $130,000,000 in aggregate principal
amount.
5. OPTIONAL REDEMPTION. The Issuers may not redeem the Securities
prior to June 15, 2003. On or after such date, the Securities will be
redeemable, at the option of the Issuers, in whole or in part, upon not less
than 30 nor more than 60 days prior notice mailed by first class mail to each
holder's registered address, at the redemption prices (expressed as
percentages of the principal amount of the Securities) set forth below, if
redeemed during the 12-month period commencing on June 15 of the years set
forth below, plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
Redemption
Period Price
------ -----
<S> <C>
2003 ................................ 106.50%
2004 and thereafter ................. 103.25%
</TABLE>
6. MANDATORY PURCHASE OFFER. The Issuers must make one or more
offers to purchase at least $65,000,000 aggregate principal amount of the
Securities (subject to adjustment) between June 15, 2000 and June 15, 2002 at
a price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
7. REPURCHASE AT OPTION OF SECURITYHOLDER. (a) If there is a
Change of Control, each Holder of Securities will have the right to require
the Issuers to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right
of Holders of record on the relevant Record Date to receive interest due on
the relevant Interest Payment Date). Within 30 days following any Change of
Control, unless the Issuers have mailed a redemption notice with respect to
all of the outstanding Securities in connection with such Change in Control,
the Issuers will mail a notice to each Securityholder stating (i) that a
Change of Control has occurred and that such Securityholder has the right to
require the Issuers to repurchase all or any part of such Securityholder's
Securities at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date); (ii) the
repurchase date (which will be no earlier then 30 days nor later than 60 days
from the date such notice is mailed); and (iii) the procedures, determined by
the Issuers consistent with the Indenture, that a Securityholder must follow
in order to have its Securities repurchased. Securityholders that are subject
to an offer to repurchase may elect to have such Securities repurchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Net Available Cash from such an
Asset Disposition exceeds
<PAGE>
Exhibit B
Page 7
$10,000,000, the Issuers shall be required to offer to purchase the maximum
principal amount of Securities, that is in an integral multiple of $1,000,
that may be purchased out of the Net Available Cash at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed
for the closing of such offer in accordance with the procedures set forth in
the Indenture. If the aggregate purchase price of Securities surrendered by
Holders thereof pursuant to the offer exceeds the amount of Net Available
Cash, the Securities to be redeemed shall be selected on a PRO RATA basis,
subject to the terms of the Indenture. Securityholders that are the subject
of an offer to purchase will receive an Asset Disposition Offer from the
Issuers prior to any related purchase date and may elect to have such
Securities purchased by completing the form entitled "Option of Securityholder
to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 30 but not more than 60 days before the redemption date to each Holder
whose Securities are to be redeemed at its registered address. Securities may
be redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption as long as the Issuers have deposited with the Paying
Agent funds for such redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and
the Trustee may require a Securityholder among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Security or portion of a Security
selected for redemption. Also, it need not exchange or register the transfer
of any Securities during a period beginning at the opening of business on a
Business Day 15 days before the day of any selection of Securities to be
redeemed and ending at the close of business on the day of selection or during
the period between a Record Date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee
for registration of the transfer of this Security, the Trustee, any Paying
Agent, any Registrar, any Co-Registrar and agent of the foregoing and the
Issuers shall deem and treat the Person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and none of the
Trustee, any such agent nor the Issuers shall be affected by notice to the
contrary. The registered Securityholder shall be treated as its owner for all
purposes; and none of the Issuers, the Trustee, any Paying Agent, any
Registrar or Co-Registrar or any agent of the foregoing shall be affected by
any notice to the contrary.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions provided
in the Indenture, the Indenture or the Securities may be amended with the
consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing Default or Event of Default (except a
payment default) may be waived with the consent of the Holders of a
<PAGE>
Exhibit B
Page 8
majority in principal amount of the then outstanding Securities. Without the
consent of any Securityholder the Indenture or the Securities may be amended
to, among other things, cure any ambiguity, defect or inconsistency, to comply
with the requirements of the Commission in order to effect or maintain
qualification of the Indenture under the TIA or to make any change that does
not adversely affect the rights of any Securityholder.
12. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities voting as a single class by notice to the
Issuers may declare the unpaid principal of, and any accrued and unpaid
interest on, all the Securities to be due and payable immediately; PROVIDED,
that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Issuers or any Subsidiary
Guarantor, all outstanding Securities shall become due and payable immediately
without further action or notice. Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Securities may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Issuers must furnish an annual compliance certificate to the
Trustee.
13. TRUSTEE DEALINGS WITH THE ISSUERS. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Issuers, the Subsidiary Guarantors
or any Affiliate of the Issuers or the Subsidiary Guarantors, and may
otherwise deal with the Issuers, the Subsidiary Guarantors and their
respective Affiliates as if it were not Trustee.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its assets or adopt a plan of liquidation. Such limitations are subject to a
number of important qualifications and exceptions provided for in the
Indenture. The Issuers must annually report to the Trustee on compliance with
such limitations.
15. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. FUTURE NOTE GUARANTEES. The Company will cause each newly
organized or acquired Subsidiary (other than any Unrestricted Subsidiary) to
execute and deliver to the Trustee a Guarantee of the Securities in form and
substance satisfactory to the Trustee.
17. SECURITY. The Securities will be secured to the extent set
forth in the Indenture.
<PAGE>
Exhibit B
Page 9
18. DEFEASANCE. Subject to certain conditions provided for in the
Indenture, the Issuers at any time may terminate some or all of their
obligations under the Securities and the Indenture if the Issuers deposit with
the Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to redemption or maturity, as
the case may be.
19. GOVERNING LAW. The laws of the State of New York shall govern
this Security and the Indenture, without regard to principles of conflict of
laws.
20. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have
caused CUSIP numbers to be printed on the Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of
redemption.
The Issuers will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Request may be made to:
Epic Resorts, LLC
1150 First Avenue
Suite 900
King of Prussia, PA 19406
Attn.: President
<PAGE>
Exhibit B
Page 10
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's Soc. sec. or tax ID no.)
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- --------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date:
---------------
Your Signature:
--------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
<PAGE>
Exhibit B
Page 11
- -----------------------------------
(Signatures must be guaranteed by
an "eligible guarantor institution"
meeting the requirements of the
Registrar, which requirements will
include membership or participation
in the Securities Transfer Agents
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.)
<PAGE>
Exhibit B
Page 12
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Issuers pursuant to Section 3.08, Section 4.10 or Section
4.14 of the Indenture check the appropriate box:
Section 3.08 Section 4.10 Section 4.14
--- --- ---
If you want to have only part of the Security purchased by the
Company pursuant to Section 3.08, Section 4.10 or Section 4.14 of the
Indenture, state the amount you elect to have purchased:
$
---------------------
Date:
-----------------
Your Signature:
--------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
- ------------------------------------
(Signatures must be guaranteed by
an "eligible guarantor institution"
meeting the requirements of the
Registrar, which requirements will
include membership or participation
in the Securities Transfer Agents
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the
Registrar in addition to, or in
substitution for, STAMP, all in
accordance with the Securities
Exchange Act of 1934, as amended.)
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: Epic Resorts, LLC and
Epic Capital Corp. (the "Issuers")
13% Senior Secured Notes Due 2005 (the "Securities
--------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of Securities, we confirm
that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated June 30, 1998 relating to the Securities and
such other information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agreed to the matters stated
on pages (i), (ii) and (iii) of the Offering Memorandum and in the section
entitled "Transfer Restrictions" of the Offering Memorandum including the
restrictions on duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Securities (as described in the Offering Memorandum) and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell or otherwise transfer any
Securities prior to the date which is two years after the original issuance of
the Securities, we will do so only (i) to the Company or any of its
subsidiaries, (ii) inside the United States in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act), (iii) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer)
to the Trustee (as defined in the Indenture relating to the Securities), a
signed letter containing certain representations and agreements relating to
the restrictions on transfer of the Securities, (iv) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (v)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective registration
statement under the
<PAGE>
EXHIBIT C
Page 2
Securities Act, and we further agree to provide to any person purchasing any
of the Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
4. We are not acquiring the Securities for or on behalf of, and
will not transfer the Securities to, any pension or welfare plan (as defined
in Section 3 of the Employee Retirement Income Security Act of 1974), except
as permitted in the section entitled "Transfer Restrictions" of the Offering
Memorandum.
5. We understand that, on any proposed resale of any Securities, we
will be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Securities purchased
by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
By
---------------------------
Name:
<PAGE>
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
--------------------------
- ---------------, -----
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration
Re: Epic Resorts, LLC and Epic Capital Corp. (the "Issuers")
13% Senior Secured Notes due 2005 (the "Securities")
---------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $_____________ aggregate
principal amount of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
we represent that:
(1) the offer of the Securities was not made to a Person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States,
or (b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been pre-arranged with a buyer in
the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
(i)
<PAGE>
Very truly yours,
[Name of Transferor]
By
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Authorized Signature
(ii)
<PAGE>
SCHEDULE A
EXISTING LIENS
None
<PAGE>
SCHEDULE B
EXISTING INDEBTEDNESS
None
<PAGE>
EXECUTION COPY
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of July 8, 1998
by and among
EPIC RESORTS, LLC,
EPIC CAPITAL CORP.,
THE SUBSIDIARY GUARANTORS,
named herein
and
NATWEST CAPITAL MARKETS LIMITED
As the Initial Purchaser
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$130,000,000
13% SENIOR SECURED NOTES DUE 2005
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement") is
dated as of July 8, 1998, by and among Epic Resorts, LLC, a Delaware limited
liability company ("Epic"), Epic Capital Corp., a Delaware corporation
("Capital Corp." and together with Epic, the "Note Issuers"), the subsidiary
guarantors party hereto (collectively, the "Subsidiary Guarantors") and NatWest
Capital Markets Limited (the "Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 30, 1998, among the Note Issuers, Epic Warrant Co., the
Subsidiary Guarantors and the Initial Purchaser (the "Purchase Agreement"),
which provides for the sale by the Note Issuers to the Initial Purchaser of
Units consisting in part of $130,000,000 aggregate principal amount of the Note
Issuers' 13% Senior Secured Notes due 2005 (the "Notes"), which notes will be
guaranteed by the Subsidiary Guarantors. The Note Issuers and the Subsidiary
Guarantors are collectively referred to herein as the "Issuers." In order to
induce the Initial Purchaser to enter into the Purchase Agreement, the Note
Issuers have agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and their direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchaser to purchase the Notes
under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: Has the meaning provided in Section 4(a)
hereof.
ADVICE: Has the meaning provided in the last paragraph of Section 5
hereof.
AGREEMENT: Has the meaning provided in the first introductory
paragraph hereto.
APPLICABLE PERIOD: Has the meaning provided in Section 2(b) hereof.
CLOSING DATE: Has the meaning provided in the Purchase Agreement.
EFFECTIVENESS DATE: The 135th day after the Issue Date.
EFFECTIVENESS PERIOD: Has the meaning provided in Section 3(a)
hereof.
EVENT DATE: Has the meaning provided in Section 4(b) hereof.
<PAGE>
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
EXCHANGE NOTES: Has the meaning provided in Section 2(a) hereof.
EXCHANGE OFFER: Has the meaning provided in Section 2(a) hereof.
EXCHANGE REGISTRATION STATEMENT: Has the meaning provided in Section
2(a) hereof.
FILING DATE: The 75th day after the Issue Date.
HOLDER: Any holder of a Registrable Note or Registrable Notes.
INDEMNIFIED PERSON: Has the meaning provided in Section 7(c) hereof.
INDEMNIFYING PERSON: Has the meaning provided in Section 7(c)
hereof.
INDENTURE: The Indenture, dated as of July 8, 1998 among the Note
Issuers and United States Trust Company of New York, as trustee, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
INITIAL PURCHASER: Has the meaning provided in the first
introductory paragraph hereto.
INSPECTORS: Has the meaning provided in Section 5(n) hereof.
ISSUE DATE: The date on which the original Notes were sold to the
Initial Purchaser pursuant to the Purchase Agreement.
NASD: Has the meaning provided in Section 5(r) hereof.
NOTE ISSUERS: Has the meaning provided in the first introductory
paragraph hereto.
NOTES: Has the meaning provided in the second introductory paragraph
hereto.
PARTICIPANT: Has the meaning provided in Section 7(a) hereof.
PARTICIPATING BROKER-DEALER: Has the meaning provided in Section
2(b) hereof.
PERSONS: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
PRIVATE EXCHANGE: Has the meaning provided in Section 2(b) hereof.
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PRIVATE EXCHANGE NOTES: Has the meaning provided in Section 2(b)
hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including post-
effective amendments, and all material incorporated by reference or deemed to
be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: Has the meaning provided in the second
introductory paragraph hereto.
RECORDS: Has the meaning provided in Section 5(n) hereof.
REGISTRABLE NOTES: Each Note upon original issuance of the Notes,
and at all times subsequent thereto, each Exchange Note as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance
thereof and at all times subsequent thereto, until in the case of any such
Note, Exchange Note or Private Exchange Note, as the case may be, the earliest
to occur of (i) a Registration Statement covering such Note, Exchange Note or
Private Exchange Note, as the case may be, has been declared effective by the
SEC and such Note (unless such Note was not tendered for exchange by the Holder
thereof), Exchange Note or Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note, Exchange Note or Private Exchange Note, as the case may be, is, or may
be, sold in compliance with Rule 144, or (iii) such Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for
purposes of the Indenture.
REGISTRATION STATEMENT: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
RULE 144: Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
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<PAGE>
RULE 144A: Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SHELF REGISTRATION: Has the meaning provided in Section 3(a) hereof.
SHELF REGISTRATION STATEMENT: shall mean a "shelf" registration
statement of the Note Issuers and the Subsidiary Guarantors which covers all of
the Registrable Notes on an appropriate form under Rule 415 under the 1933 Act,
or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
SHELF NOTICE: Has the meaning provided in Section 2(c) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE(S): The trustee under the Indenture and, the trustee under
any other indenture governing the Exchange Notes and Private Exchange Notes (if
any).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERINGS: A registration
in which securities of one or more of the Note Issuers are sold to an
underwriter for reoffering to the public.
2. EXCHANGE OFFER
(a) Each of the Note Issuers agrees to file with the SEC no later
than the Filing Date an offer to exchange (the "Exchange Offer") any and all of
the Registrable Notes (other than the Private Exchange Notes, if any) for a
like aggregate principal amount of debt securities of the Note Issuers, which
are identical in all material respects to the Notes (the "Exchange Notes") (and
which are entitled to the benefits of the Indenture or a trust indenture which
is identical in all material respects to the Indenture (other than such changes
to the Indenture or any such identical trust indenture as are necessary to
comply with any requirements of the SEC to effect or maintain the qualification
thereof under the TIA) and which, in either case, has been qualified under the
TIA), except that the Exchange Notes (other than Private Exchange Notes, if
any) shall have been registered pursuant to an effective Registration Statement
under the Securities Act and shall contain no restrictive legend thereon. The
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<PAGE>
Exchange Offer shall be registered under the Securities Act on the appropriate
form (the "Exchange Registration Statement") and shall comply with all ap
plicable tender offer rules and regulations under the Exchange Act. The Note
Issuers agree to use their reasonable best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act no
later than the 135th day after the Issue Date; (y) keep the Exchange Offer open
for at least 20 business days (or longer if required by applicable law) after
the date that notice of the Exchange Offer is mailed to the Holders; and (z)
consummate the Exchange Offer on or prior to the 165th day following the Issue
Date. If after such Exchange Registration Statement is declared effective by
the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Exchange Registration
Statement shall be deemed not to have become effective for purposes of this
Agreement until such stop order, injunction or other order or requirement is no
longer in effect. Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Notes received by it will be acquired
in the ordinary course of its business, that at the time of the consummation of
the Exchange Offer such Holder will have no arrangement or understanding with
any Person to participate in the distribution of the Exchange Notes in
violation of the provisions of the Securities Act, and that such Holder is not
an "affiliate" of the Note Issuers within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this Section 2, the
Note Issuers shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes) pursuant to Section 3 hereof. No
securities other than the Exchange Notes shall be included in the Exchange
Registration Statement.
(b) The Note Issuers shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," in the form of Annex A hereto, reasonably acceptable to the
Initial Purchaser, which shall contain a summary statement of the positions
taken or policies made by the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by
such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by the Staff
of the SEC or such positions or policies, in the judgment of the Initial
Purchaser, represent the prevailing views of the Staff of the SEC. Such "Plan
of Distribution" section shall also expressly permit the use of the Prospectus
by all Persons subject to the prospectus delivery requirements of the
Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes. The Note Issuers shall also include the information set
forth in Annex B hereto in the Letter of Transmittal delivered pursuant to the
Exchange Offer.
The Note Issuers agree to use their reasonable best efforts to keep
the Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in order to permit such Prospectus to be lawfully
delivered by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes;
PROVIDED, HOWEVER, that such period shall not exceed 165 days after the
consummation of the
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<PAGE>
Exchange Offer (or such longer period if extended pursuant to the last
paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the Note Issuers shall, upon the request
of the Initial Purchaser, simultaneously with the delivery of the Exchange
Notes in the Exchange Offer, issue and deliver to the Initial Purchaser in
exchange (the "Private Exchange") for such Notes held by the Initial Purchaser
a like principal amount of debt securities of the Note Issuers, that are
identical in all material respects to the Exchange Notes (the "Private Exchange
Notes") (and which are issued pursuant to the same Indenture as the Exchange
Notes) except for the placement of a restrictive legend on such Private
Exchange Notes. The Private Exchange Notes shall if permissible bear the same
CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
In connection with the Exchange Offer, the Note Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Note Issuers shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
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<PAGE>
(3) cause the Trustee to authenticate and deliver promptly to each
Holder Exchange Notes or Private Exchange Notes, as the case may be, equal
in principal amount to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes are to be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that (1) the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture and (2) the Private Exchange Notes shall be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such other indenture
shall provide that the Exchange Notes, the Private Exchange Notes and the Notes
shall vote and consent together on all matters as to which they have the right
to vote or consent as one class and that none of the Exchange Notes, the
Private Exchange Notes or the Notes will have the right to vote or consent as a
separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Note Issuers are not permitted to
effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 165
days after the Issue Date, (iii) any holder of Private Exchange Notes so
requests at any time after the consummation of the Private Exchange, or (iv)
any Holder (other than the Initial Purchaser) is not eligible to participate in
the Exchange Offer, then the Note Issuers shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and, in the case of
clauses (i) and (ii) above, all Holders, in the case of clause (iii) above, the
Holders of the Private Exchange Notes and, in the case of clause (iv) above,
the affected Holder, and shall file a Shelf Registration pursuant to Section 3
hereof, PROVIDED, HOWEVER, that in the case of clause (iii) above such Holders
shall pay all reasonable registration expenses of the Note Issuers as described
in Section 6 hereof in connection with such Shelf Registration.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) SHELF REGISTRATION. The Note Issuers shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Shelf Registration"). If the Note Issuers shall
not have yet filed an Exchange Registration Statement, each of the Note Issuers
shall use its best efforts to file with the SEC the Shelf Registration on or
prior to the Filing Date. The Shelf Registration shall be on Form S-1 or
another appropriate form permitting registration of such Registrable Notes for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Note Issuers
shall not permit any securities other than the Registrable Notes to be included
in the Shelf Registration.
Each of the Note Issuers shall use its best efforts to cause the
Shelf Registration to be declared effective under the Securities Act by the
135th day after the Closing Date and to keep the Shelf Registration
continuously effective under the Securities Act until the date which is two
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<PAGE>
years from the Issue Date (or one year from the initial effective date of the
Shelf Registration Statement in the case of a Shelf Notice given pursuant to a
request under Section 2(c)(iii)), subject to extension pursuant to the last
paragraph of Section 5 hereof, or such shorter period ending when all
Registrable Notes covered by the Shelf Registration have been sold in the
manner set forth and as contemplated in the Shelf Registration or when the
Notes become eligible for registration without volume restrictions, pursuant to
Rule 144 under the Securities Act (the "Effectiveness Period").
(b) WITHDRAWAL OF STOP ORDERS. If the Shelf Registration ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), each
of the Note Issuers shall use its best efforts to obtain the prompt withdrawal
of any order suspending the effectiveness thereof.
(c) SUPPLEMENTS AND AMENDMENTS. The Note Issuers shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested for such purpose by the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement or by
any underwriter of such Registrable Notes.
4. ADDITIONAL INTEREST
(a) The Note Issuers and the Initial Purchaser agree that the
Holders of Registrable Notes will suffer damages if the Note Issuers fail to
fulfill their obligations under Section 2 or Section 3 hereof and that it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Note Issuers agree to pay, as liquidated damages and as the
sole and exclusive remedy therefor, additional interest on the Notes
("Additional Interest") under the circumstances and to the extent set forth
below:
(i) if the Exchange Registration Statement or Shelf Registration
Statement is not filed within 75 days following the Issue Date, Additional
Interest shall accrue on the Notes over and above the stated interest at a
rate of 0.50% per annum for the first 30 days commencing on the 76th day
after the Issue Date or the Shelf Notice, respectively, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 30-day period;
(ii) if the Exchange Registration Statement or Shelf
Registration Statement is not declared effective within 135 days following
the Issue Date, Additional Interest shall accrue on the Notes over and
above the stated interest at a rate of 0.50% per annum for the first 30
days commencing on the 136th day after the Issue Date or the Shelf Notice,
respectively, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 30-day period; or
(iii) if (A) the Note Issuers have not exchanged all Notes
validly tendered in accordance with the terms of the Exchange Offer on or
prior to 165 days after the Issue
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<PAGE>
Date or (B) the Exchange Registration Statement ceases to be effective
at any time prior to the time that the Exchange Offer is consummated or
(C) if applicable, the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective
at any time prior to the second anniversary of the Issue Date (unless
all the Notes have been sold thereunder), then Additional Interest shall
accrue on the Notes over and above the stated interest at a rate of
0.50% per annum for the first 30 days commencing on (x) the 166th day
after the Issue Date with respect to the Notes validly tendered and not
exchanged by the Note Issuers, in the case of (A) above, or (y) the day
the Exchange Registration Statement ceases to be effective or usable for
its intended purpose in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above,
such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 30-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the Notes under clauses
(i), (ii) or (iii) above, may not exceed, in the aggregate, 1.50% per annum;
and PROVIDED FURTHER, that (1) upon the filing of the Exchange Registration
Statement or Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Exchange Registration Statement or Shelf
Registration Statement (in the case of (ii) above), or (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) above),
or upon the effectiveness of the Exchange Registration Statement which had
ceased to remain effective (in the case of clause (iii)(B) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(C) above), Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Note Issuers shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Note Issuers
shall pay the Additional Interest due on the transfer restricted Notes by
depositing with the paying agent (which shall not be the Company for these pur
poses) for the transfer restricted Notes, in trust, for the benefit of the
holders thereof, prior to 11:00 A.M. on the next interest payment date
specified by the Indenture (or such other indenture), sums sufficient to pay
the Additional Interest then due. Any amounts of Additional Interest due
pursuant to clauses (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable to the Holders of affected Notes in cash semi-annually on each interest
payment date specified by the Indenture (or such other indenture) to the record
holders entitled to receive the interest payment to be made on such date,
commencing with the first such date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the affected Registrable Notes of such Holders, multiplied
by a fraction, the numerator of which is the number of days such Additional
Interest rate was applicable during such period (determined on the basis of a
360-day year comprised of twelve 30-day months and, in the case of a partial
month, the actual number of days elapsed), and the denominator of which is 360.
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5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Note Issuers shall effect such registration(s)
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Note Issuers hereunder,
each Note Issuer shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; PROVIDED, HOWEVER, that if (1) such filing is pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 hereof is required to
be delivered under the Securities Act by any Participating Broker Dealer
who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Note Issuers shall, if requested in writing,
furnish to and afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, a reason
able opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed (in each case at least three business days
prior to such filing). The Note Issuers shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders must be afforded an opportunity to review
prior to the filing of such document under the immediately preceding
sentence, if the Holders of a majority in aggregate principal amount of
the Registrable Notes covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the
managing underwriters, if any, shall object thereto in writing, which
writing shall set forth a reasonable basis for such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Registration
Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period
or the Applicable Period or until consummation of the Exchange Offer, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of
the Securities Act and the Exchange Act applicable to it with respect to
the disposition of all securities covered by such Registration Statement
as so amended or in such Prospectus as so supplemented and with respect to
the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus; the Note Issuers shall be
deemed not to have used their best efforts to keep a Registration
Statement effective during the Applicable
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Period if either of them voluntarily takes any action that would result
in selling Holders of the Registrable Notes covered thereby or
Participating Broker-Dealers seeking to sell Exchange Notes not being
able to sell such Registrable Notes or such Exchange Notes during that
period unless such action is required by applicable law or unless the
Notes Issuers otherwise comply with this Agreement, including, without
limitation, the provisions of paragraph 5(k) hereof and the last
paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, notify the selling
Holders of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their counsel and the managing underwriters, if any,
promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole
expense of the Note Issuers, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when
a Prospectus is required by the Securities Act to be delivered in connec
tion with sales of the Registrable Notes or resales of Exchange Notes by
Participating Broker-Dealers the representations and warranties of the
Note Issuers contained in any agreement (including any underwriting
agreement), contemplated by Section 5(m) hereof cease to be true and
correct, (iv) of the receipt by the Note Issuers of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer for
offer or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known that makes
any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of
any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (vi)
of the determination by the Note Issuers that a post-effective amendment
to a Registration Statement would be appropriate.
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(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Notes or the Exchange Notes for sale in any jurisdiction, and, if any such
order is issued, to use its best efforts to obtain the withdrawal of any
such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof
and if requested by the managing underwriter or underwriters (if any), or
the Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such
Holders, or counsel for any of them reasonably request to be included
therein, (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after the Note
Issuers have received notification of the matters to be incorporated in
such prospectus supplement or post-effective amendment, and (iii) supple
ment or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-Dealer
who so requests and to counsel and each managing underwriter, if any, at
the sole expense of the Note Issuers, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein
by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their respective counsel, and the underwriters, if any,
at the sole expense of the Note Issuers, as many copies of the Prospectus
or Prospectuses (including each form of preliminary prospectus) and each
amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to
the last paragraph of this Section 5, each Note Issuer hereby consents to
the use of such Prospectus and each amendment or supplement thereto by
each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and
sale of the Registrable Notes covered by, or the sale by Participating
Broker-Dealers of
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the Exchange Notes pursuant to, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, to use its best efforts to register or qualify such
Registrable Notes (and to cooperate with selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters, if any, and their respective counsel
in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Notes) for offer
and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating Broker-
Dealer, or the managing underwriter or underwriters reasonably request in
writing; PROVIDED, HOWEVER, that where Exchange Notes held by
Participating Broker-Dealers or Registrable Notes' are offered other than
through an underwritten offering, the Note Issuers agree to cause their
counsel to perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h); keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange
Notes held by Participating Broker-Dealers or the Registrable Notes
covered by the applicable Registration Statement; PROVIDED, HOWEVER, that
none of the Note Issuers shall be required to (A) qualify generally to do
business in any jurisdiction where it is not then so qualified, (B) take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof or the underwriter or underwriters, if any, to dispose of
such Registrable Notes, except as may be required solely as a consequence
of the nature of a selling Holder's business, in which case each of the
Note Issuers will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals.
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(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, upon the occurrence of
any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as
promptly as practicable prepare and (subject to Section 5(a) hereof) file
with the SEC, at the sole expense of the Note Issuers, a supplement or
post-effective amendment to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom
such Prospectus will be delivered by a Participating Broker-Dealer, any
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, that this Section 5(k) shall not
be deemed to require the Note Issuers to disclose any information that, in
the good faith opinion of the management of the Note Issuers, is not yet
required to be disclosed and would not be in the best interests of the
Note Issuers to disclose, so long as the Note Issuers comply with all
applicable laws and government regulations and the last paragraph of this
Section 5.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or Exchange Notes,
as the case may be.
(m) In connection with any underwritten offering initiated by the
Note Issuers of Registrable Notes pursuant to a Shelf Registration, enter
into an underwriting agreement as is customary in underwritten offerings
of debt securities similar to the Notes and take all such other actions as
are reasonably requested by the managing underwriter or underwriters in
order to facilitate the registration or the disposition of such
Registrable Notes and, in such connection, (i) make such representations
and warranties to, and covenants with, the underwriters with respect to
the business of the Note Issuers and their respective subsidiaries and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by Note Issuers to underwriters in underwritten offerings
of debt securities similar to the Notes, and confirm the same in writing
if and when requested; (ii) obtain the written opinion of counsel to the
Note Issuers and written updates thereof in form, scope and substance
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reasonably satisfactory to the managing underwriter or underwriters,
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings of debt similar to the Notes
and such other matters as may be reasonably requested by the managing
underwriter or underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters from the independent certified
public accountants of the Note Issuers (and, if necessary, any other
independent certified public accountants of any subsidiary of any of the
Note Issuers or of any business acquired by any of the Note Issuers for
which financial statements and financial data are, or are required to be,
included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings of debt similar
to the Notes and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting agree
ment is entered into, the same shall contain indemnification provisions
and procedures no less favorable than those set forth in Section 7 hereof
(or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Notes covered by
such Registration Statement and the managing underwriter or underwriters
or agents) with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to
sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and
any attorney, accountant or other agent retained by any such selling
Holder or each such Participating Broker-Dealer, as the case may be, or
underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Note Issuers
and their respective subsidiaries (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and
employees of the Note Issuers and their respective subsidiaries to make
available for inspection all information reasonably requested by any such
Inspector in connection with such Registration Statement. Records which
any of the Note Issuers determine, in good faith, to be confidential and
any Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information is, in the opinion of
counsel (a copy of which shall be delivered to the Note Issuers) for any
Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector and arising out of, based upon, relating to, or
involving this Agreement, or any transactions contemplated hereby or
arising hereunder, or (iv) the information in such Records has been made
generally available to the public. Each selling Holder of such
Registrable Securities and each such
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<PAGE>
Participating Broker-Dealer will be required to agree that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Note Issuers unless and until such
information is generally available to the public. Each selling Holder
of such Registrable Notes and each such Participating Broker-Dealer will
be required to further agree that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give
notice to the Note Issuers and allow the Note Issuers to undertake
appropriate action to prevent disclosure of the Records deemed
confidential at the Note Issuers' sole expense.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable
Notes; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Note
Issuers after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(q) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Note Issuers (or
to such other Person as directed by the Note Issuers) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, shall
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes
or the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings
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<PAGE>
required to be made with the National Association of Securities Dealers,
Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Note Issuers may require each seller of Registrable Notes as to
which any Registration Statement is being effected to furnish to the Note
Issuers such information regarding such seller and the distribution of such
Registrable Notes as the Note Issuers may, from time to time, reasonably
request. The Note Issuers may exclude from such Registration Statement the
Registrable Notes of any seller who unreasonably fails to furnish such
information within a reasonable time after receiving such request. Each seller
as to which any Shelf Registration is being effected agrees to furnish promptly
to the Note Issuers all information required to be disclosed in order to make
the information previously furnished to the Note Issuers by such seller not
materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Note Issuers of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes or
Exchange Notes, as the case may be, covered by such Registration Statement or
Prospectus to be sold by such Holder or Participating Broker-Dealer, as the
case may be, until such Holder's or Participating Broker-Dealer's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Note
Issuers that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto. In the event the
Note Issuers shall give any such notice, each of the Effectiveness Period and
the Applicable Period shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice. In the event the Note Issuers do not give any such notice within
five business days, each Holder shall return such Registration Statement or
Prospectus to the Note Issuers or destroy all copies of such Registration
Statement or Prospectus; and if so requested by the Note Issuers, shall certify
that all copies of the Registration Statement or Prospectus were destroyed.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Note Issuers shall be borne by the Note
Issuers whether or not the Exchange Offer or a Shelf Registration is filed or
becomes effective, including, without
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limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with
the SEC and the NASD in connection with an underwritten offering and (B)
fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of the
Note Issuers' counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility
of the Registrable Notes or Exchange Notes for investment under the laws
of such jurisdictions (x) where the holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in
Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes
to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation,
expenses of printing certificates for Registrable Notes or Exchange
Notes in a form eligible for deposit with The Depository Trust Company
and of printing Prospectuses if the printing of Prospectuses is
requested by the managing underwriter or underwriters, if any, by the
Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or sold by any
Participating Broker-Dealer, as the case may be, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel
for the Note Issuers, (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(m)(iii) hereof
(including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance by or
incident to such performance), (vi) rating agency fees, if any, and any
fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vii)
Securities Act liability insurance, if the Note Issuers desire such
insurance, (viii) fees and expenses of all other Persons retained by the
Note Issuers, (ix) internal expenses of the Note Issuers (including,
without limitation, all salaries and expenses of officers and employees
of the Note Issuers performing legal or accounting duties), (x) the
expense of any annual audit, (xi) the fees and expenses incurred in
connection with the listing of the securities to be registered on any
securities exchange or any interdealer quotation system, if applicable,
and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements,
securities sales agreements, indentures and any other documents
necessary in order to comply with this Agreement.
(b) The Note Issuers, jointly and severally, shall reimburse the
Holders of the Registrable Notes being registered in a Shelf Registration for
the reasonable fees and disbursements of not more than one counsel chosen in
writing by the Holders of a majority in aggregate principal amount of the
Registrable Notes to be included in such Registration Statement. In addition,
the Note Issuers, jointly and severally, shall reimburse the Initial Purchaser
for 50% (but not more than $50,000) of the reasonable fees and expenses of one
counsel in connection with the Exchange Offer which shall be White & Case LLP,
and shall not be required to pay any other legal expenses of the Initial
Purchaser in connection therewith.
7. INDEMNIFICATION. (a) Each of the Note Issuers, jointly and
severally, agrees to indemnify and hold harmless each Holder of Registrable
Notes offered pursuant to a Shelf Registration Statement and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the
affiliates, directors, officers, agents, representatives and employees of each
such Person or its affiliates, and each other Person, if any, who controls any
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such Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant") from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the Note Issuers will not be required to indemnify a Participant if (i)
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and
in conformity with information furnished to the Note Issuers in writing by or
on behalf of such Participant expressly for use therein or (ii) if such
Participant sold to the person asserting the claim the Registrable Notes or
Exchange Notes which are the subject of such claim and such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material
fact that was the subject matter of the related proceeding and such Participant
failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Registrable Notes or Exchange Notes sold to such Person if required by
applicable laws, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Note Issuers with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Note Issuers, their respective directors and officers and
each Person who controls the Note Issuers within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Note Issuers to each Participant, but only (i)
with reference to information furnished to the Note Issuers in writing by or on
behalf of such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary prospectus
or (ii) with respect to any untrue statement or representation made by such
Participant in writing to the Note Issuers.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of
the two preceding paragraphs, such Person (the "Indemnified Person") shall
promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, shall have the
right to retain counsel reasonably satisfactory to the Indemnified Person to
represent the Indemnified Person and any others the Indemnifying Person may
reasonably designate in such proceeding and shall pay the reasonable fees and
expenses actually incurred by such counsel
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related to such proceeding; PROVIDED, HOWEVER, that the failure to so
notify the Indemnifying Person shall not relieve it of any obligation or
liability which it may have hereunder or otherwise (unless and only to
the extent that such failure results in the loss or compromise of any
material rights or defenses by the Indemnifying Person). In any such
proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Indemnifying Person
and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person
and the Indemnified Person and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Person shall not,
in connection with any one such proceeding or separate but substantially
similar related proceeding in the same jurisdiction arising out of the
same general allegations, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such reasonable fees and expenses
shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants shall be designated in writing by Participants
who sold a majority in interest of Registrable Notes and Exchange Notes
sold by all such Participants and any such separate firm for the Note
Issuers, their directors, their officers and such control Persons of the
Note Issuers shall be designated in writing by the Note Issuers. The
Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent, but if settled
with such consent or if there be a final nonappealable judgment for the
plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending
or threatened proceeding in respect of which any Indemnified Person is
or could have been a party, and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement (A)
includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person,
from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified
Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b)
hereof is for any reason unavailable to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted
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<PAGE>
by applicable law, not only such relative benefits but also the relative
fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the
statements or omissions or alleged statements or omissions that resulted
in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Note
Issuers on the one hand or such Participant or such other Indemnified
Person, as the case may be, on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations
appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified Person
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. RULES 144 AND 144A. The Note Issuers covenant that they will
file the reports required to be filed by them under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder in a
timely manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time the Note Issuers are not required to file such
reports, they will, upon the request of any Holder of Registrable Notes, make
publicly available annual reports and such information, documents and other
reports of the type specified in Sections 13 and 15(d) of the Exchange Act.
The Note Issuers further covenant for so long as any Registrable Notes remain
outstanding, to make available to any Holder or beneficial owner of Registrable
Notes in connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule 144(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.
-22-
<PAGE>
9. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering and
reasonably acceptable to the Note Issuers.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. None of the
Note Issuers have entered, as of the date hereof, and none of the Note Issuers
shall, after the date of this Agreement, enter into any agreement with respect
to any of its securities that is inconsistent with the rights granted to the
Holders of Registrable Notes in this Agreement or otherwise conflicts with the
provisions hereof. None of the Note Issuers have entered and none of the Note
Issuers will enter into any agreement with respect to any of its securities
which will grant to any Person piggyback registration rights with respect to a
Registration Statement other than those piggyback registration rights granted
under the Registration Rights and Members' Agreement dated as of July 8, 1998
by and among Epic Resorts, LLC, Epic Capital Corp., Members of Epic Resorts,
LLC and NatWest Capital Markets Limited.
(b) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. None of the Note
Issuers shall, directly or indirectly, take any action with respect to the
Registrable Notes as a class that would adversely affect the ability of the
Holders of Registrable Notes to include such Registrable Notes in a
registration undertaken pursuant to this Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of the Holders of not less than a majority in aggregate
principal amount of the then outstanding Registrable Notes. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Notes whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair, limit or
compromise the rights of other Holders of Registrable Notes may be given by
Holders of at least a majority in aggregate principal amount of the Registrable
Notes being sold by such Holders pursuant to such Registration Statement;
PROVIDED, HOWEVER, that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee)
provided for or permitted
-23-
<PAGE>
hereunder shall be made in writing by hand delivery, registered first
class mail, next day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchaser as follows:
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Attention: N.S. Coulbeck
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to a Note Issuer, as follows:
Epic Resorts, LLC
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Attention: Thomas F. Flatley
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attention: Christopher M. Kelly, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
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<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto; PROVIDED, HOWEVER, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder unless and to
the extent such successor or assign holds registrable Notes.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) NOTES HELD BY THE NOTE ISSUERS OR THEIR AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes
is required hereunder, Registrable Notes held by the Note Issuers or their
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) THIRD PARTY BENEFICIARIES. Holders of Registrable Notes and Par
ticipating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Agreement as of the
date first written above.
EPIC RESORTS, LLC
By: EPIC MEMBERSHIP CORP., its
Managing Member
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC CAPITAL CORP.
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
DAYTONA BEACH REGENCY, LTD.
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
LONDON BRIDGE RESORT, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
-26-
<PAGE>
EPIC RESORTS-WESTPARK RESORT, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS-SCOTTSDALE LINKS RESORT, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS-PALM SPRINGS MARQUIS VILLAS, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
RESORT MANAGEMENT, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
RESORT INVESTMENT, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
-27-
<PAGE>
EPIC TRAVEL, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC RESORTS-HILTON HEAD, LLC
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/ A. F. Irby
----------------------------
Name: A. F. Irby
Title: Director
-28-
<PAGE>
ANNEX A
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until _______________, 199_, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.1
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any broker-
dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Notes Act.
- ---------------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S><C> <C>
1. ..................................................Definitions 2
2. ...............................................Exchange Offer 5
3. ...........................................Shelf Registration 8
4. ..........................................Additional Interest 9
5. ......................................Registration Procedures 10
6. ........................................Registration Expenses 18
7. ..............................................Indemnification 19
8. ...........................................Rules 144 and 144A 21
9. ...................................Underwritten Registrations 22
10. ...............................................Miscellaneous 22
(a) .................................No Inconsistent Agreements 22
(b) ....................Adjustments Affecting Registrable Notes 22
(c) .....................................Amendments and Waivers 22
(d) ....................................................Notices 23
(e) .....................................Successors and Assigns 24
(f) ...............................................Counterparts 24
(g) ...................................................Headings 24
(h) ..............................................Governing Law 24
(i) ...............................................Severability 24
(j) .........Notes Held by the Note Issuers or their Affiliates 24
(k) ..................................Third Party Beneficiaries 25
</TABLE>
<PAGE>
Exhibit 8.1
August 13, 1998
Epic Resorts, LLC
1150 First Avenue
Suite 900
King of Prussia, PA 19406
Re: Epic Resorts, LLC Exchange Offer
Ladies and Gentlemen:
We have acted as special tax counsel to Epic Resorts, LLC, a
Delaware limited liability company (the "COMPANY") in connection with the
exchange of Notes, the terms of which are described in the Company's Offering
Memorandum dated June 30, 1998 (the "OFFERING MEMORANDUM"), for Exchange
Notes, as described in the Company's Exchange Offer Registration Statement
dated August 13, 1998 (the "REGISTRATION STATEMENT"). Capitalized terms used
herein but not defined have the meanings assigned to them in the Registration
Statement and Offering Memorandum.
For purposes of this opinion, we have relied upon, and assumed the
completeness, truth, and accuracy of, the information contained in the
Registration Statement and Offering Memorandum and representations made to us
by officers of the Company, whether orally or in writing, with respect to the
subject matter of the opinion.
Based upon and subject to the foregoing, and provided that the
Registration Statement and Offering Memorandum set forth all of the material
facts relating to the Exchange Offer, we are of the opinion that the section
entitled "Material United States Federal Tax Consequences" contained in the
Registration Statement accurately sets forth our opinion as to the material
United States federal income and estate tax consequences to a holder of Notes
of participation in the Exchange Offer.
This opinion relates solely to federal tax considerations and no
opinion is expressed as to considerations under any foreign, state or local
tax law. Further, no opinion is expressed as to the effect upon the opinion
set forth above of any provision of law that may affect any particular person
differently than any other person, by reason of such first-mentioned person's
special status, characteristics or situation. Except as explicitly stated
herein, no other opinion is expressed or implied. This opinion is based upon
the currently applicable provisions of the Code, regulations thereunder,
current published positions of the Internal Revenue Service, and judicial
authorities published to date, all of which are subject to change by the
Congress, the Treasury Department, the Internal Revenue Service or the
courts. Any such change may be retroactive with respect to transactions
entered into prior to the date of such change. No
<PAGE>
Epic Resorts, LLC
August 13, 1998
Page 2
assurance can be provided as to the effect upon our opinion of any such
change. Finally, this opinion is not binding upon the Internal Revenue
Service or the courts, and no assurance can be given that they will accept
this opinion or agree with the views expressed herein.
This opinion is intended for the sole benefit of the Company, and
is not to be relied upon by any other person without our prior written
consent.
We hereby consent to the filing of this opinion as Exhibit 8.1 to
the Registration Statement filed by the Company and to the reference to us, as
special tax counsel, under the caption "Material United States Federal Tax
Consequences" in the Prospectus constituting part of such Registration
Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE>
EXECUTION VERSION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AND MEMBERS' AGREEMENT
dated as of July 8, 1998
by and among
EPIC RESORTS, LLC,
EPIC MEMBERSHIP CORP.,
MEMBERS OF EPIC RESORTS, LLC,
EPIC CAPITAL CORP.,
EPIC WARRANT CO.
and
NATWEST CAPITAL MARKETS LIMITED
as the Initial Purchaser
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
THIS REGISTRATION RIGHTS AND MEMBERS' AGREEMENT (this "Agreement")
is dated as of July 8, 1998, by and among Epic Resorts, LLC, a Delaware
limited liability company ("Epic" or the "Company"), Epic Capital Corp., a
Delaware corporation ("Capital Corp."), Epic Membership Corp., the Existing
Members (as defined herein), Epic Warrant Co., a Delaware corporation
("Warrant Co."), and NatWest Capital Markets Limited ("Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 30, 1998, among the Company, Capital Corp., Warrant
Co., the other subsidiaries of the Company and the Initial Purchaser (the
"Purchase Agreement"), relating to, among other things, the sale by the
Company to the Initial Purchaser, at the election of the Initial Purchaser,
of either warrants (the "LLC Warrants") to purchase membership interests of
the Company ("Membership Interests") or warrants (the "Corporate Warrants")
to purchase shares of common stock of Warrant Co. to be issued upon exercise
of the Corporate Warrants. The only assets of Warrant Co. will be warrants
in the Company with the same terms as the LLC Warrants (the "Warrant Co. LLC
Warrants" and, together with the LLC Warrants, the "Warrants"). In order to
induce the Initial Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide to the Holders (as defined herein), among other
things, the registration rights for Membership Interests set forth in this
Agreement and the Existing Members have agreed to provide the Holders, among
other things, the tag-along rights for the Warrants and Membership Interests
as set forth herein. In order to induce the Existing Members to enter into
this Agreement, the Initial Purchaser has agreed on behalf of the Holders to
provide to the Existing Members, among other things, the drag-along rights
for the Warrants and Membership Interests as set forth herein. The execution
and delivery of this Agreement is a condition to the obligation of the
Initial Purchaser to purchase either the LLC Warrants or the Corporate
Warrants under the Purchase Agreement.
The parties hereby agree as follows:
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"AFFILIATE" means, when used with reference to any Person, any
other Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the referenced Person or such other
Person, as the case may be. For the purposes of this definition, "control"
(including, with correlative meanings, the term "controlling," "controlled
by," and "under common control with"), when used with respect to any
specified Person, means the power to direct or cause the direction of
management or policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
Neither the Holders nor any of their Affiliates shall be deemed to be an
Affiliate of the Company or of any of its Affiliates in their capacities as
such.
<PAGE>
"BUSINESS DAY" shall mean a day that is not a Legal Holiday.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXISTING MEMBERS" shall mean (i) Thomas F. Flatley, (ii) the
successors, assigns or heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of Thomas F. Flatley, (iii) a trust the
beneficiary of which includes only Thomas F. Flatley or of which he exercises
sole control, and (iv) Epic Membership Corp., a Delaware corporation wholly
owned by Thomas F. Flatley.
"HOLDER" shall mean the Initial Purchaser and Warrant Co., for so
long as such entity owns any Warrants, Registrable Securities or Membership
Interests, and each of their respective successors, assigns and direct and
indirect transferees who become registered owners of Warrants, Registrable
Securities or Membership Interests.
"INDENTURE" shall mean the Indenture dated as of July 8, 1998 among
the Company, Capital Corp., the Subsidiary Guarantors (as therein defined)
and United States Trust Company of New York, as Trustee, as supplemented or
amended from time to time in accordance with the terms thereof.
"LEGAL HOLIDAY" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday.
"MEMBER" means, collectively, each holder of Membership Interests,
each Existing Member and each Permitted Transferee.
"MEMBERSHIP INTERESTS" shall mean the Membership Interests and any
other securities issued or issuable upon exercise of the Warrants and any
successor securities to any of them.
"OPERATING AGREEMENT" means the Agreement of Membership of the
Company, dated July 7, 1998, by and among the Existing Members, as the same
may be amended from time to time.
"PERMITTED TRANSFEREE" shall mean any (i) Member, (ii) the Company,
and (iii) any Affiliate of any Member or the Company to the extent such
Person agrees to be bound by this Agreement.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
-2-
<PAGE>
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material
incorporated by reference, if any, in such Prospectus.
"REGISTRABLE SECURITIES" shall mean the Membership Interests and
any other securities issued or issuable upon exercise of the Warrants. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a Registration Statement with respect to such
securities shall have been declared effective under the Securities Act and
such securities shall have been disposed of pursuant to such Registration
Statement, (ii) such securities have been sold to the public pursuant to Rule
144 (or any similar provision then in force, but not Rule 144A under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or resolution hereafter adopted by the SEC) under the Securities Act,
(iii) such securities shall have been otherwise Transferred by their Holder
and new certificates for such securities not bearing a legend restricting
further Transfer shall have been delivered by the Company or its Transfer
Agent and subsequent disposition of such securities shall not require
registration or qualification under the Securities Act or any similar state
law then in force or (iv) such securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees and
expenses of compliance with securities or blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters
in connection with blue sky qualifications of the Registrable Securities),
rating agency fees, printing expenses, messenger, telephone and delivery
expenses, fees and disbursements of counsel for the Company and all
independent certified public accountants, the fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (but not
including any underwriting discounts or commissions or transfer taxes, if
any, attributable to the sale of Registrable Securities by Holders of such
Registrable Securities) and other reasonable out-of-pocket expenses of
Holders.
"REGISTRATION STATEMENT" shall mean any registration statement of
the Company which covers any of the Membership Interests pursuant to the
provisions of this Agreement and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"RESTRICTED SECURITY" shall mean any Membership Interest which is a
"restricted security" within the meaning of Rule 144(a)(3) under the
Securities Act.
-3-
<PAGE>
"RULE 144" shall mean Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A under the Securities Act) or regulation hereafter adopted by the SEC
providing for offers and sales of securities made in compliance therewith
resulting in offers and sales by subsequent holders that are not affiliates
of an issuer of such securities being free of the registration and prospectus
delivery requirements of the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"TRANSFER" shall have the meaning set forth in Section 3.
"TRANSFER AGENT" means any transfer agent or registrar appointed by
the Company for the Warrants or Membership Interests.
2. REGISTRATION RIGHTS.
2.1. PIGGY-BACK REGISTRATION.
(a) If at any time the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any holder of Membership Interests
(other than (i) a registration statement on Form S-8 (or any substitute form
that may be adopted by the SEC), (ii) a Registration Statement filed in
connection with an offer or offering of securities solely to the Company's
existing securityholders or (iii) a Registration Statement filed in
connection with an initial public offering by the Company), then the Company
shall give written notice of such proposed filing to the Holders as soon as
practicable (but in no event less than 20 Business Days before the
anticipated filing date), and such notice shall offer the Holders the
opportunity to register such number of Registrable Securities as each of the
Holders may request (which request shall specify the Registrable Securities
intended to be disposed of by such selling Holder and the intended method of
distribution thereof) (a "Piggy-Back Registration"). The Company shall use
its reasonable best efforts to cause the managing underwriter or underwriters
of such proposed underwritten offering to permit the Registrable Securities
requested to be included in a Piggy-Back Registration to be included on the
same terms and conditions as any similar securities of any other
securityholder included therein and to permit the sale or other disposition
of such Registrable Securities in accordance with the intended method of
distribution thereof. Any selling Holder shall have the right to withdraw
its request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.1 by giving written notice to the
Company of its request to withdraw. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective; PROVIDED
that the Company shall give prompt notice thereof to participating selling
Holders. The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this
Section 2.1, and each Holder shall pay all underwriting discounts and
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commissions and transfer taxes, if any, relating to the sale or disposition
of such Holder's Registrable Securities pursuant to a Registration Statement
effected pursuant to this Section 2.1.
(b) No failure to effect a registration under this Section 2.1 and
to complete the sale of Registrable Securities in connection therewith shall
relieve the Company of any other obligation under this Agreement.
2.2. REDUCTION OF OFFERING.
(a) If the managing underwriter or underwriters of any
underwritten offering described in Section 2.1 have informed, in writing, the
selling Holders of the Registrable Securities requesting inclusion in such
offering that it is their opinion that the total amount of Membership
Interests (or other equity securities) which the Company, the selling Holders
and any other Persons desiring to participate in such registration intend to
include in such offering is such as to materially and adversely affect the
success of such offering, including the price at which such securities can be
sold, then the amount of Membership Interests to be offered for the account
of the selling Holders and all such other Persons (other than the Company)
participating in such registration shall be reduced or limited PRO RATA in
proportion to the respective amounts of Membership Interests requested to be
registered to the extent necessary to reduce the total amount of Membership
Interests requested to be included in such offering to the amount of
Membership Interests, if any, recommended by such managing underwriters;
PROVIDED, however, that if such offering is effected for the account of any
securityholder of the Company other than the selling Holders, pursuant to the
demand registration rights of any such securityholder, then the amount of
Membership Interests to be offered for the account of the Company (if any)
and the selling Holders (but not such securityholders who have exercised
their demand registration rights) shall be reduced or limited PRO RATA in
proportion to the respective amounts of Membership Interests requested to be
registered to the extent necessary to reduce the total amount of Membership
Interests requested to be included in such offering to the amount of
Membership Interests, if any, recommended by such managing underwriters.
(b) If the managing underwriter or underwriters of any
underwritten offering described in Section 2.1 notify the selling Holders
requesting inclusion of Registrable Securities in such offering that the
number of Registrable Securities that the selling Holders, the Company and
any other Persons desiring to participate in such registration intend to
include Registrable Securities in such offering is such as to materially and
adversely affect the success of such offering, (x) the Registrable Securities
to be included in such offering shall be reduced as described in Subsection
2.2(a) or (y) if a reduction in the Registrable Securities pursuant to
Subsection 2.2(a) would, in the judgment of the managing underwriter or
underwriters, be insufficient to substantially eliminate the adverse effect
that inclusion of the Registrable Securities requested to be included would
have on such offering, such Registrable Securities will be excluded from such
offering.
(c) If, as a result of the proration provisions of this Section
2.2, any selling Holder shall not be entitled to include all Registrable
Securities in a Piggy-Back Registration that
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such selling Holder has requested to be included, such selling Holder may
elect to withdraw his request to include Registrable Securities in such
registration; PROVIDED, however, that such a withdrawal shall be irrevocable
and, after making such withdrawal, a selling Holder shall no longer have any
right to include Registrable Securities in the registration as to which such
withdrawal was made.
2.3. REGISTRATION PROCEDURES. In connection with the obligations of the
Company with respect to any Registration Statement pursuant to Section 2.1,
to the extent Registrable Securities are sought to be registered pursuant
thereto the Company shall:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the Securities Act, which form (i) shall be selected
by the Company and (ii) shall comply as to form in all material respects with
the requirements of such form and include all financial statements required
by the SEC to be filed therewith, and the Company shall use its reasonable
best efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2.1;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
to keep such Registration Statement effective, cause each Prospectus to be
supplemented by any required prospectus supplement and, as so supplemented,
to be filed pursuant to Rule 424 under the Securities Act;
(c) furnish to each Holder of Registrable Securities and to each
underwriter of an underwritten offering of Registrable Securities, if any,
without charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents
as such Holder or underwriter may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Securities;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or Blue Sky laws
of such jurisdictions as any Holder shall reasonably request in writing by
the time the applicable Registration Statement is declared effective by the
SEC, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
each such jurisdiction of such Registrable Securities owned by such Holder;
PROVIDED, however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Subsection 2.3(d),
(ii) file any general consent to service of process or (iii) subject itself
to taxation in any such jurisdiction if it is not so subject;
(e) notify each Holder of Registrable Securities promptly and, if
requested by such Holder, confirm such advice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by
the SEC or any state securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC
or any state securities authority
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of any stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose, (iv) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties of
the Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering cease
to be true and correct in all material respects or if the Company receives
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose and (v) of the happening of any event during the
period a Registration Statement is effective which makes any statement made
in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein
not misleading;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(g) furnish to each Holder of Registrable Securities, without
charge, at least one conformed copy of each Registration Statement and any
post-effective amendment thereto (with documents incorporated therein by
reference or exhibits thereto);
(h) cooperate with the selling Holders of Registrable Securities
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends and registered in such names as the selling Holders may
reasonably request at least two Business Days prior to the closing of any
sale of Registrable Securities;
(i) upon the occurrence of any event contemplated by Subsection
2.3(e)(v) hereof, use reasonable efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; PROVIDED, however, that the Company shall not be
required to amend or supplement a Registration Statement, any related
Prospectus or any document incorporated therein by reference in the event
that, and for so long as, an event occurs and is continuing as a result of
which the Registration Statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented would, in
the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances under which
they are made. The Company agrees to notify each Holder to suspend use of
the Prospectus as promptly as practicable after the occurrence of such an
event, and each Holder hereby agrees to suspend use of the Prospectus until
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission. At such time as such public disclosure is
otherwise made or the Company determines in good faith that such
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disclosure is not necessary, the Company agrees promptly to notify each
Holder of such determination, to amend or supplement the Prospectus if
necessary to correct any untrue statement or omission therein and to furnish
each Holder such numbers of copies of the Prospectus as so amended or
supplemented as each Holder may reasonably request;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus after
initial filing of a Registration Statement, provide copies of such document
to the Holders and make available for discussion of such document the
representatives of the Company as shall be reasonably requested by the
Holders of Registrable Securities;
(k) obtain a CUSIP number for the Membership Interests;
(l) (i) make reasonably available for inspection by a
representative of, and counsel for, any underwriter participating in any
disposition pursuant to a Registration Statement, all relevant financial and
other records, pertinent corporate documents and properties of the Company
and (ii) cause the Company's officers and employees to supply all relevant
information reasonably requested by such representative, counsel or any such
underwriter in connection with any such Registration Statement; and
(m) if requested by the Holders in connection with any
Registration Statement, shall use its reasonable best efforts to cause (i)
counsel for the Company to deliver an opinion relating to the Registration
Statement and the Company interests of the Company, in customary form, (ii)
its President to execute and deliver all customary documents and certificates
requested by a representative of the Holders or any underwriter, as
applicable and (iii) its independent public accountants to provide a comfort
letter in customary form.
The Company may, as a condition to such Holder's participation in
any Registration Statement, require each Holder of Registrable Securities to
(i) furnish to the Company such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing and (ii) agree in
writing to be bound by this Agreement.
2.4. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Holder
of Registrable Securities offered pursuant to a Registration Statement, the
Affiliates, directors, officers, agents, representatives and employees of
each such Person or its affiliates, and each other Person, if any, who
controls any such Person or its Affiliates within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant") from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement pursuant to
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which the offering of such Registrable Securities is registered (or any
amendment thereto) or related Prospectus (or any amendments or supplements
thereto) or any related preliminary prospectus, or caused by, arising out of
or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER that the Company will not be required to
indemnify a Participant if (i) such losses, claims, damages or liabilities
are caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of such Participant expressly for
use therein or (ii) if such Participant sold to the person asserting the
claim the Registrable Securities which are the subject of such claim and such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the
Prospectus or any amendment or supplement thereto and the Prospectus does not
contain any other untrue statement or omission or alleged untrue statement or
omission of a material fact that was the subject matter of the related
proceeding and such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Securities sold to such Person
if required by applicable laws, unless such failure to deliver or provide a
copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 2.3 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, it officers and each Person who
controls the Company (including Capital Corp.) within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to each Participant, but only (i)
with reference to information furnished to the Company in writing by or on
behalf of such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary
prospectus or (ii) with respect to any untrue statement or representation
made by such Participant in writing to the Company.
(c) If any suit, action, proceeding (including any governmental
or regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person,
shall have the right to retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which
it may have hereunder or otherwise (unless and only to the extent that such
failure results in the loss or compromise of any material rights or defenses
by the Indemnifying Person). In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i)
the Indemnifying Person and the Indemnified Person shall have mutually agreed
in writing to the
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contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that, unless there exists a conflict among Indemnified
Persons, the Indemnifying Person shall not, in connection with any one such
proceeding or separate but substantially similar related proceeding in the
same jurisdiction arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Indemnified Persons, and that all such reasonable fees
and expenses shall be reimbursed promptly as they are incurred. Any such
separate firm for the Participants shall be designated in writing by
Participants who sold a majority in interest of Registrable Securities sold
by all such Participants and any such separate firm for the Company, its
Managing Member and their directors, their officers and such control Persons
of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its prior written consent, but if settled with such consent
or if there be a final non-appealable judgment for the plaintiff for which
the Indemnified Person is entitled to indemnification pursuant to this
Agreement the Indemnifying Person agrees to indemnify and hold harmless each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior
written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have
been sought hereunder by such Indemnified Person, unless such settlement (A)
includes an unconditional written release of such Indemnified Person, in form
and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding and (B)
does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Subsections 2.4(a) and
2.4(b) hereof is for any reason unavailable to an Indemnified Person in
respect of any losses, claims, damages or liabilities referred to therein,
then each Indemnifying Person under such Subsections, in lieu of indemnifying
such Indemnified Person thereunder and in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and
the Indemnified Person or Persons on the other from the offering of the
Warrants or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements
or omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case
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may be, on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Subsection 2.4 were determined by PRO RATA
allocation (even if the Participants were treated as one entity for such
purposes) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding Subsection shall be deemed to include, subject to the limitations
set forth above, any reasonable legal or other expenses actually incurred by
such Indemnified Person in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Subsection 2.4,
in no event shall a Participant be required to contribute any amount in
excess of the amount by which proceeds received by such Participant from
sales of Registrable Securities exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Subsection 2.4 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
3. RESTRICTIONS ON TRANSFER.
3.1. EXISTING MEMBERS. No Existing Member shall, directly or
indirectly, sell, assign, give, transfer, exchange, convert, devise,
bequeath, pledge or otherwise dispose of, in any transaction or series of
transactions (each, a "Transfer"), any Membership Interest or the beneficial
ownership thereof or any interest therein except (i) in compliance with
Sections 4 or 5, as the case may be, (ii) to a Permitted Transferee
(including, without limitation, to Warrant Co. if such Transfer is solely for
the purpose of exchanging such Transferred Membership Interest for
corresponding Common Stock in Warrant Co.), (iii) in a bona fide public
distribution pursuant to an effective registration statement under the
Securities Act or (iv) without limiting the application of Sections 4 and 5,
in a transaction to which Sections 4 and 5 do not apply (each Transfer
permitted by clauses (ii), (iii) and (iv) being an ("Exempt Transfer").
3.2. HOLDERS OF MEMBERSHIP INTERESTS. No Holder of any Membership
Interest shall Transfer such Membership Interest or the beneficial ownership
thereof or any interest therein except in compliance with Section 6.
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4. TAG-ALONG RIGHTS.
4.1. TRANSFER BY EXISTING MEMBERS.
(a) In the event of any proposed Transfer (a "Proposed Tag-Along
Transfer") of any Membership Interest by any of the Existing Members or their
respective Permitted Transferees in a single transaction or a series of
related transactions involving Membership Interests of the Company
aggregating at least 15% of the Membership Interests of the Company then
collectively owned by the Existing Members to a Person (such other Person
being hereinafter referred to as the "Proposed Purchaser"), other than
pursuant to an Exempt Transfer, the Holders of Warrants and Membership
Interests (the "Non-Selling Members") shall each have the irrevocable and
exclusive right, but not the obligation (the "Tag-Along Right"), to require
the purchase from each of them up to such number of Warrants and/or
Membership Interests determined in accordance with Section 4.3.
(b) Any Warrants or Membership Interests purchased from the
Holders pursuant to this Section 4.1 shall be paid for at the same price per
Membership Interest and upon the same terms and conditions as apply to the
proposed Transfer by such Existing Members; PROVIDED that the price per
Warrant payable by the Proposed Purchaser shall equal the price proposed to
be paid per Membership Interest for which such Warrant is exercisable, less
the exercise price of such Warrant.
(c) The Company or an Existing Member shall give written notice
at least 15 days prior to the date of any Proposed Tag-Along Transfer to the
Non-Selling Members stating (i) the name and address of the Proposed
Purchaser, (ii) the proposed amount of consideration and terms and conditions
of payment offered by such Proposed Purchaser (if the proposed consideration
is not cash, the notice shall describe the terms of the proposed
consideration), (iii) the amount of Membership Interests proposed to be
Transferred and (iv) that either the Proposed Purchaser has been informed of
the Tag-Along Right and has agreed to purchase Warrants and/or Membership
Interests in accordance with the terms hereof or that the Existing Members
will make such purchase. The Tag-Along Right may be exercised by any or all
of the Non-Selling Members by giving written notice to the Company and the
Person proposing to make such Transfer ("Tag-Along Notice"), within 5
Business Days of receipt of the notice specified in the preceding sentence,
indicating its election to exercise the Tag-Along Right (the "Participating
Holders"). The Tag-Along Notice shall state the amount of Warrants and/or
Membership Interests that such Participating Holder proposes to include in
such Transfer to the Proposed Purchaser. Failure by any Non-Selling Member
to give such notice within the 5 Business Days notice period shall be deemed
an election by such Non-Selling Member not to sell its Warrants and/or
Membership Interests in connection with that proposed Transfer. The closing
with respect to any sale to a Proposed Purchaser pursuant to this Section 4.1
shall be held at the time and place specified in the Tag-Along Notice but in
any event within 30 days of the date the Tag-Along Notice is given; PROVIDED
that if through the exercise of reasonable efforts the Existing Members or
Permitted Transferees so proposing to transfer Membership Interests are
unable to cause such transaction to close within 30 days, such period may be
extended for such reasonable
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period of time as may be necessary to close such transaction. Consummation
of the sale of Warrants and/or Membership Interests by any Existing Member or
Permitted Transferee to a Proposed Purchaser shall be conditioned upon
consummation of the sale by each Participating Holder to such Proposed
Purchaser of the securities subject to the Tag-Along Right, if any.
4.2. PURCHASE OBLIGATION OF EXISTING MEMBERS. In the event that
the Proposed Purchaser does not purchase such Warrants and/or Membership
Interests from the Participating Holders on the same terms and conditions as
purchased from the Existing Members or such Permitted Transferees, then the
Existing Members or such Permitted Transferees making such Transfer shall
purchase such securities if the Transfer occurs on such terms and conditions.
4.3. DETERMINATION OF TRANSFERRED INTERESTS. The number of
Warrants and/or Membership Interests purchased from each Participating Holder
shall be determined by multiplying the aggregate amount of Membership
Interests proposed to be sold by the Existing Members and/or such Permitted
Transferees to the Proposed Purchaser by a fraction, the numerator of which
is the total number of Membership Interests (including the number of
Membership Interests issuable upon exercise of the Warrants) owned by such
Participating Holder and the denominator of which is the total number of
Membership Interests (including the number of Membership Interests issuable
upon exercise of the Warrants) outstanding. In the event that any
Participating Holder shall elect to sell less than the maximum number of
Warrants and/or Membership Interests he is entitled to sell pursuant to the
provisions of this Section 4 then each other Participating Holder shall have
the right to sell additional Warrants and Membership Interests, pro rata
according to the respective number of Warrants and Membership Interests
offered for sale by the Participating Holders.
4.4. COSTS OF TRANSFER. The Existing Members and/or Permitted
Transferees who are parties to a sale to a Proposed Purchaser shall arrange
for payment directly by the Proposed Purchaser to each Participating Holder,
upon delivery of the certificate or certificates representing the Warrants
and/or Membership Interests duly endorsed for transfer, together with such
other documents as the Proposed Purchaser may reasonably request. The
reasonable costs and expenses incurred by the Existing Members and/or
Permitted Transferees and Participating Holders in connection with a sale of
Warrants and/or Membership Interests subject to this Section 4 shall be
allocated PRO RATA based upon the proceeds from the securities sold by each
Member and Participating Holder to a Proposed Purchaser; PROVIDED, that the
costs and expenses shall not include the fees and expenses of more than one
law firm, which firm shall be selected by the Existing Members, unless
representation of the Existing Members and/or Permitted Transferees and the
Participating Holders by the same counsel, due to actual or potential
differing interests between them, shall create a conflict of interest, in
which case the costs and expenses shall include the reasonable fees and
expenses of one additional law firm designated by Participating Holders
proposing to sell a majority of the Warrants and/or Membership Interests
proposed to be sold by all Participating Holders.
4.5. EXPIRATION OF TAG-ALONG RIGHT. If at the end of 30 days
following the date on which a Tag-Along Notice was given, or as otherwise
extended pursuant to the provisions of
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Subsection 4.1, the sale of Warrants and/or Membership Interests by the
Existing Members and/or Permitted Transferees and the sale of the Warrants
and/or Membership Interests by the Participating Holders have not been
completed in accordance with the terms of the Proposed Purchaser offer, all
certificates representing such Warrants and Membership Interests shall be
returned to the Participating Holders, and all the restrictions on sale,
transfer or assignment contained in this Agreement with respect to Membership
Interests owned by the Existing Members and Permitted Transferees shall again
be in effect.
4.6. TERMINATION. Tag-Along Rights shall terminate upon the
effectiveness of any registration statement filed with the SEC with respect
to Membership Interests in an initial public offering or subsequent public
offering if, after giving effect to such offering, at least 50% of the
Membership Interests on a fully-diluted basis would be held by non-Affiliates
of the Company and without restriction on transfer under the Securities Act.
5. DRAG-ALONG RIGHTS.
5.1. TRANSFER BY EXISTING MEMBERS.
(a) In the event of any proposed Transfer (a "Proposed Drag-Along
Transfer") of any Membership Interests by any of the Existing Members or
their respective Permitted Transferees in any single transaction or a series
of related transactions involving Membership Interests that aggregate at
least 51% of the total Membership Interests then outstanding, to a Person
(such other Person being hereinafter referred to as the "Proposed
Majority-Interest Purchaser"), other than pursuant to an Exempt Transfer,
such selling Existing Members or Permitted Transferees shall have the
exclusive and irrevocable right, but not the obligation (the "Drag-Along
Right"), to require each Holder to Transfer to the Proposed Majority-Interest
Purchaser the number of Membership Interests (and/or Warrants exercisable for
an amount of Membership Interests) determined in accordance with Subsection
5.3.
(b) Any Warrants or Membership Interests purchased from Holders
pursuant to this Section 5.1 shall be paid for at the same price per
Membership Interest, and upon the same terms and conditions of such proposed
Transfer by such Existing Members; PROVIDED that the price per Warrant
payable by the Proposed Majority Interest Purchaser shall equal the price
proposed to be paid per Membership Interest for which such Warrant is
exercisable, less the exercise price of such Warrant.
(c) The Company or the Existing Members shall notify, or cause to
be notified, each Holder in writing of any Proposed Drag-Along Transfer at
least 15 days prior to the date thereof (the "Drag-Along Notice"). Such
notice shall set forth (i) the name of the Proposed Majority-Interest
Purchaser and the number of Membership Interests proposed to be Transferred,
(ii) the name and address of the Proposed Majority-Interest Purchaser, (iii)
the proposed amount of consideration and terms and conditions of payment
offered by such Proposed Majority-Interest Purchaser (if the proposed
consideration is not cash, the notice shall describe the terms of the
proposed consideration) and (iv) that either the Proposed Majority-Interest
Purchaser has been informed of the Drag-Along Right and has agreed to
purchase
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<PAGE>
Warrants and/or Membership Interests in accordance with the terms hereof or
that the Existing Members will make such purchase. The closing with respect
to any Transfer to a Proposed Majority-Interest Purchaser pursuant to this
Section 5 shall be held at the time and place specified in the Drag-Along
Notice but in any event within 60 days of the date the Drag-Along Notice is
given; PROVIDED that if through the exercise of reasonable efforts the
Existing Members or Permitted Transferees so proposing to transfer Membership
Interests are unable to cause such transaction to close within 60 days, such
period may be extended for such reasonable period of time as may be necessary
to close such transaction. Consummation of the sale of Warrants and/or
Membership Interests by any Existing Member or Permitted Transferee to a
Proposed Majority-Interest Purchaser shall be conditioned upon consummation
of the sale by each Holder to such Proposed Majority-Interest Purchaser of
the securities subject to the Drag-Along Right.
5.2. PURCHASE OBLIGATION OF EXISTING MEMBERS. In the event that
the Proposed Majority-Interest Purchaser does not purchase Warrants and/or
Membership Interests from the Holders on the same terms and conditions as
purchased from the Existing Members, then the Existing Members making such
Transfer shall purchase such Warrants and/or Membership Interests if the
Transfer occurs on such terms and conditions.
5.3. DETERMINATION OF TRANSFERRED INTERESTS. The number of
Warrants and/or Membership Interests of each Holder which shall be subject to
the Drag-Along Right shall be equal to the total number of Membership
Interests (including the number of Membership Interests issuable upon the
exercise of Warrants) owned by such Holder multiplied by a fraction, the
numerator of which is the number of Membership Interests to be sold by the
Existing Members to the Proposed Majority-Interest Purchaser and the
denominator of which is the total number of Membership Interests then owned
by the Existing Members.
5.4. COSTS AND EXPIRATION OF DRAG-ALONG RIGHT. The provisions of
Subsection 4.4 and 4.5 shall, with respect to each exercise of the Drag-Along
Right by the Existing Members, apply with the same effect as if references
therein to Tag-Along Right were references to the Drag-Along Right.
5.5. TERMINATION. Drag-Along Rights shall terminate upon the
effectiveness of any registration statement filed with the SEC with respect
to Membership Interests in an initial public offering or subsequent public
offering if, after giving effect to such offering, at least 50% of the
Membership Interests on a fully-diluted basis would be held by Non-Affiliates
of the Company and without restriction on transfer under the Securities Act.
6. REGISTRATION OF TRANSFERS AND EXCHANGES. When any certificate
evidencing any Membership Interests (a "Membership Certificate") is presented
to the Transfer Agent with a request:
(A) to register the transfer of any Membership Interests; or
(B) to exchange such Membership Certificate for Membership
Certificates of other authorized denominations evidencing in the aggregate an
equal number of Membership
-15-
<PAGE>
Interests, the Transfer Agent shall register the transfer or make the
exchange requested if the requirements of this Section 6 for such
transactions are met; PROVIDED, however, that the Membership Certificates
presented or surrendered for registration of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument
of transfer inform satisfactory to the Transfer Agent, duly executed by
the holder thereof or his attorney duly authorized in writing; and
(ii) in the case of Membership Interests the offer and sale of
which have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), such Membership Certificates shall be
accompanied by the following additional information and documents, as
applicable:
(1) if such Membership Certificates are being delivered
to the Transfer Agent by a Holder for registration in the name of
such Holder, without transfer, a certification from such holder to
that effect (in substantially the form of EXHIBIT A hereto); or
(2) if such Membership Interests are being transferred
to a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act (a "Qualified Institutional Buyer")) in
accordance with Rule 144A under the Securities Act, a certificate
to that effect (in substantially the form of EXHIBIT B hereto); or
(3) if such Membership Interests are being transferred
to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor")) delivery of a certification
to that effect (in substantially the form of EXHIBIT A hereto) and
a Transferee Certificate for Institutional Accredited Investors in
substantially the form of EXHIBIT B hereto; or
(4) if such Membership Interests are being transferred
in reliance on Regulation S under the Securities Act ("Regulation
S"), delivery of a certification to that effect (in substantially
the form of EXHIBIT A hereto) and a Transferee Certificate for
Regulation S Transfers in substantially the form of EXHIBIT C
hereto and an opinion of counsel reasonably satisfactory to the
General Member to the effect that such transfer is in compliance
with the Securities Act; or
(5) if such Membership Interests are being transferred
in reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (in substantially the form of EXHIBIT
A hereto) and an opinion of counsel reasonably satisfactory to the
Managing Member to the effect that such transfer is in compliance
with the Securities Act; or
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<PAGE>
(6) if such Membership Interests are being transferred
in reliance on another exemption from the registration requirements
of the Securities Act, a certification to that effect (in
substantially the form of EXHIBIT A hereto) and an opinion of
counsel reasonably satisfactory to the Managing Member to the
effect that such transfer is in compliance with the Securities Act.
6.1 LEGENDS. The legends set forth in this Section 6.1 shall be
affixed to certificates representing Registrable Securities in addition to
any legends required by the Operating Agreement and any other applicable
agreement.
(i) For so long as transfer of a Registrable Security is not
permitted without registration under the Securities Act, each
certificate evidencing a Registrable Security shall bear a legend
substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501 (a)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"')
OR (C) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON, AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATIONS
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE
TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH
TRANSFER, ON THE DATE OF THE TRANSFER OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO EPIC RESORTS, LLC
(THE "ISSUER") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER
AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF
-17-
<PAGE>
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE AMOUNT OF SECURITIES AT THE
TIME OF TRANSFER OF LESS THAN 250 MEMBERSHIP INTERESTS AN OPINION
OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE, BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER), (F) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
(G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE ISSUER) AND IN EACH CASE, IN ACCORDANCE
WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION." "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT
CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
(ii) For so long as this Agreement shall remain in effect
with respect to any Registrable Security, each certificate
evidencing a Registrable Security shall bear a legend substantially
to the following effect:
THIS SECURITY WAS ISSUED SUBJECT TO THAT CERTAIN REGISTRATION
RIGHTS AND MEMBERS' AGREEMENT DATED AS OF JULY 8, 1998 AMONG THE
COMPANY, CERTAIN MEMBERS AND THE INITIAL PURCHASER REFERRED TO
THEREIN, AND IS SUBJECT TO THE RESTRICTIONS SET FORTH THEREIN.
(iii) Upon any sale or transfer of any Restricted Security
pursuant to Rule 144 or an effective registration statement under
the Securities Act, the Transfer Agent shall permit the holder
thereof to exchange such Restricted Security for a Membership
Interest that does not bear the legends set forth above under
clauses (i) and (ii) above, and rescind any related restriction on
the transfer of such Membership Interest.
7. MISCELLANEOUS.
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<PAGE>
7.1 NO INCONSISTENT AGREEMENTS. The Company has not entered and
will not enter, into any agreement with respect to any of its securities that
is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions
hereof. The Company has not entered and it will not enter into any agreement
with respect to any of its securities which will grant to any Person
piggyback registration rights with respect to a Registration Statement.
7.2 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of
the Holders of Registrable Securities to include such Registrable Securities
in a registration undertaken pursuant to this Agreement.
7.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with
the prior written consent of the Holders of not less than a majority in
aggregate principal amount of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement; PROVIDED, however, that the
provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
7.4 NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee)
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or
facsimile: if to a Holder of the Registrable Securities, at the most current
address of such Holder set forth on the records of the registrar under the
Indenture; if to the Initial Purchaser, to NatWest Capital Markets Limited,
135 Bishopsgate, London, EC2M, 3 XT, United Kingdom, Attention: Roger Hoit;
with a copy to White & Case LLP, 1155 Avenue of the Americas, New York, NY
10036, Facsimile No: (212) 354-8113, Attention: Timothy B. Goodell; and if to
the Company, to Epic Resorts, LLC, 1150 First Avenue, Suite 900, King of
Prussia, Pennsylvania 19406, Attention: Thomas F. Flatley with a copy to
Jones, Day, Reavis & Pogue, North Point, 901 Lakeside Avenue, Cleveland, Ohio
44114, Facsimile No: (216) 579-0212, Attention: Christopher M. Kelly. All
such notices and communications shall be deemed to have been duly given: when
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
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<PAGE>
7.5 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto; PROVIDED, however, that this Agreement shall not inure to the
benefit of or be binding upon a successor or assign of a Holder unless and to
the extent such successor or assign holds Registrable Securities.
7.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when SO executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
7.7 HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning thereof.
7.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EACH OF THE PARTIES HERETO AGREES
TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
7.9 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
7.10 REGISTRABLE SECURITIES HELD BY THE COMPANY, CAPITAL CORP. OR
THEIR AFFILIATES. Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company, Capital Corp. or their affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
7.11 THIRD PARTY BENEFICIARIES. Holders of Warrants are intended
third party beneficiaries of this Agreement and this Agreement may be
enforced by such Persons.
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<PAGE>
IN WITNESS, the parties have executed this Registration Rights and
Member's Agreement as of the date first written above.
EPIC RESORTS, LLC
By: EPIC MEMBERSHIP CORP., its
Managing Member
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC CAPITAL CORP.
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
EPIC WARRANT CO.
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
THOMAS F. FLATLEY, as an Existing
Member
By: /s/ T. F. Flatley
----------------------------------
Name:
Title:
EPIC MEMBERSHIP CORP., as Managing
Member
By: /s/ T. F. Flatley
----------------------------------
Name: Thomas F. Flatley
Title: President
<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/ A. F. Irby
----------------------------
Name: A. F. Irby
Title: Director
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<PAGE>
EXHIBIT A
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Membership Interests (the "Securities")
in Epic Resorts, LLC
(the "Company")
This Certificate relates to Securities in the form of physical
Membership Certificates to be transferred by the undersigned (the
"Transferor").
The Transferor has requested by written order that the Transfer
Agent exchange or register the transfer of Securities evidenced by physical
Membership Certificates.
In connection with such request and with respect to each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Operating Agreement of the Company and the Registration Rights and
Members' Agreement dated as of July 8, 1998, each relating to the above
captioned Securities, and the restrictions on transfers thereof as provided
therein; and that the transfer of these Securities does not require
registration under the Securities Act of 1933, as amended (the "Act")
because *:
--Such Security is being acquired for the Transferor's own account,
without transfer.
--Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
--Such Security is being transferred to an institutional
"accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3)
or (7) of Rule 501 under the Act.
--Such Security is being transferred in reliance on Regulation S
under the Act.
--Such Security is being transferred in reliance on Rule 144 under
the Act.
<PAGE>
EXHIBIT A
Page 2
--Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act
other than Rule 144A or Rule 144 or Regulation S under the Act to a person
other than an institutional "accredited investor."
______________________________________
(INSERT NAME OF TRANSFEROR)
By:___________________________________
(Authorized Signature)
Date:
_____________________________
*Check applicable box.
-2-
<PAGE>
EXHIBIT B
Form of Certificate to Be
Delivered by Purchasing
Institutional Accredited Investors
Re: Epic Resorts, LLC (the "Company")
MEMBERSHIP INTERESTS (THE "SECURITIES")
Ladies and Gentlemen:
In connection with our proposed purchase of Securities, we confirm
that:
1. We have received such information as we deem necessary in
order to make our investment decision.
2. We understand that the Securities which we propose to
purchase are subject to restrictions on the transfer and the mandatory
transfer of interests and other matters, as contained in the Company's
Operating Agreement and in a Registration Rights and Members' Agreement dated
as of July 8, 1998, and we agree to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the offer and sale of the Securities have
not been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we will
do so only (A) to the
<PAGE>
EXHIBIT B
Page 2
Company or any subsidiary thereof, (B) inside the United States in accordance
with Rule 144A under the Securities Act to a "qualified institutional buyer"
(as defined therein), (C) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the
Managing Member and the transfer agent for the Company a signed letter
substantially in the form hereof, (D) outside the United States in accordance
with Regulation S under the Securities Act, (E) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing
Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
4. We understand that, in connection with any proposed resale of
Securities, we will be required to furnish the Transfer Agent for the
Company, such certification, legal opinions and other information as may be
reasonably required to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Securities purchased
by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in
Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Transfer Agent are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:___________________________________
(Authorized Signatory)
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<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
In connection with our proposed transfer of the Securities, we confirm
that such transfer has been effected pursuant to, and in accordance with,
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) (a) at the time the buy offer was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, and
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither we nor any person acting on
our behalf knows that the transaction has been prearranged with a buyer in
the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company and its transfer agent are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby. Defined terms
used herein without definition have the respective meanings provided in
Regulation S.
Very truly yours,
(Name of Transferor)
By:___________________________________
(Authorized Signatory)
<PAGE>
EXHIBIT C
Page 2
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<PAGE>
EXECUTION VERSION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of July 8, 1998
Between
EPIC WARRANT CO.,
as Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of July 8, 1998,
between Epic Warrant Co., a Delaware corporation (together with any
successors and assigns, the "Company"), and United States Trust Company of
New York, a New York banking corporation, as Warrant Agent (the "Warrant
Agent").
WHEREAS, Epic Resorts, LLC, a Delaware limited liability company
("Epic") proposes, among other things, to issue and sell pursuant to a
Purchase Agreement, dated as of June 30, 1998 (the "Purchase Agreement"),
among Epic, Epic Capital Corp., Epic's other subsidiaries and NatWest Capital
Markets Limited ("NatWest"), as Initial Purchaser, 130,000 Units (the
"Units") consisting of $130,000,000 principal amount of 13% Senior Secured
Notes due 2005 (the "Notes") and, at the Initial Purchaser's election, either
(i) warrants (the "LLC Warrants") to purchase membership interests (together
with any successor securities, the "Membership Interests") in Epic, or (ii)
warrants (the "Warrants") to purchase shares of common stock (together with
any successor securities, the "Common Stock" and the shares of Common Stock
issuable upon exercise of the Warrants being referred to herein as the
"Warrant Shares"), of the Company;
WHEREAS, each Unit will represent $1,000 principal amount of Notes
and, in the case of the LLC Warrants, one LLC Warrant to purchase one
Membership Interest representing 0.000077% of the total membership interests
of Epic outstanding on the date hereof or, in the case of the Warrants, one
warrant to purchase one share of Common Stock;
WHEREAS, Epic proposes to issue to the Company warrants (the
"Company LLC Warrants") for the purchase of Membership Interests with the
same terms as the LLC Warrants in the same number as the number of Warrants
issued by Warrant Co.;
WHEREAS, the Company wishes the Warrant Agent to act on behalf of
the Company and the Warrant Agent is willing to act in connection with the
issuance, division, transfer, exchange and exercise of Warrants as provided
herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement, and the Warrant
Agent hereby accepts such appointment, subject to the terms and conditions
hereof.
SECTION 2. WARRANT CERTIFICATES. The Warrants will be initially
issued in registered form as physical Warrant certificates (the "Physical
Warrants"). Any certificates (the "Warrant Certificates") evidencing the
Physical Warrants to be delivered pursuant to this Agreement shall be
substantially in the form set forth in EXHIBIT A attached hereto. Such
Warrant Certificates shall represent such of the outstanding Warrants as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Warrants from time to time endorsed thereon
and that the aggregate amount of outstanding Warrants represented thereby may
from time to time be reduced or increased, as appropriate. Any endorsement of
a Warrant Certificate to reflect the amount of any increase
<PAGE>
or decrease in the amount of outstanding Warrants represented thereby shall
be made by the Warrant Agent in accordance with instructions given by the
Holder thereof.
SECTION 3. EXECUTION OF WARRANT CERTIFICATES. (a) Warrant
Certificates shall be signed on behalf of the Company by its President. Each
such signature upon the Warrant Certificates may be in the form of a
facsimile signature of the present or any future President and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person
who shall at the time of affixing such signature be President notwithstanding
the fact that at the time the Warrant Certificates shall be countersigned and
delivered or disposed of he shall have ceased to hold such office.
(b) In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the
execution of this Warrant Agreement any such person was not such officer.
(c) Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent.
SECTION 4. REGISTRATION AND COUNTERSIGNATURE. (a) The Warrants
shall be numbered and shall be registered on the books of the Company
maintained at the principal office of the Warrant Agent in the Borough of
Manhattan, City of New York (the "Warrant Register") as they are issued.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the President, a Vice
President, or a Secretary or an Assistant Secretary of the Company, initially
countersign and deliver Warrants entitling the holders thereof to purchase
not more than an aggregate of 130,000 Warrant Shares and shall thereafter
countersign and deliver Warrants as otherwise provided in this Agreement.
(c) The Company and the Warrant Agent may deem and treat the
registered holders (the "Holders") of the Warrant Certificates as the
absolute owners thereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. TRANSFER AND EXCHANGE OF WARRANTS. (a) The Warrant
Agent shall from time to time, subject to the limitations of Section 6,
register the transfer of any outstanding Warrants upon the records to be
maintained by it for that purpose, upon surrender thereof duly endorsed or
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly executed by the
registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney.
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(b) Subject to the terms of this Agreement, each Warrant
Certificate may be exchanged for another certificate or certificates
entitling the Holder thereof to purchase a like aggregate number of Warrant
Shares as the certificate or certificates surrendered then entitle each
Holder to purchase. Any Holder desiring to exchange a Warrant Certificate or
Certificates shall make such request in writing delivered to the Warrant
Agent, and shall surrender, duly endorsed or accompanied (if so required by
the Warrant Agent) by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent, the Warrant Certificate or Certificates to
be so exchanged. The Warrant Certificates may be exchanged at the option of
the Holder thereof, when surrendered at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust
office of the Warrant Agent in New York, New York.
(c) Upon registration of transfer or exchange, the Warrant Agent
shall countersign and deliver by hand, certified mail or by such other method
as the Warrant Agent shall reasonably determine a new Warrant Certificate or
Certificates to the persons entitled thereto. No service charge shall be made
for any exchange or registration of transfer of Warrant Certificates, but the
Company may require payment of a sum sufficient to cover any stamp or other
tax or other governmental charge that is imposed in connection with any such
exchange or registration of transfer.
SECTION 6. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF PHYSICAL WARRANTS. When Physical
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Physical Warrants; or
(ii) to exchange such Physical Warrants for an equal number of
Physical Warrants of other authorized denominations or for LLC Warrants in the
proportionate amount represented by such Warrant, the Warrant Agent shall,
subject to Section 5, register the transfer or make the exchange as requested if
the requirements under this Agreement as set forth in this Section 6 for such
transactions are met; PROVIDED, HOWEVER, that the Physical Warrants presented or
surrendered for registration of transfer or exchange;
(a) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Warrant Agent, duly executed by
the Holder thereof or his attorney duly authorized in writing; and
(b) in the case of Physical Warrants the offer and sale of which
have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), such Physical Warrants shall be accompanied by
the following additional information and documents, as applicable:
(1) if such Physical Warrants are being delivered to the
Warrant Agent by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in substantially the form of EXHIBIT B hereto); or
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(2) if such Physical Warrants are being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act (a "Qualified Institutional Buyer")) in accordance
with Rule 144A under the Securities Act, a certificate to that
effect (in substantially the form of EXHIBIT B hereto); or
(3) if such Physical Warrants are being transferred to an
institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act (an "Institutional
Accredited Investor")), delivery of a certification to that effect
(in substantially the form of EXHIBIT B hereto) and a Transferee
Certificate for Institutional Accredited Investors in substantially
the form of EXHIBIT C hereto; or
(4) if such Physical Warrants are being transferred in
reliance on Regulation S under the Securities Act ("Regulation S"),
delivery of a certification to that effect (in substantially the
form of EXHIBIT B hereto) and a Transferee Certificate for
Regulation S Transfers in substantially the form of EXHIBIT D
hereto and an opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with the
Securities Act; or
(5) if such Physical Warrants are being transferred in
reliance on Rule 144 under the Securities Act, delivery of a
certification to that effect (in substantially the form of EXHIBIT
B hereto) and an opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with the
Securities Act; or
(6) if such Physical Warrants are being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect (in
substantially the form of EXHIBIT B hereto) and an opinion of
counsel reasonably satisfactory to the Company to the effect that
such transfer is in compliance with the Securities Act.
(b) LEGENDS.
(i) For so long as transfer of a Warrant is not permitted without
registration under the Securities Act, each Warrant Certificate evidencing such
Warrant (and all Warrants issued in exchange therefor or substitution thereof)
shall bear a legend substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTERST HEREIN,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER
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THE SECURITIES ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON, IS NOT
ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON, AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE
144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT WITH RESPECT TO SUCH TRANSFER, ON THE DATE OF THE TRANSFER
OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT
(A) TO EPIC WARRANT CO. (THE "ISSUER") OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QIB IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE WARRANT AGENT), AND IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN
250 WARRANTS, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE, BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUER), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) AND IN EACH CASE, IN
ACCORDANCE WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE
902 OF REGULATION S UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT
CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO
REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
(ii) Each certificate representing Warrant Shares (and all shares of
Common Stock issued
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<PAGE>
in exchange therefor or substitution therefor) shall bear a legend identical
to the legend set forth in clause (i) above.
(c) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF PHYSICAL
WARRANTS.
(i) To permit registrations of transfers and exchanges, the Company
shall execute, at the Warrant Agent's request, and the Warrant Agent shall
countersign Physical Warrants.
(ii) All Physical Warrants issued upon any registration of transfer
or exchange of Physical Warrants shall be the valid obligations of the Company,
entitled to the same benefits under this Agreement as the Physical Warrants
surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such Warrant, and
neither the Warrant Agent nor the Company shall be affected by notice to the
contrary.
SECTION 7. SEPARATION OF WARRANTS; TERMS OF WARRANTS; EXERCISE OF
WARRANTS.
(a) The Notes and Warrants will be immediately separated upon sale
by the Initial Purchaser.
(b) Subject to the terms of this Agreement, each Holder shall have
the right, which may be exercised commencing the Business Day immediately
following the date of issuance and until 5:00 p.m., New York City time, on
June 15, 2005 (the "Expiration Date"), to receive from the Company upon the
exercise of each Warrant the number of fully paid and nonassessable Warrant
Shares which the Holder may at the time be entitled to receive on exercise of
such Warrants and payment of the Exercise Price (as hereinafter defined) then in
effect for such Warrant Shares. Each Warrant not exercised prior to the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No adjustments
as to dividends will be made upon exercise of the Warrants.
(c) The initial price at which one Warrant Share shall be
purchasable upon exercise of a Warrant (the "Exercise Price") shall be $.01. A
Warrant may be exercised upon surrender at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent in New York, New York, of the certificate or certificates
evidencing the Warrants to be exercised with the form of election to purchase on
the reverse thereof duly filled in and signed, which signature shall be
guaranteed by a participant in a recognized Signature Guarantee Medallion
Program, and upon payment to the Warrant Agent for the account of the Company of
the Exercise Price, as adjusted as herein provided, for the number of Warrant
Shares in respect to which such Warrants are then exercised. Payment of the
aggregate Exercise Price shall be made in cash or by certified or official bank
check to the order of the Company in immediately available funds.
(d) Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the Holder and in such name or names as the Holder may
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designate a certificate or certificates for the number of Warrant Shares
issuable upon the exercise of such Warrants together with cash as provided in
Section 13; provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by the Company as described in
Subsection 12(k), or a tender offer or an exchange offer for shares of Common
Stock of the Company shall be made, upon such surrender of Warrants and
payment of the Exercise Price as aforesaid, the Company shall, as soon as
possible, but in any event not later than two days, other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
not open for business ("Business Day") thereafter, issue and cause to be
delivered the number of Warrant Shares issuable upon the exercise of such
Warrants in the manner described in this sentence together with cash as
provided in Section 13. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the
date of the surrender of such Warrants and payment of the Exercise Price.
EACH WARRANT SHALL BE EXERCISABLE ONLY IN FULL, AND NOT IN PART.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled by the Warrant Agent. Such canceled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner consistent with the Warrant
Agent's customary procedure for such disposal and in a manner reasonably
satisfactory to the Company. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and promptly pay to the Company all
monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the Holders
during normal business hours at its office. The Company shall supply the Warrant
Agent from time to time with such numbers of copies of this Agreement as the
Warrant Agent may request.
SECTION 8. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates, any certificates for Warrant Shares in
a name other than that of the registered Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, or the exchange of any Warrant for a
LLC Warrant or the exchange of Warrant Shares for Membership Interests, and the
Company shall not be required to issue or deliver such Warrant Certificates, LLC
Warrants or Membership Interests unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
SECTION 9. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any
of the Warrant Certificates shall be mutilated, lost, stolen or destroyed,
the Company may at its discretion issue and the Warrant Agent may
countersign, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent number of Warrants, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction of such Warrant Certificate and indemnity also
satisfactory to them. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
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reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 10. RESERVATION OF WARRANT SHARES. (a) The Company will at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy an obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock certificates
required to honor outstanding Warrants upon exercise thereof in accordance with
the terms of this Agreement. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 12. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto transmitted to each Holder pursuant to Section 14
hereof.
(c) The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants made in accordance with the terms of this
Agreement will, upon payment of the Exercise Price therefor and issue, be
validly authorized and issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof. The Company will take no action to increase
the par value of the Common Stock to an amount in excess of the Exercise
Price, and the Company will not enter into any agreements inconsistent with
the rights of Holders hereunder. The Company will use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Agreement. The Company shall
not take any action reasonably within its control, including the hiring of a
broker to solicit exercises, which would render unavailable an exemption from
registration under the Securities Act which might otherwise be available with
respect to the issuance of Warrant Shares upon exercise of any Warrants.
SECTION 11. CERTAIN PROVISIONS RELATING TO LLC WARRANTS.
(a) The Company may issue additional Warrants from time to time to
any holder of a LLC Warrant upon such LLC Warrant holder's delivery to the
Company of the certificate or certificates evidencing such LLC Warrant, duly
endorsed or accompanied (if so required by the Warrant Agreement for the LLC
Warrants) by a written instrument or instruments of transfer to the Company in
form satisfactory to the warrant agent for the LLC Warrants, and duly executed
as required by the Company; provided that such LLC Warrant holder shall certify
to the Company and the warrant agent for the LLC Warrants that such transfer is
solely in exchange for a Warrant corresponding to the transferred LLC
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Warrant to be held by the Company. Upon satisfaction of the foregoing
conditions, the Company shall cause such transfer to be registered with the
warrant agent for the LLC Warrants and shall obtain a Company LLC Warrant in
exchange therefor.
(b) Upon any Holder's surrender of a Warrant Certificate for
transfer to the Company and request to hold the corresponding Membership
Interest directly, the Company shall surrender such corresponding Company LLC
Warrant to Epic for transfer to such Holder and, subject to Section 6, such
Warrant transfer shall be registered in accordance with this Section 11 and
the Holder's Warrant shall be cancelled; provided that such Holder shall certify
to the Company and Warrant Agent and to Epic and its warrant agent that such
transfer is solely for the purposes described in this Subsection 11(b).
(c) [RESERVED]
(d) In the event that the Company receives notice of any rights to
which it may be entitled to exercise or obligations it must comply with pursuant
to the LLC Warrants it holds, including, but not limited to, registrations of
securities of Epic, or transfers of Membership Interests, the Company shall, on
the same day such notice is received, notify each Holder and, if any action
shall be required of the Company as a holder of LLC Warrants, and it shall
request instructions from each Holder regarding the actions to be taken by the
Company that may affect the PRO RATA share of LLC Warrants corresponding to the
Holder's Warrant or Warrants (the "Instructions"). If the Company does not
receive Instructions from any Holder during the time period in which the
Instructions may be implemented, the Company will not act. In the event the
applicable transaction gives rise to any taxes, the Company shall deduct from
any distribution received by the Company the amount of all applicable taxes to
be paid by the Company arising out of or resulting from such transaction. In any
event, the Company shall exercise its rights as a holder of LLC Warrants in
proportion to the Holders' PRO RATA interests in the Common Stock issued or
issuable upon exercise of the Warrants.
(e) In the event that the Company receives a distribution from Epic
on any Membership Interests held by the Company, the Company will promptly
declare and pay a dividend on its Common Stock in an amount equal to the
distribution received from Epic less any amounts required to enable the Company
to pay any taxes imposed on the Company as a result of such distribution and
dividend, as determined by the Company's Board of Directors in its sole
discretion.
(f) Immediately after the due exercise of a Warrant by a Holder and
the payment of the Exercise Price in respect thereof, the Company shall exercise
one LLC Warrant held by it with the proceeds of the Exercise Price received by
the Company in respect of the Warrant so exercised by such Holder. A holder of
Warrant Shares shall have the right to require the Company to exchange the
Warrant Shares held by such holder for all corresponding Membership Interests
held by the Company by delivering to the Company the certificate or certificates
evidencing the Warrant Shares, duly endorsed or accompanied by a duly executed
written instrument or instruments of transfer in form acceptable to the Company
and a letter of instructions duly executed by such Holder requesting such
exchange. Upon receipt thereof, the Company shall cause the requisite Membership
Interests to be transferred to such Holder and registered in the transfer
records of Epic in accordance with Epic's membership agreement. No service
charge shall be imposed on any Holder in respect of any such exchange of Warrant
Shares for Membership Interests, but the Company may require payment of a sum
sufficient to cover any stamp or
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other tax or other governmental charge that is imposed in connection with any
such exchange.
SECTION 12. ADJUSTMENT OF NUMBER OF WARRANT SHARES ISSUABLE. The
number of shares of Common Stock issuable upon the exercise of each Warrant (the
"Exercise Rate") is subject to adjustment from time to time upon the occurrence
of the events enumerated in this Section 12. The Exercise Rate shall initially
be one. Upon the occurrence of any adjustment to the exercise rate for the LLC
Warrants, the Company shall cause a corresponding adjustment in the Exercise
Rate hereunder.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(1) pays a dividend or makes a distribution of its Common
Stock in shares of its Common Stock or other capital stock of the
Company;
(2) subdivides, combines or reclassifies its outstanding
shares of Common Stock; or
(3) makes a distribution to all holders of its Common Stock
of rights, warrants or options to purchase Common Stock of the Company
at a price per share less than the Current Market Value (as defined in
Section 12(e)) at the Time of Determination (as defined below);
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital
stock of the Company which he would have owned immediately following such
action if such Warrant had been exercised immediately prior to such action;
provided, however, that notwithstanding the foregoing, upon the occurrence of
an event described in any of paragraphs (1) and (3) above, which otherwise
would have given rise to an adjustment, no adjustment shall be made if the
Company includes the Holders of Warrants in such distribution pro rata to the
number of shares of Common Stock issued and outstanding (after giving effect
to the Warrant Shares as if they were issued and outstanding).
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution (the "Time of Determination")
and immediately after the effective date in the case of a subdivision,
combination or reclassification.
If after an adjustment a Holder of a Warrant upon exercise of it
may receive shares of two or more classes of capital stock of the Company,
the Board of Directors of the Company shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable
to those applicable to Common Stock in this Section.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) ADJUSTMENT FOR CERTAIN ISSUANCES OF COMMON STOCK. Subject to
Section 12(a), if the Company issues or sells shares of its Common Stock or
distributes any rights, options or warrants to all holders of its Common Stock
entitling them to purchase shares of Common Stock, or securities convertible
into or exchangeable for Common Stock (other than pursuant to the exercise of
the Warrants or issuance of Warrant Shares to a holder of Membership Interests
solely to accommodate such holder's
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right to elect to hold Warrant Shares corresponding to such underlying
Membership Interest in lieu of holding such Membership Interest directly), at
a price per share less than the Current Market Value at the Time of
Determination, the Exercise Rate shall be adjusted in accordance with the
formula:
(0 + N)
---------------
E(1) = E x 0 + (N X P)
-----
M
where:
E(1) = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination of any such distribution.
0 = the number of Fully Diluted Shares (as defined in
Section 12(m)) outstanding on the Time of Determination
for any such issuance, sale or distribution.
N = the number of additional shares of Common Stock issued,
sold or issuable upon exercise of such rights, options
or warrants.
P = the price received in the case of any issuance or sale
of Common Stock or exercise price per share of such
rights, options or warrants.
M = the Current Market Value per share of Common Stock on
the Time of Determination for any such issuance, sale or
distribution.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which any
such rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Warrant shall be immediately
readjusted to what it would have been if "N" in the above formula had been
the number of shares actually issued.
(c) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. Subject to Section
12(a), if the Company distributes to all holders of its Common Stock (i) any
evidences of indebtedness of the Company, (ii) any assets of the Company
(excluding cash dividends or other cash distributions or distributions from
current or retained earnings other than any Extraordinary Cash Dividend and
excluding transfers of LLC Warrants pursuant to Section 11 hereof), or (iii)
any rights, options or warrants to acquire any of the foregoing or to acquire
any other securities of the Company, the Exercise Rate shall be adjusted in
accordance with the formula:
E(1) = E X M
-----
M - F
where:
E(1) = the adjusted Exercise Rate.
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E = the Exercise Rate immediately prior to the Time of
Determination of such distribution.
M = the Current Market Value per share of Common Stock on
the record date mentioned below.
F = the fair market value on the record date mentioned below
of the indebtedness, assets, rights, options or warrants
distributable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution. If an adjustment is made pursuant to clause (iii) above of this
subsection 12(c) as a result of the issuance of rights, options or warrants
are exercisable, not all such rights, options or warrants shall have been
exercised, the Warrant shall be immediately readjusted as if "F" in the above
formula was the fair market value on the record date of the indebtedness or
assets actually distributed upon exercise of such rights, options or warrants
divided by the number of shares of Common Stock outstanding on the record
date. Notwithstanding the foregoing, provisions of this Subsection 12(c), (x)
an event which would otherwise give rise to an adjustment pursuant to this
Subsection 12(c) shall not give rise to such an adjustment if the Company
includes the Holders of the Warrants in such distribution pro rata to the
number of shares of Common Stock issued and outstanding after giving effect
to the Warrant Shares as if they were issued and outstanding and (y) no
adjustment shall be made pursuant to this Section 12(c) with respect to cash
dividends other than Extraordinary Cash Dividends.
This Subsection 12(c) does not apply to rights, options or warrants
referred to in Subsection 12(b).
(d) MERGER, CONSOLIDATION, ETC. If (x) the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another person (other than an Affiliate of the Company) and
consideration is payable to holders of Common Stock in exchange for their
Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of a dissolution, liquidation or
winding up of the Company, then the Holders of Warrants shall be entitled to
receive distributions on the date of such event on an equal basis with
holders of Common Stock (or other securities issuable upon exercise of the
Warrants) as if the Warrants had been exercised immediately prior to such
event, less the Exercise Price. Upon receipt of such payment, if any, the
rights of a holder shall terminate and cease and his or her Warrants shall
expire. In case of any such merger, consolidation or sale of assets, the
surviving or acquiring person and, in the event of any dissolution,
liquidation or winding up of the Company, the Company shall deposit promptly
with the Warrant Agent the funds, if any, necessary to pay the Holders of the
Warrants. After receipt of such deposit from such person or the Company and
after receipt of surrendered Warrant Certificates, the Warrant Agent shall
make payment by delivering a check in such amount as is appropriate (or, in
the case of consideration other than cash, such other consideration as is
appropriate) to such person or persons as it may be directed in writing by
the holder surrendering such Warrants.
(e) CURRENT MARKET VALUE. "Current Market Value" per share of
Common Stock or of any other security (herein collectively referred to as a
"Security") at any date shall be:
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(i) if the Security is not registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (a) the value of
the Security determined in good faith by the Board of Directors of the
Company and certified in a board resolution, based on the most recently
completed arm's length transaction between the Company and a person
other than an Affiliate of the Company in which such determination is
necessary and the closing of which occurs on such date or shall have
occurred within the six months preceding such date, (b) if no such
transaction shall have occurred on such date or within such six-month
period, the value of the Security most recently determined as of a date
within the six months preceding such date by an Independent Financial
Expert or (c) if neither clause (a) nor (b) is applicable, the value of
the Security determined as of such date by an Independent Financial
Expert, or
(ii) if the Security is registered under the Exchange Act, the
average of the daily market prices for each Business Day during the
period commencing 15 Business Days before such date and ending on the
date one day prior to such date or, if the Security has been registered
under the Exchange Act for less than 15 consecutive Business Days before
such date, then the average of the daily market prices for all of the
Business Days before such date for which daily market prices are
available. If the market price is not determinable for at least 10
Business Days in such period, the Current Market Value of the Security
shall be determined as if the Security was not registered under the
Exchange Act.
The "market price" for any Security on each Business Day means: (A) if
such Security is listed or admitted to trading on any securities exchange, the
closing price, regular way, on such day on the principal exchange on which such
Security is traded, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, (B) if such Security is not then
listed or admitted to trading on any securities exchange, the last reported sale
price on such day, or if there is no such last reported sale price on such day,
the average of the closing bid and the asked prices on such day, as reported by
a reputable quotation source designated by the Company, or (C) if neither clause
(A) nor (B) is applicable, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a newspaper
of general circulation in the Borough of Manhattan, City of New York,
customarily published on each Business Day, designated by the Company. If there
are no such prices on a Business Day, then the market price shall not be
determinable for such Business Day.
"Independent Financial Expert" shall mean (a) NatWest (or any
successor) or (b) another nationally recognized investment banking firm, a
nationally recognized regional investment banking firm or a nationally
recognized accounting firm selected by the Company reasonably acceptable to the
Warrant Agent (i) that does not (and whose directors, officers, employees and
Affiliates do not) have a direct or indirect material financial interest in the
Company or Epic, (ii) that has not been, and, at the time it is called upon to
serve as an Independent Financial Expert under this Agreement is not (and none
of whose directors, officers, employees or Affiliates is) a promoter, director
or officer of the Company, (iii) that has not been retained by the Company or
Epic for any purpose, other than to perform an equity valuation, within the
preceding twelve months, and (iv) that, in the reasonable judgment of the Board
of Directors of the Company (certified by a board resolution), is otherwise
qualified to serve as an independent financial advisor. Any such person may
receive customary compensation and indemnification by the Company for opinions
or services it provides as an Independent Financial Expert.
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"Affiliate" shall mean, with respect to any person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such person. For the purposes of this definition, "control"
when used with respect to any person, means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Extraordinary Cash Dividend" means cash dividends with respect to the
Common Stock the aggregate amount of which in any fiscal year exceeds the lesser
of (i) 15% of the net income of the Company for the fiscal year immediately
preceding the payment of such dividend or (ii) $1,000,000.
(f) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase or
decrease of at least .5% in the Exercise Rate. Notwithstanding the foregoing,
any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment, provided that no such adjustment shall be
deferred beyond the date on which a Warrant is exercised. All calculations under
this Section 12 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(g) WHEN NO ADJUSTMENT REQUIRED. If an adjustment is made upon the
establishment of a record date for a distribution subject to Subsections 12(a),
12(b) or 12(c) hereof and such distribution is subsequently canceled, the
Exercise Rate then in effect shall be readjusted, effective as of the date when
the Board of Directors determines to cancel such distribution, to that which
would have been in effect if such record date had not been fixed. To the extent
the Warrants become convertible into cash, no adjustment need be made thereafter
as to the amount of cash into which such Warrants are exercisable. Interest will
not accrue on the cash.
(h) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate or Exercise
Price is adjusted, the Company shall provide the notices required by Section 14
hereof.
(i) VOLUNTARY REDUCTION. The Company from time to time may increase
the Exercise Rate by any amount for any period of time (including, without
limitation, permanently) if the period is at least 20 Business Days. An increase
of the Exercise Rate under this Subsection (i) (other than a permanent increase)
does not change or adjust the Exercise Rate otherwise in effect for purposes of
Subsections 12(a), 12(b) or 12(c).
(j) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED. In any case in which
this Section 12 shall require that an adjustment in the Exercise Rate be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the Holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Rate prior to such adjustment, and
(ii) paying to such Holder any amount in cash in lieu of a fractional share
pursuant to Section 13; provided, however, that the Company shall deliver to the
Warrant Agent and shall cause the Warrant Agent, on behalf of and at the expense
of the Company, to deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional Warrant
Shares, other capital stock and cash upon the occurrence of the event requiring
such adjustment.
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(k) REORGANIZATIONS. In cash of any capital reorganization, other
than the cases referred to in Subsections 12(a), 12(b), 12(c) or 12(d), or the
consolidation or merger of the Company with or into another corporation (other
than a merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the outstanding
shares of Common Stock into shares of other stock or other securities or
property), or the sale of the property of the Company as an entirety or
substantially as an entirety (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be deliverable upon
exercise of any Warrant (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock that would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a duly adopted resolution
certified by the Company's Secretary or Assistant Secretary and delivered to the
Warrant Agent, shall be made in the application of the provisions herein set
forth with respect to the rights and interests of Holders so that the provisions
set forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon exercise of
Warrants.
The Company shall not effect any such Reorganization unless prior to
or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such Reorganization or the corporation
purchasing or leasing such assets or other appropriate corporation or entity
shall expressly assume, by a supplemental Warrant Agreement or other
acknowledgment executed and delivered to the Warrant Agent, the obligation to
deliver to the Warrant Agent and to cause the Warrant Agent to deliver to each
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase, and all other
obligations and liabilities under this Agreement.
The foregoing provisions of this Subsection 12(k) shall apply to
successive Reorganization transactions.
(l) FORM OF WARRANTS. Irrespective of any adjustments in the number
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
(m) MISCELLANEOUS. For purposes of this Section 12, the term "Fully
Diluted Shares" shall mean (i) the shares of Common Stock outstanding as of a
specified date, and (ii) shares of Common Stock into or for which rights,
options, warrants or other securities outstanding as of such date are
exercisable or convertible (other than the Warrants). In the event that at any
time, as a result of an adjustment made pursuant to this Section 12, the Holders
of Warrants shall become entitled to purchase any securities of the Company
other than, or in addition to, shares of Common Stock, thereafter the number or
amount of such other securities so purchasable upon exercise of each Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in Subsections 12(a) through 12(l) inclusive, and
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the provisions of Sections 7, 8, 10 and 13 with respect to the Warrant Shares
or the Common Stock shall apply on like terms to any such other securities.
SECTION 13. FRACTIONAL INTERESTS. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. The number of
full Warrant Shares which shall be issuable upon the exercise of a Warrant shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of the Warrant so presented. If any fraction of a Warrant Share
would, except for the provisions of this Section 13, be issuable on the exercise
of any Warrant, the Company shall pay an amount in cash equal to the Current
Market Value on the day immediately preceding the date the Warrant is presented
for exercise, multiplied by such fraction.
SECTION 14. NOTICES TO WARRANT HOLDERS. Upon any adjustment pursuant
to Section 12 hereof, the Company shall give prompt written notice of such
adjustment to the Warrant Agent and shall cause the Warrant Agent, on behalf of
and at the expense of the Company, within 10 days after such adjustment, to mail
by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and shall deliver to the Warrant Agent a certificate of the Chief
Financial Officer of the Company, accompanied by the report thereon by a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants for the Company), setting forth in
reasonable detail (i) the number of Warrant Shares purchasable upon the exercise
of each Warrant and the Exercise Price of such Warrant after such adjustment(s),
(ii) a brief statement of the facts requiring such adjustment(s) and (iii) the
computation by which such adjustment(s) was made. Where appropriate, such notice
may be given in advance and included as a part of the notice required under the
other provisions of this Section 14.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or
warrants; or
(b) the Company shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets; or
(c) of any consolidation or merger to which the Company is a part
and for which approval of any shareholders of the Company is required,
or of the conveyance or transfer of the properties and assets of the
Company substantially as an entirety, or of any reclassification or
change of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action that would require an
adjustment to the Exercise Rate or the Exercise Price pursuant to
Section 12;
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then the Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the
Company, to give to each of the registered holders of the Warrant
Certificates at his or its address appearing on the Warrant Register, at
least 30 days (or 20 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or the date of the
event in the case of events for which there is no record date, by first-class
mail, postage prepaid, a written notice stating (i) the day as of which the
holders of record of shares of Common Stock to be entitled to receive any
rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is
expected to become effective or consummated, and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled
to exchange such shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up. The failure by the Company or the
Warrant Agent to give such notice or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
The Company shall give prompt written notice to the Warrant Agent
and shall cause the Warrant Agent, on behalf of and at the expense of the
Company, to give to each Holder written notice of any determination to make a
distribution to the holders of its Common Stock of any cash dividends,
assets, debt securities, preferred stock, or any rights or warrants to
purchase debt securities, preferred stock, Stock) of the Company, which
notice shall state the nature and amount of such planned dividend or
distribution and the record date therefor, and shall be received by the
Holders at least 30 days prior to such record date therefor.
Nothing contained in this Agreement or in any Warrant Certificate
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company.
SECTION 15. NOTICES TO THE COMPANY AND WARRANT AGENT. Any notice
or demand authorized by this Agreement to be given or made by the Warrant
Agent or by any Holder to or on the Company shall be sufficiently given or
made when received at the office of the Company expressly designated by the
Company as its office for purposes of this Agreement (until the Warrant Agent
is otherwise notified in accordance with this Section 15 by the Company), as
follows:
Epic Warrant Co.
1150 First Avenue
Suite 900
King of Prussia, Pennsylvania 19406
Attention: Thomas F. Flatley
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Any notice pursuant to this Agreement to be given by the Company or by
any Holder(s) to the Warrant Agent shall be sufficiently given when received by
the Warrant Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section 15 by the Warrant Agent):
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
Facsimile: (212) 852-1626
SECTION 16. SUPPLEMENTS AND AMENDMENTS. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement
without the approval of any holders of Warrants in order to cure any
ambiguity or to correct or supplement any provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the Company and the Warrant Agent may deem necessary or desirable and which
shall not in any way adversely affect the interests of any holder of Warrants.
SECTION 17. CONCERNING THE WARRANT AGENT. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders,
by their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the Warrant
Certificate shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for and shall
incur no liability to the Company or any Holder for any failure of the
Company to comply with the covenants contained in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself
(through its employees), by or through its attorneys or agents (which shall
not include its employees) and shall not be responsible for the negligence or
misconduct of any attorney or agent appointed with due care.
(d) The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
Holder in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice of such counsel.
(e) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless such evidence in
respect thereof be herein specifically prescribed) may be deemed conclusively
to be proved and established by a certificate signed by the President, one of
the Vice Presidents, or the Secretary of the
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Company and delivered to the Warrant Agent; and such certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(f) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and other charges of
any kind and nature incurred by the Warrant Agent in the performance of its
duties under this Agreement (including, without limitation, reasonable fees
and expenses of counsel), and to indemnify the Warrant Agent and its agents,
employees, directors, officers and affiliates and save it and them harmless
against any and all liabilities, losses and expenses, including, without
limitation, judgments, costs and counsel fees, for anything done or omitted
by the Warrant Agent in the performance of its duties under this Agreement,
except as a result of the Warrant Agent's negligence or bad faith. The
provisions of this subparagraph (f) shall survive the resignation or removal
of the Warrant Agent and the termination of this Agreement.
(g) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any costs and
expenses which may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall be
for the ratable benefit of the Holders, as their respective rights or
interests may appear.
(h) The Warrant Agent and any stockholder, director, officer or
employee ("Related Parties") of the Warrant Agent may buy, sell or deal in
any of the Warrants or other securities of the Company or become pecuniarily
interested in any transactions in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and
freely as though it were not Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent or any Related Party from acting in
any other capacity for the Company or for any other legal entity including,
without limitation, acting as Transfer Agent or as a lender to the Company or
an affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as agent, and
its duties shall be determined solely by the provisions hereof. No implied
duties or obligations shall be read into this Agreement against the Warrant
Agent. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence or bad faith.
(j) The Warrant Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument reasonably believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
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(k) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in respect
of the validity or execution of any Warrant (except its countersignature
thereof); nor shall the Warrant Agent by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Warrant Shares (or other securities) to be issued pursuant to this Agreement
or any Warrant, or as to whether any Warrant Shares (or other securities)
will, when issued, be validly issued, fully paid and nonassessable, or as to
the Exercise Price or the number or amount of Warrant Shares or other
securities or other property issuable upon exercise of any Warrant.
(l) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
President, any Vice President or the Secretary of the Company, and to apply
to such officers for advice or instructions in connection with its duties,
and shall not be liable for any action taken or suffered to be taken by it in
good faith and without negligence in accordance with instructions of any such
officer or officers.
(m) By countersigning Warrant Certificates or by any other act
hereunder the Warrant Agent shall not be deemed to make any representations
as to validity or authorization of the Warrants or the Warrant Certificates
(except as to its countersignature thereon) or of any securities or other
property delivered upon exercise or tender of any Warrant, or as to the
accuracy of the computation of the Exercise Price or the number or kind or
amount of stock or other securities or other property deliverable upon
exercise of any Warrant or the correctness of the representations of the
Company made in any certifications that the Warrant Agent receives. The
Warrant Agent shall not have any duty to calculate or determine any
adjustments with respect either to the Exercise Price or the kind and amount
of shares or other securities or any property receivable by holders of
Warrants upon the exercise or tender of Warrants required from time to time,
and the Warrant Agent shall have no duty or responsibility in determining the
accuracy or correctness of any such calculation.
SECTION 18. CHANGE OF WARRANT AGENT. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving to the
Company 30 days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall
resign or be removed or shall otherwise be incapable of acting, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of 30 days after such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by any Holder (who shall with
such notice submit his Warrant for inspection by the Company), then any
Holder may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Pending appointment of a successor to
the Warrant Agent, either by the Company or by such court, the duties of the
Warrant Agent shall be carried out by the Company. Any successor warrant
agent, whether appointed by the Company or such a court, shall be a bank or
trust company in good standing, incorporated under the laws of the United
States of America or any State thereof or the District of Columbia and having
at the time of its appointment as warrant agent a combined capital and
surplus of at least $50,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer
to the successor warrant agent any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary
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for such purpose. Failure to file any notice provided for in this Section 18,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor warrant agent, as the case may be. In the event of such resignation
or removal, the Company or the successor warrant agent shall mail by first
class mail, postage prepaid, to each Holder, written notice of such removal
or resignation and the name and address of such successor warrant agent.
SECTION 19. IDENTIFY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares
of the Company's capital stock issuable upon the exercise of the Warrants,
the Company shall file with the Warrant Agent a statement setting forth the
name and address of such Transfer Agent.
SECTION 20. SUCCESSORS. All the covenants and provisions of this
Agreement by and for the benefit of the Company, the Warrant Agent or any
Holder of Warrants shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 21. TERMINATION. This Agreement shall terminate on the
Expiration Date. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date if all Warrants have been exercised or redeemed pursuant
to this Agreement.
SECTION 22. GOVERNING LAW. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and shall be governed by and construed in
accordance with the laws of said State, without regard to the conflict of law
rules thereof.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the registered holders of the Warrant
Certificates.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed, as of the day and year first above written.
EPIC WARRANT CO.
By /s/ T. F. Flatley
---------------------------------
Name: Thomas F. Flatley
Title: President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Warrant Agent
By /s/ James Nesci
---------------------------------
Name: James D. Nesci
Title: Assistant Vice President
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EXHIBIT A
[Form of Warrant Certificate]
[Face]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY
NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR A BENEFICIAL
INTERST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON, IS NOT
ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON, AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d)
UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT
WITH RESPECT TO SUCH TRANSFER, ON THE DATE OF THE TRANSFER OF THIS SECURITY
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO EPIC WARRANT CO. (THE
"ISSUER") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QIB IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT), AND IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS
THAN 250 WARRANTS, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUER), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (BASED UPON AN OPINION OF COUNSEL ACCEPTABLE
TO THE ISSUER) AND IN EACH CASE, IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE
<PAGE>
Exhibit A
Page 2
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO
REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
<PAGE>
Exhibit A
Page 3
EXERCISABLE AFTER THE DATE OF ISSUANCE
AND ON OR BEFORE JUNE 15, 2005
Warrant No.:
CUSIP No.: No. of Warrants: ______
Warrant Certificate
Epic Warrant Co.
This Warrant Certificate certifies that _______________, or registered
assigns, is the registered holder of ____ Warrants expiring June 15, 2005
(the "Warrant") to purchase shares of common stock, no par value (the "Common
Stock"), of Epic Warrant Co., a Delaware corporation (the "Company"). Each
Warrant initially entitles the holder upon exercise to receive from the
Company on or after July 9, 1998 and on or before 5:00 p.m. New York City
Time on June 15, 2005, one fully paid and nonassessable share of Common Stock
(each a "Warrant Share") at the initial exercise price (the "Exercise Price")
of $.01 payable in lawful money of the United States of America upon
surrender of this Warrant Certificate and payment of the Exercise Price at
the office or agency of the Warrant Agent, but only subject to the conditions
set forth herein and in the Warrant Agreement referred to on the reverse
hereof. The Exercise Price and number of Warrant Shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
The Warrants may not be exercised after 5:00 p.m., New York City
Time, on June 15, 2005, and to the extent not exercised by such time the
Warrant, shall become void.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of New York.
<PAGE>
Exhibit A
Page 4
IN WITNESS WHEREOF, Epic Warrant Co. has caused this Warrant
Certificate to be signed by its President and by its Vice Presidents.
Dated:
EPIC WARRANT CO.
By: ___________________________
Name:
Title:
Countersigned:
United States Trust Company of New York,
as Warrant Agent
By:______________________________
Authorized Signature
<PAGE>
Exhibit A
Page 5
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate is part of a
duly authorized issue of Warrants expiring June 15, 2005, entitling the
holders on exercise to receive shares of voting Common Stock of the Company,
and is issued or to be issued pursuant to a Warrant Agreement dated as of
July 8, 1998 (the "Warrant Agreement"), duly executed and delivered by the
United States Trust Company of New York, a banking corporation organized and
existing under the laws of the State of New York, as warrant agent (the
"Warrant Agent"). The Warrant Agreement is hereby incorporated by reference
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants. A copy of the Warrant Agreement may be obtained by
the holder hereof upon written request to the Company.
The Warrants may be exercised at any time on or after July 9, 1998
and on or before June 15, 2005, subject to extension as provided in the
Warrant Agreement. The holder of the Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with
the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price in cash at the office
of the Warrant Agent. The Warrants evidenced hereby shall be exercisable only
in full, and not in part. No adjustment shall be made for any dividends on
any shares of Common Stock issuable upon exercise of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the number of Warrants set forth on the face hereof may, subject to
certain conditions, be adjusted. No fractions of a share of Common Stock will
be issued upon the exercise of any Warrant, but the Company will pay the cash
value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate, when surrendered at the office of the
Warrant Agent by the registered holder thereof in person or by legal
representative or attorney duly authorized in writing, may be exchanged, in
the manner and subject to the limitations provided in the Warrant Agreement,
but without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate Warrants to
purchase the aggregate number of shares of Common Stock to which the
surrendered Warrants were entitled.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock shall be issued to
the transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any
<PAGE>
Exhibit A
Page 6
distribution to the holder(s) hereof, and for all other purposes, and neither
the Company nor the Warrant Agent shall be affected by any notice to the
contrary. Neither the Warrants nor this Warrant Certificate entitles any
holder hereof to any rights of a stockholder of the Company.
<PAGE>
Exhibit A
Page 7
[Form of Election to Purchase]
[To Be Executed upon Exercise of Warrant]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ________ shares of Common
Stock and herewith tenders payment for such shares to the order of Epic
Warrant Co. in the amount of $___________ in accordance with the terms
hereof. The undersigned requests that a certificate for such shares be
registered in the name of ______________________ whose address is
_______________________________ and that such shares be delivered to
______________________, whose address is _____________________________.
Signature:
Date:
Signature Guarantee:
_____________________________________________
(Signatures must be guarantee by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements will include membership or
participation in the Securities Transfer
Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may
be determined by the Registrar in addition
to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.)
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to purchase Common Stock
(THE "SECURITIES") OF EPIC WARRANT CO.
This Certificate relates to _______________ Securities held in the
form of Physical Warrants by ____________________ (the "Transferor").
The Transferor:*
/ / has requested that the Warrant Agent by written order to
exchange or register the transfer of a Physical Warrant or Physical Warrants.
In connection with such request and in request of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Warrant Agreement relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 6 of such Warrant
Agreement, and that the transfer of these Securities does not require
registration under the Securities Act of 1933, as amended (the "Act")
because *:
/ / Such Security is being acquired for the Transferor's own
account, without transfer.
/ / Such Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Act), in reliance on
Rule 144A.
/ / Such Security is being transferred to an institutional
"accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3)
or (7) of Rule 501 under the Act.
/ / Such Security is being transferred in reliance on Regulation S
under the Act.
/ / Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act
other than Rule 144A or Rule 144 or Regulation S under the Act to a person
other than an institutional "accredited investor."
(INSERT NAME OF TRANSFEROR)
By:____________________________
(Authorized Signature)
Date:
___________________________________
* Check applicable box.
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Re: Epic Warrant Co. (the "Company")
WARRANTS TO PURCHASE COMMON STOCK (THE "SECURITIES")
Ladies and Gentlemen:
In connection with our proposed purchase of Securities of the
Company, we confirm that:
1. We have received such information as we deem necessary in
order to make our investment decision.
2. We understand that any subsequent transfer of the Securities
is subject to certain restrictions and conditions set forth in the Warrant
Agreement and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities have
not been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we will
do so only (A) to the Company or any subsidiary thereof, (B) inside the
United States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) inside the United
States to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Warrant Agent a signed letter substantially in the form
hereof, (D) outside the United States in accordance with Regulation S under
the Securities Act, (E) pursuant to the exemption from registration provided
by Rule 144 under the Securities Act (if available), or (F) pursuant to an
effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing Securities from us a notice
advising such purchaser that resales of the Securities are restricted as
stated herein.
4. We understand that, on any proposed resale of Securities, we
will be required to
<PAGE>
Exhibit C
Page 2
furnish the Warrant Agent and the Company, such certification, legal opinions
and other information as the Warrant Agent and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
(Name of Transferee)
By:________________________________
(Authorized Signatory)
<PAGE>
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
[Date]
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Re: Epic Warrant Co. (the "Company")
WARRANTS TO PURCHASE COMMON STOCK (THE "SECURITIES")
Dear Sirs:
In connection with our proposed transfer of the Securities, we
confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or (b)
the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither we nor any person acting on our behalf
knows that the transaction has been prearranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation 5, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby. Defined terms used herein
without definition have the respective meanings provided in Regulation S.
<PAGE>
Exhibit D
Page 2
Very truly yours,
(Name of Transferor)
By: ____________________________
(Authorized Signatory)
<PAGE>
EXECUTION VERSION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of July 8, 1998
Between
EPIC RESORTS, LLC,
as Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent
and joined by
EPIC WARRANT CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of July 8, 1998,
between Epic Resorts, LLC, a Delaware limited liability company (together
with any successors and assigns, the "Company"), and United States Trust
Company of New York, a New York banking corporation, as Warrant Agent (the
"Warrant Agent"). Epic Warrant Co., a Delaware corporation ("Warrant Co."),
hereby joins in this Agreement with respect to its obligations to the parties
to this Agreement and the holders of the Warrants (hereinafter defined).
WHEREAS, the Company proposes, among other things, to issue and
sell pursuant to a Purchase Agreement, dated as of June 30, 1998 (the
"Purchase Agreement"), among the Company, Epic Capital Corp., the other
subsidiaries of the Company, and NatWest Capital Markets Limited ("NatWest"),
as Initial Purchaser, 130,000 Units (the "Units") consisting of $130,000,000
principal amount of 13% Senior Secured Notes due 2005 (the "Notes") and, at
the Initial Purchaser's election, either (i) warrants (the "LLC Warrants") to
purchase membership interests (together with any successor securities, the
"Membership Interests") in the Company, or (ii) warrants (the "Corporate
Warrants") to purchase shares of common stock (the "Common Stock"), of
Warrant Co. (whose sole assets will be Warrant Co. LLC Warrants (as defined
herein));
WHEREAS, each Unit will represent $1,000 principal amount of Notes
and, in the case of the LLC Warrants, one warrant to purchase one Membership
Interest representing 0.000077% of the total membership interests of the
Company outstanding as of the date hereof (each a "Warrant Membership
Interest", including all other membership interests or other securities
issued or issuable upon exercise of the Warrants (hereinafter defined)) or,
in the case of the Corporate Warrants, one warrant to purchase one share of
Common Stock;
WHEREAS, the Company proposes to issue to Warrant Co. warrants (the
"Warrant Co. LLC Warrants") for the purchase of Membership Interests with the
same terms as the LLC Warrants and the number of Warrant Co. LLC Warrants
issued shall be equal to the number of all Corporate Warrants issued;
WHEREAS, the Company wishes the Warrant Agent to act on behalf of
the Company and the Warrant Agent is willing to act in connection with the
issuance, division, transfer, exchange and exercise of LLC Warrants and
Warrant Co. LLC Warrants (collectively, the "Warrants") as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement, and the Warrant
Agent hereby accepts such appointment, subject to the terms and conditions
hereof.
SECTION 2. WARRANT CERTIFICATES. The Warrants will be initially
issued in registered form as physical Warrant certificates (the "Physical
Warrants"). Any certificates (the
<PAGE>
"Warrant Certificates") evidencing the Physical Warrants to be delivered
pursuant to this Agreement shall be substantially in the form set forth in
EXHIBIT A attached hereto. Such Warrant Certificates shall represent such of
the outstanding Warrants as shall be specified therein and each shall provide
that it shall represent the aggregate amount of outstanding Warrants from
time to time endorsed thereon and that the aggregate amount of outstanding
Warrants represented thereby may from time to time be reduced or increased,
as appropriate. Any endorsement of a Warrant Certificate to reflect the
amount of any increase or decrease in the amount of outstanding Warrants
represented thereby shall be made by the Warrant Agent in accordance with
instructions given by the holder thereof.
SECTION 3. EXECUTION OF WARRANT CERTIFICATES.
(a) Warrant Certificates shall be signed on behalf of the Company
by an Officer (as defined) of the Company. Each such signature upon the
Warrant Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, President, Chief Financial
Officer, Vice President or Treasurer (each, an "Officer") of the Company and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any
person who shall at the time of affixing such signature be an Officer of the
Company, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of he shall have ceased to
hold such office.
(b) In case any Officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such Officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not
ceased to be such Officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be an Officer of the Company to
sign such Warrant Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such Officer.
(c) Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent.
SECTION 4. REGISTRATION AND COUNTERSIGNATURE.
(a) The Warrants shall be numbered and shall be registered on
the books of the Company maintained at the principal office of the Warrant
Agent in the Borough of Manhattan, city of New York (the "Warrant Register")
as they are issued.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of an Officer of the
Company, initially countersign and deliver Warrants entitling the holders
thereof to purchase not more than an aggregate amount of 186,000
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<PAGE>
Membership Interests and shall thereafter countersign and deliver Warrants as
otherwise provided in this Agreement.
(c) The Company and the Warrant Agent may deem and treat the
registered holders (the "Holders") of the Warrant Certificates as the
absolute owners thereof (notwithstanding any notation of ownership or other
writing thereon made by anyone) for all purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. TRANSFER AND EXCHANGE OF WARRANTS.
(a) The Warrant Agent shall from time to time, subject to the
limitations of Section 6, register the transfer of any outstanding Warrant
upon the records to be maintained by it for that purpose, upon surrender
thereof duly endorsed or accompanied (if so required by it) by a written
instrument or instruments of transfer in form satisfactory to the Warrant
Agent, duly executed by the registered Holder or Holders thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney.
Subject to the terms of this Agreement, each Warrant Certificate may be
exchanged for another certificate or certificates entitling the Holder or
Holders thereof to purchase a like aggregate amount of Membership Interests
as the certificate or certificates surrendered then entitle each Holder to
purchase. Any Holder desiring to exchange a Warrant Certificate or
Certificates shall make such request in writing delivered to the Warrant
Agent, and shall surrender, duly endorsed or accompanied (if so required by
the Warrant Agent) by a written instrument or instruments of transfer in form
satisfactory to the Warranty Agent, the Warrant Certificate or Certificates
to be so exchanged.
(b) Upon registration of transfer, the Warrant Agent shall
countersign and deliver by hand, by certified mail or by such other method as
the Warrant Agent shall reasonably determine a new Warrant Certificate or
Certificates to the persons entitled thereto. The Warrant Certificates may
be exchanged at the option of the Holder thereof, when surrendered at the
office or agency of the Company maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent in New York, New
York, for another Warrant Certificate, or other Warrant Certificates of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like amount of Membership Interests.
(c) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that is imposed in connection with any such exchange or
registration of transfer.
(d) Upon any Holder's surrender of a Warrant Certificate for
registration of transfer of such LLC Warrants to Warrant Co., subject to
Section 6, such transfer shall be registered in accordance with this Section
5 and the Holder's LLC Warrant shall be cancelled and a Warrant Co. LLC
Warrant shall be issued to Warrant Co. in respect thereof, provided that such
Holder and Warrant Co. certify to the Company and the Warrant Agent that such
transfer is solely for the purpose of exchanging a Corporate Warrant
corresponding thereto as contemplated by this Agreement.
-3-
<PAGE>
(e) Upon Warrant Co.'s surrender of a Warrant Certificate for
registration of transfer to a holder of a Corporate Warrant, subject to
Section 6, such transfer shall be registered in accordance with this Section
5, such Warrant Co. LLC Warrant shall be cancelled and a corresponding LLC
Warrant shall be issued to such Corporate Warrant holder in respect thereof;
provided that such Corporate Warrant holder and Warrant Co. certify to the
Company and Warrant Agent that such transfer is solely for the purpose of
exchanging a Corporate Warrant corresponding thereto as contemplated by this
Agreement.
SECTION 6. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) Transfer and Exchange of Physical Warrants. When Physical
Warrants are presented to the Warrant Agent with a request:
(A)(i) to register the transfer of the Physical Warrants; or
(ii) to exchange such Physical Warrants for an equal number of
Physical Warrants of other authorized denominations, the Warrant Agent
shall, subject to Section 5, register the transfer or make the exchange
as requested if the requirements under this Agreement as set forth in
this Section 6 for such transactions are met; PROVIDED, HOWEVER, that
the Physical Warrants presented or surrendered for registration of
transfer or exchange;
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Warrant Agent,
duly executed by the Holder thereof or his attorney duly authorized
in writing; and
(II) in the case of Physical Warrants the offer and sale of
which have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), such Physical Warrants shall be
accompanied by the following additional information and documents,
as applicable:
(A) if such Physical Warrants are being delivered to
the Warrant Agent by a Holder for registration in the name
of such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit
B hereto); or
(B) if such Physical Warrants are being transferred
to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act (a "Qualified Institutional
Buyer")) in accordance with Rule 144A under the Securities
Act, a certificate to that effect (in substantially the form
of Exhibit B hereto); or
(C) if such Physical Warrants are being transferred
to an institutional "accredited investor" (as defined in
Rule 501 (a)(1), (2), (3) or (7) under the Securities Act
(an "Institutional Accredited Investor")) delivery of a
certification to that effect (in substantially the form of
-4-
<PAGE>
Exhibit B hereto) and a Transferee Certificate for
Institutional Accredited Investors in substantially the form
of Exhibit C hereto; or
(D) if such Physical Warrants are being transferred
in reliance on Regulation S under the Securities Act
("Regulation S"), delivery of a certification to that effect
(in substantially the form of Exhibit B hereto) and a
Transferee Certificate for Regulation S Transfers in
substantially the form of Exhibit D hereto and an opinion of
counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
or
(E) if such Physical Warrants are being transferred
in reliance on Rule 144 under the Securities Act, delivery
of a certification to that effect (in substantially the form
of Exhibit B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act; or
(F) if such Physical Warrants are being transferred
in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that
effect (in substantially the form of Exhibit B hereto) and
an opinion of counsel reasonably satisfactory to the Company
to the effect that such transfer is in compliance with the
Securities Act.
(b) LEGENDS.
(i) For so long as transfer of a Warrant is not permitted without
registration under the Securities Act, each Warrant Certificate evidencing such
Warrant (and all Warrants issued in exchange therefor or substitution thereof)
shall bear a legend substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF OR A BENEFICIAL INTEREST HEREIN, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING
THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON, AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD
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REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT
AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, ON THE DATE OF THE TRANSFER
OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO EPIC RESORTS, LLC (THE "ISSUE") OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QIB IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT), AND
IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE AMOUNT OF SECURITIES AT
THE TIME OF TRANSFER OF LESS THAN 250 WARRANTS, AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO
THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE, BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER), (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) AND IN EACH
CASE, IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A
PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER
OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. THIS
WARRANT AND THE MEMBER INTERESTS OF THE COMPANY INTO WHICH THIS WARRANT
IS EXERCISABLE ARE SUBJECT TO A REGISTRATION RIGHTS AND MEMBERS'
AGREEMENT DATED AS OF JULY 8, 1998, WHICH CONTAINS PROVISIONS REGARDING
THE RESTRICTIONS ON THE TRANSFER AND PROVISIONS REQUIRING THE MANDATORY
TRANSFER OF SUCH MEMBERSHIP INTERESTS AND OTHER MATTERS. A COPY OF SUCH
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY.
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(c) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF PHYSICAL
WARRANTS.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant
Agent shall countersign Physical Warrants.
(ii) All Physical Warrants issued upon any registration of
transfer or exchange of Physical Warrants shall be the valid obligations
of the Company, entitled to the same benefits under this Agreement as
the Physical Warrants surrendered upon the registration of transfer or
exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the person
in whose name any Warrant is registered as the absolute owner of such
Warrant, and neither the Warrant Agent nor the Company shall be affected
by notice to the contrary.
SECTION 7. SEPARATION OF WARRANTS; TERMS OF WARRANTS; EXERCISE OF
WARRANTS.
(a) The Notes and Warrants will be immediately separated upon sale
by the Initial Purchaser.
(b) Subject to the terms of this Agreement, each Holder shall
have the right, which may be exercised commencing on the Business Day
immediately following the date of issuance and until 5:00 p.m., New York City
time, on June 15, 2005 (the "Expiration Date"), to receive from the Company
upon the exercise of each Warrant the number of Warrant Membership Interests
which the Holder may at the time be entitled to receive on exercise of such
Warrant and payment of the Exercise Price (as defined) then in effect for
such Warrant Membership Interests. Each Warrant not exercised prior to the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No
adjustments as to distributions will be made upon exercise of the Warrants.
(c) The initial price at which one Warrant Membership Interest
shall be purchasable upon exercise of a Warrant (the "Exercise Price") shall
be $.01. A Warrant may be exercised upon surrender at the office or agency of
the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in New York, New York, of the
certificate or certificates evidencing the Warrant to be exercised with the
form of election to purchase on the reverse thereof duly filled in and
signed, which signature shall be guaranteed by a participant in a recognized
Signature Guarantee Medallion Program, and upon payment to the Warrant Agent
for the account of the Company of the Exercise Price, as adjusted as herein
provided, for the Warrant Membership Interests in respect to which such
Warrant is then exercised. Payment of the Exercise Price shall be made in
cash or by certified or official bank check to the order of the Company in
immediately available funds.
(d) Subject to the provisions of Section 6 and such other
conditions precedent to the exercise of the Warrants as may be set forth in
this Agreement, if any, upon surrender of a
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Warrant and payment of the Exercise Price in respect thereof, the Company
shall issue and cause to be delivered with all reasonable dispatch to or upon
the written order of the Holder and in such name or names as the Holder may
designate a certificate or certificates for the Warrant Membership Interests
issuable upon the exercise of such Warrant together with cash as provided in
Section 13; provided, however, that if any consolidation, merger or sale of
assets is proposed to be effected by the Company as described in Section 12,
or a tender offer or an exchange offer for Membership Interests shall be
made, upon such surrender of Warrants and payment of the Exercise Price as
aforesaid, the Company shall, as soon as practicable, but in any event not
later than 2 days, other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are not open for business ("Business
Day"), thereafter, issue and cause to be delivered the Warrant Membership
Interests issuable upon the exercise of such Warrant in the manner described
in this sentence together with cash as provided in Section 13. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Warrant Membership Interest as of the date of the
surrender of such Warrant and payment of the Exercise Price in respect
thereof. EACH WARRANT SHALL BE EXERCISABLE ONLY IN FULL, AND NOT IN PART.
(e) All Warrant Certificates surrendered upon exercise of
Warrants shall be cancelled by the Warrant Agent. Such cancelled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
consistent with the Warrant Agent's customary procedure for such disposal and
in a manner reasonably satisfactory to the Company. The Warrant Agent shall
account promptly to the Company with respect to Warrants exercised and
promptly pay to the Company all monies received by the Warrant Agent for the
purchase of the Warrant Membership Interests through the exercise of such
Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and
any notices given or received hereunder available for inspection by the
Holders during normal business hours at its office. The Company shall supply
the Warrant Agent from time to time with such numbers of copies of this
Agreement as the Warrant Agent may request.
SECTION 8. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Membership
Interests upon the exercise of Warrants; PROVIDED, HOWEVER, that the Company
shall not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the issue of any Warrant Certificates or any
certificates for Warrant Membership Interests in a name other than that of
the registered holder of a Warrant Certificate surrendered upon the exercise
of a Warrant, and the Company shall not be required to issue or deliver such
Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
SECTION 9. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any
of the Warrant Certificates shall be mutilated, lost, stolen or destroyed,
the Company may at its discretion issue and the Warrant Agent may
countersign, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the
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Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent number of Warrants, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction of such Warrant Certificate and indemnity also
satisfactory to them. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 10. RESERVATION OF MEMBERSHIP INTERESTS.
(a) The Company will at all times reserve and keep available,
free from preemptive or other similar rights of members of the Company or
others, the right to issue additional Warrant Membership Interests for the
purpose of enabling it to satisfy its obligation to issue Membership
Interests upon exercise of Warrants up to the maximum number of Warrant
Membership Interests which may then be deliverable upon the exercise of all
outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the
Membership Interests (the "Transfer Agent") and every subsequent transfer
agent for any membership interests of the Company issuable upon the exercise
of any of the rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such amount of Membership Interests, whether
stated as units or otherwise, as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any membership interests of the
Company issuable upon the exercise of the rights of purchase represented by
the Warrants. The Warrant Agent is hereby irrevocably authorized to
requisition from time to time from such Transfer Agent any Member
certificates or other instruments required to honor outstanding Warrants upon
exercise thereof in accordance with the terms of this Agreement. The Company
will supply such Transfer Agent with duly executed certificates or other
instruments for such purposes and will provide or otherwise make available
any cash which may be payable as provided in Section 13. The Company will
furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto transmitted to each Holder pursuant to Section
14 hereof.
(c) The Company covenants that all Warrant Membership Interests
which may be issued upon exercise of Warrants made in accordance with the
terms of this Agreement will, upon payment of the Exercise Price therefor and
issue, be validly authorized and issued, free of preemptive and other similar
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof. The Company will not enter into any
agreements inconsistent with the rights of Holders hereunder. The Company
will use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable the Company to perform its obligations under this
Agreement. The Company shall not take any action reasonably within its
control, including the hiring of a broker to solicit exercises, which would
render unavailable an exemption from registration under the Securities Act
which might otherwise be available with respect to the issuance of Warrant
Membership Interests upon exercise of any Warrants.
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SECTION 11. OBTAINING STOCK EXCHANGE LISTINGS. The Company will
from time to time take all actions which may be necessary so that the Warrant
Membership Interests, immediately upon their issuance upon the exercise of
Warrants, will be listed on the principal securities exchanges and markets
within the United States of America (including the NASDAQ National Market
System), if any, on which other Membership Interests are then listed.
SECTION 12. ADJUSTMENT OF NUMBER OF WARRANT MEMBERSHIP INTERESTS
ISSUABLE. The number of Warrant Membership Interests issuable upon exercise
of a Warrant (the "Exercise Rate") is subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 12. The
Exercise Rate shall initially be one.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL. If the Company:
(1) makes a distribution on its outstanding Membership Interests
payable in Membership Interests or other membership interests of the
Company;
(2) subdivides, combines or reclassifies its outstanding
Membership Interests; and
(3) makes a distribution to all holders of its outstanding
Membership Interests of rights, warrants or options to purchase
Membership Interests at a price per membership interest less than the
Current Market Value (as defined in Section 12(d)) at the Time of
Determination (as defined below));
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate amount and kind of membership interests
of the Company which he would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action; PROVIDED,
HOWEVER, that notwithstanding the foregoing, upon the occurrence of an event
described in any of paragraphs (1) or (3) above, which otherwise would have
given rise to an adjustment, no adjustment shall be made if the Company
includes the Holders of Warrants in such distribution pro rata to all
Membership Interests issued and outstanding (after giving effect to the
Warrant Membership Interests as if they were issued and outstanding).
The adjustment shall become effective (the "Time of Determination")
immediately after the record date in the case of a distribution and
immediately after the effective date in the case of a subdivision,
combination or reclassification.
If after an adjustment a Holder of a Warrant upon exercise of it
may receive interests in two or more classes of the Membership Interests of
the Company, the manager of the Company shall determine the allocation of the
adjusted Exercise Price between such separate classes of Membership Interests
of the Company. After such allocation, the exercise privilege and the
Exercise Price of each class of Membership Interests shall thereafter be
subject to adjustment on terms comparable to those applicable to Membership
Interests in this Subsection 12(a).
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Adjustments pursuant to this Subsection 12(a) shall be made
successively whenever any event listed above shall occur.
(b) ADJUSTMENT FOR CERTAIN ISSUANCES OF MEMBERSHIP INTERESTS.
Subject to Subsection 12(a), if the Company issues or sells Membership
Interests or distributes any rights, options or warrants to all holders of
its Membership Interests entitling them to purchase Membership Interests, or
securities convertible into or exchangeable for Membership Interests (other
than pursuant to (1) the exercise of the Warrants or issuance of Membership
Interests to Warrant Co. solely to accommodate a holder of Warrant Co.'s
common stock right to receive the corresponding Warrant Membership Interest
held by Warrant Co. in exchange for such common stock, (2) any options,
warrants or rights outstanding as of the date of this Agreement, (3) without
limiting any options, warrants or rights outstanding covered by the
immediately preceding clause (2), any executive management plans and employee
option or purchase plans to the extent that the aggregate amount of
Membership Interests (or securities convertible into or exchangeable or
exercisable for Membership Interests) distributed under all such executive
management plans and employee option and purchase plans does not exceed ten
percent (10%) of the Company's membership interests at any one time
outstanding (of which no options to purchase are currently outstanding) and
(4) any security convertible into, or exchangeable or exercisable for,
Membership Interests as to which the issuance thereof has previously been the
subject of any required adjustment pursuant to this Agreement and exercisable
securities of the Company for which the applicable adjustment has already
been made, at a price per membership interest less than the Current Market
Value at the Time of Determination, the Exercise Rate shall be adjusted in
accordance with the formula:
(0 + N)
--------------
E(1) = E x 0 + (N x P)
-------
M
where:
E(l) = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination of any such distribution.
0 = the number of Fully Diluted Membership Interests (as defined
in Section 12(m)) outstanding on the Time of Determination
for any such issuance, sale or distribution.
N = the number of additional Membership Interests issued, sold
or issuable upon exercise of such rights, options or
warrants.
P = the price received in the case of any issuance or sale of
Membership Interests or exercise price per membership
interest of such rights, options or warrants.
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M = the Current Market Value per Membership Interests on the
Time of Determination for any such issuance, sale or
distribution.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of holders of membership interests of the
Company entitled to receive the rights, options or warrants. If at the end of
the period during which any such rights, options or warrants are exercisable,
not all rights, options or warrants shall have been exercised, the Warrant shall
be immediately readjusted to what it would have been if "N" in the above formula
had been the amount of membership interests actually issued.
(c) ADJUSTMENT FOR OTHER DISTRIBUTION. Subject to Subsection
12(a), if the Company distributes to all holders of its Membership Interests
(i) any evidences of indebtedness of the Company, (ii) any assets of the
Company (excluding cash distributions or distributions from current or
retained earnings other than any Extraordinary Cash Distribution and
excluding cash distributions made pursuant to Section 4.07(b)(vi) of the
Indenture), or (iii) any rights, options or warrants to acquire any of the
foregoing or to acquire any other securities of the Company, the Exercise
Rate shall be adjusted in accordance with the formula:
E(1) = (E x M)
-------
M - F
where:
E(1) = the adjusted Exercise Rate.
E = the Exercise Rate immediately prior to the Time of
Determination of any such distribution.
M = the Current Market Value per Membership Interests on the
record date mentioned below.
F = the fair market value on the record date mentioned below of
the indebtedness, assets, rights, options or warrants
distributable in respect of each Membership Interests.
Adjustments pursuant to this Subsection 12(c) shall be made
successively whenever any such distribution is made and shall become
effective immediately after the record date for the determination of holders
of membership interests of the Company entitled to receive the distribution.
If an adjustment is made pursuant to clause (iii) above of this Subsection
12(c) as a result of the issuance of rights, options or warrants and at the
end of the period during which any such rights, options or warrants are
exercisable, not all such rights, options or warrants shall have been
exercised, the Warrant shall be immediately readjusted as if "F" in the above
formula was the fair market value on the record date of the indebtedness or
assets actually distributed upon exercise of such rights, options or warrants
divided by amount of Membership Interests outstanding on the record date.
Notwithstanding the foregoing provisions of this Subsection
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12(c), (x) an event which would otherwise give rise to an adjustment pursuant
to this Subsection 12(c) shall not give rise to such an adjustment if the
Company includes the Holders of the Warrants in such distribution pro rata to
all Membership Interests issued and outstanding after giving effect to the
Membership Interests as if they were issued and outstanding and (y) no
adjustment shall be made pursuant to this Subsection 12(c) with respect to
cash distributions other than Extraordinary Cash Distributions.
This Subsection 12(c) does not apply to rights, options or warrants
referred to in Subsection 12(b).
(d) MERGER, CONSOLIDATION, ETC. If (x) the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another person (other than an Affiliate of the Company) and
consideration is payable to holders of Membership Interests in exchange for
their Membership Interests in connection with such merger, consolidation or
sale which consists solely of cash, or (y) in the event of a dissolution,
liquidation or winding up of the Company, then the Holders of Warrants shall
be entitled to receive distributions on the date of such event on an equal
basis with all holders of Membership Interests (or other securities issuable
upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of
such payment, if any, the rights of a Holder of a Warrant shall terminate and
cease and his or her Warrants shall expire. In case of any such merger,
consolidation or sale of assets, the surviving or acquiring person and, in
the event of any dissolution, liquidation or winding up of the Company, the
Company shall deposit promptly with the Warrant Agent the funds, if any,
necessary to pay the Holders of the Warrants. After receipt of such deposit
from such person or the Company and after receipt of surrendered Warrant
Certificates, the Warrant Agent shall make payment by delivering a check in
such amount as is appropriate (or, in the case of consideration other than
cash, such other consideration as is appropriate) to such person or persons
as it may be directed in writing by the Holders surrendering such Warrants.
(e) CURRENT MARKET VALUE. "Current Market Value" of Membership
Interests or of any other security (herein collectively referred to as a
"Security") at any date shall be:
(1) if the Security is not registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (i) the value of
the Security determined in good faith by the manager of the Company,
based on the most recently completed arm's length transaction between
the Company and a person other than an Affiliate of the Company in which
such determination is necessary and the closing of which occurs on such
date or shall have occurred within the six months preceding such date,
(ii) if no such transaction shall have occurred on such date or within
such six-month period, the value of the Security most recently
determined as of a date within the six months preceding such date by an
Independent Financial Expert or (iii) if neither clause (i) nor (ii) is
applicable, the value of the Security determined as of such date by an
Independent Financial Expert, or
(2) if the Security is registered under the Exchange Act, the
average of the daily market prices for each Business Day during the
period commencing 15 Business
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Days before such date and ending on the date one day prior to such date
or, if the Security has been registered under the Exchange Act for less
than 15 consecutive Business Days before such date, then the average of
the daily market prices for all of the Business Days before such date
for which daily market prices are available. If the market price is not
determinable for at least 10 Business Days in such period, the Current
Market Value of the Security shall be determined as if the Security was
not registered under the Exchange Act.
The "market price" for any Security on each Business Day means: (A)
if such Security is listed or admitted to trading on any securities exchange,
the closing price, regular way, on such day on the principal exchange on
which such Security is traded, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, (B) if such Security
is not then listed or admitted to trading on any securities exchange, the
last reported sale price on such day, or if there is no such last reported
sale price on such day, the average of the closing bid and the asked prices
on such day, as reported by a reputable quotation source designated by the
Company, or (C) if neither clause (A) nor (B) is applicable, the average of
the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City of New York, customarily published on each
Business Day, designated by the Company. If there are no such prices on a
Business Day, then the market price shall not be determinable for such
Business Day.
"Independent Financial Expert" shall mean (a) NatWest (or any
successor) or (b) another nationally recognized investment banking firm, a
nationally recognized regional investment banking firm or a nationally
recognized accounting firm selected by the Company reasonably acceptable to
the Warrant Agent (i) that does not (and whose directors, officers, employees
and Affiliates do not) have a direct or indirect material financial interest
in the Company, (ii) that has not been, and, at the time it is called upon to
serve as an Independent Financial Expert under this Agreement is not (and
none of whose directors, officers, employees or Affiliates is) a promoter,
director or officer of the Company, (iii) that has not been retained by the
Company for any purpose, other than to perform an equity valuation, within
the preceding twelve months, and (iv) that, in the reasonable judgment of the
manager of the Company, is otherwise qualified to serve as an independent
financial advisor. Any such person may receive customary compensation and
indemnification by the Company for opinions or services it provides as an
Independent Financial Expert.
"Affiliate" shall mean, with respect to any person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such person. For the purposes of this
definition, "control" when used with respect to any person, means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Extraordinary Cash Distribution" means cash distributions with
respect to Membership Interests, the aggregate amount of which in any fiscal
year exceeds the lesser of (i)
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15% of the net income of the Company for the fiscal year immediately
preceding the payment of such distribution or (ii) $1,000,000.
(f) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED. No adjustment
in the Exercise Rate need be made unless the adjustment would require an
increase or decrease of at least 5% in the Exercise Rate. Notwithstanding
the foregoing, any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment, provided that no such
adjustment shall be deferred beyond the date on which a Warrant is exercised.
All calculations under this Section 12 shall be made to the nearest cent or
to the nearest 1/100 of a membership interest.
(g) WHEN NO ADJUSTMENT REQUIRED. If an adjustment is made upon
the establishment of a record date for a distribution subject to Subsections
12(a), (b) or (c) and such distribution is subsequently cancelled, the
Exercise Rate then in effect shall be readjusted, effective as of the date
when the manager of the Company determines to cancel such distribution, to
that which would have been in effect if such record date had not been fixed.
To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the amount of cash into which such Warrants are
exercisable. Interest will not accrue on the cash.
(h) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate or
Exercise Price is adjusted, the Company shall provide the notices required by
Section 14 hereof.
(i) VOLUNTARY REDUCTION. The Company from time to time may
increase the Exercise Rate by any amount for any period of time (including,
without limitation, permanently) if the period is at least 20 Business Days.
An increase of the Exercise Rate under this Subsection 12(i) (other than a
permanent increase) does not change or adjust the Exercise Rate otherwise in
effect for purposes of Subsections 12(a), 12(b) or 12(c).
(j) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED. In any case in
which this Section 12 shall require that an adjustment in the Exercise Rate
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event (i) issuing to the Holder
of any Warrant exercised after such record date the Warrant Membership
Interests and other membership interests of the Company or other entities, if
any, issuable upon such exercise over and above the Warrant Membership
Interests and other membership interests of the Company or other entities, if
any, issuable upon such exercise on the basis of the Exercise Rate prior to
such adjustment, and (ii) paying to such Holder any amount in cash in lieu of
a fractional interest pursuant to Section 13; provided, however, that the
Company shall deliver to the Warrant Agent and shall cause the Warrant Agent,
on behalf of and at the expense of the Company, to deliver to such Holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such additional Warrant Membership Interests and other membership
interests of the Company or other entities and cash upon the occurrence of
the event requiring such adjustment.
(k) REORGANIZATIONS. In case of any capital reorganization,
other than the cases referred to in Subsections 12(a), 12(b), 12(c) or 12(d),
or the consolidation or merger of the Company with or into another entity
(other than a merger or consolidation in which the Company
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<PAGE>
is the continuing entity and which does not result in any reclassification of
the outstanding Membership Interests into other membership interests or other
securities or property), or the sale of the property of the Company as an
entirety or substantially as an entirety (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of any Warrant (in lieu of the amount of Warrant
Membership Interests theretofore deliverable), the amount of membership
interests or other securities or property to which a holder of the amount of
Membership Interests that would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the manager of the Company, shall be made in the
application of the provisions herein set forth with respect to the rights and
interests of Holders so that the provisions set forth herein shall thereafter
be applicable, as nearly as possible, in relation to any membership interests
or other securities or property thereafter deliverable upon exercise of
Warrants.
The Company shall not effect any such Reorganization unless prior
to or simultaneously with the consummation thereof the successor entity (if
other than the Company) resulting from such Reorganization or the entity
purchasing or leasing such assets or other appropriate entity shall (i)
expressly assume, by a supplemental Warrant Agreement or other acknowledgment
executed and delivered to the Warrant Agent the obligation to deliver to the
Warrant Agent and to cause the Warrant Agent to deliver to each Holder of
Warrants such membership interests or other securities or property as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase, and all other obligations and liabilities under this Agreement and
(ii) enter into an agreement providing to the Holders of Warrants rights and
benefits substantially similar to those enjoyed by such Holders under the
Registration Rights and Members' Agreement of even date herewith.
The provisions of this Subsection 12(k) shall apply to successive
Reorganization transactions.
(l) FORM OF WARRANTS. Irrespective of any adjustments in the
number or kind of membership interests or other securities or property
purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind
of membership interests as are stated in the Warrants initially issuable
pursuant to this Agreement.
(m) CERTAIN REORGANIZATIONS. Notwithstanding any other
provisions of Section 12, in the event that the Company transfers
substantially all of its assets to a wholly-owned subsidiary of the Company,
receiving common stock of such subsidiary in return, and then makes a
liquidating distribution of such common stock to holders of Membership
Interests, holders of Warrants shall be entitled to receive, in exchange for
such Warrants, warrants ("Exchange Warrants") to purchase the number of
shares of common stock of such subsidiary that the holder of such Warrants
would have been entitled to receive had such holder exercised such Warrants
immediately prior to such transaction. The Company shall not effect any such
transaction unless such subsidiary shall have entered into an agreement with
the Warrant Agent
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<PAGE>
providing the holders of Exchange Warrants with rights and privileges with
respect thereto substantially similar to those that holders of Warrants enjoy
under this Agreement.
(n) MISCELLANEOUS. For purposes of this Section 12 the term
"Fully Diluted Membership Interests" shall mean (i) all Membership Interests
outstanding as of a specified date, and (ii) all Membership Interests into or
for which rights, options, warrants or other securities outstanding as of
such date are exercisable or convertible (other than the Warrants). In the
event that at any time, as a result of an adjustment made pursuant to this
Section 12, the Holders of Warrants shall become entitled to purchase any
securities of the Company other than, or in addition to, Membership
Interests, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Warrant Membership Interests contained in
Subsections 12(a) through 12(l), inclusive, and the provisions of Sections 7,
8, 10 and 13 with respect to the Warrant Membership Interests or other
Membership Interests shall apply on like terms to any such other securities.
SECTION 13. FRACTIONAL INTERESTS. The Company shall not be
required to issue fractional Warrant Membership Interests on the exercise of
Warrants. The number of full Warrant Membership Interests which shall be
issuable upon the exercise of a Warrant shall be computed on the basis of the
aggregate number of Warrant Membership Interests purchasable on exercise of
the Warrant so presented. If any fraction of a Warrant Membership Interest
would, except for the provisions of this Section 13, be issuable on the
exercise of any Warrant, the Company shall pay an amount in cash equal to the
Current Market Value on the day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction.
SECTION 14. NOTICES TO WARRANT HOLDERS. Upon any adjustment
pursuant to Section 12 hereof, the Company shall give prompt written notice
of such adjustment to the Warrant Agent and shall cause the Warrant Agent, on
behalf of and at the expense of the Company, within 10 days after such
adjustment, to mail by first class mail, postage prepaid, to each Holder a
notice of such adjustment(s) and shall deliver to the Warrant Agent a
certificate of the manager of the Company, accompanied by the report thereon
by a firm of independent public accountants selected by the manager of the
Company (who may be the regular accountants for the Company), setting forth
in reasonable detail (i) the number of Warrant Membership Interests
purchasable upon the exercise of each Warrant and the Exercise Price of such
Warrant after such adjustment(s), (ii) a brief statement of the facts
requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made. Where appropriate, such notice may be given in
advance and included as a part of the notice required under the other
provisions of this Section 14.
In case:
(a) the Company shall authorize the issuance to all holders of
Membership Interests rights, options or warrants to subscribe for or
purchase Membership Interests or of any other subscription rights or
warrants; or
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<PAGE>
(b) the Company shall authorize the distribution to all holders
of Membership Interests of evidences of its indebtedness or assets; or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any members of the Company is required,
or of the conveyance or transfer of the properties and assets of the
Company substantially as an entirety, or of any reclassification or
change of Membership Interests (other than as a result of a subdivision
or combination), or a tender offer or exchange offer for Membership
Interests; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action that would require
an adjustment to the Exercise Rate or the Exercise Price pursuant to
Section 12;
then the Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company
to give to each of the registered holders of the Warrant Certificates at his
or its address appearing on the Warrant Register, at least 30 days (or 20
days in any case specified in clauses (a) or (b) above) prior to the
applicable record date hereinafter specified, or the date of the event in the
case of events for which there is no record date, by first-class mail,
postage prepaid, a written notice stating (i) the day as of which the holders
of record of Membership Interests to be entitled to receive any rights,
options, warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for
Membership Interests, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is
expected to become effective or consummated, and the date as of which it is
expected that holders of record of Membership Interests shall be entitled to
exchange such Membership Interests for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure by the Company
or the Warrant Agent to give such notice or any defect therein shall not
affect the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
The Company shall give prompt written notice to the Warrant Agent
and shall cause the Warrant Agent, on behalf of and at the expense of the
Company, to give to each Holder written notice of any determination to make a
distribution to the holders of Membership Interests of any cash, assets, debt
securities, or any rights or warrants to purchase debt securities, assets or
other securities (other than Membership Interests, or rights, options, or
warrants to purchase Membership Interests) of the Company, which notice shall
state the nature and amount of such planned distribution and the record date
therefor, and shall be received by the Holders at least 30 days prior to such
record date therefor.
Nothing contained in this Agreement or in any Warrant Certificate
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as Members in respect of the meetings of Members
of the Company or any other matter, or any rights whatsoever as Members of
the Company.
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<PAGE>
SECTION 15. NOTICES TO THE COMPANY AND WARRANT AGENT. Any notice
or demand authorized by this Agreement to be given or made by the Warrant
Agent or by any Holder to or on the Company shall be sufficiently given or
made when received at the office of the Company expressly designated by the
Company as its office for purposes of this Agreement (until the Warrant Agent
is otherwise notified in accordance with this Section 15 by the Company), as
follows:
Epic Resorts, LLC
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Attention: Thomas F. Flatley
Any notice pursuant to this Agreement to be given by the Company or
by any Holder(s) to the Warrant Agent shall be sufficiently given when
received by the Warrant Agent at the address appearing below (until the
Company is otherwise notified in accordance with this Section by the Warrant
Agent).
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
Facsimile: (212) 852-1626
SECTION 16. SUPPLEMENTS AND AMENDMENTS. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement
without the approval of any holders of Warrants in order to cure any
ambiguity or to correct or supplement any provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the Company and the Warrant Agent may deem necessary or desirable and which
shall not in any way adversely affect the interests of any Holder of
Warrants. No other amendment or modification of this Agreement or the rights
and obligations of the Company or the rights of Holders of Warrants may be
made at any time by the Company and the Warrant Agent without the consent of
Holders of Warrants representing a majority in number of the then outstanding
Warrants.
SECTION 17. CONCERNING THE WARRANT AGENT. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders,
by their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the Warrant
Certificate shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same.
The Warrant Agent assumes no responsibility with respect to the
distribution of the Warrants except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for and shall
incur no liability to the Company or any Holder for any failure of the
Company to comply with the
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<PAGE>
covenants contained in this Agreement or in the Warrants to be complied
with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either
itself (through its employee) by or through its attorneys or agents
(which shall not include its employees) and shall not be responsible for
the negligence or misconduct of any attorney or agent appointed with due
care.
(d) The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice
of such counsel.
(e) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
such evidence in respect thereof be herein specifically prescribed) may
be deemed conclusively to be proved and established by a certificate
signed by the Chairman of the Board, the President, one of the Vice
Presidents, the Treasurer or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full authorization
to the Warrant Agent for any action taken or suffered in good faith by
it under the provisions of this Agreement in reliance upon such
certificate.
(f) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and other charges
of any kind and nature incurred by the Warrant Agent in the performance
of its duties under this Agreement (including, without limitation,
reasonable fees and expenses of counsel), and to indemnify the Warrant
Agent and its agents, employees, directors, officers and affiliates and
save it and them harmless against any and all liabilities, losses and
expenses, including, without limitation, judgments, costs and counsel
fees, for anything done or omitted by the Warrant Agent in the
performance of its duties under this Agreement, except as a result of
the Warrant Agent's negligence or bad faith. The provisions of this
subparagraph (f) shall survive the resignation or removal of the Warrant
Agent and the termination of this Agreement.
(g) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders shall furnish
the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect
the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may
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<PAGE>
be enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the Holders, as
their respective rights or interests may appear.
(h) The Warrant Agent and any stockholder, director, officer or
employee ("Related Parties") of the Warrant Agent may buy, sell or deal
in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transactions in which the Company may be
interested, or contract with or lend money to the Company or otherwise
act as fully and freely as though it were not Warrant Agent under this
Agreement or such director, officer or employee. Nothing herein shall
preclude the Warrant Agent or any Related Party from acting in any other
capacity for the Company or for any other legal entity including,
without limitation, acting as Transfer Agent or as a lender to the
Company or an affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as agent, and
its duties shall be determined solely by the provisions hereof. No
implied duties or obligations shall be read into this Agreement against
the Warrant Agent. The Warrant Agent shall not be liable for anything
which it may do or refrain from doing in connection with this Agreement
except for its own negligence or bad faith.
(j) The Warrant Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate
or other paper, document or instrument reasonably believed by it to be
genuine and to have been signed, sent or presented by the proper party
or parties.
(k) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in
respect of the validity or execution of any Warrant (except its
countersignature thereof); nor shall the Warrant Agent by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Membership Interests (or
other securities) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Membership Interests (or other
securities) will, when issued, be validly issued, fully paid and
nonassessable, or as to the Exercise Price or the number or amount of
Warrant Membership Interests or other securities or other property
issuable upon exercise of any Warrant.
(l) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Vice
President or the Secretary of the Company, and to apply to such officers
for advice or instructions in connection with its duties, and shall not
be liable for any action taken or suffered to be taken by it in good
faith and without negligence in accordance with instructions of any such
officer or officers.
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<PAGE>
(m) By countersigning Warrant Certificates or by any other act
hereunder the Warrant Agent shall not be deemed to make any
representations as to validity or authorization of the Warrants or the
Warrant Certificates (except as to its countersignature thereon) or of
any securities or other property delivered upon exercise or tender of
any Warrant, or as to the accuracy of the computation of the Exercise
Price or the number or kind or amount of stock or other securities or
other property deliverable upon exercise of any Warrant or the
correctness of the representations of the Company made in any
certifications that the Warrant Agent receives. The Warrant Agent shall
not have any duty to calculate or determine any adjustments with respect
either to the Exercise Price or the kind and amount of shares or other
securities or any property receivable by holders of Warrants upon the
exercise or tender of Warrants required from time to time, and the
Warrant Agent shall have no duty or responsibility in determining the
accuracy or correctness of any such calculation.
SECTION 18. CHANGE OF WARRANT AGENT. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving to the
Company 30 days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall
resign or be removed or shall otherwise be incapable of acting, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of 30 days after such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by any Holder (who shall with
such notice submit his Warrant for inspection by the Company), then any
Holder may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Pending appointment of a successor to
the Warrant Agent, either by the Company or by such court, the duties of the
Warrant Agent shall be carried out by the Company. Any successor warrant
agent, whether appointed by the Company or such a court, shall be a bank or
trust company in good standing, incorporated under the laws of the United
States of America or any State thereof or the District of Columbia and having
at the time of its appointment as warrant agent a combined capital and
surplus of at least $50,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer
to the successor warrant agent any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for such purpose. Failure to file any notice provided for in this
Section 18, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be. In the event
of such resignation or removal, the Company or the successor warrant agent
shall mail by first class mail, postage prepaid, to each Holder, written
notice of such removal or resignation and the name and address of such
successor warrant agent.
SECTION 19. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Membership Interests, or any other
membership interests or other securities of the Company issuable upon the
exercise of the Warrants, the Company shall file with the Warrant Agent a
statement setting forth the name and address of such Transfer Agent.
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<PAGE>
SECTION 20. SUCCESSORS. All the covenants and provisions of this
Agreement by and for the benefit of the Company, the Warrant Agent or any
Holder of Warrants shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 21. TERMINATION. This Agreement shall terminate on the
Expiration Date. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date if all Warrants have been exercised or redeemed
pursuant to this Agreement.
SECTION 22. GOVERNING LAW. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and shall be governed by and construed in
accordance with the laws of said State, without regard to the conflict of law
rules thereof.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the registered holders of the Warrant
Certificates.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed, as of the day and year first above.
EPIC RESORTS, LLC
By: /s/ T. F. Flatley
---------------------------------
Name: Thomas F. Flatley
Title: President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Warrant Agent
By: /s/ James Nesci
---------------------------------
Name: James D. Nesci
Title: Assistant Vice President
JOINDER:
EPIC WARRANT CO.
By: /s/ T. F. Flatley
---------------------------------
Name: Thomas F. Flatley
Title: President
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<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON, AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO
ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH
TRANSFER, ON THE DATE OF THE TRANSFER OF THIS SECURITY RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO EPIC RESORTS, LLC (THE "ISSUER") OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QIB IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE AMOUNT OF SECURITIES AT THE TIME OF
TRANSFER OF LESS THAN 250 WARRANTS, AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER), (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) AND IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
<PAGE>
Exhibit A
Page 2
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION
REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS
SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
THIS WARRANT AND THE MEMBERSHIP INTERESTS OF THE COMPANY INTO WHICH
THIS WARRANT IS EXERCISABLE ARE SUBJECT TO A REGISTRATION RIGHTS AND MEMBERS'
AGREEMENT, DATED AS OF JULY 8, 1998, WHICH CONTAINS PROVISIONS REGARDING THE
RESTRICTIONS ON THE TRANSFER AND PROVISIONS REQUIRING THE MANDATORY TRANSFER
OF SUCH MEMBERSHIP INTERESTS AND OTHER MATTERS. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY.
<PAGE>
EXERCISABLE AFTER THE DATE OF ISSUANCE
AND ON OR BEFORE JUNE 15, 2005
Warrant No.
CUSIP No.: No. of Warrants ___________
Warrant Certificate
Epic Resorts, LLC
This Warrant Certificate certifies that ___________, or registered
assigns, is the registered holder of _____ Warrant(s) expiring June 15, 2005
(the "Warrant") to purchase Membership Interests ("Membership Interests") in
Epic Resorts, LLC, a Delaware limited liability company (the "Company").
Each Warrant initially entitles the holder upon exercise to receive from the
Company on or after July 9, 1998 and on or before 5:00 p.m. New York City
Time on June 15, 2005, one Membership Interest at the initial exercise price
(the "Exercise Price") of $0.01 payable in lawful money of the United States
of America upon surrender of this Warrant Certificate and payment of the
Exercise Price at the office or agency of the Warrant Agent, but only subject
to the conditions set forth herein and in the Warrant Agreement referred to
on the reverse hereof. The Exercise Price and the number of Membership
Interests issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events set forth in the Warrant Agreement.
The Warrants may not be exercised after 5:00 p.m., New York City
Time, on June 15, 2005, and to the extent not exercised by such time the
Warrants shall become void.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, Epic Resorts, LLC has executed this Warrant
Certificate.
Dated:
EPIC RESORTS, LLC
By: ___________________________________
Name:
Title:
Countersigned:
United States Trust Company of New York,
as Warrant Agent
By:_____________________________________
Authorized Signature
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate is part of a
duly authorized issue of Warrants expiring June 15, 2005, entitling the
holders on exercise of each Warrant initially to receive one Membership
Interests, and is issued or to be issued pursuant to a Warrant Agreement
dated as of July 8, 1998 (the "Warrant Agreement"), duly executed and
delivered by the Company and United States Trust Company of New York, a
banking corporation organized and existing under the laws of the State of New
York, as warrant agent (the "Warrant Agent"), and joined by Epic Warrant Co.
The Warrant Agreement is hereby incorporated by reference in and made a part
of this Warrant Certificate and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities
thereunder of the Warrant Agent, the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised at any time on or after July 9, 1998
and on or before June 15, 2005, subject to extension as provided in the
Warrant Agreement. The holder of the Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with
the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price in cash at the office
of the Warrant Agent. The Warrants evidenced hereby shall be exercisable only
in full, and not in part. No adjustment shall be made for any distributions
on the Membership Interests issuable upon exercise of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Membership Interests issuable upon exercise of the Warrants may,
subject to certain conditions, be adjusted. No fractional Membership
Interests will be issued upon the exercise of Warrants, but the Company will
pay the cash value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate, when surrendered at the office of the
Warrant Agent by the registered holder thereof in person or by legal
representative or attorney duly authorized in writing, may be exchanged, in
the manner and subject to the limitations provided in the Warrant Agreement,
but without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate Warrants to
purchase the aggregate number of Membership Interests to which the
surrendered Warrants were entitled.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and representing in the aggregate the
right to purchase a like amount of Membership Interests shall be issued to
the transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any
rights of a Member of the Company.
<PAGE>
[Form of Election to Purchase]
(To Be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive Membership Interests in,
and herewith tenders payment for such Membership Interests to the order of,
Epic Resorts, LLC in the amount of $__________ in accordance with the terms
hereof. The undersigned requests that a certificate for such Membership
Interest be registered in the name of __________________________, whose
address is _________________________ and that evidence of such Membership
Interest be delivered to _________________________ whose address is
____________________________.
Signature:
Date:
Signature Guarantee:
_______________________________________
Signatures must be guarantee by an
"eligible guarantor institution"
meeting the requirements of the
Registrar, which requirements will
include membership or participation
in the Securities Transfer Agents
Medallion Program ("STAMP") or such
other "signature guarantee program"
as may be determined by the Registrar
in addition to, or in substitution
for, STAMP, all in accordance with
the Securities Exchange Act of 1934,
as amended.)
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to purchase Membership Interests
(THE "SECURITIES") OF EPIC RESORTS, LLC
This Certificate relates to Securities held in the form of Physical
Warrants by the undersigned (the "Transferor").
The Transferor:*
/ / has requested that the Warrant Agent by written order to
exchange or register the transfer of a Physical Warrant or Physical Warrants.
In connection with such request and in request of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Warrant Agreement relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 6 of such Warrant
Agreement, and that the transfer of these Securities does not require
registration under the Securities Act of 1933, as amended (the "Act")
because *:
/ / Such Security is being acquired for the Transferor's own
account, without transfer.
/ / Such Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Act), in reliance on
Rule 144A.
/ / Such Security is being transferred to an institutional
"accredited investor" within the meaning of subparagraphs (a)(1), (2), (3)
or (7) of Rule 501 under the Act.
/ / Such Security is being transferred in reliance on Regulation S
under the Act.
/ / Such Security is being transferred in reliance on Rule 144
under the Act.
/ / Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act
other than Rule 144A or Rule 144 or Regulation S under the Act to a person
other than an institutional "accredited investor."
_______________________________________
(INSERT NAME OF TRANSFEROR)
By: ___________________________________
(Authorized Signature)
Date:
_______________________________________
*Check applicable box.
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Re: EPIC RESORTS, LLC (THE "COMPANY") WARRANTS TO PURCHASE
MEMBERSHIP INTERESTS (THE "SECURITIES")
Ladies and Gentlemen:
In connection with our proposed purchase of Securities of the
Company, we confirm that:
1. We have received such information as we deem necessary in
order to make our investment decision.
2. We understand that any subsequent transfer of the Securities
is subject to certain restrictions and conditions set forth in the Warrant
Agreement and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the Membership Interests of the Company
referenced by this Certificate are subject to a Registration Rights and
Members' Agreement dated as of July 8, 1998, which contains provisions
regarding restrictions on the transfer and the mandatory transfer of such
interests and other matters.
4. We understand that the offer and sale of the Securities have
not been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we will
do so only (A) to the Company or any subsidiary thereof, (B) inside the
United States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) inside the United
States to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Warrant Agent a signed letter substantially in the form
hereof, (D) outside the United States in accordance with Regulation S under
the Securities Act, (E) pursuant to the exemption from registration provided
<PAGE>
Exhibit C
Page 2
by Rule 144 under the Securities Act (if available), or (F) pursuant to an
effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing Securities from us a notice
advising such purchaser that resales of the Securities are restricted as
stated herein.
5. We understand that, on any proposed resale of Securities, we
will be required to furnish the Warrant Agent and the Company, such
certification, legal opinions and other information as the Warrant Agent and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Securities
purchased by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in
Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
(Name of Transferee)
By: ____________________________________
(Authorized Signatory)
<PAGE>
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
[Date]
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Re: EPIC RESORTS, LLC (THE "COMPANY") WARRANTS TO PURCHASE
MEMBERSHIP INTERESTS (THE "SECURITIES")
Dear Sirs:
In connection with our proposed transfer of the Securities, we
confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or (b)
the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither we nor any person acting on our behalf
knows that the transaction has been prearranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
<PAGE>
Exhibit D
Page 2
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby. Defined terms used
herein without definition have the respective meanings provided in
Regulation S.
Very truly yours,
(Name of Transferor)
By: ___________________________________
(Authorized Signatory)
<PAGE>
Exhibit 10.15
$23,000,000
RECEIVABLES LOAN AND SECURITY AGREEMENT
BETWEEN
LONDON BRIDGE RESORT, INC.
AND
FINOVA CAPITAL CORPORATION
OCTOBER 11, 1996
Prepared by:
Jeffrey A. Ekbom, Esq.
Steven E. Lee, Esq.
Law Offices of
Ekbom & Lee PLC
Gainey Ranch Corporation Center
8777 North Gainey Center Drive
Suite 175
Scottsdale, Arizona 85258
Phone: (602) 922-9494
Fax: (602) 922-7255
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. RECEIVABLES LOAN COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Advances of Receivables Loan. . . . . . . . . . . . . . . . . . . 9
2.2 Receivables Loan Term . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Payment of Interest on the Receivables Loan . . . . . . . . . . . 9
2.4 Payment of Principal on the Receivables Loan. . . . . . . . . . . 9
2.5 Receivables Loan a Revolving Line of Credit . . . . . . . . . . . 10
III. SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Acquisition Deed of Trust Amendment . . . . . . . . . . . . . . . 10
3.2 Security Interest in Receivables Collateral . . . . . . . . . . . 10
3.3 Replacement of Ineligible Instruments . . . . . . . . . . . . . . 10
3.4 Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV. TITLE INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Title Insurance of Amended Acquisition Deed of Trust. . . . . . . 11
4.2 Title Insurance on Purchase Deeds of Trust. . . . . . . . . . . . 11
V. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Conditions Precedent to Funding . . . . . . . . . . . . . . . . . 11
(a) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Other Items and Documents. . . . . . . . . . . . . . . . . . 13
(c) No Material Change . . . . . . . . . . . . . . . . . . . . . 13
(d) Warranties and Representations . . . . . . . . . . . . . . . 13
(e) No Default . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Payment of Loan Fee. . . . . . . . . . . . . . . . . . . . . 14
(g) Title to Property. . . . . . . . . . . . . . . . . . . . . . 14
(h) Perfection of Liens. . . . . . . . . . . . . . . . . . . . . 14
(i) Loan Costs . . . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Affiliated Party Financing . . . . . . . . . . . . . . . . . 14
(l) Tax, Lien and Litigation Searches; References. . . . . . . . 14
(m) Access, Parking and Common Areas . . . . . . . . . . . . . . 14
(n) Mr. Flatley's Financial Statements . . . . . . . . . . . . . 14
(o) Borrower and Queen's bay Financial Information . . . . . . . 15
(p) Exchange Affiliation . . . . . . . . . . . . . . . . . . . . 15
(q) Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Conditions Precedent to All Advances. . . . . . . . . . . . . . . 15
(a) Exhibit G Items. . . . . . . . . . . . . . . . . . . . . . . 15
(b) Servicing and Collection . . . . . . . . . . . . . . . . . . 15
(c) Sale Approvals . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Purchase Documents . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(e) Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Additional Provisions Concerning Advances . . . . . . . . . . . . 16
(a) Minimum Advances . . . . . . . . . . . . . . . . . . . . . . 16
(b) Disbursement of Advances . . . . . . . . . . . . . . . . . . 16
(c) Conditions for Lender's Benefit. . . . . . . . . . . . . . . 16
VI. RECEIVABLES LOAN AND COLLECTION OF INSTRUMENTS . . . . . . . . . . . . . . 16
6.1 Receivables Note. . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Maintaining Borrowing Base Limitations. . . . . . . . . . . . . . 16
6.3 Collection of Instruments . . . . . . . . . . . . . . . . . . . . 16
(a) Lockbox Agent. . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Successor Agents . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Application of Collected Proceeds . . . . . . . . . . . . . . . . 17
6.5 Borrower's Obligations If Proceeds Inadequate . . . . . . . . . . 17
6.6 Custodial Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VII. PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 Prepayment of Receivables Loan. . . . . . . . . . . . . . . . . . 18
7.2 Unauthorized Prepayment . . . . . . . . . . . . . . . . . . . . . 18
VIII. BORROWER'S ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . 19
8.1 Due Organization and Authority. . . . . . . . . . . . . . . . . . 19
(a) Good Standing. . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Power and Authority; Enforceability. . . . . . . . . . . . . 19
8.2 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) No Litigation. . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Notice of Proceeding . . . . . . . . . . . . . . . . . . . . 19
8.3 Time-Share Interests. . . . . . . . . . . . . . . . . . . . . . . 19
(a) Sales Activity . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Compliance with Laws . . . . . . . . . . . . . . . . . . . . 20
(c) Zoning Compliance. . . . . . . . . . . . . . . . . . . . . . 20
8.4 Eligible Instruments. . . . . . . . . . . . . . . . . . . . . . . 20
(a) Eligible Instruments . . . . . . . . . . . . . . . . . . . . 20
(b) No Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Fulfill Obligations to Purchasers. . . . . . . . . . . . . . 20
(d) Documents Delivered to Lender. . . . . . . . . . . . . . . . 20
(e) Assessments and Reserves . . . . . . . . . . . . . . . . . . 20
(f) Good and Marketable Title. . . . . . . . . . . . . . . . . . 21
8.5 Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Notice of Lender's Interest . . . . . . . . . . . . . . . . . . . 21
8.7 No Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 No Misrepresentations/Reliance. . . . . . . . . . . . . . . . . . 21
(a) No Misrepresentations. . . . . . . . . . . . . . . . . . . . 21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(b) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Reports and Financial Information . . . . . . . . . . . . . . . . 22
(a) Sales Reports. . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Financial Information. . . . . . . . . . . . . . . . . . . . 22
(c) Project and Sales Information. . . . . . . . . . . . . . . . 22
(d) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Budgets for Projects . . . . . . . . . . . . . . . . . . . . 23
8.11 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.12 No Default for Third Party Obligations. . . . . . . . . . . . . . 23
8.13 Taxes Paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.14 Indemnification and Hold Harmless . . . . . . . . . . . . . . . . 23
8.15 Perfection of Security Interests. . . . . . . . . . . . . . . . . 24
8.16 Past and Future Revisions to Declaration. . . . . . . . . . . . . 24
8.17 Borrower to not Use Lender's Name . . . . . . . . . . . . . . . . 24
8.18 Borrower to Collect Instruments . . . . . . . . . . . . . . . . . 24
8.19 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 24
8.20 No Further Sale or Hypothecation. . . . . . . . . . . . . . . . . 25
8.21 No Misstatements of Fact. . . . . . . . . . . . . . . . . . . . . 25
8.22 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.23 No Violation of Regulations . . . . . . . . . . . . . . . . . . . 25
8.24 Further Acts and Documents. . . . . . . . . . . . . . . . . . . . 25
8.25 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.26 Provisions Continuing . . . . . . . . . . . . . . . . . . . . . . 26
8.27 Additional Representations and Warranties . . . . . . . . . . . . 26
IX. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Representations and Warranties . . . . . . . . . . . . . . . 26
(c) Certain Covenants. . . . . . . . . . . . . . . . . . . . . . 26
(d) Other Covenants. . . . . . . . . . . . . . . . . . . . . . . 26
(e) Other Event of Default . . . . . . . . . . . . . . . . . . . 26
(f) Default in Other Agreements. . . . . . . . . . . . . . . . . 27
(g) Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . 27
(h) Lien Foreclosure . . . . . . . . . . . . . . . . . . . . . . 27
(i) Bankruptcy and Insolvency. . . . . . . . . . . . . . . . . . 27
(j) Damage to or Condemnation of Project . . . . . . . . . . . . 27
(k) Unenforceability or Repudiation. . . . . . . . . . . . . . . 27
(l) Material Adverse Change. . . . . . . . . . . . . . . . . . . 28
9.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) No Advances. . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Collection of Receivables Collateral . . . . . . . . . . . . 28
(d) Trustee's Sale or Foreclosure. . . . . . . . . . . . . . . . 28
(e) Other Foreclosures . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
9.3 Application of Proceeds After Default . . . . . . . . . . . . . . 28
9.4 Additional Remedies . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Sale of Receivables Collateral . . . . . . . . . . . . . . . 28
(b) Notice of Sale . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Sale in Whole or in Part . . . . . . . . . . . . . . . . . . 29
(d) Lender Attorney-in-Fact. . . . . . . . . . . . . . . . . . . 30
(e) Purchaser Not Obligated. . . . . . . . . . . . . . . . . . . 30
(f) Purchaser to Hold Free and Clear . . . . . . . . . . . . . . 30
9.5 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . 30
9.6 Lender May Perform. . . . . . . . . . . . . . . . . . . . . . . . 30
9.7 Remedies Not Exclusive. . . . . . . . . . . . . . . . . . . . . . 31
9.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.9 Assembly of Receivables Collateral. . . . . . . . . . . . . . . . 31
X. CONSTRUCTION AND GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . 31
10.1 Place of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 31
10.2 Integration and Modification. . . . . . . . . . . . . . . . . . . 31
10.3 Irrevocable Powers. . . . . . . . . . . . . . . . . . . . . . . . 32
10.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 32
10.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.8 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.9 Headings and Gender . . . . . . . . . . . . . . . . . . . . . . . 32
10.10 Governing Law and Waivers . . . . . . . . . . . . . . . . . . . . 33
10.11 Applicable Usury Law. . . . . . . . . . . . . . . . . . . . . . . 33
XI. SPECIAL CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.1 Right of First Refusal. . . . . . . . . . . . . . . . . . . . . . 34
11.2 Financial Covenants and Limitations on Distributions. . . . . . . 34
(a) Limit on Marketing Expenses. . . . . . . . . . . . . . . . . 34
(b) Minimum Net Worth. . . . . . . . . . . . . . . . . . . . . . 34
(c) Limit on G&A Expenses. . . . . . . . . . . . . . . . . . . . 34
(d) Limits on Distributions. . . . . . . . . . . . . . . . . . . 34
(e) Delinquencies. . . . . . . . . . . . . . . . . . . . . . . . 35
(f) Certification. . . . . . . . . . . . . . . . . . . . . . . . 35
(g) Loans to Affiliates. . . . . . . . . . . . . . . . . . . . . 35
XII. CLOSING, INITIAL ADVANCE & GENERAL ASSIGNMENT. . . . . . . . . . . . . . . 35
12.1 Transfers to Borrower on Closing Date . . . . . . . . . . . . . . 35
12.2 General Assignment to Lender on Closing Date. . . . . . . . . . . 35
12.3 Payment of Purchase Price to Queen's Bay, Initial Advance to
Borrower, and Payment of Ending Purchase Base to Lender . . . . . 35
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Exhibit A - Conditions of Eligible Instruments
Exhibit B - Purchaser Document Forms
Exhibit C - Receivables Note Form
Exhibit D - Borrower's Certificate Form
Exhibit F - Permitted Encumbrances
Exhibit G - Assignment - Package Items
Exhibit G-1 - Request for Advance and Certification
Schedule A to Request for Advance and Certification
Exhibit G-2 - Assignment of Deeds of Trust
Schedule A to Assignment of Deeds of Trust
Exhibit H - Time-Share Interest Description
Exhibit I - General Collateral Assignment of Timeshare Receivable
Collateral Notes and Deeds of Trust (Borrower to Lender)
</TABLE>
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<PAGE>
RECEIVABLES LOAN AND SECURITY AGREEMENT
This RECEIVABLES LOAN AND SECURITY AGREEMENT (this "Agreement") is
made and entered as of the 11th day of October, 1996, by and between FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), and LONDON BRIDGE
RESORT, INC., a Delaware corporation ("Borrower").
R E C I T A L S:
Lender and QUEEN'S BAY JOINT VENTURE, a Pennsylvania joint venture
general partnership ("Queen's Bay") are parties to that certain Purchase and
Security Agreement dated June 14, 1994, as such agreement is modified by that
certain First Amendment of Purchase and Security Agreement dated June 20,
1995, by that certain Second Amendment of Purchase and Security Agreement
dated October 30, 1995, and by that certain Third Amendment of Purchase and
Security Agreement dated June 21, 1996 (collectively, the "FINOVA Purchase
Agreement"). Pursuant to the FINOVA Purchase Agreement, Lender has purchased
certain Eligible Instruments from Queen's Bay. As of the Closing Date, the
Purchase Base, as defined in the FINOVA Purchase Agreement, which represents
Lender's net investment in the Eligible Instruments ["Aggregate Investment"
less "Recoveries", as such terms are defined in the FINOVA Purchase
Agreement] shall be determined and agreed upon by Lender and Borrower in a
separate closing letter agreement and such amount shall hereinafter be
referred to as the "Ending Purchase Base Amount".
As security for Queen's Bay's obligations under the FINOVA Purchase
Agreement, Queen's Bay is required to maintain a certain Portfolio Holdback
Amount, as defined in the FINOVA Purchase Agreement, which amounts are held
in the Reserve Account, as defined in the FINOVA Purchase Agreement. The
principal balance of the Reserve Account as of the Closing Date shall be
determined and agreed upon by Lender and Borrower in a separate closing
letter agreement and such amount shall hereinafter be referred to as the
"Ending Reserve Account Amount".
Lender and Queen's Bay are also parties to that certain Loan and
Security Agreement dated October 30, 1995 (the "Acquisition Loan Agreement")
wherein Lender has made a term loan in the original principal amount of
$9,500,000 (the "Acquisition Loan"). The Acquisition Loan is secured, among
other things, by a Deed of Trust, Assignment of Rents and Proceeds and
Security Interest encumbering, among other things, Borrower's fee interest in
unsold Time-Share Interests in the Project (the "Acquisition Deed of Trust").
Lender and Queen's Bay are also parties to that certain furniture,
fixtures and equipment loan in the original principal amount of $336,000 (the
"F,F&E Loan"). Queen's Bay's obligations under the FINOVA Purchase Agreement
and its obligations under the F,F&E Loan are also secured by the lien of the
Acquisition Deed of Trust.
<PAGE>
Queen's Bay's obligations under the FINOVA Purchase Agreement and the
Acquisition Loan Agreement are guarantied by Thomas F. Flatley ("Mr.
Flatley") pursuant to that certain Guarantee and Subordination Agreement
dated June 14, 1994, as such guarantee is modified and amended by that
certain First Amendment of Guarantee and Subordination Agreement dated June
20, 1995, that certain Second Amendment of Guarantee and Subordination
Agreement dated October 30, 1995, and that certain Third Amendment of
Guarantee and Subordination Agreement dated June 21, 1996 (collectively, the
"Flatley Guarantee").
Borrower is a corporation wholly owned by Mr. Flatley. Queen's Bay
has agreed to transfer the Project and all of its right, title and interest
in all Instruments to Borrower (through an intermediate transfer of such
assets to Mr. Flatley), and Borrower has agreed to accept such assignments
and conveyance (the "Transfer"). In conjunction with the Transfer, Borrower
has agreed to assume all obligations under the Acquisition Loan, jointly and
severally with Queen's Bay, pursuant to the terms of that certain Assumption
Agreement among Borrower, Queen's Bay and Lender (the "Assumption Agreement").
In conjunction with the Transfer, Lender has agreed to establish a
revolving line of credit in the maximum principal amount at any one time
outstanding of $23,000,000 (as further limited as provided in this Agreement)
to finance sales of Time-Sharing Interest at the Project (the "Receivables
Loan"). In conjunction with establishing the Receivables Loan, Borrower has
agreed to purchase from Queen's Bay the Instruments previously purchased by
Lender from Queen's Bay (to be re-purchased by Queen's Bay from Lender in
consideration of the payment to Lender of the Ending Purchase Base Amount)
and simultaneously sold by Queen's Bay to Borrower. Such Instruments shall
in turn be simultaneously assigned to Lender as collateral for the
Receivables Loan. The Instruments shall not leave the possession of Lender
as the transfer of such Instruments from Queen's Bay to Borrower and the
collateral assignment of such Instruments from Borrower to Lender shall be
accomplished through the records of Queen's Bay, Borrower and Lender and
through the General Assignment, as set forth herein.
In conjunction with the making of the Receivables Loan the FINOVA
Purchase Agreement, and Lender's/Purchaser's and Queen's Bay's obligations
thereunder, will be terminated. Upon such termination, Lender has agreed to
release for the benefit of Queen's Bay the Ending Reserve Account Amount.
NOW, THEREFORE, the parties hereby agree as follows:
A G R E E M E N T S
I. DEFINITIONS
Unless the context clearly otherwise requires, the capitalization
terms used in this Agreement shall have the meaning given to them below or
elsewhere provided herein:
"ACQUISITION DEED OF TRUST": the meaning ascribed to such term in the
Recitals to this Agreement.
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<PAGE>
"ACQUISITION DEED OF TRUST AMENDMENT": the First Modification and
Amendment of Deed of Trust to be executed by Borrower and delivered to Lender
for recording as provided in Section 5.1(a) hereto.
"ACQUISITION LOAN": the meaning ascribed to such term in the Recitals
to this Agreement.
"ACQUISITION LOAN AGREEMENT": the meaning ascribed to such term in
the Recitals to this Agreement.
"ACQUISITION LOAN AGREEMENT AMENDMENT": a First Amendment of Loan and
Security Agreement to be executed by Borrower and delivered to Lender in
accordance with Section 5.1(a) hereof, which amends the Acquisition Loan
Agreement to (i) change all references therein to the FINOVA Purchase
Agreement to this Agreement; and (ii) cross-collateralize and cross-default
the Acquisition Loan and the Receivables Loan.
"ADVANCES": an advance of the Receivables Loan made from time to time
as herein provided.
"AFFILIATE": any owner or beneficiary of Borrower, and any person or
entity directly or indirectly Controlling, Controlled by or under common
Control with the person or entity to whom the definition is applied,
including blood relatives or the spouse of the person to whom the definition
applies, if such person is a natural person.
"AGENTS": the Servicing Agent and the Lockbox Agent.
"AGREEMENT": this Receivables Loan and Security Agreement, as from
time to time supplemented, modified, extended, renewed, replaced or restated.
"AMORTIZATION TERM": the period between the Borrowing Term
Termination Date and the Receivables Loan Maturity Date.
"APPLICABLE USURY LAW": the usury law applicable pursuant to the
terms of Section 10.11 hereof or such other usury law applicable if the law
chosen by the parties is not.
"ASSIGNMENT(s)": a written Assignment of Purchase Agreements, Notes
and Deeds of Trust in the form of EXHIBIT G-2 hereto to be executed and
delivered to Lender by Borrower in connection with each Advance.
"ASSUMPTION AGREEMENT": the Assumption Agreement among Borrower,
Lender and Queen's Bay under which Borrower agrees to assume, jointly and
severally with Queen's Bay, all rights and obligations under the Acquisition
Loan.
"BORROWING BASE": an amount equal to the lesser of:
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<PAGE>
(i) ninety percent (90%) of the then unpaid principal balance of
the Eligible Instruments which are a part of the Receivables Collateral;
or
(ii) ninety percent (90%) of the then unmatured installments of
principal and interest under the Eligible Instruments which are a part of
the Receivables Collateral, discounted at the higher of (i) the then
applicable interest rate under the terms of the Receivables Note or
(ii) thirteen percent (13%);
"BORROWING TERM": the period commencing on the date hereof and ending
on the date eighteen (18) months from the date hereof.
"BORROWING TERM TERMINATION DATE": the last day of the Borrowing Term.
"BUSINESS DAY": any day other than a Saturday, Sunday or a day on
which banks in Phoenix, Arizona are required to close.
"CLOSING DATE": the date on which Lender makes the initial Advance
under the Receivables Loan for the benefit of Borrower in payment to Lender
(in full or in part) of the purchase price to for the repurchase of the
Instruments owned by Lender which purchase price shall equal the Ending
Purchase Base Amount.
"CONTROL": the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of another person
or entity by any means.
"CORPORATE BASE RATE": the rate of interest publicly announced, from
time to time, by Citibank, N.A., New York, New York ("Citibank"), as the
Citibank base rate of interest charged to its most creditworthy commercial
borrowers, notwithstanding the fact that some borrowers may borrow from
Citibank at rates of interest less than such announced rate; or if Citibank
ceases to publish such rate, such other published rate as Lender shall deem
comparable in its reasonable discretion.
"DEFAULT RATE": a default interest rate equal to five hundred (500)
basis points in excess of the Corporate Base Rate, as the same may from time
to time change.
"ELIGIBLE INSTRUMENT": an Instrument which conforms to the additional
standards set forth in EXHIBIT A hereto. An Instrument that has qualified as
an Eligible Instrument shall cease to be an Eligible Instrument upon the date
of the occurrence of any of the following: (a) any installment becomes more
than 59 days past due, or (b) the Eligible Instrument otherwise fails to
continue to meet the criteria set forth in EXHIBIT A.
"ENDING PURCHASE BASE AMOUNT": the meaning ascribed to such term in
the Recitals to this Agreement.
"ENDING RESERVE ACCOUNT AMOUNT": the meaning ascribed to such term in
the Recitals to this Agreement.
4
<PAGE>
"ENVIRONMENTAL CERTIFICATE": that certain Environmental Certificate
with Representations, Warranties and Covenants executed by Borrower and
delivered to Lender pursuant to Section 5.1(a) hereof.
"EVENT OF DEFAULT": the meaning set forth in Section 9.1 hereof.
"F,F&E LOAN": the meaning ascribed to such term in the Recitals to
this Agreement.
"FINANCING PROPOSAL": the Financing Proposal from Lender to Borrower
dated April 19, 1996.
"FINOVA PURCHASE AGREEMENT": the meaning ascribed to such term in the
Recitals to this Agreement.
"FINOVA PURCHASE AGREEMENT TERMINATION": the meaning ascribed to such
term in Section 12.1 hereof.
"FLATLEY GUARANTEE": the meaning ascribed to such term in the
Recitals to this Agreement, as such Guarantee is modified by the Guarantee
Amendment.
"FOURTH AMENDED DECLARATION": as defined in Section 6.17 hereof.
"GENERAL ASSIGNMENT": the General Collateral Assignment of Timeshare
Receivable Contracts, Notes and Deeds of Trust in the form attached hereto as
EXHIBIT I wherein Borrower assigns to Lender as collateral all right, title
and interest in the Instruments transferred to Borrower from Queen's Bay
which are "Receivables" as of the Closing Date as such term is defined in the
FINOVA Purchase Agreement.
"GUARANTEES": the Flatley Guarantee and the Queen's Bay Guarantee.
"GUARANTEE AMENDMENT": the Fourth Amendment of Guarantee and
Subordination Agreement to be executed by Mr. Flatley and delivered to Lender
pursuant to Section 5.1(a) hereof.
"GUARANTORS": Thomas F. Flatley Guarantee and Queen's Bay Joint
Ventures.
"INCIPIENT DEFAULT": the occurrence of an event or omission which,
with the giving of notice or the passage of time, or both, constitutes an
Event of Default.
"INSTRUMENT": a promissory note, in substantially the form of EXHIBIT
B hereto which has arisen out of the sale of a Time-Share Interest by
Borrower to a Purchaser and is secured by a Purchaser Deed of Trust.
"INSURANCE POLICIES": such insurance policies required by, and
written by insurers and in amounts satisfactory to, Lender.
5
<PAGE>
"LOAN DOCUMENTS": the Receivables Note, the Acquisition Deed of
Trust, as amended by the Acquisition Deed of Trust Amendment, the Flatley
Guarantee, as amended by the Guarantee Amendment, the Queen's Bay Guarantee,
the Environmental Certificate, the Lockbox Agreement, as amended by he
Lockbox Amendment, the Servicing Agreement, as amended by the Servicing
Agreement Amendment, the Subordination Agreement, as amended by the
Subordination Agreement Amendment, the General Assignment, the Services and
Fees Agreement, as amended by the Services and Fees Amendment, the
Assignments, this Agreement and the other documents and instruments executed
in connection with the Receivables Loan, together with any and all renewals,
extensions, amendments, restatements or replacements thereof, whether now or
hereafter existing.
"LOAN FEE": a fee in the amount of $100,000 to be paid by Borrower to
Lender as follows: (i) the initial deposit of $4,000 as set forth in
paragraph VI. A) of the Financial Proposal, of which Lender hereby
acknowledges receipt; and (ii) the sum of $96,000 which shall be payable in
four (4) equal installments of $24,000 each, payable at the time of the first
Advance in each calendar month following the initial Advance for four (4)
months.
"LOANS": collectively, the Receivables Loan, the F,F&E Loan and the
Acquisition Loan.
"LOCKBOX AGENT": Bank One of Arizona, N.A., or its successor as
lockbox agent under the Lockbox Agreement.
"LOCKBOX AGREEMENT": that certain Lockbox Agreement among Borrower,
Lender and Lockbox Agent dated June 14, 1994, as amended by that certain
Lockbox Agreement Amendment, together with any and all renewals, amendments,
restatements or replacements of it.
"LOCKBOX AGREEMENT AMENDMENT": that certain First Amendment of
Lockbox Agreement to be executed by Borrower, Lender and Lockbox Agent as
provided in Section 5.1(a) below.
"MARKETING EXPENSE": the aggregate of all costs and expenses for
commissions and sales relating to the sale of Time-Share interests,
including, but not limited to, all costs and expenses for advertising,
mailing, consumer premiums, referral and lead generation.
"MAXIMUM LOAN AMOUNT": the maximum principal amount of the
Receivables Loan outstanding at any one time, which shall not exceed the
lesser of:
(i) Twenty Three Million Dollars ($23,000,000); or
(ii) Thirty Million Dollars ($30,000,000), less the aggregate
principal balance at such time of the Acquisition Loan and the F,F&E
Loan.
"NET SALES": the gross sales of Time-Share Interests during the
applicable accounting period of Borrower reduced only by cancellations
thereof.
6
<PAGE>
"OBLIGATIONS": each and every obligation, duty, covenant, undertaking
and condition of Borrower contained in the Loan Documents and each and every
other obligation of Borrower now or hereafter owing to Lender.
"OPENING RECEIVABLES PREPAYMENT DATE": the date two (2) years after
the Borrowing Term Termination Date.
"ORIGINAL DECLARATION: as defined in Section 8.16.
"PERFORMANCE" or "PERFORM": full, timely and faithful performance and
compliance by Borrower of its Obligations hereunder.
"PERMITTED ENCUMBRANCES": each and every restriction, reservation and
easement of record, including the items set forth on EXHIBIT F hereto
inchoate mechanics liens, inchoate liens for taxes and assessments, municipal
charges not yet due and payable, and fees due to purchase owner's
associations not yet due and payable, which individually and in the aggregate
do not, in Lender's reasonable judgment, render title to the property which
they encumber unmarketable.
"PERSON": an individual, corporation, partnership, joint venture,
trust, association, or other form of legal entity.
"PROJECT": London Bridge Resort, a time-share resort, located in Lake
Havasu, Arizona.
"PROJECT DOCUMENTS": the meanings set forth in Section 5.1(b) hereof.
"PURCHASE AGREEMENT"": a purchase Agreement in the form attached as
EXHIBIT B hereto which a Purchaser contracts to purchase a Time-Share
Interest from Borrower, together with the required disclosure documents in
the form attached as EXHIBIT B hereto.
"PURCHASER": a purchaser of a Time-Share Interest from Borrower.
"PURCHASER DEED OF TRUST": the purchase money mortgage or deed of
trust in the form attached as EXHIBIT B hereto given to secure an Instrument.
"QUEEN'S BAY": the meaning ascribed to such term in the Recitals to
this Agreement.
"QUEEN'S BAY GUARANTEE": that certain Partnership Guarantee and
Subordination Agreement to be executed by Queen's Bay and delivered to Lender
in accordance with Section 5.1(a) hereof.
"RECEIVABLES COLLATERAL": (a) all of the Instruments which are, now
or hereafter, assigned, endorsed or delivered to Lender pursuant hereto or
against which an Advance has been made: (b) all Purchase Agreements,
Purchaser Deeds of Trust, guarantees and other documents or instruments
evidencing or securing the obligations of the Purchasers and/or any other
person primarily or secondarily liable on such Instruments; (c) all policies
of insurance related to such
7
<PAGE>
Instruments or delivered in connection therewith; (d) if any, all rights
under escrow agreements and all impound and/or reserve accounts pertaining to
the foregoing; (e) all files, books and records of Borrower pertaining to any
of the foregoing; and (f) the proceeds of the foregoing.
"RECEIVABLES LOAN": the revolving line of credit in the maximum
principal amount at any one time outstanding of $23,000,000 (as limited
herein), under which Lender shall make Advances to Borrower for the purposes
set forth herein, as evidenced by the Receivables Note.
"RECEIVABLES LOAN MATURITY DATE": the date which is seven (7) years
after the Borrowing Term Termination Date.
"RECEIVABLES NOTE": the Promissory Note in the form of EXHIBIT C
hereto, as from time to time modified, renewed, extended, replaced or
restated.
"SECURITY INTEREST": a perfected, direct and exclusive first security
interest under the Uniform Commercial Code of the State(s) in which any such
security interest needs to be perfected; provided that with respect to any
portion of the Receivables Collateral not covered by the Uniform Commercial
Code, it shall mean a direct and exclusive first lien on such property which
has been perfected against third parties in the manner provided by law.
SERVICING AGENT": FINOVA Portfolio Services, Inc.
"SERVICES AND FEES AGREEMENT": that certain Services and Fees
Agreement between Servicing Agent and Borrower dated June 14, 1994, as such
agreement is modified by the Services and Fees Amendment.
"SERVICES AND FEES AMENDMENT": that certain First Amendment of
Services and Fees Agreement to be executed by Borrower and Servicing Agent in
accordance with Section 5.1(a) of this Agreement.
"SERVICING AGREEMENT": the Servicing Agreement between Borrower,
Lender and Servicing Agent dated June 14, 1994, as such agreement is modified
by the Servicing Agreement Amendment.
"SERVICING AGREEMENT AMENDMENT": that certain First Amendment of
Servicing Agreement to be executed by Borrower, Lender and Servicing Agent in
accordance with Section 5.1(a) of this Agreement.
"SUBORDINATING PARTIES": collectively, Queen Bay Associates Limited
Partnership, a New York limited partnership, ARG, Inc., a Delaware
corporation, American Realty Management, Inc., a Pennsylvania corporation,
and IMC, Inc., a Pennsylvania corporation.
"SUBORDINATION AGREEMENT": that certain Subordination Agreement dated
June 14, 1994, among Subordinating Parties and Lender, as amended by that
certain First Amendment of
8
<PAGE>
Subordination Agreement dated June 20, 1995, that certain Second Amendment of
Subordination Agreement dated October 30, 1995, and by the Subordination
Agreement Amendment.
"SUBORDINATION AGREEMENT AMENDMENT": that certain Fourth Amendment of
Subordination Agreement among Subordinating Parties and Lender executed and
delivered in accordance with Section 5.1(a) of this Agreement.
"TIME-SHARE INTEREST": the estate described in EXHIBIT H in the
Project or the right to the exclusive use of a Unit and to the non-exclusive
use of the Project common areas for a one week period.
"TITLE COMPANY": Stewart Title Guaranty Company.
"TITLE POLICY": Policy No. M-9994-1214972, issued by the Title Company
as of November 2, 1995.
"UNIT": a specified unit of the Project.
II. RECEIVABLES LOAN COMMITMENT
2.1 ADVANCES OF RECEIVABLES LOAN. Subject to the terms and
conditions hereinafter set forth, Lender will, from time to time during the
Borrowing Term, make Advances to Borrower in amounts not in excess of (a) the
then Borrowing Base less (b) the then unpaid principal balance of the
Receivables Loan; provided, at no time shall the unpaid principal balance of
the Receivables Loan exceed the Maximum Loan Amount. Lender shall have no
obligation to make any Advance after the Borrowing Term Termination Date.
2.2 RECEIVABLES LOAN TERM. Lender's obligation to make Advances
under the Receivables Loan shall terminate on the Borrowing Term Termination
Date, as such date may be from time to time extended by Lender in its sole
discretion. The Receivables Loan shall mature, and all outstanding interest,
principal and other fees and charges payable under the Loan Documents with
respect to the Receivables Loan shall be due and payable in full on the
Receivables Loan Maturity Date.
2.3 PAYMENT OF INTEREST ON THE RECEIVABLES LOAN. Interest on the
unpaid principal balance of the Receivables Loan from time to time
outstanding at the rate set forth in the Receivables Note shall be payable
monthly, commencing with the last day of the last full calendar month
following the initial Advance and continuing on the last day of each month
thereafter until all indebtedness of Borrower to Lender under the Receivables
Loan is paid in full.
2.4 PAYMENT OF PRINCIPAL ON THE RECEIVABLES LOAN. During the
Amortization Term, all amounts collected on the Eligible Instruments as
provided in Article VI hereof not applied to accrued and unpaid interest on
the Receivables Loan until the same is paid in full as more particularly set
forth in such Article VI; provided, however, all such accrued and unpaid
interest and outstanding principal shall be due and payable on the
Receivables Loan Maturity Date.
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<PAGE>
2.5 RECEIVABLES LOAN A REVOLVING LINE OF CREDIT. The Receivables
Loan is a revolving line of credit against which, during the Borrowing Term,
Borrower shall have the right to obtain Advances, repay Advances and obtain
additional Advances (all subject to the Maximum Loan Amount). All advances
shall constitute a single Receivables Loan.
III. SECURITY
3.1 ACQUISITION DEED OF TRUST AMENDMENT. To secure the Performance
of all of the Obligations, Borrower shall execute and deliver the Acquisition
Deed of Trust Amendment to Lender, on Lender's form. The Acquisition Deed of
Trust, as amended by the Acquisition Deed of Trust Amendment, shall be a
first and prior lien on the property described therein, and shall assign all
leases and rents on the such property to Lender, all subject only to the
Permitted Encumbrances.
3.2 SECURITY INTEREST IN RECEIVABLES COLLATERAL. To secure the
Performance of all of the Obligations, Borrower hereby grants to Lender a
Security Interest in and assigns to Lender the Receivables Collateral. The
Security Interest shall be absolute, continuing and applicable to the
Acquisition Loan, all existing and future Advances and to all of the
Obligations; and all of the Receivables Collateral shall secure repayment of
the Loans and the Performance of the other Obligations. As security for the
Loans and Performance of the Obligations, Borrower will unconditionally
deliver and endorse to Lender, with full recourse, all Instruments and will
execute and deliver to Lender recordable absolute Assignments with respect to
such Instrument and the related Purchase Agreements and Purchaser Deeds of
Trust. Lender is and shall be the attorney-in-fact of Borrower with respect
to the collection and remittance of payments on the Receivables Collateral
with full power and authority to give instructions with respect to the
collection and remittance of such payments and to endorse payment items for
the purpose of applying the payments to principal and interest under the
Receivables Loan as set forth in this Agreement. Unless an Event of Default
has occurred and is continuing, Lender shall have no right under said power
of attorney and no right to take any of the actions specified in Section
9.2(c) hereof. Borrower has its chief executive office and principal place
of business at 1477 Queen's Bay Road, Lake Havasu, Arizona 86403 and will
promptly notify Lender of any change in such address. Upon Performance of
the Obligations, Lender will deliver to Borrower, re-assign and/or endorse to
Borrower, without recourse or warranty of any kind, the Receivables
Collateral.
3.3 REPLACEMENT OF INELIGIBLE INSTRUMENTS. If a previously
Eligible Instrument that is part of the Receivables Collateral ceases to
qualify as, or is otherwise determined not to be, an Eligible Instrument,
then within thirty (30) days after it receives notice thereof and the reasons
therefore, Borrower will either (i) pay to Lender an amount equal to the then
Borrowing Base of the ineligible Instrument, or (ii) replace such ineligible
Instrument with an Eligible Instrument against which an Advance could be made
in an amount not less than the Borrowing Base of the ineligible Instrument
being replaced. Simultaneously with the delivery of the replacement Eligible
Instrument to Lender, Borrower will deliver to Lender all of the items
(except for a "Request for Advance and Certification") required to be
delivered by Borrower to Lender
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<PAGE>
pursuant to Section 5.2(a) hereof, together with a Borrower's Certificate in
form and substance identical to EXHIBIT D hereto. The replaced ineligible
Instrument shall be reassigned to Borrower.
3.4 GUARANTEES. Borrower will deliver or cause to be delivered to
Lender and thereafter will maintain or cause to be maintained in full force
and effect according to the terms thereof the Guarantees from the Guarantors
and the Subordination Agreements from all persons required to subordinate to
the Loans pursuant to Section 8.11 hereof.
IV. TITLE INSURANCE
4.1 TITLE INSURANCE OF AMENDED ACQUISITION DEED OF TRUST.
Borrower, at its cost and expense, shall cause the Title Company to issue to
Lender, at the time of the disbursement of the initial Advance, an
endorsement to the Title Policy insuring the Acquisition Deed of Trust, as
amended by the Amendment of Acquisition Deed of Trust, in Lender's favor to
be a valid first lien and encumbrance on the property described therein,
subject only to those matters set forth in Schedule B of the Title Policy.
4.2 TITLE INSURANCE ON PURCHASE DEEDS OF TRUST. At the time of
delivery of an Assignment, Borrower will, at its expense, deliver to Lender a
policy or policies of title insurance insuring Lender's interest in the
Purchaser Deeds of Trust which are the subject of the Assignment. Such
policy or policies shall be in the amount of the Advances made against (or,
in the case of substitutions, the portion of the Receivables Loan
attributable to) the Instruments secured by the insured Purchaser Deeds of
Trust; and shall be issued by a title insurer and be in form and substance
satisfactory to Lender in its discretion.
V. CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT TO FUNDING. Lender shall have no
obligation to make the initial Advance until the conditions set forth in this
Section 5.1 have been satisfied at the expense of Borrower, as determined by
Lender in its discretion.
(a) LOAN DOCUMENTS. Borrower shall have delivered to Lender
the following Loan Documents, duly executed, delivered and in form
(including, when appropriate, form required for recording or filling) and
substance satisfactory to Lender:
(i) a Promissory Note in form and substance identical to
EXHIBIT C hereto;
(ii) the Guarantee Amendment in form satisfactory to
Lender, executed by Mr. Flatley, and a Fourth Amendment of
Spousal Waiver in form acceptable to Lender executed by
Nancy J. Flatley, amending that certain Spousal Waiver
executed by Nancy J. Flatley and delivered to Lender dated
June 14, 1994, as amended by that certain First Amendment
of
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Spousal Waiver dated June 20, 1995, and as further amended
by that certain Second Amendment of Spousal Waiver dated
October 30, 1995;
(iii) the Queen's Bay Guarantee in form satisfactory to
Lender, executed by Queen's Bay;
(iv) the General Assignment;
(v) the Assumption Agreement;
(vi) conveyance of the Project and the Instruments by
Queen's Bay to Borrower;
(vii) the Environmental Certificate in form and substance
satisfactory to Lender executed by Borrower;
(viii) the Acquisition Deed of Trust Amendment in form and
substance satisfactory to Lender executed by Borrower;
(ix) the Lockbox Agreement Amendment in form and
substance satisfactory to Lender executed by Lockbox Agent
and Borrower;
(x) the Subordination Agreement Amendment in form and
substance satisfactory to Lender executed by the
Subordinating Parties;
(xi) the FINOVA Purchase Agreement Termination in form
and substance satisfactory to Lender executed by Lender and
Queen's Bay;
(xii) the Services and Fees Amendment in form and
substance satisfactory to Lender executed by Servicing
Agent and Borrower;
(xiii) the Servicing Agreement Amendment in form and
substance satisfactory to Lender executed by Borrower and
Servicing Agent;
(xiv) UCC financing statements for filing and/or
recording, as appropriate, where necessary to perfect the
Security Interest n the Receivables Collateral and all
other security for the Performance of the Obligations which
is subject to Article 9 of the Uniform Commercial Code;
(xv) a favorable opinion or opinions from Borrower's and
Guarantors' independent legal counsel as to such matters as
Lender shall require, including, without limitation, an
opinion on the regulatory approvals obtained by Borrower
authorizing Borrower to sell Time-Share Interests, all in
form and substance substantially identical to EXHIBIT E
hereto;
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(xvi) the Acquisition Loan Agreement Amendment in form
and substance satisfactory to Lender executed by Borrower;
(xvii) this Agreement; and
(xviii) a Request for Advance and Disbursement Instructions
in form acceptable to Lender with respect to funding the
initial Advance.
(b) OTHER ITEMS AND DOCUMENTS. Borrower shall have
delivered to Lender in form and substance satisfactory to Lender:
(i) evidence that Borrower is duly organized, and
validly existing under the laws of Delaware and is duly
qualified to do business in each jurisdiction in which it
is required pursuant to Section 8.1 hereof;
(iv) a corporate borrowing resolution authorizing and
directing Borrower to enter into the Receivables Loan and
Assumption Agreement, to execute and deliver the Loan
Documents, and to take all other actions required in
connection therewith;
(iii) a condominium map of the Project or other surveys
and certifications by surveyors or engineers acceptable to
Lender, showing dimensions of the Project, access thereto,
street lines, easements and other details, together with
other evidence satisfactory to Lender that the Project
complies with all applicable laws, rules and regulations
and public and private restrictions affecting the use of
the Project;
(iv) the insurance policies required pursuant to
Section 8.8 hereof;
(v) the commitment of the Title Company to issue the
Title Policy endorsement as specified herein;
(vi) evidence that the Project is not located within a
"special flood hazard" area as such term is used in the
National Flood Insurance Act of 1968, as amended and
supplemented by the Flood Disaster Protection Act of 1973,
and in regulations, interpretations and rulings thereunder;
and
(vii) Borrower shall have executed and delivered
instruments in form and substance satisfactory to Lender
terminating the rights and obligations to Borrower and
Lender under the FINOVA Purchase Agreement, and under the
Reserve Account.
(c) NO MATERIAL CHANGE. No material adverse change shall
have occurred in the Project or in Borrower's or Guarantor's business or
financial condition since the date of the
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latest financial and operating statements given to Lender by or on behalf of
Borrower or Guarantors.
(d) WARRANTIES AND REPRESENTATIONS. There shall have been
no change in the warranties and representations made by Borrower or
Guarantors in the Loan Documents.
(e) NO DEFAULT. No Event of Default or Incipient Default
shall have occurred and be continuing.
(f) PAYMENT OF LOAN FEE. Borrower shall have paid to Lender
all of the Loan Fee for the Receivable Loan required to be paid by the
Closing Date.
(g) TITLE TO PROPERTY. Evidence that on the Closing Date,
Borrower shall have good and marketable title to all property upon which
Lender is to be granted a lien and security interest.
(h) PERFECTION OF LIENS. Evidence that the liens and
security interests in the collateral to be granted to Lender have been duly
perfected as first and prior liens and security interests, and that there are
no other financing statements or liens filed against Borrower or the property
of Borrower, except the Permitted Encumbrances and those that are approved by
Lender.
(i) LOAN COSTS. Borrower shall have paid to Lender any
known third-party expenses (including, without limitation, appraisal fees,
Lender's outside attorney's fees and costs, Lender's out-of-pocket costs,
brokerage commissions, environmental assessment fees, costs and premiums
related to the examination and insurance of title and survey fees). Borrower
shall not be obligated to reimburse Lender for Lender's outside attorney's
fees for documenting and closing the Receivables Loan (and for documenting
and closing the assumption by Borrower of that certain Equipment Loan from
Lender to Queen's Bay in the original principal amount of $336,297 dated
September 8, 1995) in excess of $28,000, plus the out-of-pocket costs of such
attorneys; provided that during the course of the transaction (i) no
significant unforeseen issues arise, (ii) there are no protracted
negotiations among the parties, and (iii) all pertinent parties respond
promptly to the requests of Lender.
(j) AFFILIATED PARTY FINANCING. Such documents as Lender
shall require to establish that any and all indebtedness owed by Borrower to
its shareholders, directors, beneficiaries, offers or partners, or to any
relatives or Affiliates of Borrower or to any of the foregoing, is and shall
be fully subordinate to Borrower's indebtedness to Lender, all such
subordinations to be in form and substance satisfactory to Lender.
(l) TAX, LIEN AND LITIGATION SEARCHES; REFERENCES. Lender
shall be satisfied with the results of lien, tax lien, litigation and
judgement searches and with bank and credit references with respect to
Borrower and of Guarantors and the Project.
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<PAGE>
(m) ACCESS, PARKING AND COMMON AREAS. Evidence satisfactory
to Lender that all easements and other agreements providing for public access
to, adequate parking for, and maintenance of any common areas related to the
Project are in effect, fully enforceable, and fully assignable to Lender as
part of its collateral.
(n) MR. FLATLEY'S FINANCIAL STATEMENTS. Mr. Flatley shall
have submitted to Lender such tax returns and financial statements (including
a complete set of notes to Mr. Flatley's December 31, 1995 financial
statements) and information as Lender may require and Lender shall approve
the financial condition of Mr. Flatley.
(o) BORROWER AND QUEEN'S BAY FINANCIAL INFORMATION.
Borrower shall have provided financial statements current to within 90 days
of the Closing Date, and Queen's Bay shall have provided audited financial
statements, to Lender dated as of December 31, 1995, and Lender shall be
satisfied with the financial condition of Borrower and Queen's Bay as set
forth on such financial statements. Queen's Bay and Borrower shall provide
Lender with a statement that there has been no material adverse change to its
financial condition since the most recent financial statements provided to
Lender.
(p) EXCHANGE AFFILIATION. Evidence satisfactory to Lender
that the Project is affiliated with Interval International, Inc. or Resort
Condominiums International, Inc., or both.
(q) TAXES. Evidence that all taxes and assessments levied
against or affecting the Property, the Receivables Collateral or any other
collateral for the Receivables Loan have been paid current.
5.2 CONDITIONS PRECEDENT TO ALL ADVANCES. In addition to the
conditions precedent set forth in Section 5.1 above, Lender shall have no
obligation to make the initial Advance or any subsequent Advance until
Borrower shall have delivered to Lender, in form and substance satisfactory
to Lender, at least five (5) days prior to the date of the Advance, except
for the documents required by item (b)(ii) of EXHIBIT G attached hereto and
by this reference incorporated herein which must be delivered at least thirty
(30) days prior to the date of the Advance:
(a) EXHIBIT G ITEMS. The items described in EXHIBIT G
hereto;
(b) SERVICING AND COLLECTION. A Servicing Agreement, a
Lockbox Agreement and a Services and Fees Agreement providing for the
servicing and collection of the Instruments assigned to Lender;
(c) SALE APPROVALS. A copy of the registrations/consent to
sell and the final subdivision public reports/public offering
statements/prospectuses and/or approvals thereof required to be issued by or
used in Arizona and/or California and/or other jurisdictions where Time-Share
Interests have been offered for sale or sold;
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<PAGE>
(d) PURCHASE DOCUMENTS. A copy of all documents and
exhibits (including, without limitation, the exchange network affiliation
contract, the Project governing documents, the Project management agreement,
advertising materials, and the Purchase Agreement, Purchaser Deed of Trust,
and other consumer documents) which have been or are being used by Borrower
in connection with the Project or the sale of Time-Share Interests;
(e) UTILITIES. Evidence satisfactory to Lender that all
utilities, including without limitation, water, gas and electricity, are
available to the Project in amounts necessary for its present use;
(f) OTHER. Such other items as Lender requests which are
reasonably necessary to evaluate the request for the Advance and the
satisfaction of the conditions precedent thereto.
5.3 ADDITIONAL PROVISIONS CONCERNING ADVANCES.
(a) MINIMUM ADVANCES. Advances shall not be made more
frequently than twice monthly or in amounts less than $100,000 per Advance,
provided, however, Borrower shall pay Lender an advance fee of $500 for the
second Advance in any month.
(b) DISBURSEMENT OF ADVANCES. Advances may be disbursed by
wire transfer, checks or drafts payable to Borrower; or at the option of
Lender after Borrower's written request, to others, either severally or
jointly with Borrower, for the credit or benefit of Borrower.
(c) CONDITIONS FOR LENDER'S BENEFIT. Although Lender shall
have no obligation to make an Advance unless and until all of the conditions
thereto set forth herein have been satisfied, Lender may, at its sole
discretion, make Advances prior to that time without waiving or releasing any
of the Obligations, but Borrower shall continue to be required to strictly
Perform all such Obligations.
VI. RECEIVABLES LOAN AND COLLECTION OF INSTRUMENTS
6.1 RECEIVABLES NOTE. The Receivables Loan shall be evidenced by
the Receivables Note and shall be repaid according to the terms thereof and
such provisions of this Agreement as are applicable.
6.2 MAINTAINING BORROWING BASE LIMITATIONS. Subject to Borrower's
rights pursuant to Section 3.3 hereof, if for any reason the aggregate
principal amount of the Receivables Loan outstanding at any time shall exceed
the then Borrowing Base, Borrower, within three (3) business days of notice
thereof, will immediately make to Lender a principal payment in an amount
equal to such excess plus accrued and unpaid interest thereon.
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<PAGE>
6.3 COLLECTION OF INSTRUMENTS.
(a) LOCKBOX AGENT. Lockbox Agent, as agent for Lender,
shall collect payments on all Instruments constituting Receivables Collateral
and remit them to Lender on the last day of each and every month according to
the terms of the Servicing Agreement, Lockbox Agreement and Services and Fees
Agreement. Borrower will immediately forward all payments received by it on
Eligible Instruments which are a great of the Receivables Collateral prior to
an Event of Default, and on all Instruments which are a part of the
Receivables Collateral after an Event of Default, to Lockbox Agent for
Lender; provided, however, the obligation to make, or any requirement that
Lender receive, payments called for in the Loan Documents with respect to the
Receivables Loan will not be deemed satisfied until Lender actually receives
such payments from Lockbox Agent. For the purpose of determining the
adequacy of such payments, Borrower will cause Servicing Agent to furnish to
Lender and Borrower at Borrower's cost and expense, no later than the 10th
day of each month commencing with the first full calendar month following the
date hereof, a report meeting the following requirements: (i) shows as the
end of the prior month with respect to each Instrument which is used in
making Borrowing Base computations or otherwise constitutes part of the
Receivables Collateral (A) all payments received during the prior month on
the Instrument, allocated as between principal, interest, late charges, taxes
and the like, (B) the opening and closing balances during the prior month on
each such Instrument, (C) present value (if required by Lender) and (D)
extensions, refinances, prepayments, and other similar adjustments; and (ii)
itemizes the Instruments which are used in making Borrowing Base computations
or otherwise constitute part of the Receivables Collateral to show
delinquencies of 30, 60, 90 and in excess of 90 days. On the basis of such
reports, Lender will compute the amount, if any, which was due and payable by
Borrower on the Receivables Loan on the last day of the preceding month and
will notify Borrower as soon as possible of any amount due. If such reports
are not timely received, Lender may estimate the amount which was due and
payable; and, in such event, Borrower will pay upon demand the amount
estimated by Lender to be due and payable, or prove to Lender that no amount,
or a lesser amount, is so due and payable. If payment is made on the basis
of Lender's estimate and thereafter reports required by this section are
received by Lender, the estimated payment amount shall be adjusted by an
additional payment or a refund to the correct amount, as the reports may
indicate; such additional amount to be paid by Borrower upon demand and such
refund to be made by Lender within five (5) business days after receipt of
written request therefor by Borrower.
(b) SUCCESSOR AGENTS. Lender, subject to any restriction
thereon contained in the Servicing Agreement or Lockbox Agreement, may at any
time from time to time in its discretion substitute a successor or successors
to any of the Agents if such agent is not satisfactorily performing its
obligations thereunder.
6.4 APPLICATION OF COLLECTED PROCEEDS. Subject to Lender's rights
under Article VII hereof, all proceeds form the Receivables Collateral (except
payments which are identified by Purchasers as tax and insurance impounds or
maintenance and other assessment payments and are required to be so treated by
Borrower) shall be applied first to the payment of all costs, fees and expenses
required by the Loan Documents with respect to the Receivables Loan to be paid
by Borrower, second to accrued and unpaid interest due on the Receivables Note,
third to the unpaid
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<PAGE>
principal balance of the Receivables Note, and then to the other Obligations
in such order and manner as Lender may determine. Unless and until all the
Obligations have been Performed, Borrower shall have no right to any portion
of the proceeds of the Receivables Collateral except as set forth herein.
6.5 BORROWER'S OBLIGATIONS IF PROCEEDS INADEQUATE. Whether or not
the proceeds from the Receivables Collateral shall be sufficient for that
purpose, Borrower will pay when due all payments required to be made pursuant
to the Receivables Note or the other Loan Documents with respect to the
Receivables Loan; and any and all amounts payable by Borrower under the
Receivables Note or the other Loan Documents with respect to the Receivables
Loan shall be paid without notice (except as otherwise expressly provided
therein), demand, counterclaim, set-off, deduction, recoupment or defense,
and without abatement, suspension, deferment, diminution or pro-ration by
reason of any circumstances or occurrence whatsoever, Borrower's Obligation
to make such payments being absolute and unconditional; provided, however,
that if the proceeds the Receivables Collateral are insufficient in any
month, Borrower shall receive written notice thereof form Lender and shall
have five days after such notice to cure such insufficiency.
6.6 CUSTODIAL FEE. Borrower shall pay to Lender a custodial fee
equal to $10 for each Eligible Instrument pledged and assigned to Lender as
provided herein. Lender shall act as custodian for all Instruments pledged
and delivered to Lender.
VII. PREPAYMENT
7.1 PREPAYMENT OF RECEIVABLES LOAN. Borrower is not entitled to
prepay, in whole or in part, the Receivables Loan until the Opening
Receivables Prepayment Date. Thereafter, if (a) no Event of Default or
Incipient Default exists, (b) Borrower has paid all sums due and payable to
Lender in connection with the Receivables Loan, and (c) Borrower has given
Lender at least thirty (30) days' prior written notice of he prepayment and
paid to Lender at the time of prepayment a prepayment premium equal to a
percentage, determined as set forth below, of the then principal balance of
the Receivables Loan, then Borrower shall have the option to prepay the
Receivables Loan in full, but not in part, on any date an installment is due
on the Receivables Note. If there should occur a casualty to or condemnation
of the Project or an acceleration of maturity following an event of Default
and such occurrence results in prepayment of the Receivables Loan, a
prepayment premium will be required in the amount specified below (but if
such occurs prior to the Opening Receivables Prepayment Date, Borrower will
pay to Lender with a prepayment premium equal to a five percent (5%) of the
then principal balance of the Receivables Loan).
<TABLE>
<CAPTION>
Month of Prepayment Prepayment Premium
------------------- ------------------
<S> <C>
Months 1 through and including Prepayment Closed
Month 24
Months 25 through and including 4% of principal balance outstanding
Month 48
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<PAGE>
Months 49 through and including 3% of principal balance outstanding
Month 72
Months 74 through and including 2% of principal balance outstanding
Month 83
</TABLE>
Notwithstanding anything in this Section 7.1 or elsewhere to the contrary the
application by Lender of proceeds of the Instruments colleted by Lockbox
Agent to the principal balance of the Receivables Loan shall not be
considered prepayments subject to the prepayment premium.
7.2 UNAUTHORIZED PREPAYMENT. In the event Borrower makes any
partial prepayment not permitted under the Loan Documents, such prepayment
shall be deemed a payment of principal as of the Receivables Loan Maturity
Date, and interest shall continue to accrue on the respective Loan as if such
prepayment had not been made until such Maturity Date.
VIII. BORROWER'S ADDITIONAL REPRESENTATIONS,
WARRANTIES AND COVENANTS
8.1 DUE ORGANIZATION AND AUTHORITY.
(a) GOOD STANDING. Borrower is, and will remain at all
times, duly organized, validly existing and in good standing under the laws
of Delaware and Arizona and in each jurisdiction in which it is selling
Time-Share Interests or where the location or nature of its properties or its
business makes such qualification necessary. Borrower has full authority to
Perform the Obligations and to carry on its business and own its property.
(b) POWER AND AUTHORITY; ENFORCEABILITY. Borrower has full
power and authority to pledge the Instruments to Lender, to grant the
Security Interest in any security required pursuant to this Agreement and to
execute and deliver the Loan Documents and to Perform the Obligations. All
action necessary and required by the joint venture partnership agreement for
the execution and delivery of the Loan Documents have been duly and
effectively taken. The Loan Documents are and shall be legal, valid, binding
and enforceable against Borrower; and do not violate the Applicable Usury Law
or constitute a default or result in the imposition of a lien under the terms
or provisions of any agreement to which Borrower is a party. No consent of
any governmental agency or any other person not a party to this Agreement is
or will be required as a condition to the execution, delivery or
enforceability of the Loan Documents.
8.2 LITIGATION.
(a) NO LITIGATION. There is no action, litigation or other
proceeding pending or, to Borrower's knowledge, threatened before any
arbitration tribunal, court, governmental agency or administrative body
involving Borrower, its property or the Project which might materially
adversely affect the Performance of the Obligations, the Project, the
business or financial condition of Borrower, or the ability of Borrower to
Perform the Obligations.
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(b) NOTICE OF PROCEEDING. If Borrower or Guarantor becomes
a party to any action, litigation or other proceeding which asserts a
material claim against Borrower and/or a Guarantor, or Borrower becomes the
subject of an investigation by a governmental agency or administrative body
with respect to the Project, then Borrower will within ten (10) days after it
obtains knowledge thereof notify Lender of such action, litigation,
proceeding or investigation and the particulars thereof. Thereafter, if
requested by Lender, Borrower will report to Lender with respect to the
status of such matter and the particulars thereof.
8.3 TIME-SHARE INTERESTS.
(a) SALES ACTIVITY. Borrower has sold or has offered for
sale Time-Share Interests only in the state in which the Project is located
and the State of California and all sales have been made at the Project or in
the State of California. Before it sells or offers for sale Time-Share
Interests in jurisdictions other than the state in which the Project is
located and the State of California, Borrower will promptly notify Buyer and
provide Buyer with evidence that it has complied with all laws of such
jurisdiction governing its proposed conduct.
(b) COMPLIANCE WITH LAWS. Borrower has complied, and will
comply, with all laws and regulations of the state in which the Project is
located and all other governmental jurisdictions in which the Project is
located or in which Time-Share Interests have been sold or offered for sale.
(c) ZONING COMPLIANCE. The time share use and occupancy of
Units will not violate or constitute a non-conforming use under any private
covenant or restriction or any zoning, use or similar law, ordinance or
regulation affecting the use or occupancy of the Project.
8.4 ELIGIBLE INSTRUMENTS.
(a) ELIGIBLE INSTRUMENTS. Each Instrument sold to Buyer
pursuant to this Agreement shall be an Eligible Instrument. Borrower has
Performed all its obligations to Purchasers, and there are no executory
obligations to Purchasers to be Performed by Borrower. Borrower further
warrants and guarantees the enforceability of the Instruments.
(b) NO PREPAYMENT. Borrower will not pay or advance
directly or indirectly for the account of any Purchaser any sum owing by the
Purchaser under any Instrument which constitutes part of the Receivables
Collateral.
(c) FULFILL OBLIGATIONS TO PURCHASERS. Borrower at all
times will fulfill and will cause its affiliates, agents and independent
contractors at all times to fulfill all obligations to Purchasers.
(d) DOCUMENTS DELIVERED TO LENDER. True and complete copies
of the Project governing documents, the purchase contract form, the deed
form, the Instrument form, the Purchaser Deed of Trust form, advertising
materials and other documents and exhibits thereto which have been and are
being used by Borrower in connection with the Project and the sale or
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offering for sale of Time-Share Interests have been delivered to Lender.
Except for the annexation of additional units to the Project, Borrower,
without the prior written consent of Lender, will not cancel or materially
modify any such documents except as required by law. Borrower will perform
all of its obligations under the Project governing documents.
(e) ASSESSMENTS AND RESERVES. Each Purchaser is a member of
a Project owners' association or associations having authority to levy annual
assessments to cover the costs of maintaining and operating the Project. To
Borrower's knowledge, each owners' association is solvent; currently levied
assessments are adequate to cover such costs and to establish and maintain a
reasonable reserve for capital improvements; and there are no events which
could give rise to a material increase in such costs. Borrower will use its
best efforts to: (i) cause each owner's association to (A) discharge its
obligations under the Project governing documents and (B) maintain the
reserve described above; and (ii) so long as Borrower controls a Project
owners' association, pay to such owners' association not less often than
every 12 months hereafter the difference between (A) the cumulative total
amount of the maintenance and operating expenses incurred by such
association, together with a reasonable reserve for capital improvements and
the amount of any installment of real property taxes currently due and
payable with respect to the Project and related amenities, through the end of
the calendar month preceding the month in which such payment is made and (B)
the cumulative total amount of assessments payable to the association by
owners other than Borrower through the end of the calendar month preceding
the month in which such payment is made.
(f) GOOD AND MARKETABLE TITLE. Except as otherwise
permitted and disclosed by the Project governing documents, the Project
owners' association(s) or the owners of Time-Share Interests in common own(s)
and/or have the right to use (i) all the common areas in the 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; and (ii) all access road and utilities and off-site
improvements necessary to the use of the Project have been dedicated to
and/or accepted by the responsible governmental authority or utility company.
Borrower will maintain or cause to be maintained in good condition and
repair all amenities and common areas which have been promised or represented
as being available to Purchasers and all road and off-site improvements which
are not the responsibility of the Project owners' association(s) to maintain
and repair and have not been dedicated to or accepted by the responsible
governmental authority or utility company. Borrower will maintain a
reasonable reserve to assure compliance with the terms of the foregoing
sentence.
8.5 COLLECTIONS. Borrower will undertake the diligent and timely
collection of amounts delinquent under each Instrument which constitutes part
of the Receivables Collateral and will bear the entire expense of such
collection. Lender shall have no obligation to undertake any action to
collect under any Instrument.
8.6 NOTICE OF LENDER'S INTEREST. Lender may notify Purchasers of
the existence of Lender's lien interest in the Receivables Collateral and
request from Purchasers any information relating to the Receivables
Collateral. Borrower will deliver such notice under its letterhead, or as
otherwise required by law, if requested.
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<PAGE>
8.7 NO TRANSFER. Borrower, without the prior written consent of
Lender, will not: (a) sell, lease, transfer or dispose of all or
substantially all of its assets to another entity; or (b) permit or suffer to
exist any transfer of the ownership interests or control of Borrower or any
general partner of Borrower.
8.8 INSURANCE. Borrower will maintain and pay the cost of the
Insurance Policies and will deliver copies of the Insurance Policies to
Lender.
8.9 NO MISREPRESENTATIONS/RELIANCE.
(a) NO MISREPRESENTATIONS. The Loan Documents and all
certificates, financial statements and written materials furnished to Lender
by or on behalf of Borrower do not contain any untrue statement of a material
fact or omit to state a fact which materially adversely affects or in the
future may materially adversely affect the Receivables or the business or
financial condition of Borrower or the Project.
(b) RELIANCE. Lender's examination, inspection, or receipt
of information pertaining to the Receivables or the Project and its proposed
operation shall not in any way be deemed to reduce the full scope and
protection of the warranties, representations and Obligations contained in
this Agreement.
8.10 REPORTS AND FINANCIAL INFORMATION.
(a) SALES REPORTS. On or before the 10th day of each month,
Borrower will cause to be furnished to Lender (i) the reports required
pursuant to Section 6.3(a) and (ii) if requested by Lender, a sales report
for the prior month showing the number of sales of Time-Share Interests,
their aggregate dollar amount and related down payments. So long as FINOVA
Portfolio Services, Inc. acts as Servicing Agent, it shall not be a default
hereunder if the reports required under subparagraph (i) above are not
received by the required due date.
(b) FINANCIAL INFORMATION. Borrower will furnish or cause
to be furnished to Lender within 45 days of each fiscal quarter end and
within 90 days after each fiscal year of the subject, a copy of the current
quarterly or annual financial statements, as the case may be, of Borrower,
each Guarantor (on an annual basis only) and the Project owners'
association(s). Such financial statements shall contain a balance sheet as
of the end of the relevant fiscal period and statements of income and of cash
flow for such fiscal period (together, in each case, with the comparable
figures for the corresponding period of the previous fiscal year), all in
reasonable detail. All financial statements shall be prepared in accordance
with generally accepted accounting principles, consistently applied. All
financial statements required pursuant to this Section shall be certified by
the chief financial officer or managing general partner, as the case may be,
of the subject of such statements. Annual statements of Borrower shall be
audited and certified by a recognized firm of certified public accountants
reasonably satisfactory to Lender. Annual statements of the Project owners'
association shall be audited by a recognized firm of certified public
accountants reasonably satisfactory to Lender. Annual statements of Thomas
F. Flatley shall be certified by him as true and complete. Together with such
financial statements,
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<PAGE>
Borrower will deliver to Lender a certificate signed by the managing general
partner of Borrower stating that there exists no Event of Default or
Incipient Default or, if any such Event of Default or Incipient Default
exists, specifying the nature and period of its existence and what action
Borrower proposes to take with respect to it.
(c) PROJECT AND SALES INFORMATION. Borrower will deliver to
Lender from time to time, as available, and promptly upon amendment or
effective date, current price lists, sales literature, registrations/consents
to sell, final subdivisions public reports/public offering
statements/prospectuses, purchase documents, and any other items requested by
Lender which relate to the Time-share Interests.
(d) INSPECTIONS. Lender may inspect the Project and
inspect, audit and copy Borrower's records on an annual basis, and may
inspect the Project and such records at such additional time or times as
Lender may deem necessary after the occurrence of an Event of Default not
waived by Lender. Borrower shall reimburse Lender for all travel and out of
pocket expenses of Lender incurred in connection with any such inspections.
Borrower shall make available such further information as Lender may from
time to time reasonably request.
(e) BUDGETS FOR PROJECTS. Borrower will submit to Lender
annually, within 10 days after each is available, proposed annual maintenance
and operating budgets of the Project owners' association(s), certified to be
adequate by the managing agent for such association(s) and a statement of the
annual assessment to be levied upon the Purchasers; and will use its best
efforts to cause to be made available to Lender for inspection, auditing and
copying, upon Lender's request, the books of account, logs and records of the
Project owners' association(s).
8.11 SUBORDINATION. Borrower will cause any and all indebtedness
owing by it to its shareholders, directors, officers or partners, as the case
may be, Guarantor(s), or the relatives and affiliates of Borrower or the
foregoing to be subordinated in all aspects to the Obligations; provided,
however, that if no Event of Default or Incipient Default is outstanding,
such subordination shall not extend to reasonable salaries or to fees at
normal and customary rates for services actually rendered.
8.12 NO DEFAULT FOR THIRD PARTY OBLIGATIONS. Borrower is not in
default of any payment on account of indebtedness for borrowed money or of
any repurchase obligations in connection with a receivables purchase
financing, or in violation of or in default under any material term in any
agreement, order, decree or judgment of any court, arbitration or
governmental authority to which it is a party or by which it is bound.
8.13 TAXES PAID. Borrower has filed all tax returns and paid all
taxes, assessments, levies and penalties, if any, required to be filed by it
or paid by it to any governmental or quasi-governmental authority or
subdivision, including real estate taxes and assessments relating to the
Project. Borrower will provide to Lender not more than 30 days after such
taxes and assessments become due evidence that all taxes and assessments on
the Units and Project common areas and related amenities have been paid in
full.
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8.14 INDEMNIFICATION AND HOLD HARMLESS. Borrower will INDEMNIFY,
PROTECT, HOLD HARMLESS, AND DEFEND Lender, its successors, assigns and
shareholders (including corporate shareholders), and the directors, officers,
employees, agents and servants of the foregoing, for, from and against any
and all losses, costs, expenses (including, without limitation, and
attorneys' fees), demands, claims, suits, proceedings (whether civil or
criminal), orders, judgments, penalties, fines and other sanctions arising
from or brought in connection with (a) the Project, the Receivables, Lender's
status by virtue of the Assignments, creation of Security Interests, the
terms of the Loan Documents or the transactions related thereto, or any act
or omission of Borrower or any Agent, or their respective employees,
contractors or agents, whether actual or alleged, and (b) any and all
brokers' commissions or finders' fees or other costs of similar type by any
party in connection with the Purchase. On written request by a person or
other entity covered by the above agreement of indemnity, Borrower will
undertake, at its own cost and expense, on behalf of such indemnitee, using
counsel satisfactory to the indemnitee in the exercise of its reasonable
discretion, the defense of any legal action or proceeding to which such
person or entity shall be a party. At Lender's option, Lender may at
Borrower's expense prosecute or defend any action involving the priority,
validity or enforceability of the Security Interests in the Reserve Account
and any other security for the performance of the Obligations.
8.15 PERFECTION OF SECURITY INTERESTS. Borrower will execute or
cause to be executed all documents and do or cause to be done all acts
necessary to complete the sale of Receivables as provided in this Agreement
or for Lender to perfect and to continue the perfection of the Security
Interest of Lender in the Reserve Account or otherwise to effect the intent
and purposes of the Loan Documents.
8.16 PAST AND FUTURE REVISIONS TO DECLARATION. Borrower represents
and warrants that no revision has been made to the Original Declaration of
Covenants, Conditions and Restrictions for London Bridge Time Share
Condominium (the "Original Declaration") or to the Amended Plat London Bridge
Time Share Condominium (the "Amended Plat") in a manner inconsistent with
Section 9.41.6 of the Original Declaration. Borrower represents and warrants
that it will make no material modification of the Fourth Amended and Restated
Declaration of Covenants, Conditions and Restrictions for London Bridge
Time-Share Condominium (the "Fourth Amended Declaration") inconsistent with
Section 9.41.6 of the Original Declaration without the prior or concurrent
written consent of the first mortgagee and the second mortgagee of the
Project and of Lender (excluding all modifications which only annex
additional units to the Project).
8.17 BORROWER TO NOT USE LENDER'S NAME. LENDER DOES NOT ASSUME AND
SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR LIABILITY TO PURCHASERS, LENDER'S
RELATIONSHIP BEING THAT ONLY OF A CREDITOR WHO HAS TAKEN, AS SECURITY FOR
INDEBTEDNESS OWED TO IT, AMONG OTHER THINGS, A COLLATERAL ASSIGNMENT FROM
BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW, BORROWER WILL NOT, AT
ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT TO THE
PROJECT, THE SALE OF TIME-SHARE INTERESTS OR OTHERWISE, WITHOUT THE EXPRESS
WRITTEN CONSENT OF LENDER.
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8.18 BORROWER TO COLLECT INSTRUMENTS. As soon as possible after
receiving notice of delinquency, Borrower will undertake the collection of
amounts delinquent under each Instrument which constitutes part of the
Receivables Collateral, will bear the entire expense of such collection, and
will diligently and timely undertake all actions which in Borrower's judgment
are best suited to accomplish collection, including forfeiture or foreclosure
proceedings. Lender shall re-assign, endorse and deliver any such Instrument
to Borrower if necessary for collection purposes. Lender shall have no
obligation to undertake any collection, eviction or foreclosure action
against the obligor under any Instrument or to otherwise realize upon any
Instrument, but will cooperate with Borrower in collection efforts.
8.19 BOOKS AND RECORDS. Borrower will maintain in a secure place in
its offices at 1477 Queen's Bay Road, Lake Havasu, Arizona 86403 accurate
books, records, ledgers, correspondence and other papers relating to the
Receivables Collateral. After and during the continuation of an Event of
Default, Lender may notify the appropriate Purchasers of the existence of
Lender's interest as assignee of the Receivables Collateral and request from
such Purchasers any information relating to the Receivables Collateral.
Borrower will cooperate with Lender in giving such notice and will do so
under its letterhead if requested.
8.20 NO FURTHER SALE OR HYPOTHECATION. Borrower, without the prior
written consent of Lender, will not: (a) sell, convey, pledge, hypothecate,
encumber or otherwise transfer any security for the Performance of the
Obligations; or (b) permit or suffer to exist any liens, security interests
or other encumbrances on any security for the Performance of its Obligations,
except for the Permitted Encumbrances and liens and security interests
expressly granted to Lender.
8.21 NO MISSTATEMENTS OF FACT. This Agreement and the other Loan
Documents, certificates, financial statements and written materials furnished
to Lender by or on behalf of Borrower in connection with the transactions
contemplated hereby do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to
Borrower which adversely affects or in the future may (so far as Borrower can
now foresee) adversely affect the Receivables Collateral or any other
security for the Performance of the Obligations or the business or financial
condition of Borrower or the Project which has not been set forth in this
Agreement or in the other Loan Documents, certificates, financial statements
or written materials furnished to Lender in connection with the transactions
contemplated hereby. The fact that Lender's representatives may have made
certain examinations and inspections of or received certain information
pertaining to the Receivables Collateral or the Project and the proposed
operation thereof does not in any way affect or reduce the full scope and
protection of the warranties, representations and Obligations contained
herein, which have induced Lender to enter into this Agreement.
8.22 NO DEFAULT. Borrower is not in default of any payment on
account of indebtedness for borrowed money or of any repurchase obligations
in connection with a receivables purchase financing, or in violation of or in
default under any material term in any agreement, instrument, order, decree
or judgment of any court, arbitration or governmental authority to which it
is a party or by which it is bound.
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8.23 NO VIOLATION OF REGULATIONS. Borrower will not directly or
indirectly invest all or any part of the proceeds of the Receivable Loan in
any investment security subject to the margin requirements of Federal Reserve
System regulations "G," "U," or "T."
8.24 FURTHER ACTS AND DOCUMENTS. Borrower will execute or cause to
be executed all documents and do or cause to be done all acts necessary for
Lender to perfect and to continue the perfection of the Security Interest of
Lender in the Receivables Collateral or the other security for the
Performance of the Obligations or otherwise to effect the intent and purposes
of the Loan Documents. Borrower will prosecute or defend any action
involving the priority, validity or enforceability of the Security Interest
granted to Lender; provided that, at Lender's option, Lender may do so at
Borrower's expense.
8.24 NO DEFAULT. Borrower is fully familiar with all of the terms
and conditions of the Loan Documents and is not in default thereunder.
8.25 NO DEFAULT. Borrower is fully familiar with all of the terms
and conditions of the Loan Documents and is not in default thereunder.
8.26 PROVISIONS CONTINUING. The representations and warranties
contained in this Agreement are continuing and shall be deemed to be made and
reaffirmed prior to the making of each Advance under this Agreement. All
indemnifications herein shall survive the termination or expiration of this
Agreement.
8.27 ADDITIONAL REPRESENTATIONS AND WARRANTIES. The
representations, warranties and covenants contained in this Article VIII are
in addition to, and not in derogation of, the representations, warranties and
covenants contained elsewhere in the Loan Documents and shall be deemed to be
made and reaffirmed prior to the making of each Advance.
IX. DEFAULT
9.1 EVENTS OF DEFAULT. The occurrence of any of the following
events or conditions shall constitute an Event of Default by Borrower under
the Loan Documents:
(a) PAYMENT. Lender fails to receive from Borrower when due
and payable (i) any amount that Borrower is obligated to pay on the
Receivables Note within five (5) days after the date such amount is due, or
(ii) any other payment due under the Loan Documents (other than payments
under the Receivables Note) and such failure shall continue for five (5)
business days after notice thereof to Borrower;
(b) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of Borrower contained in the Loan Documents or in any certificate
furnished under the Loan Documents proves to be, in any material respect,
false or misleading as of the date deemed made;
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(c) CERTAIN COVENANTS. There is a default in the
Performance of the Obligations set forth in Sections 3.3, 8.7, 8.8, 8.9(a),
11.2(a), 11.2(b), 11.2(c), 11.2(d), 11.2(e), 11.2(f), or 11.2(g) hereof;
(d) OTHER COVENANTS. There is a default in the Performance
of the Obligations or a violation of any term, covenant or provision of the
Loan Documents (other than a default or violation referred to elsewhere in
this Section 9.1) and such default or violation continues unremedied (i) for
a period of five (5) days after notice thereof to Borrower in the case of a
default under or violation of Sections 8.8 or 8.9(a) hereof or any other
default or violation which can be cured by the payment of money alone, or
(ii) for a period of thirty (30) days after notice to Borrower in the case of
any other default or violation;
(e) OTHER EVENT OF DEFAULT. (i) An Event of Default, as
defined elsewhere herein, or in any of the other Loan Documents, or in the
Acquisition Loan Agreement, as amended, or in the agreements with respect to
the F,F&E Loan, occurs, or (ii) an act or event occurs under any of the Loan
Documents, whether or not denominated as all Event of Default, which
expressly entities Lender to accelerate any of the Obligations and/or
exercise its other remedies upon the occurrence of an Event of Default;
(f) DEFAULT IN OTHER AGREEMENTS. Any material default by
Borrower under any other agreement evidencing, guaranteeing, or securing
borrowed money or a receivables purchase financing has occurred permitting
the acceleration of such indebtedness or repurchase Obligations, which
accelerated repayment or repurchase Obligations are in excess of $50,000 in
the aggregate, and such default is not cured within the earlier of fifteen
(15) business days after Borrower receives notice thereof or within any
applicable grace period;
(g) JUDGMENTS. Any final, non-appealable judgment or decree
for money damages or for a fine or penalty against Borrower which is not paid
and discharged or stayed within thirty (30) days thereafter and when
aggregated with all other judgment(s) or decree(s) that have remained unpaid
and undischarged or unstayed for such period is in excess in the aggregate of
$50,000;
(h) LIEN FORECLOSURE. Any party holding a lien or security
interest in the Receivables Collateral or any other security for the
Performance of the Obligations or a lien (other than a lien created by a
Purchaser solely with respect to its Time-Share Interest(s)) on any part of
the Project commences foreclosure or similar sale thereof;
(i) BANKRUPTCY AND INSOLVENCY. (i) Borrower or a Guarantor
become insolvent or unable to pay its/his debts when due; generally fails to
pay its/his debts when due; files a petition in any bankruptcy,
reorganization, winding-up or liquidation proceeding or other proceeding
analogous in purpose or effect relating to Borrower or a Guarantor; applies
for or consents to the appointment of a receiver, trustee or other custodian
for bankruptcy, reorganization, winding-up or liquidation of Borrower or a
Guarantor; makes an assignment for the benefit of creditors; or admits in
writing that it/he is unable to pay its/his debts; (ii) any court order or
judgment is entered confirming the bankruptcy or insolvency of Borrower or a
Guarantor
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or approving any reorganization, winding-up or liquidation of Borrower or a
Guarantor or a substantial portion of its/his assets; (iii) there is
instituted against Borrower or a Guarantor any bankruptcy, reorganization,
winding-up or liquidation proceeding or other proceeding analogous in purpose
or effect and the same is not dismissed within 60 days after the institution
thereof; or (iv) a receiver, trustee or other custodian is appointed for any
part of the Receivables Collateral or the Project or all or a substantial
portion of the assets of Borrower or a Guarantor;
(j) DAMAGE TO OR CONDEMNATION OF PROJECT. The Project, or
any material part thereof, becomes damaged, condemned or taken and is not
promptly repaired or restored;
(k) UNENFORCEABILITY OR REPUDIATION. Performance by
Borrower or Guarantors of any material obligation under any Loan Document or
Guarantee, as the case may be, is rendered unenforceable in any material
respect, or a Guarantor repudiates, rescinds, limits or annuls his Guarantee;
or
(l) MATERIAL ADVERSE CHANGE. There occurs a material
adverse change in the Project or in the business or financial condition of
Borrower or in the Receivables Collateral or any other security for the
Performance of the Obligations, which change is not enumerated in this
Section 9.1 and as the result of which Lender in good faith deems the
prospect of Performance of the Obligations materially impaired or its
security therefor materially imperiled.
9.2 REMEDIES. At any time after an Event of Default has occurred
and while it is continuing, Lender may, but without obligation, do any one or
more of the following:
(a) NO ADVANCES. Cease to make further Advances;
(b) ACCELERATION. Declare the Receivables Note, together
with prepayment premiums and all other sums owing by Borrower to Lender in
connection with the Loan Documents, immediately due and payable without
notice, presentment, demand or protest, which are hereby waived by Borrower;
(c) COLLECTION OF RECEIVABLES COLLATERAL. With respect to
the Receivables Collateral, (i) institute collection actions against
Purchasers and other persons obligated thereon, (ii) enter into modification
agreements and make extension agreements with respect to payments and other
performances, (iii) release persons liable for the payment and performance
thereof or the securities for such payment and performance, and (iv) settle
and compromise disputes with respect to payments and performances claimed due
thereon, all without relieving Borrower from Performance of the Obligations;
(d) TRUSTEE'S SALE OR FORECLOSURE. Foreclose the
Acquisition Deed of Trust in accordance with applicable law or cause the
Trustee thereunder to sell the property encumbered thereby; and
(e) OTHER FORECLOSURES. Proceed to protect and enforce its
rights and remedies under this Agreement or any other Loan Documents and to
foreclose or otherwise
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realize upon its security for the Performance of the Obligations, or to
exercise any other rights and remedies available to it at law, in equity or
by statute. Borrower and Guarantors shall remain liable for any deficiency.
The rights and powers granted pursuant to this Section 9.2 are not intended
to limit the rights and powers granted elsewhere herein.
9.3 APPLICATION OF PROCEEDS AFTER DEFAULT. Notwithstanding
anything in the Loan Documents to the contrary, while an Event of Default
exists, any cash received and retained by Lender in connection with the
Receivables Collateral may be applied to payment of the Obligations in the
manner provided in Section 9.5 hereof.
9.4 ADDITIONAL REMEDIES.
(a) SALE OF RECEIVABLES COLLATERAL. Pursuant to its option
under Section 9.2 hereof following an Event of Default which is continuing,
and subject to the terms and conditions hereof, Lender may sell, assign and
deliver the Receivables Collateral, or any part thereof, at public or private
sale, conducted in a commercially reasonable manner by any officer, or agent
of, or auctioneer or attorney for, Lender at Lender's place of business or
elsewhere, for cash, upon credit or future delivery, and at such price or
prices as Lender shall reasonably determine, and Lender may be the purchaser
of any or all of the Receivables Collateral so sold at any such public sale.
In order to comply with applicable law, Lender may, in its reasonable
discretion, at any such sale, restrict the prospective bidders or purchasers
as to number, nature of business and investment intention, and, without
limitation, may require that the persons making such purchases represent and
agree to the satisfaction of Lender that they are purchasing the Receivables
Collateral for their account, for investment, and not with a view to the
distribution or resale of any thereof. Lender shall have no obligation to
delay sale of any Receivables Collateral for the period of time necessary to
permit such Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities laws.
Private sales made without registration shall not be deemed to have been
made in a commercially unreasonable manner by virtue of any terms less
favorable to the seller resulting from the private nature of such sales.
(b) NOTICE OF SALE. Without prejudice to the right of
Lender to make such sale within such shorter period as may be reasonable
under the circumstances, foreclosure sale of all or any part of the
Receivables Collateral shall be deemed held pursuant to reasonable notice if
held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature which
cannot be corrected by Borrower, or default for which no grace period is
specified herein; or
(ii) 60 days after notice of any other act, circumstance
or event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
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Where any notice to Borrower and grace period thereafter is required under
this Agreement, such grace period shall be deducted from the 60 day notice of
foreclosure sale specified in item (ii) above, so that the maximum period
between notice to Borrower of an act, circumstance or event which, if
uncorrected after elapse of any applicable grace period, would constitute an
Event of Default and the foreclosure sale of the Receivables Collateral based
upon such Event of Default shall in no event be required to exceed 60 days.
(c) SALE IN WHOLE OR IN PART. At any sale following an
Event of Default, the Receivables Collateral may be sold as an entirety or in
partial interests. Lender shall not be obligated to make any sale pursuant
to any notice previously given. In case of any sale of all or any part of
the Receivables Collateral on credit or for future delivery, the Receivables
Collateral so sold may be retained by Lender until the selling price is paid
by the purchaser thereof, but Lender shall not incur any liability in case of
the failure of such purchaser to take up and pay for the collateral so sold,
and in case of any such failure, such Receivables Collateral may again be
sold under and pursuant to and in compliance with the provisions hereof.
(d) LENDER ATTORNEY-IN-FACT. In connection with sales made
following an Event of Default, Lender may, in the name and stead of Borrower
or in its own name, make and execute all conveyances, assignments and
transfers of the Receivables Collateral sold pursuant to this Agreement; and
Lender is hereby appointed Borrower's attorney-in-fact for this purpose.
Nevertheless, Borrower will, if so requested by Lender, ratify and confirm
any sale or sales by executing and delivering to Lender, or to such purchaser
or purchasers, all such instruments as may, in the judgment of Lender, be
advisable for that purpose.
(e) PURCHASER NOT OBLIGATED. A receipt given by Lender to
any purchaser with respect to the purchase money paid at any sale made
following an Event of Default shall be a sufficient discharge therefor to any
purchaser of the Receivables Collateral or any portion thereof, and no such
purchaser, after paying such purchase money and receiving such receipt, shall
be bound to see to the application of such purchase money or any part thereof
or in any manner whatsoever be answerable for any loss, misapplication or
nonapplication of any such purchase money, or any part thereof, or be bound
to inquire as to the authorization, necessity, expediency or regularity of
any such sale.
(f) PURCHASER TO HOLD FREE AND CLEAR. Each purchaser at any
sale following an Event of Default shall hold the Receivables Collateral so
sold absolutely free from every claim or right of Borrower, including,
without limitation, any equity or right of redemption of Borrower, which
Borrower hereby specifically waives to the extent Borrower may lawfully do
so. Lender, its employees and agents shall after such sale be fully
discharged from any liability or responsibility in any matter relating to the
Receivables Collateral and such other security that is sold and resulting
from any action or inaction on the part of such purchaser or any
successor-in-interest of such purchaser.
9.5 APPLICATION OF PROCEEDS. The proceeds of any sale of all or
any part of the Receivables Collateral or other collateral shall be applied
in the following order or priorities: first, to the payment of all costs and
expenses of such sale, including, without limitation,
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reasonable compensation to Lender and its agents, attorneys' fees, and all
other expenses, liabilities and advances incurred or made by Lender, its
agents and attorneys, in connection with such sale, and any other
unreimbursed expenses for which Lender may be reimbursed pursuant to the Loan
Documents; second, to the payment of the Obligations, in such order and
manner as Lender shall in its discretion determine, with no amounts applied
to payment of principal until all interest has been paid; and third, to the
payment to Borrower, its successors or assigns, or to whosoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
9.6 LENDER MAY PERFORM. Lender may, at its option, and without any
obligation to do so, pay, perform and discharge any and all amounts, costs,
expenses and liabilities herein agreed to be paid or performed by Borrower if
Borrower falls to do so; and for such purposes Lender may use the proceeds of
the Receivables Collateral and is hereby appointed Borrower's
attorney-in-fact. All amounts expended by Lender in so doing or in exercising
its remedies hereunder following an Event of Default shall become part of the
Obligations secured hereby, shall be immediately due and payable by Borrower
to Lender upon demand therefor, and shall bear interest at the Default Rate
from the dates of such expenditures until paid. Exercise by Lender of its
option under this Section will not cure any default of Borrower.
9.7 REMEDIES NOT EXCLUSIVE. No remedy herein or in any other
document conferred on or reserved to Lender is intended to be exclusive of
any other remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder,
under any other Document or now or hereafter existing at law or in equity.
Notwithstanding anything herein to the contrary, in any non-judicial, public
or private sale or sales under the Uniform Commercial Code or in any judicial
foreclosure and sale of the Receivables Collateral, the Receivables
Collateral may be sold in any commercially reasonable manner whatsoever not
prohibit by law. No delay or omission to exercise any right or power shall
be construed to be a waiver of any default or acquiescence therein or a
waiver of any right or power; and every such right and power may be exercised
from time to time and as often as may be deemed expedient. Lender's
acceptance of any performance due hereunder which does not comply strictly
with the terms hereof shall not be deemed to be a waiver of any right of
Lender to strict Performance by Borrower. Acceptance of past due amounts or
partial payments shall not constitute a waiver of full and timely payment of
the Obligations. No Event of Default, declaration of the unpaid principal of
the Loan to be immediately due and payable or exercise of any other right or
remedy upon default shall stay, waive, or otherwise affect Lender's right to
receive payments on and other proceeds of the Receivables Collateral.
9.8 WAIVER. Borrower, for itself and for all who may claim through
or under it, hereby expressly waives and releases all right to have the
Receivables Collateral or any other security for the Performance of the
Obligations, or any part thereof, marshalled on any foreclosure, sale or
other enforcement hereof.
9.9 ASSEMBLY OF RECEIVABLES COLLATERAL. While an Event of Default
exists, Borrower will, on the request of Lender, assemble the Receivables
Collateral not already in
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Lender's possession and make it available to Lender at a time and place
reasonably convenient to Lender.
X. CONSTRUCTION AND GENERAL TERMS
10.1 PLACE OF PAYMENT. All moneys payable hereunder or under the
Loan Document shall be paid to Lender at its address set forth after its
signature on the signature page hereof, unless otherwise designated in the
Loan Documents or by Lender by notice.
10.2 INTEGRATION AND MODIFICATION. This Agreement and the other
Loan Documents exclusively and completely state the rights and Obligations of
Lender and Borrower with respect to the Loan. No modification, variation,
termination, discharge or abandonment hereof and no waiver of any of the
provisions or conditions shall be valid unless in writing and signed by duly
authorized representatives of Lender and Borrower or the successor,
transferees or assigns of either, subject, however, to the limitations on
assignment herein by Borrower. This Agreement supersedes any and all prior
representations, warranties and/or inducements, written or oral, heretofore
made by Lender (other than in the other Loan Documents) concerning this
transaction, including any commitment for financing, which are null and void
and of no force or effect whatsoever.
10.3 IRREVOCABLE POWERS. The powers and agency hereby granted by
Borrower are coupled with an interest and are irrevocable and are granted as
cumulative to the remedies for collection of the indebtedness secured hereby
provided by law.
10.4 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of identical copies each of which shall constitute an original for
all purposes.
10.5 NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and shall be (a) personally delivered to the
party being notified if an individual or to an officer or general partner if
a corporation or partnership, or (b) transmitted by postage prepaid,
certified or registered mail to such party at its address after its signature
on the signature page hereof or such other address as the party being
notified may have otherwise designated in a notice given as provided in this
Section. Such notice shall be deemed to be effective, unless actual receipt
is expressly elsewhere specified herein, upon (x) the business day after such
notice is deposited with a nationally recognized overnight courier service,
(y) the date of receipt or (z) the date five (5) days after posting if
transmitted by mail, whichever shall first occur.
10.6 SUCCESSORS AND ASSIGNS. All the covenants, promises,
stipulations and agreements of Borrower and all the rights and remedies of
the Lender in this Agreement contained shall bind Borrower, and, subject to
the restrictions on merger, consolidation and assignment herein contained,
its successors and assigns, and shall inure to the benefit of Lender, its
successors each assigns, whether so expressed or not. Borrower may not
assign its rights herein in whole or in part. Except as may be expressly
provided herein, no person or other entity shall be deemed a third party
beneficiary of this Agreement.
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10.7 SEVERABILITY. If any one or more of the provisions contained
in this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
10.8 TIME. Time is of the essence in the Performance of the
Obligations.
10.9 HEADINGS AND GENDER. All headings are inserted for convenience
only and shall not affect any construction or interpretation of this
Agreement. The provisions of this Agreement shall apply to the parties
according to the context hereof and without regard to the number or gender of
words and expressions used herein. Unless otherwise indicated, all
references herein to clauses and other subdivisions refer to the
corresponding Sections, clauses and other subdivision of this Agreement; the
words "herein", "hereof", "hereto", "hereunder" and words of similar import
refer to this Agreement as a whole and not to any particular Section, clause
or other subdivisions hereof; and reference to a numbered or lettered
subdivision of an Article, or Section shall include relevant matter within
the Article or Section which is applicable to but not within such numbered or
lettered subdivision.
10.10 GOVERNING LAW AND WAIVERS. THIS AGREEMENT, AND ANY AGREEMENT
OF THE PARTIES ARISING HEREFROM (INCLUDING WITHOUT LIMITATION THE LOAN
DOCUMENTS) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ARIZONA. BY ACCEPTANCE OF THIS AGREEMENT, BORROWER (A) HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF THE
COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY AND TO THE PROCESS,
JURISDICTION AND VENUE OF THE UNITED STATES DISTRICT COURT FOR ARIZONA,
SITTING IN PHOENIX, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR THE
SUBJECT MATTER THEREOF BROUGHT BY LENDER, AND (B) WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF
MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM
THAT BORROWER IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE LOAN
DOCUMENTS WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE ANY
LAWSUIT ARISING OUT OF SUCH A CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING
WITHOUT A JURY. BY ITS EXECUTION OF THIS AGREEMENT, BORROWER WAIVES ITS
RIGHT TO A JURY TRIAL OF SUCH CONTROVERSIES.
10.11 APPLICABLE USURY LAW. It is the interest of the parties hereto
to comply with the Applicable Usury Law. Accordingly, notwithstanding any
provisions to the contrary in this
33
<PAGE>
Agreement or in any of the other Loan Documents in no event shall this
Agreement or the Loan Documents require the payment or permit the collection
of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law. If (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or otherwise in connection
with the Obligations or (b) the maturity of the Obligations is accelerated in
whole or in part, or (c) all or part of the principal or interest of the
Obligations shall be prepaid, so that under any of such circumstances the
amount of interest contracted from, charged or received in connection with
the Obligations would exceed the maximum contract rate permitted by the
Applicable Usury Law, then in any such event (1) the provisions of this
Section shall govern and control, (2) neither Borrower nor any other person
or entity now or hereafter liable for the payment hereof will be obligated to
pay the amount of such interest to the extent that it is in excess of the
maximum contract rate permitted by the Applicable Usury Law, (3) any such
excess which may have been collected shall be either applied as a credit
against the then unpaid principal amount of the Obligations of Borrower or
refunded to Borrower, at Lender's option, and (4) the effective rate of
interest will be automatically reduced to the maximum contract rate permitted
by the Applicable Usury Law. Without limiting the generality of the
foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate
permitted by the Applicable Usury Law shall be made by amortizing, prorating,
allocating and spreading during the period of the full stated term of the
Obligations, all interest at any time contracted for, charged or received
from Borrower or otherwise in connection with the Obligations; and (y) in the
event that the effective rate of interest on the Obligations should at any
time exceed the maximum contract rate permitted by the Applicable Usury Law,
such excess interest that would otherwise have been collected had there been
no ceiling imposed by the Applicable Usury Law shall be paid to Lender from
time to time, if and when the effective interest rate on the Obligations
otherwise falls below the maximum contract rate permitted by the Applicable
Usury Law, to the extent that interest paid to the date of calculation does
not exceed the maximum contract rate permitted by the Applicable Usury Law
has been paid in full. Should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change
in the law, then to the extent not prohibited by the Applicable Usury Law,
such increase shall apply to all Obligations regardless of when incurred;
but, again to the extent not prohibited by the Applicable Usury Law, should
the maximum contract rate permitted by the Applicable Usury Law be decreased
because of a change in the law, such decreases shall not apply to the
Obligations regardless if resulting from an advance of the applicable Loan
made after the effective date of such decrease.
XI. SPECIAL CONDITIONS
11.1 RIGHT OF FIRST REFUSAL. So long as this Agreement is in force
and effect, Borrower shall not obtain receivables financing from any Lender
other than Lender with respect to any Instrument evidencing the sale of a
Time-Share Interest without first offering such Instrument to Lender as an
Eligible Instrument pursuant to the terms set forth herein. Lender shall
deliver such Instruments to Borrower solely for the purpose of such financing
if Lender declines to provide such financing.
34
<PAGE>
11.2 FINANCIAL COVENANTS AND LIMITATIONS ON DISTRIBUTIONS. The
following financial and other covenants shall be maintained:
(a) LIMIT ON MARKETING EXPENSES. Borrower shall not incur
Marketing Expenses with respect to sales of Time-Share Interests that exceed
an amount equal to forty-five percent (45%) of all Net Sales, tested at the
end of each fiscal quarter of Borrower on a twelve-month rolling basis.
(b) MINIMUM NET WORTH. Borrower shall maintain a
consolidated tangible net worth (exclusive, for example, of intangible
assets, such as goodwill) of not less than Ten Million Dollars ($10,000,000),
to be tested as of the end of each fiscal quarter of Borrower.
(c) LIMIT ON G&A EXPENSES. Borrower shall not incur general
and administrative expenses (excluding depreciation expenses) that exceed an
amount equal to twelve percent (12%) of the sum of all Net Sales and all
resort revenues, tested as of each fiscal quarter of Borrower on a
twelve-month rolling basis.
(d) LIMITS ON DISTRIBUTIONS. Borrower shall not make any
distributions to its shareholders in excess of the lesser of (a) one hundred
percent (100%) net income or (b) one hundred percent (100%) of net cash flow.
For purposes of this Section, "net cash flow" means net cash generated by
Borrower's operations and financing for a given time period determined by
subtracting cash outflows from cash inflows; the term "net income" means the
net income of Borrower as determined in accordance with GAAP; and
"distributions" shall include any loan to any person or investment. Net cash
flow and net income shall each be determined on a cumulative basis since
December 31, 1993.
(e) DELINQUENCIES. Delinquencies of Receivables pledged to
Lender shall not exceed three percent (3%) per month for three consecutive
months, or such condition shall constitute an Event of Default hereunder.
(f) CERTIFICATION. The annual and interim statement of
Borrower shall be accompanied by a certificate signed by its managing general
partner, certifying compliance with Sections 11.2(a) - (d) and setting forth
in reasonable detail the calculations upon which the certification is based.
(g) LOANS TO AFFILIATES. Borrower shall not make any loans
to Guarantors or Affiliate without the prior written consent of Lender.
XII. CLOSING, INITIAL ADVANCE & GENERAL ASSIGNMENT
12.1 TRANSFERS TO BORROWER ON CLOSING DATE. On the Closing Date,
Queen's Bay shall convey the Project (including, without limitation, the real
property encumbered on such date by the Acquisition Deed of Trust) to
Borrower by Warranty Deed, in form and substance satisfactory to Lender, and
shall convey, among other instruments, if any, the "Receivables" existing on
such date, as such term is defined in the FINOVA Purchase Agreement, to
Borrower
35
<PAGE>
by an Assignment of Timeshare Receivable Contracts, Notes and Deeds of Trust
and Other Rights, in form and substance satisfactory to Lender. Pursuant to
the Termination of Purchase and Security Agreement and Re-Assignment of
Receivables (the "FINOVA Purchase Agreement Termination") between Queen's Bay
and Lender of even date herewith, which terminates the FINOVA Purchase
Agreement as of the Closing Date, Lender shall, simultaneously with the
conveyance and assignment thereof to Borrower, reassign to Queen's Bay all
right, title and interest to the "Receivables"; provided, however, Lender
shall not release possession of the Instruments constituting such
"Receivables" to Queen's Bay as all such Instruments shall be simultaneously
collaterally assigned by Borrower to Lender as collateral for the Receivables
Loan and the initial Advance thereunder.
12.2 GENERAL ASSIGNMENT TO LENDER ON CLOSING DATE. On the Closing
Date, Borrower shall collaterally assign to Lender by the General Assignment
in the form attached hereto as EXHIBIT I all of the Instruments and related
security instruments comprising the Receivables Collateral.
12.3 PAYMENT OF PURCHASE PRICE TO QUEEN'S BAY, INITIAL ADVANCE TO
BORROWER, AND PAYMENT OF ENDING PURCHASE BASE TO LENDER. In conjunction with
the re-purchase of the Instruments constituting Receivables under the FINOVA
Purchase Agreement, the purchase thereof by Borrower, and the pledging and
assigning thereof as collateral by Borrower to Lender as provided in this
transaction, the following money transfers must occur simultaneously (i)
Lender must make the initial Advance to Borrower under the Receivables Loan
in the amount of the Borrowing Base; (ii) Borrower must pay to Queen's Bay
the purchase price for the Instruments being purchased; and (iii) Queen's Bay
must pay to Lender, in consideration of Lender's reassignment of the
Receivables to Queen's Bay, the Ending Purchase Base Amount. To avoid the
needless transfer of funds which originate with Lender and eventually are
returned to Lender, such money transfers shall be in the form of credits and
debits in the records of Lender; provided, however, (i) in the event the
Borrowing Base amount is greater than the Ending Purchase Base Amount, the
difference shall be paid in cash on the Closing Date by Lender to Borrower,
and (ii) in the event the Borrowing Base amount is less than the Ending
Purchase Base Amount, the difference shall be paid in cash on the Closing
Date by Borrower to Lender; provided further, however, the Ending Reserve
Account Amount shall be paid by Lender to Queen's Bay in cash on the Closing
Date.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Receivables
Loan and Security Agreement to be executed as of the date first written above.
LONDON BRIDGE RESORT, INC., a
Delaware corporation
By: /s/ T.F. Flatley
----------------------------------
Its: President
--------------------------
Address:
1477 Queen's Bay Road
Lake Havasu, AZ 86403
[Borrower]
FINOVA CAPITAL CORPORATION, a
Delaware corporation
By: /s/ J. Fields
----------------------------------
Its: Group Vice President
--------------------------
Address:
7272 East Indian School Road
Suite 410
Scottsdale, Arizona 85251
Attention: Vice President -
Resort Finance
[Lender]
CONSENTED AND AGREED TO THIS
11th DAY OF OCTOBER, 1996
<PAGE>
QUEEN'S BAY JOINT VENTURE, a
New York limited general partnership
By: QUEEN'S DAY ASSOCIATES LIMITED
PARTNERSHIP, a New York limited
partnership, Managing Partner
By: ARG, INC., a Delaware
corporation, General
Partner
By: /s/ T.F. Flatley
---------------------------
Thomas F. Flatley,
President
<PAGE>
EXHIBIT A TO RECEIVABLES LOAN AND SECURITY AGREEMENT
CONDITIONS OF ELIGIBLE INSTRUMENT
(a) Lender has a collateral assignment of the Instrument and security
therefor and has a valid and perfected right to payment, free and clear of
all liens and encumbrances and the Instrument is free of all liens and
encumbrances other than Permitted Encumbrances.
(b) The Instrument does not represent a sale by Borrower, directly or
indirectly, to any of its shareholders, directors, officers, partners, as the
case may be, its agents, employees or creditors, or any relative or affiliate
of Borrower, Guarantors or the foregoing.
(c) Borrower has received from the Purchaser a minimum cash down payment
of 10% of the total sales price (no part which has been advanced or loaned to
the Purchaser by Borrower, directly or indirectly).
(d) The Instrument must provide for: (i) consecutive monthly installments
of principal and interest in U.S. funds over a term not exceeding 84 months
from the date of its execution; provided, however, an Instrument shall not be
declared ineligible for hypothecation to Lender solely because its term is
greater than 84 months so long as: (a) the term of such Instrument is not
greater than 120 months from the date of its execution; and (b) the principal
balance of the Receivables Loan with respect to all Instruments having a term
of greater than 84 months hypothecated to Lender (including the principal
balance of the Receivables Loan which will be related to the Instrument under
consideration for hypothecation to Lender) at the time of such hypothecation
does not exceed 15% of the Maximum Loan Amount; and (ii) interest accruing on
the unpaid principal balance of the Instrument at not less than 13%, per
annum; provided, however, an Instrument shall not be declared ineligible
solely because the interest rate thereunder is less than 13% per annum so
long as the weighted average interest rate per annum of the Instruments to be
hypothecated at such time (including the Instrument in question) when
combined with the weighted average interest rate per annum of the Instruments
constituting the Receivables Collateral at such time does not result in an
aggregate weighted average interest rate of less than 13% per annum.
(e) The Instrument must be beyond the applicable rescission period and no
payment is more than 29 days past due or has been deferred.
(f) The Purchaser in all respects, including, without limitation, its
creditworthiness, is acceptable to Lender in its sole and absolute judgment;
has obtained from Borrower marketable title to the purchased Time-Share
Interests; and has not purchased more than 4 Time-Share Interests.
(g) The Instrument and the Purchaser Deed of Trust securing it are in form
and substance satisfactory to Lender and valid and enforceable in accordance
with their terms; upon the obligor's default under the Instrument, subject only
to notice and a reasonable grace period, payment of the balance of the
indebtedness owing under the Instrument may be immediately
<PAGE>
accelerated and the lien of the Purchaser Deed of Trust may be foreclosed;
the Purchaser Deed of Trust has been recorded in the real estate records
where the purchased Time-Share Interest is located; and the lien of the
Purchaser Deed of Trust is subject only to the Permitted Encumbrances.
(h) The Unit(s) in which the Time-Share Interest(s) are owned and the
amenities promised to the Purchasers have been completed, fully furnished and
approved for occupancy, and the furnishings in those Units are free of any
lien except for the Permitted Encumbrances; no Unit or other part of the
Project is subject to partition and the time share use of the Units and
amenities conform to all applicable restrictions and laws, necessary
approvals having been obtained.
(i) The Instrument and the related sale transaction comply with all
applicable laws; Borrower has performed all its obligations due to the
Purchaser and there are no executory obligations to the Purchaser to be
performed by Borrower; and the Purchaser does not have any right of
rescission, set-off, abatement, counterclaim or the like.
(j) The Purchaser is a United States or Canadian resident, unless the
Purchasers of at least 90% of Time-Share Interests for which Lender holds
Instruments that are used in making Borrowing Base computations are United
States or Canadian residents.
-2-
<PAGE>
EXHIBIT D
TO
RECEIVABLES LOAN AND SECURITY AGREEMENT
BORROWER'S CERTIFICATE
LONDON BRIDGE RESORT, INC., a Delaware corporation ("Borrower") hereby
certifies to FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender")
that (i) the total unpaid payments due under the Instruments described in
SCHEDULE A attached hereto and by this reference incorporated herein and the
unpaid principal balance for each such Instrument is as set forth in SCHEDULE
A; and (ii) such Instruments are, individually and collectively, Eligible
Instruments.
Except as otherwise defined herein or the context otherwise requires,
all capitalized terms used herein have the meaning given to them in the Loan
and Security Agreement between Borrower and Lender dated as of October ___,
1996.
DATED: , 199_.
--------------
LONDON BRIDGE, INC., a
Delaware corporation
By:
----------------------------------
Its:
--------------------------
<PAGE>
EXHIBIT G
TO RECEIVABLES LOAN AND SECURITY AGREEMENT
(a) a completed and executed "Request for Advance and Certification", in
form and substance identical to EXHIBIT G-1 attached hereto and by this
reference incorporated herein.
(b) (i) signed original instruments duly and unconditionally endorsed to
Lender by Borrower, with recourse, which qualify as Eligible
Instruments and may be used in making Borrowing Base computations, (ii)
the recorded original Purchaser Deeds of Trust which secure such
Instruments (or a copy thereof with proof of recordation if the
original has not been returned from the local recorder and failure to
provide the original is not due to delays in recording which are the
fault of Borrower), (iii) copies of signed receipts for public offering
statements/property reports/prospectuses required to be given to
Purchasers in connection with the sales of Time-Share Interests giving
rise to such Instruments, (iv) copies of Purchase Agreements, credit
disclosure statements and other items requested by Lender which were
signed by such Purchasers in connection with such sales and (v)
evidence that rescission rights under the Instruments have expired and
Borrower has performed all its statutory and contractual obligations
with respect thereto.
(c) an absolute Assignment, in form and substance identical to EXHIBIT G-2
attached hereto and by this reference incorporated herein, properly
completed, executed, acknowledged and recorded, assigning to Lender,
with recourse, Borrower's entire right, title and interest under each
of the Instruments, Purchase Deeds of Trust, and Purchase Agreements
covered by item (b) above, the security therefor and the proceeds
thereof.
(d) if not previously furnished, evidence satisfactory to Lender that: (i)
and Time-Share Interests which are the subject of the assigned
Instruments have necessary and promised off-site improvements and
necessary and promised utilities are available thereto; (ii) all
amenities which are to be available to Purchasers have been completed
in accordance with all applicable building codes and are fully
furnished, necessarily equipped and are and will be available for use
by the Purchasers without disturbance or termination of their use
rights so long as they are not in default of their obligations under
the Instruments; and (iii) all furnishings and amenities are owned by
the purchase owner's association free of liens and security interests
other than the liens and security interests of deeds of trust securing
instruments.
(e) if requested by Lender, written confirmation from the Servicing Agent
that it has not received notice of any complaint, demand, set-off, or
claim by any person, including without limitations any Purchaser, with
respect to the Instruments covered by item (b) above (other than as to
routine matters involving the servicing of an Instrument) and
certifying the unpaid total payments due under and the unpaid
principal balance of such Instruments.
<PAGE>
(f) if requested by Lender, a credit report from a recognized consumer
credit reporting agency on each Purchaser obligated under an
Instrument covered by item (b) above.
(g) the title policy or policies required pursuant to Section 4.2 of
Receivables Loan and Security Agreement.
(h) one or more UCC-1 financing statements describing Lender's interest in
the Receivables Collateral filed with the appropriate Secretary of
State and Local offices, together with a report on the chattel records
from such office in which the UCC-1 is filed disclosing to the
satisfaction of Lender that there are no conflicting security
interests claimed in the Receivables Collateral.
(i) if requested by Lender following a material change of circumstances,
an opinion from Borrower's independent counsel with respect to such
matters as Lender shall reasonably require.
(j) if requested by Lender following a material change of circumstances,
an opinion from independent counsel to Lender as to such matters as
Lender shall reasonably require.
-2-
<PAGE>
EXHIBIT G-1
REQUEST FOR ADVANCE AND CERTIFICATION
The undersigned LONDON BRIDGE RESORT, INC., a Delaware corporation
("Borrower"), requests FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender") to advance the sum of _________________________ AND ___/100 UNITED
STATES DOLLARS (U.S. $______________) upon receipt hereof, pursuant to the
Receivables Loan and Security Agreement between such parties dated as of
October __, 1996 (with any amendments, "Agreement").
Borrower hereby certifies to Lender that (i) the total unpaid payments
due under the Eligible 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 hereto; (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 or Guarantors since the date of the last
financial statements delivered to Lender; (iv) all representations and
warranties contained in the Agreement are true and correct in every material
respect as of the date hereof; (v) there is no Incipient Default under the
Agreement; and (vi) Borrower has performed and complied with and agreements
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,
and capitalized terms used herein have the meaning given to them in the
Agreement.
DATED: , 199 .
------------- -
LONDON BRIDGE RESORT, INC., a
Delaware corporation
By:
----------------------------------
Its:
--------------------------
<PAGE>
SCHEDULE A TO REQUEST FOR ADVANCE
AND CERTIFICATION
<PAGE>
EXHIBIT G-2
When recorded, mail to:
FINOVA CAPITAL CORPORATION
c/o RF Administration
7272 East Indian School Road
Suite 410
Phoenix, Arizona 85251
ASSIGNMENT OF DEEDS OF TRUST
KNOW ALL MEN BY THESE PRESENTS:
That London Bridge Resort, Inc., a Delaware corporation ("Assignor"),
as owner and holder of the deeds of trust described on SCHEDULE A attached
hereto, 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, do by these presents grant,
bargain, sell, assign, transfer and set over unto Assignee all of its
interest in and to such deeds of trust;
TOGETHER WITH the purchase agreements, promissory notes, and other
items and obligations therein described, all moneys due and to become due
thereunder, and all interest thereon, and rights arising therefrom.
IN WITNESS WHEREOF, Assignor has caused these presents to be executed
the ___ day of _____, 19__.
LONDON BRIDGE RESORT, INC., a Delaware corporation
By:
----------------------------------
Its:
--------------------------
<PAGE>
STATE OF PENNSYLVANIA )
) SS.
COUNTY OF )
On this ___ day of ______, 199_, before me, the undersigned
officer, personally appeared ______________, who acknowledged himself to be
the ____________of London Bridge Resort, Inc., a Delaware corporation, and
that he, as such ____________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunder set my hand and official
seal.
--------------------------------------------------
Notary Public
My Commission Expires:
- ---------------------
-2-
<PAGE>
SCHEDULE A TO ASSIGNMENT OF DEEDS OF TRUST
<TABLE>
<CAPTION>
Trustor Unit Date of Instrument Date Recorded Recording Info Amount Secured
- ------- ---- ------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT H
TIME-SHARE INTEREST DESCRIPTION
Time-Share Interest: a 1/51st undivided interest in a Unit and its
appurtenant common interest in the common elements of the Project for each
Time-Share Interest owned which entitles an owner to the exclusive use of the
Unit during an "Interval" as defined in the Fourth Amended Declaration for
the use, occupancy or possession of the applicable Unit. An "Even Biennial
Interval Unit" and an "Odd Biennial Interval Unit," as defined in the
Declaration, is a 1/102nd undivided interest in a Unit and is appurtenant
common interest in the common elements of the Project for each Time-Share
Interest owned which entitles an owner to the exclusive use of the Unit for
the Interval purchased during either an odd year or an even year for the use,
occupancy or possession of the applicable Unit.
<PAGE>
EXHIBIT I
GENERAL COLLATERAL ASSIGNMENT OF TIMESHARE RECEIVABLE COLLATERAL, NOTES AND
DEEDS OF TRUST
[SEPARATE DOCUMENT TO BE ATTACHED]
-2-
<PAGE>
PROMISSORY NOTE
U.S. $23,000,000 Phoenix, Arizona
October 11, 1996
FOR VALUE RECEIVED, the undersigned LONDON BRIDGE RESORT, INC., a
Delaware corporation ("Maker"), promises to pay to FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), or order, at Phoenix,
Arizona, or at such other place as the holder of this Note ("Holder") may
from time to time designate in writing, in lawful money of the United States
of America, the principal sum of TWENTY-THREE MILLION UNITED STATES DOLLARS
(U.S. $23,000,000), or so much thereof as has been disbursed and not repaid,
together with interest on the unpaid principal balance from time to time
outstanding from the date hereof until paid, as more fully provided for below.
Interest shall accrue daily on the basis of the actual number of days
elapsed using a 360-day year. Interest shall accrue initially at an annual
interest rate (the "Initial Interest Rate") equal to the Base Rate (as
hereinafter defined) in effect on the business day immediately prior to the
date of the initial advance of the Loan evidenced by this Note (the "Initial
Base Rate") plus 2.5%, subject to adjustment on each Interest Rate Change
Date (as hereinafter defined), but in no event to exceed the maximum contract
rate permitted under the Applicable Usury Law (as hereinafter defined). The
interest rate shall change on each Interest Rate Change Date by adding to or
subtracting from the Initial Interest Rate, as the case may be, the change,
if any, between Initial Base Rate and the Base Rate in effect on the
applicable Interest Rate Change Date. As used in this Note, the following
capitalized terms have the meaning set forth opposite them below:
"Base Rate" shall mean the rate of interest publicly announced, from time
to time, by Citibank, N.A., New York, New York ("Citibank"), as the base
rate of interest charged by Citibank to its most creditworthy commercial
borrowers notwithstanding the fact that some borrowers of Citibank may
borrow from Citibank at rates of less than such announced Base Rate; and
"Interest Rate Change Date" means each business day of Citibank, N.A., in
which the Base Rate is changed by Citibank, N.A.
Payments of principal and/or interest shall, at the option of Holder,
earn interest after they are due at a rate 4% above the rate otherwise
payable hereunder (the "Default Rate").
Maker agrees to pay an effective rate of interest which is the rate
stated above plus any additional rate of interest resulting from any charges
in the nature of interest paid or to be paid in connection with the loan
evidenced by this Note, but in no event to exceed the maximum contract rate
permitted under the Applicable Usury Law.
-1-
<PAGE>
This Note is executed pursuant to a Receivables Loan and Security
Agreement of even date herewith between Maker and Lender (together with any
and all extensions, renewals, modifications and restatements thereof, "Loan
Agreement") and evidences the advances of the Receivables Loan made pursuant
thereto. Defined terms used in this Note not otherwise defined herein shall
have the meaning ascribed to such terms in the Loan Agreement.
Commencing on the last day of the calendar month in which the initial
advance of the loan evidenced hereby is made and on the last day of each
succeeding month thereafter ("Installment Date") until the Receivables Loan
Maturity Date or the date the loan evidenced hereby is paid in full,
whichever date first occurs, Maker will pay or cause to be paid to Holder an
installment payment of principal and interest on this Note equal to 100% of
all proceeds (except required tax and insurance impounds and maintenance and
other assessment payments) of the Receivables Collateral collected during the
month in which the payment is required to be made.
Regardless of whether the proceeds of the Receivables Collateral are
sufficient for that purpose, interest on the principal balance hereof from
time to time outstanding shall be due and payable monthly in arrears on each
Installment Date, and principal payments on the Note in the amounts required
to be paid pursuant hereto or to the Loan Agreement shall be due and payable
at the times specified in the Loan Agreement.
On the Receivables Loan Maturity Date, the entire unpaid principal
balance of this Note, all accrued and unpaid interest, and all other charges
owing in connection with the loan evidenced hereby shall be due and payable
in full.
In the event any installment of principal and/or interest required to
be made in connection with the indebtedness evidenced hereby is not paid when
due (except in the case of the final installment, for which no grace period
is allowed) and such default continues for five business days, or another
Event of Default occurs, Holder may at its option, without further notice or
demand, declare immediately due and payable the entire unpaid principal
balance hereof, all accrued and unpaid interest thereon, and all other
charges owing in connection with the loan evidenced hereby.
This Note may be prepaid, in whole but not in part, in accordance with
and upon payment of the prepayment premium, if any, all as set forth in the
Loan Agreement.
In the event that Holder institutes legal proceedings to enforce this
Note, Maker agrees to pay to Holder in addition to any indebtedness due and
unpaid, all costs and expenses of such proceedings, including, without
limitation, reasonable attorneys' fees.
Holder shall not by any act of omission or commission be deemed to
waive any of its rights or remedies hereunder unless such waiver be in
writing and signed by an authorized officer of Holder and then only to the
extent specifically set forth therein; a waiver on one occasion shall not be
construed as continuing or as a bar to or waiver of such right or remedy on
any other occasion. All remedies conferred upon Holder by this Note or any
other instrument or agreement
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<PAGE>
connected herewith or related hereto shall be cumulative and none is
exclusive, and such remedies may be exercised concurrently or consecutively
at Holder's option.
Every person or entity at any time liable for the payment of the
indebtedness evidenced hereby waives: presentment for payment, protest and
demand; notice of protest, demand, dishonor and nonpayment of this Note; and
trial by jury in any litigation arising out of, relating to or connected with
this Note or any instrument given as security heretofore. Every such person
or entity further consents that Holder may renew or extend the time of
payment of any part or the whole of the indebtedness at any time and from
time to time at the request of any other person or entity liable therefor.
Any such renewals or extensions may be made without notice to any person or
entity liable for the payment of the indebtedness evidenced hereby.
This Note is given and accepted as evidence of indebtedness only and
not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's obligations and
agreements under this Note.
This Note and all its provisions, conditions, promises and covenants
hereof shall be binding in accordance with the terms hereof upon Maker, its
successors and assigns, provided nothing herein shall be deemed consent to
any assignment restricted or prohibited by the terms of the Loan Agreement.
This Note has been delivered in Phoenix, Arizona. This Note shall be
governed by the internal laws of the State of Arizona and, to the extent they
preempt the laws of such state, the laws of the United States; provided, that
if any obligation, agreement or waiver on the part of Maker or any other
person obligated primarily or secondarily on this Note or right or remedy of
Holder shall be invalid or unenforceable under such laws but would be valid
and enforceable under the internal laws of the State of Pennsylvania, then
the internal laws of the State of Pennsylvania shall apply.
This Note is secured by the security interests granted to Lender
pursuant to the Loan Agreement, various Assignments of Deed of Trust and a
Deed of Trust, Assignment of Rents and Proceeds and Security Agreement on
real property located in Mohave County, Arizona, and is guarantied by certain
guarantors.
LONDON BRIDGE RESORT, INC.,
a Delaware corporation
By /s/ T F Flatley
------------------------
Its: President
-------------------
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<PAGE>
Address:
London Bridge Resort, Inc.
1477 Queen's Bay Road
Lake Havasu, Arizona
[Maker]
Federal E.I.N. Applied for
-4-
<PAGE>
GENERAL COLLATERAL ASSIGNMENT OF
TlMESHARE RECEIVABLE CONTRACTS,
NOTES AND DEEDS OF TRUST
This GENERAL ASSIGNMENT OF TIMESHARE RECEIVABLE CONTRACTS, NOTES AND
DEEDS OF TRUST (this "Assignment") is made as of October 11, 1996 between
LONDON BRIDGE RESORT, INC., a Delaware corporation ("London Bridge") and
FINOVA CAPITAL CORPORATION, a Delaware corporation ("FINOVA").
RECITALS
Prior to the date hereof, QUEEN'S BAY JOINT VENTURE ("Queen's Bay")
has been the owner and Developer of a time share condominium development
commonly known as the London Bridge Resort Time-Share Condominium, located at
1477 Queen's Bay Road, Lake Havasu City, Arizona (the "Project"). The
Project was created pursuant to a Declaration of Covenants, Conditions and
Restrictions for London Bridge Resort Time Share Condominium filed in the
Official Records of Mohave County, Arizona at No. 90-39818 on June 14, 1990
as amended by Amendments and Restatements of such Declaration filed in the
Official Records of Mohave County, Arizona, through and including the
Seventeenth Amendment to Declaration of Covenants, Conditions and
Restrictions for London Bridge Resort Time-Share Condominiums, filed at Book
2720, Page 390 on April 23, 1996 (the "Declaration").
By Warranty Deed dated concurrently herewith Queen's Bay has conveyed
and transferred to London Bridge, for valuable consideration, Queen's Bay's
fee title interest in real property upon which the Project is located, fee
title interest to the real property forming the Annexation Property, as
defined in the Declaration, and fee title interest in and to all Units and
Interval Interests (as both terms are defined in the Declaration) owned by
Queen's Bay (collectively, the "Conveyance").
Since establishing the Project, Queen's Bay has been selling Interval
Units, as defined in the Declaration, to individuals and entities (the
"Timeshare Purchasers") and has been financing the sales price by taking back
notes secured by deeds of trust (the "Timeshare Deeds of Trust") on the
Interval Units sold (the "Timeshare Receivables"). In turn, Queen's Bay has
been selling its interest in the Timeshare Receivables to FINOVA under the
terms of a Purchase and Security Agreement between FINOVA and Queen's Bay
dated June 14, 1994, as amended on June 20, 1995, October 30, 1995 and June
21, 1996 (collectively the "Purchase Agreement") and has been assigning the
related Timeshare Deeds of Trust to FINOVA. The Timeshare Receivables
purchased by FINOVA under the Purchase Agreement (not previously re-assigned
to Queen's Bay in accordance with the Purchase Agreement) are hereinafter
collectively referred to as the "Purchased Timeshare Receivables," and the
corresponding Timeshare Deeds of Trust are hereinafter collectively referred
to as the "Purchased Timeshare Deeds of Trust."
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<PAGE>
In connection with the Conveyance, FINOVA and Queen's Bay have entered
into that certain Termination of Purchase and Security Agreement and
Re-Assignment of Receivables dated concurrently herewith, wherein, among
other things, the parties thereto have terminated each others rights and
obligations under the Purchase Agreement, and FINOVA has re-assigned all of
its right, title and interest in the Purchased Timeshare Receivables to
Queen's Bay.
In connection with the Conveyance, Queen's Bay has concurrently
herewith assigned to London Bridge all of its right, title and interest in
the Declaration and to the Timeshare Receivables and the security documents
related thereto including, without limitation, the Purchased Timeshare
Receivables and the Purchased Timeshare Deeds of Trust, pursuant to that
certain Assignment of Timeshare Receivable Contracts, Notes and Deeds of
Trust and Other Rights between Queen's Bay and London Bridge.
In connection with the Conveyance, London Bridge and FINOVA have
established that certain revolving line of credit in the maximum principal
amount at any one time outstanding of $23,000,000 (the "Receivables Loan")
pursuant to that certain Receivables Loan and Security Agreement of even date
herewith (the "Receivables Loan Agreement"). London Bridge will use the
initial advance under the Receivables Loan to purchase the Purchased
Timeshare Receivables, and will use other of its funds to purchase all
Timeshare Receivables which are not Purchased Timeshare Receivables, if any.
The Purchased Timeshare Receivables and the Purchased Timeshare Deeds of
Trust, among other things, shall constitute the collateral for such initial
advance, and London Bridge desires to collaterally assign all of its right,
title and interest to the Purchased Timeshare Receivables and Purchased
Timeshare Deeds of Trust to FINOVA.
INTENDING TO BE LEGALLY BOUND, the undesigned parties have in exchange
for the mutual obligations hereinafter set forth and for other valuable
consideration agreed as follows.
AGREEMENT
1. Incorporation of Recitals. The recitals set forth above are
incorporated herein by reference and thereby made a part of this Assignment.
2. ASSIGNMENT OF PURCHASED TIMESHARE RECEIVABLES. London Bridge
hereby assigns all of its rights, title and interest in and to the Purchased
Timeshare Receivables to FINOVA as collateral, to be administered in
accordance with the applicable terms and provisions of the Receivables Loan
Agreement.
3. CONFIRMATION OF ASSIGNMENTS OF PURCHASED DEEDS OF TRUST.
London Bridge hereby ratifies and confirms the various assignments to FINOVA
of the Purchased Timeshare Deeds of Trust, and assumes such assignments as
its own acts. Upon reasonable request of FINOVA, London Bridge agrees to
execute such individual assignments of Purchased Timeshare Deeds of Trust in
recordable form to grant to FINOVA a title insurable interest therein.
4. OTHER PROVISIONS.
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<PAGE>
A. ASSIGNMENT; BINDING EFFECT; AMENDMENT. This Assignment
shall be binding upon and shall inure to the benefit of the parties hereto.
This Assignment, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and
may be modified or amended by a written instrument executed by all parties
hereto.
B. ENTIRE AGREEMENT. This Assignment, is the final,
complete and exclusive statement and expression of the agreement among the
parties hereto with relation to the subject matter of this Assignment, it
being understood that there are no oral representations, understandings or
agreements covering the same subject matter as this Assignment. This
Assignment supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior contemporaneous discussions, correspondence, or oral or
written agreements of any kind.
C. COUNTERPARTS. This Assignment may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.
D. GOVERNING LAW. This Assignment shall be governed by and
construed in accordance with the internal laws of the State of Arizona,
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Arizona or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Arizona.
E. NO WAIVER. No delay of or omission in the exercise of
any right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Assignment shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in
any such breach or default, or of or in any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default occurring before or after that
waiver.
F. CAPTIONS. The headings of this Assignment are inserted
for convenience only, shall not constitute a part of this Assignment or be
used to construe or interpret any provision hereof.
IN WITNESS WHEREOF, the parties have executed this General Collateral
Assignment of Timeshare Receivable Contracts, Notes and Deeds of Trust on the
date first written above.
LONDON BRIDGE RESORT, INC.
a Delaware corporation
By: /s/ T F Flatley
--------------------------------
Thomas F. Flatley, President
[London Bridge]
FINOVA CAPITAL CORPORATION,
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<PAGE>
a Delaware corporation
By: /s/ Jack Fields
--------------------------------
Its: Group Vice President
-------------------------------
[FINOVA]
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<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 11th day of
October, 1996, by Thomas Flatley, the President of London Bridge Resort,
Inc., a Delaware corporation, on behalf of the corporation.
In witness whereof, I hereunto set my hand and official seal.
/s/ [illegible]
-----------------------------
Notary Public
My commission expires:
9-21-99
- ------------------------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 15th day of
October, 1996, by Jack Fields, the Group Vice President of the FINOVA Capital
Corporation, on behalf of the corporation.
In witness whereof, I hereunto set my hand and official seal.
/s/ Bonnie J. Fenimore
-----------------------------
Notary Public
My commission expires:
Jan. 13, 1997
- ------------------------------------
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<PAGE>
FIRST AMENDMENT OF
LOAN AND SECURITY AGREEMENT
(With Consent of Guarantor)
This FIRST AMENDMENT OF LOAN AND SECURITY AGREEMENT (this "First
Amendment") is entered into this 11th day of October 1996, by and between
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), QUEEN'S BAY
JOINT VENTURE, a Pennsylvania joint venture general partnership ("Queen's
Bay"), and LONDON BRIDGE RESORT, INC., a Delaware corporation ("Borrower").
R E C I T A L S
Queen's Bay and Lender are parties to that certain Loan and Security
Agreement dated October 30, 1995 (the "Acquisition Loan Agreement") pursuant
to which Lender made a mortgage refinance loan to Queen's Bay in the
principal amount of $9,500,000 (the "Acquisition Loan"), as evidenced by that
certain Promissory Note made by Queen's Bay to the order of Lender in the
original principal amount of $9,500,000 dated October 30, 1995 (the
"Acquisition Note"). Pursuant to that certain Assumption Agreement among
Lender, Queen's Bay and Borrower of even date herewith (the "Assumption
Agreement"), Borrower has assumed, jointly and severally with Queen's Bay,
all payment and performance obligations under the Acquisition Loan Agreement
and Acquisition Note. Unless otherwise defined in this First Amendment, all
defined terms used herein shall have the same meaning as ascribed to such
term in the Acquisition Loan Agreement.
Lender and Queen's Bay are also parties to that certain furniture,
fixtures and equipment loan in the principal amount of $336,000 (the "F,F&E
Loan").
Lender has agreed to establish a $23,000,000 revolving line of credit
for Borrower (the "Receivables Loan") in accordance with the terms and
conditions of that certain receivables Loan and Security Agreement between
Borrower and Lender of even date herewith (the "Receivables Loan Agreement")
and as evidenced by that certain Promissory Note of even date herewith in the
original principal amount of Twenty-Three Million Dollars ($23,000,000) (the
"Receivables Note"). Lender, Queen's Bay and Borrower desire to integrate the
terms of the Acquisition Loan Agreement with the terms of the F,F&E Loan and
the Receivables Loan.
A G R E E M E N T S
Now, therefore, in consideration of the premises and the agreement,
provisions and covenants hereinafter set forth, Borrower and Lender hereby
agree as follows:
1. AMENDMENT OF ACQUISITION LOAN AGREEMENT. The Acquisition Loan
Agreement is hereby modified as follows:
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<PAGE>
1.1 AMENDMENT OF SECTION 4.1 - GRANT OF SECURITY INTEREST. Section
4.1 of the Acquisition Loan Agreement is hereby amended by deleting such
Section in its entirety and replacing such section with the following:
4.1 GRANT OF SECURITY INTEREST. To
secure (a) payment of the Note and all other amounts
due and payable under the Loan Documents, 9(b) the
performance of Borrower's Obligations, and
(c) Performance of all Obligations under that
certain Receivables Loan and Security Agreement
between Lender and Borrower dated October ___, 1996,
as such terms are defined therein, Borrower hereby
grants to Lender a Security Interest n the
Collateral.
1.2 AMENDMENT OF SECTION 7.1 - EVENTS OF DEFAULT. Section 7.1 of
the Acquisition Loan Agreement is hereby amended by deleting subsection (l)
in its entirety and inserting in its place the following:
(l) RECEIVABLES LOAN DEFAULT. An Event of
Default, as defined therein, has occurred under that
certain Receivables Loan and Security Agreement
between Lender and Borrower dated October ___, 1996,
which evidences a $23,000,000 revolving line of
credit established by Lender for Borrower and the
same has not been cured by Borrower or waived by
Lender.
1.3 EFFECT AND AMENDMENTS. Except as herein amended, the
Acquisition Loan Agreement shall remain in full force and effect.
2. CONDITIONS PRECEDENT TO EFFECTIVENESS. This First Amendment
shall not be binding upon Lender or Borrower unless and until Lender shall
have received in form and substance satisfactory to Lender or Lender shall be
satisfied, as the case may be, with the following:
(a) This First Amendment;
(b) The Assumption Agreement;
(c) Satisfaction of the conditions precedent to the
Receivables Loan as set forth in Section 5.1 of the Receivables Loan
Agreement; and
(d) Such other items as Lender may reasonably require to
accomplish the purposes hereof and to protect its interests hereunder.
3. NO DEFAULTS. Borrower acknowledges and represents that no
event has occurred and no condition exists that would constitute a default or
event of default by Borrower under the Acquisition Loan Agreement or any of
the other Loan documents, with or without notice or lapse of time, or both.
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<PAGE>
4. VALIDITY OF LOAN DOCUMENTS. Borrower hereby ratifies,
reaffirms, acknowledges and agrees that the Acquisition Loan Agreement as
hereby amended, and the other Loan Documents represent valid and enforceable
obligations of Borrower.
5. 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.
6. RATIFICATION OF TERMS AND CONDITIONS. All terms, conditions
and provisions of the Acquisition Loan Agreement and each of the other Loan
Documents shall continue in full force and effect and shall remain unaffected
and unchanged except as specifically amended by this First Amendment. In the
event of any conflict between the terms and conditions of this First
Amendment and any of the other Loan Documents, the provisions of this First
Amendment shall control.
7. REPRESENTATIONS, ACKNOWLEDGMENTS, AND AGREEMENTS OF BORROWER.
As material inducements to Lender to enter into the First Amendment, and
acknowledging Lender's reliance upon the truth and occurrence thereof,
Borrower warrants and represents that:
(a) RECITALS TRUE. The Recitals set forth above are true
and correct, that all financial statements and other information delivered to
Lender by or on behalf of Borrower or the Guarantor in connection with this
First Amendment were true and correct as of the respective dates thereof, and
that Borrower's and Guarantor's financial condition has not materially
altered as of the date of this First Amendment from that presented by the
latest such financial statements and other information provided to Lender.
(b) NO ACTIVE BANKRUPTCY. As of the date hereof, Borrower
is not the subject of a pending active bankruptcy proceeding and is not aware
of any threatened bankruptcy proceeding against Borrower nor is Borrower
presently contemplating filing such a proceeding.
(c) NO GUARANTOR BANKRUPTCY. As of the date hereof to the
best of Borrower's knowledge, Guarantor is not the subject of a pending
bankruptcy proceeding and Borrower is not aware of any threatened bankruptcy
proceeding against the Guarantor, nor to the best of Borrower's knowledge, is
the Guarantor contemplating filing such a proceeding;
(d) NO LITIGATION. There are not proceedings pending or
threatened against or affecting Borrower, or to the best of Borrower's
knowledge, threatened against or affecting the Guarantor, in any court,
before any governmental authority, or arbitration board or tribunal which may
now or in the future materially adversely affect Borrower or the Guarantor;
(e) NO SETOFF RIGHTS. Borrower hereby acknowledges and
agrees that as of the date hereof there are not existing claims, defense or
rights of setoff whatsoever with respect to Borrower's obligations to Lender
under the Acquisition Loan Agreement and the Loan Documents;
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<PAGE>
(f) PROPER AUTHORIZATION. This First Amendment has been
authorized by all necessary action and when executed will be the legal, valid
and binding obligation of Borrower enforceable against Borrower in accordance
with its terms.
8. RIGHTS OF LENDER. In addition to the rights and remedies of
Lender under the Loan Documents, and subject to any applicable notice or cure
provisions contained in the Loan Documents, Lender shall be free to exercise,
in Lender's discretion, its rights and remedies under the Loan Documents upon
and after the occurrence of any default by Borrower in the performance of the
terms or conditions of this First Amendment, or if any of the Borrower's
representations hereunder shall prove to have been materially false when made.
9. NO WAIVER OF DEFAULTS. This First Amendment in no way acts as
a waiver of any default of Borrower or as a release or relinquishment of any
of the liens, security interests, rights or remedies securing payment and
performance of Borrower's obligations to Lender. Such liens, security
interests, rights and remedies are hereby ratified, confirmed, preserved,
renewed and extended by Borrower in all respects.
10. NO CLAIMS. As of the date of this First Amendment, Borrower
has no claims, demands, suits, cross-complaints, or causes of action of any
nature arising from the default or breach by Lender of its obligations under
the Acquisition Loan Agreement or any other Loan Document which Borrower
knows of and which are based upon facts or occurrences existing as of the
date of this First Amendment.
11. COMPLETE AGREEMENT. Notwithstanding anything to the contrary
contained herein or in any other instrument executed by Borrower or Lender,
and notwithstanding any other action or conduct by Borrower or Lender on or
before the date hereof, the agreements, covenants and provisions of this
First Amendment shall constitute the only evidence of Lender's agreement to
modify the Acquisition Loan Agreement. No express or implied consent to any
further modifications shall be inferred or implied by Lender's execution of
this First Amendment.
12. ALL MODIFICATIONS TO BE IN WRITING. Lender's execution of this
First Amendment shall not constitute either an express or implied waiver of
the requirement that any further modification of the Acquisition Loan
Agreement or any other Loan Document shall require the express written
approval of Lender.
13. OTHER WRITINGS. Lender and Borrower will execute such other
documents and instruments as may be necessary to complete the intentions of
Lender and Borrower evidenced by this First Amendment.
14. BROKER INDEMNITY. Borrower agrees to hold Lender harmless from
and defend Lender against the claims of any person or entity who may alleged
that a fee or commission is due from Lender in connection with this
transaction.
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<PAGE>
IN WITNESS WHEREOF, this First Amendment of Loan and Security
Agreement is executed as of the day first written above.
QUEEN'S BAY JOINT VENTURE, a
Pennsylvania Joint Venture General Partnership
By: QUEEN'S BAY ASSOCIATES LIMITED
PARTNERSHIP, a New York Limited
Partnership, Managing Partner
By: ARG, INC., a Delaware corporation,
General Partner
By: /s/ T F Flatley
----------------------------
Thomas F. Flatley
Its President
[Queen's Bay]
LONDON BRIDGE RESORT, INC.,
a Delaware corporation
By: /s/ T F Flatley
------------------------------------------
Its: President
------------------------------------------
[Borrower]
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Jack Fields
------------------------------------------
Its: Group Vice President
------------------------------------------
[Lender]
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<PAGE>
CONSENT OF GUARANTOR
The undersigned hereby acknowledges that he executed a Guarantee and
Subordination Agreement dated as of June 14, 1994, in favor of FINOVA Capital
Corporation, a Delaware corporation ("Lender"), as amended by that certain
First Amendment of Guarantee and Subordination Agreement dated June 20, 1995,
that certain Second Amendment of Guarantee and Subordination Agreement dated
October 30, 1995, and that certain Third Amendment of Guarantee and
Subordination Agreement dated June 21, 1996 (the "Guarantee").
The undersigned hereby acknowledges that QUEEN'S BAY JOINT VENTURE, a
Pennsylvania joint venture general partnership ("Queen's Bay"), LONDON BRIDGE
RESORT, INC., a Delaware corporation ("Borrower") and Lender have executed a
First Amendment of Loan and Security Agreement of which this Consent is a
part (the "First Amendment") which resulted in an amendment to the
Acquisition Loan Agreement. The undersigned hereby consents to the First
Amendment.
In consideration of Lender entering into the First Amendment, the
undersigned agrees to execute a Fourth Amendment of Guarantee and
Subordination Agreement wherein the undersigned guarantees all of the Queen's
Bay's and Borrower's obligations to Lender under the Acquisition Loan.
The undersigned acknowledges and agrees that the Guarantee, as such
Guarantee is modified by the Fourth Amendment of Guarantee and Subordination
Agreement, shall continue in full force and effect. The undersigned further
acknowledges that he has no defense, offset or counterclaim with respect to
enforcement against him of the provisions of the Guarantee, as amended, or
any prior guarantees.
DATED as of this 11th day of October, 1996.
/s/ T F Flatley
-------------------------------------
Thomas F. Flatley
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<PAGE>
This instrument was prepared by
and after recording return to:
Jeffrey A. Ekbom, Esq.
Ekbom & Lee PLC
8777 North Gainey Center Drive
Suite 175
Scottsdale, Arizona 85258
SECOND MODIFICATION AND AMENDMENT OF
DEED OF TRUST, ASSIGNMENT OF RENTS AND PROCEEDS
AND SECURITY AGREEMENT
This Modification and Amendment of Deed of Trust (this "Modification")
is made and entered into this 11th day of October 1996, by and between LONDON
BRIDGE RESORT, INC., a Delaware corporation ("Trustor") (as successor-in-title
to QUEEN'S BAY JOINT VENTURE, a Pennsylvania joint venture general
partnership ("Queen's Bay")) whose mailing address is 1477 Queen's Bay Road,
Lake Havasu, Arizona 86403, and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Beneficiary"), having its principal office and mailing address
at 7272 E. Indian School Road, Suite 410, Scottsdale, Arizona 85251 (attn:
Vice President - Portfolio Management, Resort Finance).
R E C I T A L S
Queen's Bay has executed and delivered to Beneficiary a Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement dated as of October
30, 1995, which deed of trust was recorded November 1, 1995, in the Official
Records of the Mohave County, Arizona, Recorder in Book 2642, Page 891, as
such deed of trust is modified by that certain Modification and Amendment of
Deed of Trust, Assignment of Rents and Proceeds and Security Agreement dated
June 21, 1996, which instrument was recorded August ___, 1996, in the
Official Records of the Mohave County, Arizona, Recorder in Book _____,
Page ____ (collectively, the "Deed of Trust"). The Deed of Trust grants
Beneficiary a lien on the real property described therein (the
<PAGE>
"Real Property"). Concurrently herewith, Queen's Bay has conveyed the Real
Property to Trustor.
Queen's Bay and Beneficiary are parties to that certain Loan and
Security Agreement dated October 30, 1995 (the "Acquisition Loan Agreement")
pursuant to which Beneficiary made a loan to Queen's Bay in the principal
amount of $9,500,000 (the "Acquisition Loan") as evidenced by that certain
Promissory Note dated October 30, 1995, in the original principal amount of
$9,500,000 (the "Acquisition Note"). The Deed of Trust secures, among other
things, payment and performance of the Acquisition Loan Agreement and the
Acquisition Note. Trustor has assumed the obligations of Queen's Bay,
jointly and severally with Queen's Bay, arising under the Acquisition Loan
Agreement and Acquisition Note pursuant to that certain Assumption Agreement
among Queen's Bay, Trustor and Beneficiary of even date herewith.
Queen's Bay and Beneficiary are also parties to that certain Purchase
and Security Agreement dated June 14, 1994, as amended by that certain First
Amendment of Purchase and Security Agreement dated June 20, 1995, that
certain Second Amendment of Purchase and Security Agreement dated October 30,
1995, and that certain Third Amendment of Purchase and Security Agreement
dated June 21, 1996 (collectively, the "Purchase Agreement"). Performance by
Queen's Bay under the Purchase Agreement is secured by the Deed of Trust.
Queen's Bay and Beneficiary have terminated the Purchase Agreement pursuant
to that certain Termination of Purchase and Security Agreement and
Re-Assignment of Receivables of even date herewith.
Trustor and Beneficiary are parties to that certain Receivables Loan
and Security Agreement of even date herewith (the "Receivables Loan
Agreement") pursuant to which Beneficiary has agreed to establish a revolving
line of credit for Trustor in the principal amount of Twenty-Three Million
Dollars ($23,000,000) as evidenced by that certain Promissory Note of even
date herewith in the maximum principal amount of Twenty-Three Million Dollars
($23,000,000) (the "Receivables Note").
Trustor and Beneficiary have also entered into that certain First
Amendment of Loan and Security Agreement of even date herewith (the "First
Amendment") pursuant to which the Acquisition Loan Agreement has been
modified and amended to cross default payment and performance of the
Acquisition Loan with the payment and performance of the Receivables Loan.
Trustor and Beneficiary desire that the Deed of Trust be amended to:
(i) substitute London Bridge Resort, Inc. as the trustor thereunder; (ii)
secure repayment of the Receivables Loan as evidenced by the Receivables Loan
Agreement and the Receivables Note; and (iii) secure performance under the
Acquisition Loan Agreement, as amended by the First Amendment, as well as
securing repayment of the other obligations presently secured thereby.
Now, therefore, in consideration of the mutual covenants contained
herein, and for other valuable consideration, the parties agree as follows:
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<PAGE>
AGREEMENTS
1. AMENDMENT OF DEED OF TRUST.
(a) CHANGE OF TRUSTOR. The Deed of Trust is hereby amended
to change the "trustor" thereunder from Queen's Bay Joint Venture, a
Pennsylvania joint venture general partnership, to London Bridge Resort,
Inc., a Delaware corporation. The address for trustor shall remain the same.
(b) ADDITIONAL OBLIGATIONS SECURED. It is understood and
agreed that the Deed of Trust is hereby amended to secure, in addition to any
amounts and obligations previously secured thereon, the Receivables Loan and
the Receivables Note in the principal amount of Twenty-Three Million Dollars
($23,000,000), plus interest and costs as set forth therein, and performance
by Trustor of all its obligations (i) under the Receivables Loan Agreement,
and (ii) under the Acquisition Loan Agreement as amended by the First
Amendment.
2. NO AFFECT ON EXISTING LIEN OR OBLIGATIONS. All of the property
described in the Deed of Trust (not previously released therefrom) shall
remain in all respects subject to the lien, charge and encumbrance thereof
and nothing contained herein and nothing done pursuant hereto, shall affect
or be construed to affect the lien, charge or encumbrance of the Deed of
Trust or the priority thereof over other liens, charges or encumbrances, or
to release or affect the liability of any party or parties who may now or
hereafter be liable thereunder.
3. NO OTHER MODIFICATIONS. This Modification is a modification
only and shall relate back to the date of the original execution of the Deed
of Trust. Except as herein modified, all terms and conditions of the Deed of
Trust shall remain in full force and effect.
4. EXECUTION IN COUNTERPARTS. This Modification may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Modification
and Amendment of Deed of Trust on the date and year first written above.
LONDON BRIDGE RESORT, INC.
a Delaware corporation
By: /s/ T F Flatley
------------------------------------------
Its: President
-----------------------------------------
[Trustor]
-3-
<PAGE>
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ [ILLEGIBLE]
------------------------------------------
Its: Group Vice President
------------------------------------------
[Beneficiary]
ACKNOWLEDGED AND
AGREED TO: QUEEN'S BAY JOINT VENTURE, a
Pennsylvania Joint Venture General
Partnership
By: QUEEN'S BAY ASSOCIATES,
LIMITED PARTNERSHIP, a New
York limited partnership,
Managing Partner
By: ARG, INC., a Delaware
corporation, General Partner
By: /s/ T F Flatley
-------------------------
Thomas F. Flatley
Its President
[Trustor]
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 11th day of
October, 1996, by Thomas F. Flatley, the President of London Bridge Resort,
Inc., a Delaware corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Michelle Parson
-------------------------------------
Notary Public
My commission expires:
9-20-99
- ----------------------
-4-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 15th day of
October, 1996, by Jack Fields, the Group Vice President of the FINOVA Capital
Corporation, on behalf of the corporation.
In witness whereof, I hereunto set my hand and official seal.
/s/ Bonnie J. Fenimore
-------------------------------------
Notary Public
My commission expires:
Jan. 13, 1997
- ----------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 11th day of
October, 1996, by Thomas F. Flatley, the President of ARG, INC., a Delaware
corporation, in its capacity as a general partner of Queen's Bay Associates
Limited Partnership, a New York limited partnership, in its capacity as the
managing partner of Queen's Bay Joint Venture, a Pennsylvania joint venture
general partnership, on behalf of said joint venture general partnership.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Michelle Pearson
-------------------------------------
Notary Public
My commission expires:
9-20-99
- ----------------------
-5-
<PAGE>
When recorded, return to:
Ekbom & Lee PLC
8777 North Gainey Center Drive
Suite 175
Scottsdale, Arizona 85258
Attention: Jeffrey A. Ekbom, Esq.
ASSUMPTION AGREEMENT
This ASSUMPTION AGREEMENT (this "Agreement") is made this 11th day of
October, 1996, by and among FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender"), QUEEN'S BAY JOINT VENTURE, a Pennsylvania joint venture general
partnership ("Borrower") and LONDON BRIDGE RESORT, INC., a Delaware corporation
("Transferee").
R E C I T A L S
Borrower and Lender are parties to that certain Loan and Security
Agreement dated October 30, 1995 (the "Acquisition Loan Agreement") pursuant to
which Lender made a mortgage refinance loan to Queen's Bay in the principal
amount of $9,500,000 (the "Acquisition Loan"), as evidenced by that certain
Promissory note made by Queen's Bay to the order of Lender in the original
principal amount of $9,500,000 dated October 30, 1995 (the "Acquisition Note").
The Acquisition Loan is secured, among other things, by that certain Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement wherein Borrower
appears as Trustor and Lender appears as beneficiary dated October 30, 1995,
which instrument is recorded with the Mohave County, Arizona, Recorder's Office
as of November 1, 1995, as Document No. 95057388 (the "Deed of Trust"). The
Deed of Trust is a lien on the real property described therein, not previously
released from such lien (the "Property").
Borrower desires to transfer the Property (through an intermediate
transfer to Borrower's ultimate principal) to Transferee, which is a corporation
wholly owned by the ultimate principal of Borrower, and Transferee desires to
accept title to the Property, and to assume all of the obligations of Borrower
under the Acquisition Note, Acquisition Loan Agreement and Deed of Trust
(together with all documents referred to therein, the "Loan Documents"). Lender
is willing to consent to the transfer of the Property and accept this assumption
on condition that Borrower remain fully liable for all performances, obligations
and duties under the Loan Documents as if this Agreement had not been entered
into, and upon the terms and conditions set forth herein.
A G R E E M E N T S
Now, therefore, for good and valuable consideration, the parties agree
as follows:
-1-
<PAGE>
1. TRANSFEREE ASSUMES LOAN. Transferee hereby assumes and agrees to
pay, perform and be bound by all of the terms, provisions, covenants and
warranties of Borrower under the Loan Documents. Transferee shall be liable for
the payment and performance of all of the terms, conditions, covenants and
warranties of the Loan Documents as if Transferee had executed such documents
originally. The term "Trustor", "Borrower", "Maker", and "Debtor" where used in
the Loan Documents or in any other instrument evidencing or securing the Note,
shall be deemed to mean and refer to Transferee hereunder, as the context
requires.
2. BORROWER JOINTLY AND SEVERALLY LIABLE. Notwithstanding the
transfer of the Property by Borrower to Transferee, and notwithstanding any term
or provision of the Loan Documents or this Agreement to the contrary, Borrower
shall remain primarily liable for all performances, obligations, and duties
under the Loan Documents, jointly and severally, with Transferee.
3. REPRESENTATIONS AND WARRANTIES. Borrower and Transferee
represent and warrant:
(a) The Loan Documents and this Agreement constitute the legal,
valid and binding obligations of Borrower and Transferee enforceable in
accordance with their respective terms; and
(b) Borrower and Transferee have no defense, setoff or
counterclaim to their obligations under the Loan Documents or this Agreement.
4. NO DISCHARGE OR RELEASE. Any lien or security interest securing
payment of the Note shall continue to secure the Note. No payment or discharge
is intended by this Agreement and all liens and security interests shall
continue in full force, unimpaired from the date of their execution.
5. NO CONFLICTING AGREEMENTS. Transferee represents and warrants
that neither the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby, nor the fulfillment of or compliance with
the terms or conditions of this Agreement conflict with or result in a breach of
any of the terms, conditions or provisions of any other agreement or instrument
to which it is a party or by which it is bound.
6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Arizona.
7. NOTICES. Transferee's address for notices is:
London Bridge Resort, Inc.
1477 Queen's Bay Road
Lake Havasu, Arizona
Attn: Thomas F. Flatley
-2-
<PAGE>
8. BINDING AGREEMENT. All agreements, covenants, conditions and
provisions of this Agreement shall apply to and bind the heirs, successors and
assigns of each party.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be executed as of the day and year first written above.
QUEEN'S BAY JOINT VENTURE,
a Pennsylvania Joint Venture General
Partnership
By: QUEEN'S BAY ASSOCIATES
LIMITED PARTNERSHIP, a
New York limited partnership, Managing
Partner
By: ARG, INC., a Delaware corporation,
General Partner
By: /s/ T F Flatley
-----------------------------
Thomas F. Flatley
Its President
[Borrower]
LONDON BRIDGE RESORT, INC.,
a Delaware corporation
By: /s/ T F Flatley
---------------------------------------
Its: President
--------------------------------------
[Transferee]
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Jack Fields
---------------------------------------
Its: Group Vice President
--------------------------------------
[Lender]
-3-
<PAGE>
STATE OF PENNSYLVANIA )
) ss.
County of Montgomery )
The foregoing instrument was acknowledged before me this 11th day of
October, 1996, by Thomas F. Flatly, the President of ARG, INC., a Delaware
corporation, in its capacity as a general partner of Queen's Bay Associates
Limited Partnership, a New York limited partnership, in its capacity as the
managing partner of Queen's Bay Joint Venture, a Pennsylvania joint venture
general partnership, on behalf of said joint venture general partnership.
IN WITNESS WHEREOF, I hereunder set my hand and official seal.
/s/ Michelle Pearson
--------------------------------------
Notary Public
My Commission Expires:
9-20-99
- ----------------------------------
STATE OF PENNSYLVANIA )
) ss.
County of Montgomery )
The foregoing instrument was acknowledged before me this 11th day of
October, 1996, by Thomas Flatley, the President of London Bridge Resort, Inc., a
Delaware corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal.
/s/ Michelle Pearson
--------------------------------------
Notary Public
My Commission Expires:
4-20-99
- ----------------------------------
-4-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 15th day of
October, 1996, by Jack Fields, the Group Vice President of the FINOVA Capital
Corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal.
/s/ Bonnie J. Fenimore
--------------------------------------
Notary Public
My Commission Expires:
Jan. 13, 1997
- ----------------------------------
-5-
<PAGE>
FIRST AMENDMENT OF
SERVICES AND FEES AGREEMENT
This FIRST AMENDMENT OF SERVICES AND FEES AGREEMENT (this "First
Amendment") is entered into this 11th day of October, 1996, by and between
FINOVA PORTFOLIO SERVICES, INC., an Arizona corporation, formerly known as GFC
Portfolio Services, Inc. ("FPSI"), QUEEN'S BAY JOINT VENTURE, a Pennsylvania
joint venture general partnership ("Queen's Bay"), and LONDON BRIDGE RESORT,
INC., a Delaware corporation ("Transferee").
R E C I T A L S
Queen's Bay and FPSI are parties to that certain Services and Fees
Agreement dated as of June 14, 1994 (the "Agreement"). Unless otherwise defined
in this First Amendment, all defined terms used herein shall have the same
meaning as ascribed to such term in the Agreement.
The Agreement was executed in connection with that certain Servicing
Agreement (the "Servicing Agreement") among FPSI, Queen's Bay and FINOVA Capital
Corporation ("FINOVA") (formerly known as Greyhound Financial Corporation),
wherein FPSI agreed to service the "Assigned Accounts", as defined therein.
Queen's Bay has agreed to transfer the Assigned Accounts to Transferee, a
corporation which initially will be wholly owned by ultimate principal of
Queen's Bay.
FPSI, FINOVA and Queen's Bay desire to amend and modify the terms of the
Agreement to (i) substitute Transferee for Queen's Bay as the "Client" under the
Agreement, and (ii) redesignate the parties as provided below.
A G R E E M E N T S
Now, therefore, in consideration of the premises and the agreement,
provisions and covenants hereinafter set forth, the parties hereby agree as
follows:
1. REDESIGNATION OF PARTIES. On and after the date hereof, (i) all
references to "Lender/Purchaser" under the Agreement shall refer to FINOVA
Capital Corporation, and (ii) all references to "Client" under the Agreement
shall refer to London Bridge Resort, Inc.
2. SUBSTITUTION OF PARTY. On and after the date hereof, London Bridge
Resort, Inc. shall be the "Client" under the Agreement, and Queen's Bay Joint
Venture shall no longer be a party to the Agreement.
3. COMPLETE AGREEMENT. Notwithstanding anything to the contrary
contained herein or in any other instrument executed by FPSI, Queen's Bay,
FINOVA or Transferee, and notwithstanding any other action or conduct by FPSI,
Queen's Bay, FINOVA or Transferee on or
-1-
<PAGE>
before the date hereof, the agreements, covenants and provisions of this
First Amendment shall constitute the only evidence of the parties' agreement
to amend and modify the Agreement.
4. OTHER WRITINGS. FPSI, FINOVA, Queen's Bay and Transferee will execute
such other documents and instruments as may be necessary to complete the
intentions of the parties evidenced by this First Amendment.
IN WITNESS WHEREOF, this First Amendment of Services and Fees Agreement is
executed as of the day first written above.
QUEEN'S BAY JOINT VENTURE,
a Pennsylvania joint venture general
partnership
By: QUEEN'S BAY ASSOCIATES
LIMITED PARTNERSHIP, a
New York limited partnership, Managing
Partner
By: ARG, INC., a Delaware corporation,
General Partner
By: /s/ T F Flatley
----------------------------
Thomas F. Flatley
Its President
[Queen's Bay]
LONDON BRIDGE RESORT, INC.,
a Delaware corporation
By: /s/ T F Flatley
---------------------------------------
Its: President
--------------------------------------
[Transferee]
FINOVA CAPITAL CORPORATION,
a Delaware corporation, formerly known as
Greyhound Financial Corporation
By: /s/ Randall Heller
---------------------------------------
Its: V.P.
--------------------------------------
[FINOVA]
-2-
<PAGE>
FINOVA PORTFOLIO SERVICES, INC.,
an Arizona corporation, formerly known as GFC
Portfolio Services, Inc.
By: /s/ Jack Fields
---------------------------------------
Its: Group Vice President
--------------------------------------
[FPSI]
-3-
<PAGE>
FIRST AMENDMENT OF
SERVICING AGREEMENT
This FIRST AMENDMENT OF SERVICING AGREEMENT (this "First Amendment") is
entered into this 11th day of October, 1996, by and between FINOVA CAPITAL
CORPORATION, a Delaware corporation, formerly known as Greyhound Financial
Corporation ("Buyer"), FINOVA PORTFOLIO SERVICES, INC., an Arizona corporation,
formerly known as GFC Portfolio Services, Inc. ("Servicing Agent"), QUEEN'S BAY
JOINT VENTURE, a Pennsylvania joint venture general partnership ("Seller"), and
LONDON BRIDGE RESORT, INC., a Delaware corporation ("Transferee").
R E C I T A L S
Buyer, Servicing Agent and Seller are parties to that certain Servicing
Agreement dated as of June 14, 1994 (the "Agreement"). Unless otherwise defined
in this First Amendment, all defined terms used herein shall have the same
meaning as ascribed to such term in the Agreement.
The Agreement was executed in connection with that certain Purchase and
Security Agreement dated June 14, 1994, as amended by that certain First
Amendment of Purchase and Security Agreement dated June 20, 1995, that certain
Second Amendment of Purchase and Security Agreement dated October 30, 1995, and
that certain Third Amendment of Purchase and Security Agreement dated June 21,
1996 (the "Purchase Agreement").
Seller has agreed to transfer all of its right, title and interest in the
Assigned Accounts to Transferee, a corporation wholly owned by ultimate
principal of Seller.
Buyer has agreed to establish a $23,000,000 revolving line of credit for
Transferee (the "Receivables Loan") in accordance with the terms and conditions
of that certain Receivables Loan and Security Agreement between Transferee and
Buyer of even date herewith (the "Receivables Loan Agreement") and as evidenced
by that certain Promissory Note of even date herewith in the original principal
amount of Twenty-Three Million Dollars ($23,000,000) (the "Receivables Note").
In conjunction with the making of the Receivables Loan, the Purchase
Agreement and Buyer's and Seller's obligations thereunder, will be terminated.
Buyer and Seller desire to amend and modify the terms of the Agreement to
(i) substitute Transferee for Seller as a party under the Agreement, (ii) modify
the Agreement to eliminate or correct references to the Purchase Agreement,
which is being terminated, and refer instead to the Receivables Loan Agreement
which is being established in its stead, and (iii) redesignate the parties as
provided below.
-1-
<PAGE>
A G R E E M E N T S
Now, therefore, in consideration of the premises and the agreement,
provisions and covenants hereinafter set forth, the parties hereby agree as
follows:
1. REDESIGNATION OF PARTIES. On and after the date hereof, (i) all
references to "Buyer" under the Agreement shall refer to FINOVA Capital
Corporation, which shall be designated as "Lender" under the Agreement, and (ii)
all references to "Seller" under the Agreement shall refer to London Bridge
Resort, Inc., which shall be designated as "Borrower" under the Agreement.
2. REVISION OF SECTION 2.1(a). Section 2.1(a) of the Agreement is hereby
deleted in its entirety and replaced with the following:
(a) Unless extended by Lender, Borrower and Servicing Agent, this
Agreement shall terminate 60 days after the occurrence of the
Receivables Loan Maturity Date, as such term is defined in the
Receivables Loan and Security Agreement between Borrower and Lender.
3. REFERENCES TO PURCHASE AGREEMENT. Except for the revision set forth
in paragraph 2 above, all references in the Agreement to the "Purchase
Agreement" shall refer to the Receivables Loan Agreement.
4. SUBSTITUTION OF PARTY. On and after the date hereof, London Bridge
Resort, Inc. shall be the "Borrower" under the Agreement, and Queen's Bay Joint
Venture shall no longer be a party to the Agreement.
5. COMPLETE AGREEMENT. Notwithstanding anything to the contrary
contained herein or in any other instrument executed by Seller, Buyer or
Transferee, and notwithstanding any other action or conduct by Seller, Buyer or
Transferee on or before the date hereof, the agreements, covenants and
provisions of this First Amendment shall constitute the only evidence of Buyer's
and Seller's agreement to amend and modify the Agreement.
6. OTHER WRITINGS. Buyer, Seller and Transferee will execute such other
documents and instruments as may be necessary to complete the intentions of
Buyer, Seller and Transferee evidenced by this First Amendment.
IN WITNESS WHEREOF, this First Amendment of Servicing Agreement is
executed as of the day first written above.
QUEEN'S BAY JOINT VENTURE,
a Pennsylvania joint venture general partnership
By: QUEEN'S BAY ASSOCIATES
LIMITED PARTNERSHIP, a New York
-2-
<PAGE>
limited partnership, Managing Partner
By: ARG, INC., a Delaware corporation,
General Partner
By: /s/ T F Flatley
----------------------------------
Thomas F. Flatley
Its President
[Seller]
LONDON BRIDGE RESORT, INC.,
a Delaware corporation
By: /s/ T F Flatley
---------------------------------------
Its: President
--------------------------------------
[Transferee]
FINOVA CAPITAL CORPORATION,
a Delaware corporation, formerly known as
Greyhound Financial Corporation
By: /s/ Randall Heller
---------------------------------------
Its: V.P.
--------------------------------------
[FINOVA]
FINOVA PORTFOLIO SERVICES, INC.,
an Arizona corporation, formerly known as
GFC Portfolio Services, Inc.
By: /s/ Jack Fields
---------------------------------------
Its: Group Vice President
--------------------------------------
[FPSI]
-3-
<PAGE>
Exhibit 10.16
EPIC MASTER FUNDING CORPORATION,
as Company
EPIC RESORTS, LLC,
as Administrator
and
MARINE MIDLAND BANK,
as Trustee
______________
TRUST INDENTURE
Dated as of September 28, 1998
______________
Timeshare Loan-Backed Notes
<PAGE>
TRUST INDENTURE
This TRUST INDENTURE dated as of September 28, 1998, is among EPIC
MASTER FUNDING CORPORATION, a Delaware corporation (the "Company"), EPIC
RESORTS, LLC, a Delaware limited liability company, as Administrator (the
"Administrator") and individually ("Epic"), and MARINE MIDLAND BANK, as trustee
(the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company is a bankruptcy-remote corporation formed for the
sole purpose of acquiring from Epic and its Affiliates certain timeshare loans
acquired by Epic and its Affiliates and certain other rights and properties
pertaining thereto;
WHEREAS, the Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its debentures,
notes or other evidences of indebtedness (herein called the "Notes"), to be
issued in one or more Series as in this Indenture provided;
WHEREAS, pursuant to Article 13 hereof and in connection with the
Credit Agreement (as defined herein), the Company shall issue a series of Notes
designated as Epic Master Funding Corporation Variable Funding Notes, which
Notes shall be secured by the Assets listed in Schedule 1 hereto, as it may be
modified from time to time;
WHEREAS, the Company intends that the Trustee, on behalf of the Trust
Estate (as defined herein) for the benefit of the Noteholders and the Company,
will take assignment of the Loans and related rights and benefits, including
those under any collateral security agreement, insurance and guarantees from the
Company simultaneously with the acquisition of such Loans by the Company from
Epic and its Affiliates; and
NOW, THEREFORE, THIS TRUST INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the holders thereof, it is mutually covenanted and agreed, for the benefit of
all Noteholders, the Trustee and the Company, as follows:
GRANTING CLAUSE
The Company hereby Grants to the Trustee for inclusion in the Trust
Estate on each Assignment Date, for the benefit and security of the Noteholders
and the Trustee, all of the Company's right, title and interest in and to the
following:
<PAGE>
(i) all Assets specified in the related Collateral Assignment. The
Trustee acknowledges receipt of the related Trust Estate and declares that
it will hold or shall cause the related Custodian to hold such documents
and the other documents constituting a part of the related Loan Documents,
for the benefit of the Noteholders;
(ii) the Collection Account, the Cash Collateral Account, if any, and
all monies, checks, securities, investments and interests held in, credited
to or evidencing such accounts;
(iii) all of the Company's right, title and interest in and to
investments made with proceeds of the property described in clauses (i) and
(ii) above; and
(iv) all distributions, revenues, products, substitutions, benefits,
profits and proceeds, in whatever form, of any of the foregoing.
Such Grant is made in trust to secure (i) the payment of all amounts due on the
Notes of each Series, (ii) the payment of all other sums payable under this
Indenture with respect to the Notes and (iii) compliance with the provisions of
this Indenture with respect to the Notes.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions hereof, and agrees to perform the duties herein
required to the best of its ability and to the end that the Trust Estate and the
interests of the Noteholders, the Trustee and the Company may be adequately and
effectively protected as hereinafter provided.
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1. GENERAL DEFINITIONS.
In addition to the terms defined elsewhere in this Indenture, the
following terms shall have the following meanings when used in this Indenture,
and the definitions of such terms are applicable to the singular as well as to
the plural forms of such terms and to the masculine as well as to the feminine
and neuter genders of such terms. With respect to each Series, additional
defined terms may be used. To the extent that any defined terms of a Series
conflict with terms defined in this Section 1.1, terms defined for such Series
shall prevail.
ACT: with respect to any Noteholder, as defined in Section 1.4.
ADMINISTRATOR: Epic and any permitted successor to such functions in
accordance, and in connection with, this Indenture in its capacity as
Administrator hereunder.
3
<PAGE>
ADMINISTRATOR DUTIES: specified in Section 5.3.
ADMINISTRATOR ORDER: a written order or request delivered to the
Trustee and signed in the name of the Administrator by an Authorized Officer.
ADVERSE CLAIM: any claim of ownership or any lien, security interest,
title retention, trust or other charge or encumbrance, or other type of
preferential arrangement having the effect or purpose of creating a lien or
security interest, other than the interests created under this Indenture in
favor of the Trustee and the Noteholders.
AFFILIATE: any Person: (a) which directly or indirectly controls, or
is controlled by, or is under common control with such Person; (b) which
directly or indirectly beneficially owns or holds five percent (5%) or more of
the voting stock of such Person; or (c) five percent (5%) or more of the voting
stock of which is directly or indirectly beneficially owned or held by such
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
ASSETS: each Loan, including any Substitute Loans (but excluding any
such loan which has been released from the lien of the Indenture pursuant to the
terms hereof) and assigned to the Trustee by the Company as part of the Trust
Estate, and includes, without limitation, (a) the related Assignment, (b) all
security interests or liens and property subject thereto from time to time
purporting to secure payment by the Obligor thereunder, including without
limitation, the Property, (c) all guarantees, indemnities and warranties,
proceeds of insurance policies (including the Insurance Policies), certificates
of title or other title documentation and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Loan, (d) all collections and all related Loan Documents, Loan Files and records
with respect to the foregoing, and (e) all proceeds of any of the foregoing.
ASSIGNMENT: collectively, with respect to any Loan, the related Sale
Assignment and any Collateral Assignment.
ASSIGNMENT DATE: each date when Loans are transferred to the Trust
Estate.
AUTHORIZED OFFICER: with respect to any corporation, limited
liability company or partnership, the Chairman of the Board, the President, any
Vice President, the Secretary, the Treasurer, any Assistant Secretary, any
Assistant Treasurer, Managing Member and each other officer of such corporation
or limited liability company or the general partner of such partnership
specifically authorized in resolutions of the Board of Directors of such
corporation or limited liability company to sign agreements, instruments or
other documents in connection with this Indenture on behalf of such corporation,
limited liability company or partnership, as the case may be, and whose name and
specimen signature appear on a written list furnished to the
4
<PAGE>
Trustee, as such list may be amended from time to time.
BOARD OF DIRECTORS: either the board of directors of the Company or
any duly authorized committee of that board.
BOARD RESOLUTION: a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
BUSINESS DAY: any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York, or in the city and State where
the Trustee's, the Servicer's principal offices are located, are authorized or
obligated by law, executive order or governmental decree to be closed.
CASH COLLATERAL ACCOUNT: the Eligible Bank Account, if any, so
designated for a Series established and maintained by the Trustee pursuant to
Section 3.3.
CLASS: with respect to a Series of Notes, each class of Notes so
designated within such Series.
COLLATERAL ASSIGNMENT: a certificate of assignment by the Company to
the Trustee substantially in the form of Exhibit B giving notice of, and
evidencing, the pledge of Loans and the related Assets by the Company to the
Trustee on behalf of the Trust Estate.
COLLECTION ACCOUNT: the Eligible Bank Account so designated,
established and maintained by the Trustee pursuant to Section 3.2.
COMMISSION: the Securities and Exchange Commission.
COMPANY: Epic Master Funding Corporation, a Delaware corporation.
COMPANY ORDER or COMPANY REQUEST: a written order or request
delivered to the Trustee and signed in the name of the Company by an Authorized
Officer.
CORPORATE TRUST OFFICE: the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of the execution of this Indenture is located at the
address set forth in Section 12.4.
CREDIT AND COLLECTION POLICIES: the credit extension procedures and
policies and collection practices relating to the Loans consistent with the
requirements of this Indenture and each Servicing Agreement, in effect from time
to time, as formulated by the Administrator and the Servicer.
CUSTODIAN: As may be specified in each Series.
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CUT-OFF DATE: with respect to the Loans specified in any Transfer,
the previous month-end date specified in the related Assignment.
DEBT: for any Person, (a) indebtedness of such Person for borrowed
money or credit extended, (b) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) obligations of such Person
to pay the deferred purchase price of property or services, (d) obligations of
such Person as lessee under leases which have been or should be, in accordance
with GAAP, recorded as capital leases, (e) obligations secured by any lien or
other charge upon property or assets owned by such Person, even though such
Person has not assumed or become liable for the payment of such obligations, (f)
obligations of such Person under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (e) above,
and (g) liabilities in respect of unfunded vested benefits under plans covered
by ERISA. For the purposes hereof, the term "guarantee" shall include any
agreement, whether such agreement is on a contingency or otherwise, to purchase,
repurchase or otherwise acquire Debt of any other Person, or to purchase, sell
or lease, as lessee or lessor, property or services, in any such case primarily
for the purpose of enabling another Person to make payment of Debt, or to make
any payment (whether as an advance, capital contribution, purchase of an equity
interest or otherwise) to assure a minimum equity, asset base, working capital
or other balance sheet or financial condition, in connection with the Debt of
another Person, or to supply funds to or in any manner invest in another Person
in connection with Debt of such Person.
DEFAULTED LOAN: as specified for each Series.
DEFAULT: any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
DEPOSIT DATE: the Business Day immediately preceding each related
Payment Date.
DEPOSITARY: with respect to Notes of any Series issuable in whole or
in part in the form of one or more Global Notes, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such Notes as
contemplated by Section 2.1.
DUE PERIOD: as specified for each Series.
ELIGIBLE BANK ACCOUNT: a segregated account, which may be an account
maintained with the Trustee, which is either (a) maintained with a depository
institution or trust company whose long-term unsecured debt obligations are
rated at least BBB+ by S&P and Baa-1 by Moody's and whose short-term unsecured
obligations are rated at least A-1 by S&P and P-1 by Moody's; or (b) a trust
account or similar account maintained with a federally or state chartered
depository institution subject to
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regulations regarding fiduciary funds on deposit substantially similar to 12
C.F.R. 9.10(b).
ELIGIBLE INVESTMENTS: one or more of the following:
(a) obligations of, or guaranteed as to timely payment of principal
and interest by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the United States;
(b) repurchase agreements (including those with the Trustee as a
counterparty) on obligations specified in clause (a) maturing not more than one
month from the date of acquisition thereof, provided that the long-term
unsecured obligations of the party agreeing to repurchase such obligations are
at the time rated by each Rating Agency in one of the three highest rating
categories (without regard to numerical modifiers) available from each Rating
Agency; and provided, further, that the short-term debt obligations of the party
agreeing to repurchase shall be rated in the highest rating category (without
regard to numerical modifiers) by each such Rating Agency;
(c) federal funds, certificates of deposit, time deposits and
bankers' acceptances, each of which shall not have an original maturity of more
than 90 days, of any depository institution or trust company incorporated under
the laws of the United States or any state; provided that the long-term
unsecured debt obligations of such depository institution or trust company at
the date of acquisition thereof have been rated by each Rating Agency in one of
the three highest rating categories (without regard to numerical modifiers)
available from each Rating Agency; and provided, further, that the short-term
obligations of such depository institution or trust company shall be rated in
the highest rating category (without regard to numerical modifiers) by each
Rating Agency;
(d) commercial paper or commercial paper funds (having original
maturities of not more than 90 days) of any corporation incorporated under the
laws of the United States or any state thereof; provided that any such
commercial paper or commercial paper funds shall be rated in the highest
short-term rating category (without regard to numerical modifiers) by each
Rating Agency; and
(e) any no-load money market fund rated in the highest short-term
rating category or equivalent highest long-term rating category (without regard
to numerical modifiers) by each Rating Agency;
PROVIDED THAT, Eligible Investments purchased from funds in the Eligible Bank
Accounts shall include only such obligations or securities that either may be
redeemed daily or mature no later than the Business Day next preceding the next
Payment Date; and PROVIDED, FURTHER, that no instrument shall be an Eligible
Investment if such instrument evidences a right to receive only interest
payments with respect to the obligations underlying such instrument. Eligible
Investments may include those Eligible Investments with respect to which the
Trustee or an Affiliate thereof provides services.
ELIGIBLE LOAN: as specified for each Series.
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EPIC: Epic Resorts, LLC, a Delaware limited liability company, and
its successors and permitted assigns.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: as defined in Section 6.1 and as supplemented with
respect to any Series.
EVENT OF SERVICING TERMINATION: as specified in the designated
Servicing Agreement.
EVENT OF ADMINISTRATOR TERMINATION: as specified in each Series.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
GAAP: generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar function of comparable stature and authority within the accounting
profession), or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
GLOBAL NOTE: a Note that evidences all or part of the Notes of any
Series and bears such legend as may be specified as contemplated by Section 2.1
for such Notes.
GRANT: grant, bargain, convey, assign, transfer, mortgage, pledge,
create and grant a security interest in and right of set-off against, deposit,
set over and confirm. The Grant of the Trust Estate effected by this Indenture
shall include all rights, powers, and options (but none of the obligations) of
the Company with respect thereto, including, without limitation, the immediate
and continuing right to claim for, collect, receive, and give receipts for
Payments in respect of the Loans and all other moneys payable thereunder, to
give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring judicial proceedings in
the name of the Company or otherwise, and generally to do and receive anything
that the Company is or may be entitled to do or receive thereunder or with
respect thereto.
GOVERNMENTAL AUTHORITY: (a) any federal, state, county, municipal or
foreign government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to the jurisdiction of which such Person has consented.
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HOLDER: a Person in whose name a Note is registered in the Note
Register.
INDENTURE: this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular Series of Notes
established as contemplated by Section 2.1.
INSURANCE POLICIES: the insurance policies, if any issued by each of
the Insurers to Epic (the benefits of which have been assigned to the Trust
Estate as security for the Notes of a designated Series) and listed on Schedule
2 (as modified from time to time), in the case of the Variable Funding Notes,
and otherwise as specified with respect to a Series.
INSURANCE PROCEEDS: (i) proceeds of any Insurance Policy, including
property insurance policies, casualty insurance policies and title insurance
policies, and (ii) any condemnation proceeds, in each case which relate to the
Loans or the Property and are paid to the Company, the Servicer, any of their
respective affiliates or to any mortgagee of record.
INSURERS: each of the insurance companies named in the Insurance
Policies.
INTENDED TAX CHARACTERIZATION: as specified in Section 4.4(b).
INTEREST PAYMENT DATE: as specified with respect to a Series, if any.
INTEREST PAYMENTS: as defined in Section 2.1(d).
ISSUANCE DATE: as specified with respect to a Series.
LIEN: any mortgage, pledge, hypothecation, assignment for security,
security interest, encumbrance, levy, lien or charge.
LIQUIDATED LOAN: a Loan for which a Liquidation has occurred.
LIQUIDATION: with respect to any Defaulted Loan, the sale of the
related Property, following foreclosure, other enforcement action or the taking
of a deed-in-lieu of foreclosure, to a Person other than the Servicer, the
Company or Epic and the recording of a deed of conveyance with respect thereto.
LOAN: either a Mortgage Loan or a Membership Loan.
LOAN COUPON RATE: with respect to any Loan, the per annum rate of
interest set forth in the related Obligor Note, used to calculate the interest
payment due
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on such Loan.
LOAN DOCUMENTS: In addition to any Loan Documents specified for each
Series, with respect to each Loan and each Obligor:
(i) if the Loan is a Mortgage Loan, an original Obligor Note,
executed by the Obligor for such Loan, endorsed in blank (either directly on the
Obligor Note or on an allonge affixed thereto), by an Authorized Officer of the
Company and showing a complete chain of endorsements from the original payee of
the Obligor Note to the Trustee:
"Pay to the order of _____________, without recourse",
(ii) an original Mortgage (or a copy thereof certified (which
may be a blanket certification) by an Authorized Officer of the Company) with
evidence that such Mortgage has been recorded in the appropriate recording
office;
(iii) an original assignment of the Mortgage (which may be a
part of a blanket assignment of more than one Loan), from the Company to the
Trustee, in recordable form but unrecorded, signed by an Authorized Officer of
Company;
(iv) if the Loan is a Mortgage Loan, an original lender's title
insurance policy or master policy (or a copy thereof) referencing such Mortgage
Loan;
(v) an original of each guarantee, assumption, modification or
substitution agreement, if any, which relates to the related Loan (or copy
thereof certified by an officer of the Company to be a true and correct copy);
and
(vi) if the Loan is a Membership Loan, an original Vacation
Club owner agreement (or a copy thereof certified by an Authorized Officer of
the Company) with evidence that the appropriate financing statements have been
filed in the appropriate filing offices.
LOAN FILES: the documents and other papers and computerized records
customarily maintained by the Servicer in servicing loans comparable to the
Loans.
LOAN SALE AGREEMENT: the Loan Sale Agreement, dated as of September
28, 1998 between Epic and the Company, providing for the sale or contribution of
the Loans to the Company.
MATURITY: with respect to any installment of principal of or interest
on any Note, the date on which such installment is due and payable as therein or
herein provided, whether at the Stated Maturity, by declaration of acceleration,
or otherwise.
MEMBERSHIP LOAN: a Loan secured by a membership interest in a
Vacation Club which holds unencumbered fee title (or a long term lease) to the
related Resorts.
MORTGAGE: the original mortgage, security agreement, deed of trust,
UCC financing statement or other instrument creating a first mortgage lien or
other security
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interest on the Property securing a Loan.
MORTGAGE LOAN: each loan listed on the Schedule of Loans, evidenced
by a Obligor Note and secured by a Mortgage, including any Substitute Loans, but
excluding any such loan which has been released from the lien of the Indenture
pursuant to the terms thereof. Unless the context otherwise requires, the term
"Mortgage Loan" shall include all collateral securing such Mortgage Loan.
NOTEHOLDER: at any time, any Person in whose name a Note is
registered in the Note Register.
NOTE RATE: the weighted average interest rate with respect to the
Notes of a Series.
NOTE REGISTER: as defined in Section 2.3.
NOTE REGISTRAR: as defined in Section 2.3.
NOTES: as set forth in the Recitals to this Indenture.
OBLIGOR: collectively, the obligor or obligors on a Obligor Note.
OBLIGOR NOTE: the original note or other instrument of indebtedness
evidencing the indebtedness of an Obligor under a Loan.
OFFICER'S CERTIFICATE: a certificate executed by a Responsible
Officer of the related party.
OPINION OF COUNSEL: means a written opinion of counsel, who may be
counsel employed by the Servicer or other counsel, in each case acceptable to
the addressees thereof.
ORIGINAL PRINCIPAL BALANCE: means, with respect to any Loan, the
principal balance of the related Obligor Note at its date of origination.
OUTSTANDING PRINCIPAL BALANCE: means, as of any date of
determination, with respect to any Loan, the Original Principal Balance thereof
as reduced by the amount of principal payments made by or on behalf of the
related Obligor prior to such date of determination.
OUTSTANDING: with respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes or portions thereof for whose payment money in the
necessary amount has been theretofore irrevocably deposited with the Trustee in
trust for the
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holders of such Notes; and
(c) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof satisfactory
to the Trustee is presented that any such Notes are held by a Person in whose
hands the Note is a valid obligation; PROVIDED, HOWEVER, that in determining
whether the holders of the requisite percentage of the Outstanding Principal
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent, or waiver hereunder, Notes owned by the Company or any
Affiliate of the Company shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent, or
waiver, only Notes that a Responsible Officer of the Trustee actually knows to
be so owned shall be so disregarded.
OUTSTANDING PRINCIPAL AMOUNT: the aggregate unpaid principal amount
of the Notes of any Series Outstanding at any time.
PAYING AGENT: the Trustee, unless otherwise specified for a Series.
PAYMENT DATE: as specified for each Series.
PAYMENTS: for any Loan for any Due Period, all amounts received with
respect to such Loan during such Due Period, including, without limitation,
payments (including prepayments) from the relevant Obligor (including principal,
interest, late fees and other charges), proceeds from any insurance policy,
including the Insurance Policies.
PERCENTAGE: means, with respect to a particular Note within a Class,
the percentage obtained by dividing the outstanding principal amount of the
related Note by the aggregate Outstanding Principal Amount of all Notes in such
Class, or with respect to Notes of a Class within a Series, the percentage
obtained by dividing the aggregate outstanding principal amount of the related
Notes of such Class, by the aggregate Outstanding Principal Amounts of such
Series.
PERSON: means an individual, general partnership, limited
partnership, limited liability partnership, corporation, business trust, joint
stock company, limited liability company, trust, unincorporated association,
joint venture, Governmental Authority, or other entity of whatever nature.
PREDECESSOR NOTES: with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.4 in lieu of a lost, destroyed or
stolen Note (or a mutilated Note surrendered to the Trustee) shall be deemed to
evidence the same debt as the lost, destroyed or stolen Note (or a mutilated
Note surrendered to the Trustee).
PRINCIPAL BALANCE: of a Loan means, on any date of determination, the
Original Principal Balance minus that portion of all payments made on or prior
to such
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date allocable to principal.
PRINCIPAL PAYMENTS: as defined in Section 2.1(c).
PROPERTY: (a) with respect to a Mortgage Loan, the timeshare estate
at the Resort which secures such Mortgage Loan, or (b) with respect to a
Membership Loan, the related Obligor's membership interests in the related
Vacation Club.
RATING AGENCIES: Standard & Poor's Ratings Service and Moody's
Investor Services, Inc. or as designated with respect to a Series.
RECORD DATE: with respect to any Payment Date the last day of the
immediately preceding Due Period.
RECORDS: all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) prepared and
maintained by the Servicer or by or on behalf of the Company with respect to
Loans and the related Obligors.
RELATED DOCUMENTS: with respect to any Series each Sale Assignment,
each Collateral Assignment, the Loan Sale Agreement, the Insurance Policies, the
Servicing Agreement, the Custody Agreement and all documents and instruments
required to be delivered hereunder or thereunder.
REQUEST FOR RELEASE: as defined in the related Custody Agreement.
REQUIRED INFORMATION: as of the related Cut-Off Date, with respect
to a Loan, the following information: (a) the loan number, (b) the name and
mailing address of Obligor, (c) the Resort, (d) the Loan Coupon Rate, (e) the
Original Principal Balance, (f) the maturity date, (g) the monthly payment
amount, (h) the Outstanding Principal Balance, (i) sale price, (j) the
paid-through date, (k) the first payment date, (l) the unit number, (m) the
date of sale, and (n) the interval number.
RESORTS the respective land, buildings and appurtenant rights of (i)
London Bridge Resort, LLC, Daytona Beach Regency, Ltd., and Epic Resorts-Hilton
Head, LLC, and (ii) such other resorts as approved in writing by the Noteholders
of a Series.
RESPONSIBLE OFFICER: (a) when used with respect to the Trustee, any
officer assigned to the Corporate Trust Office, including any Managing Director,
Vice President, Assistant Vice President, Secretary, Assistant Secretary,
Assistant Treasurer, any trust officer or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject; (b) when used with respect to the
Servicer, any officer responsible for the administration or management of the
Servicer's servicing department; and (c) with respect to any other Person, the
Chairman of the Board, the President, a Vice President, the Treasurer, the
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Secretary, an Assistant Secretary, or the manager of such Person.
SALE ASSIGNMENT: each assignment executed by Epic or an Affiliate in
favor of the Company from time to time pursuant to the Loan Sale Agreement
conveying Loans to the Company.
SCHEDULE OF LOANS: a list containing the Required Information with
respect to each Loan delivered to the Trustee and the Custodian, the Series to
which such Loan is allocated and certified by a duly Authorized Officer of the
Company or the Administrator, which is attached hereto as Schedule 1 (as
supplemented from time to time).
SCHEDULED PAYMENTS: each periodic installment of interest and
principal payable by an Obligor.
SECURITIES ACT: the Securities Act of 1933, as amended.
SERIES: each Series of Notes designated as such pursuant to this
Indenture.
SERVICER: the servicer designated as such, under the Servicing
Agreement and any successor thereto in accordance with this Indenture and the
Servicing Agreement.
SERVICING AGREEMENT: as designated with respect to a Series.
STATED MATURITY: the date on which the entire remaining unpaid
Outstanding Principal Amount of a Class of Notes is due and payable.
SUBSIDIARIES: those entities in which any Person has an ownership
interest sufficient to cause the assets and liabilities of such entities to be
consolidated with those of such Person in the preparation of a consolidated
balance sheet of such Person in accordance with GAAP.
SUBSTITUTE LOAN: means an Eligible Loan submitted for a Loan under
Section 4.6: (i) having as of the time of substitution a principal balance,
after deduction of the principal portion of the monthly payment due in the month
of substitution equal to or greater than the Outstanding Principal Balance of
the Loan for which it is being substituted, provided that if more than one Loan
is being submitted, the aggregate principal balance of all submitted Loans shall
be equal or greater than the Outstanding Principal Balance of the Loans for
which they are being substituted, (ii) having a Loan Coupon Rate equal to or
greater than the Loan Coupon Rate of the Loan for which it is being substituted,
(iii) otherwise satisfying the representations and warranties contained therein,
and (iv) relating to one of the Resorts.
TAX OR TAXES: all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, profits, withholding,
excise, property, sales, use, occupation and franchise taxes (including, in each
such case, any
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interest, penalties or additions attributable to or imposed on or with
respect to any such taxes, charges, fees or other assessments) imposed by the
United States, any state or political subdivision thereof, any foreign
government or any other jurisdiction or taxing authority.
TRANSFER: as specified in Section 4.2(a).
TRANSFER NOTICE: as specified in Section 4.2(b).
TRUST ACCOUNTS: the Collection Account, the Cash Collateral Account,
if any, and any other account so designated with respect to such Series.
TRUST ESTATE: all money, instruments and other property and rights
subject to the lien of this Indenture, including all proceeds thereof.
TRUSTEE: the Person named as the "Trustee" in the first paragraph of
this Indenture or in an indenture supplemental hereto with respect to a Series,
in each case until a successor Person shall have become the Trustee pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Person; PROVIDED, that the provisions of Section 7.7, as
applicable to any Person at any time serving as Trustee hereunder, shall survive
the termination of such Person's status as Trustee hereunder and the succession
of any other Person to such status.
TRUSTEE FEE: as specified for each Series.
UCC: the Uniform Commercial Code as in effect in the relevant state.
VACATION CLUB: a corporation which holds unencumbered fee title to
(or a long-term lease on) a Resort and issues membership certificates evidencing
ownership interests in the corporation, which permits the owner of such
membership certificates use and enjoyment of Resorts.
SECTION 1.2. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any written application or request (or oral application with
prompt written or telecopied confirmation) by the Company to the Trustee to take
any action under any provision of this Indenture, other than any request that
(a) the Trustee authenticate the Notes specified in such request, (b) the
Trustee invest moneys in any of the Trust Accounts pursuant to the written
directions specified in such request, or (c) the Trustee pay moneys due and
payable to the Company hereunder to the Company's assignee specified in such
request, the Trustee shall require the Company to furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and that the request otherwise is in accordance with the terms of the Indenture,
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such requested action as to which other evidence of satisfaction of the
conditions precedent thereto is specifically required by any provision of this
Indenture, no additional certificate or opinion need be
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furnished.
SECTION 1.3. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company delivered to
the Trustee may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such officer's certificate
or opinion and any Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company as to such factual matters unless such
officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any Opinion of Counsel may be based on the written opinion of
other counsel, in which event such Opinion of Counsel shall be accompanied by a
copy of such other counsel's opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Company shall
deliver any document as a condition of the granting of such application, or as
evidence of compliance with any term hereof, it is intended that the truth and
accuracy, at the time of the granting of such application or at the effective
date of such certificate or report (as the case may be), of the facts and
opinions stated in such document shall in such case be conditions precedent to
the right of the Company to have such application granted or to the sufficiency
of such certificate or report. The foregoing shall not, however, be construed
to affect the Trustee's right to rely upon the truth and accuracy of any
statement or opinion contained in any such document as provided in Section
7.1(b).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default, Event of
Administrator Termination or Event of Servicing Termination is a condition
precedent to the taking of
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any action by the Trustee at the request or direction of the Company, then,
notwithstanding that the satisfaction of such condition is a condition
precedent to the Company's right to make such request or direction, the
Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default, Event of Administrator Termination or Event
of Servicing Termination. For all purposes of this Indenture, the Trustee
shall not be deemed to have knowledge of any Default or Event of Default,
Event of Administrator Termination or Event of Servicing Termination nor
shall the Trustee have any duty to monitor or investigate to determine
whether a default has occurred (other than an Event of Default of the kind
described in Section 6.1(a)), Event of Administrator Termination or Event of
Servicing Termination unless a Responsible Officer of the Trustee shall have
actual knowledge thereof or shall have been notified in writing thereof by
the Company, the Servicer, or any Noteholder.
SECTION 1.4. ACTS OF NOTEHOLDERS, ETC.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 7.1) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section 1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the holder of any Note shall bind every future holder of
the same Note and the holder of every Note issued upon the registration of
transfer thereof or in exchange therefore or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
(d) By accepting the Notes issued pursuant to this Indenture, each
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Noteholder irrevocably appoints the Trustee hereunder as the special
attorney-in-fact for such Noteholder vested with full power on behalf of such
Noteholder to effect and enforce the rights of such Noteholder for the benefit
of such Noteholder; PROVIDED that nothing contained in this Section 1.4(d) shall
be deemed to confer upon the Trustee any duty or power to vote on behalf of the
Noteholders with respect to any matter on which the Noteholders have a right to
vote pursuant to the terms of this Indenture.
SECTION 1.5. NOTICE TO NOTEHOLDERS; WAIVER.
(a) Where this Indenture provides for notice to Noteholders of any
event, or the mailing of any report to Noteholders, such notice or report shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid or certified mail return receipt
requested, or sent by private courier or confirmed telecopy to each Noteholder
affected by such event or to whom such report is required to be mailed, at its
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice or
the mailing of such report. In any case where a notice or report to Noteholders
is mailed, neither the failure to mail such notice or report, nor any defect in
any notice or report so mailed, to any particular Noteholder shall affect the
sufficiency of such notice or report with respect to other Noteholders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Noteholders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
(b) In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to mail or send notice to
Noteholders, in accordance with Section 1.5(a), of any event or any report to
Noteholders when such notice or report is required to be delivered pursuant to
any provision of this Indenture, then such notification or delivery as shall be
made with the approval of the Trustee shall constitute a sufficient notification
for every purpose hereunder.
SECTION 1.6. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 1.7. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by each of the Company,
the Administrator or the Trustee shall bind its respective successors and
permitted assigns, whether so expressed or not.
SECTION 1.8. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
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CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. UNLESS MADE
APPLICABLE IN A SUPPLEMENT HERETO, THIS INDENTURE IS NOT SUBJECT TO THE TRUST
INDENTURE ACT OF 1939 AND SHALL NOT BE GOVERNED THEREBY AND CONSTRUED IN
ACCORDANCE THEREWITH.
SECTION 1.9. LEGAL HOLIDAYS.
In any case where any Payment Date or the Stated Maturity or any other
date on which principal of or interest on any Note is proposed to be paid shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) such payment need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such Payment Date, Stated Maturity, or other date on which principal of
or interest on any Note is proposed to be paid, provided that no interest shall
accrue for the period from and after such Payment Date, Stated Maturity, or any
other date on which principal of or interest on any Note is proposed to be paid,
as the case may be, until such next succeeding Business Day.
SECTION 1.10. EXECUTION IN COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 1.11. INSPECTION.
The Company agrees that, on reasonable prior notice, it will permit
the representatives of the Trustee or any Noteholder holding Notes evidencing at
least 25% of the Outstanding Principal Amount of the Notes of any Series, during
the Company's normal business hours, to examine all of the books of account,
records, reports and other papers of the Company, to make copies thereof and
extracts therefrom, and to discuss its affairs, finances and accounts with its
officers, employees and independent accountants (and by this provision the
Company hereby authorizes its accountants to discuss with such representatives
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested for the purpose of reviewing or evaluating the
financial condition or affairs of the Company or the performance of and
compliance with the covenants and undertakings of the Company and the
Administrator in this Indenture, the Sale Agreement and the Servicing Agreement
or any of the other documents referred to herein or therein. Any expense
incident to the exercise by the Trustee at any time or any Noteholder during the
continuance of any Default or Event of Default, of any right under this Section
1.11 shall be borne by the Company. Nothing contained herein shall be construed
as a duty of the Trustee to perform such inspection.
SECTION 1.12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations, warranties and certifications of the Company made
in this Indenture or in any certificate or other writing delivered by the
Company pursuant
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hereto shall survive the authentication and delivery of the Notes hereunder.
SECTION 1.13. SECURITY FORMS.
The Notes of each Series shall be in such form as shall be established
by or pursuant to a Board Resolution or in one or more indentures supplemental
hereto, in each case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture, and may
have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depositary therefor or as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
thereof. If the form of Notes of any Series is established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 2.2 for the authentication and delivery of such Notes.
The definitive Notes shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Notes, as evidenced by their execution of such
Notes.
ARTICLE 2.
THE NOTES
SECTION 2.1. GENERAL PROVISIONS.
(a) AMOUNT UNLIMITED; ISSUABLE IN SERIES; DENOMINATIONS. The
aggregate principal amount of Notes which may be authenticated and delivered
under this Indenture is unlimited.
The Notes may be issued in one or more Series and the maximum
aggregate principal amount of Notes in each Series shall be determined at the
time of issuance. Pursuant to an Exchange permitted under Section 13.6, there
shall be established in one or more indentures supplemental hereto, prior to the
issuance of Notes of any Series (other than the Variable Funding Notes
established pursuant to Article 13):
(i) the title of the Notes of the Series (which shall
distinguish the Notes of the Series from Notes of any other Series) and the
designation of each Class, if any, within such Series;
(ii) any limit upon the aggregate principal amount of the Notes
of the Series which may be authenticated and delivered under this Indenture
(except for Notes authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Notes of the Series pursuant
to Sections 2.4, 2.5 or 9.5 and except for any Notes which, pursuant to
Section 2.2, are deemed
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never to have been authenticated and delivered hereunder);
(iii) the Person to whom any interest or principal on a Note of
the Series shall be payable, if other than the Person in whose name that
Note (or one or more Predecessor Notes) is registered at the close of
business on the Record Date for such interest;
(iv) the Payment Date or Dates on which the principal of any
Notes of the Series is payable and the amount of principal payable on such
date or dates;
(v) the rate or rates at which any Notes of the Series shall
bear interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable;
(vi) the designation of the Trust Accounts specific to such
Series;
(vii) the designation of Assets allocable to such Series and the
Cut-off Date or Dates applicable thereto;
(viii) any form of credit enhancement, including surety bonds,
letters of credit, derivative contracts, guarantees or cash reserve
accounts applicable to such Series;
(ix) the priority of payments to Noteholders of such Series and
to the Trustee, the Servicer, any providers of credit enhancement,
liquidity or hedging contracts, the Company and any other party with an
interest in the proceeds of the allocated Assets;
(x) the applicable Servicing Agreement and the Servicer
thereunder, if other than Epic;
(xi) the Trustee;
(xii) representations and warranties of the Company with respect
to the allocated Assets, as customarily required for such Series;
(xiii) the place or places where the principal of and any premium
and interest on any Notes of the Series shall be payable;
(xiv) if other than denominations of $100,000 and any integral
multiple of $1,000 in excess thereof, the denominations in which any Notes
of the Series shall be issuable;
(xv) the forms of the Notes of such Series;
(xvi) if applicable, that any Notes of the Series shall be
issuable in whole or in part in the form of one or more Global Notes and,
in such case, the
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respective Depositaries for such Global Notes, the form of any legend or
legends which shall be borne by any such Global Security and any
circumstances in which any such Global Security may be exchanged in whole
or in part for Notes registered, and any transfer of such Global Security
in whole or in part may be registered, in the name or names of Persons
other than the Depositary for such Global Security or a nominee thereof;
(xvii) any addition to or change in the Events of Default which
applies to any Notes of the Series and any change in the right of the
Trustee or the requisite Holders of such Notes to declare the principal
amount thereof due and payable pursuant to Section 6.2 or to liquidate all
or a portion of the Trust Estate (in each case, only to the extent
customarily required for such a Series);
(xviii) any addition to or change in the covenants which
applies to Notes of the Series (in each case, only to the extent
customarily required for such a Series); and
(xix) any other terms of the Series (which terms shall not be
inconsistent with the provisions of this Indenture, except as permitted by
Section 9.2).
(b) DENOMINATIONS. The Notes of each Series shall be issuable only
in registered form without coupons and only in such denominations as shall be
specified as contemplated by Section 2.1(a).
(c) PRINCIPAL PAYMENTS; CLEAN-UP CALL. For each Payment Date,
payments of principal (the "Principal Payments") on the Notes will be made in
accordance with Sections 3.4 or 6.6, as applicable. Except as otherwise
provided in Section 6.2, no part of the principal of any Note shall be paid
prior to the Payment Date on which such principal is due in accordance with the
preceding provisions of this Section 2.1(b), except that, upon the
Administrator's direction, the Company may redeem the Notes of any Series in
their entirety, without premium, as of any Payment Date on which the sum of the
Outstanding Principal Amount of the Notes of such Series is less than or equal
to ten percent (10%) of the initial Outstanding Principal Amount of the Notes of
such Series (after giving effect to all Principal Payments on such Payment
Date). The Administrator will give notice of any such redemption to each
Noteholder and the Trustee at least 30 days before the Payment Date fixed for
such prepayment by certified mail return receipt requested, hand delivery or
overnight courier. Notice of such prepayment having been so given, the
remaining unpaid principal as of the Payment Date fixed for prepayment together
with all interest accrued and unpaid to such Payment Date, shall become due and
payable on such Payment Date.
(d) INTEREST PAYMENTS. For each Payment Date, the interest due and
payable (the "Interest Payments") with respect to any Series of Notes will be
the interest that has accrued on the Notes during the previous Due Period, plus
unpaid interest from prior Due Periods, at the designated interest rates.
Interest Payments will be made in accordance with Sections 3.4 and 6.6, as
applicable. Interest will be
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calculated as designated with respect to a Series.
SECTION 2.2. EXECUTION, AUTHENTICATION, DELIVERY, AND DATING.
(a) The Notes shall be manually executed on behalf of the Company by
its Chairman, President or Vice Chairman.
(b) Any Note bearing the signature of an individual who was at the
time of execution thereof a proper officer of the Company shall bind the
Company, notwithstanding that such individual ceases to hold such office prior
to the authentication and delivery of such Note or did not hold such office at
the date of such Note.
(c) No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Each Note shall be dated the date
of its authentication.
(d) The Notes may from time to time be executed by the Company and
delivered to the Trustee for authentication together with a Company Order to the
Trustee directing the authentication and delivery of such Notes and thereupon
the same shall be authenticated and delivered by the Trustee in accordance with
such Company Order.
SECTION 2.3. TRANSFER AND EXCHANGE.
(a) The Company shall cause to be kept at the Corporate Trust Office
a register (the "Note Register") in which, subject to such reasonable
regulations as the Trustee may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided.
No transfer of any Note may be made unless that transfer is made
pursuant to an effective registration statement under the Securities Act and an
effective registration or a qualification under applicable state securities
laws, or is made in a transaction that does not require such registration or
qualification because the transfer satisfies one of the following: (i) such
transfer is in compliance with Rule 144A under the Securities Act, to a person
who the transferor reasonably believes is a Qualified Institutional Buyer (as
defined in Rule 144A) that is purchasing for its own account or for the account
of a Qualified Institutional Buyer and to whom notice is given that such
transfer is being made in reliance upon Rule 144A under the Securities Act as
certified by such transferee in a letter in the form of Exhibit D hereto; (ii)
after the appropriate holding period, such transfer is pursuant to an exemption
from registration under the Securities Act provided by Rule 144 under the
Securities Act; (iii) such transfer is to a transferee who is an accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable
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securities laws of any State of the United States or (iv) such transfer is
otherwise exempt from the registration requirements of the Securities Act.
The Trustee will require, in order to assure compliance with such laws, that
the Noteholder's prospective transferee referred to in the preceding clauses
(iii) or (iv) deliver an investment letter certifying to the Company and the
Trustee as to the facts surrounding such transfer in the form of Exhibit E
hereto. Except in the case of a transfer of Notes to a transferee referred
to in the preceding clause (i) or, in general, a transfer that is to be made
after two years from the Issuance Date, the Trustee shall require an opinion
of counsel satisfactory to it to the effect that such transfer may be made
pursuant to an exemption from the Securities Act without such registration
(which opinion of counsel shall not be an expense of the Trustee, the
Administrator or the Company). None of the Company, the Administrator or the
Trustee is obligated to register or qualify the Notes under the Securities
Act or any other securities law or to take any action not otherwise required
under this Indenture to permit the transfer of any Note without registration.
Neither the Trustee nor the Note Registrar shall effect the
registration of transfer of any Note, if after giving effect to such transfer,
the Notes of such Series would be held by more than ninety-eight Noteholders.
(b) Subject to Section 2.3(a), upon surrender for registration of
transfer of any Note at the office of the Company designated pursuant to Section
8.2 for such purpose, the Company shall execute and the Trustee upon request
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denominations and of a like
aggregate original principal amount.
(c) Every Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the holder thereof
or his attorney duly authorized in writing.
(d) No service charge shall be made for any registration of transfer
or exchange of Notes, but the Company or the Trustee may require payment by the
transferor of a sum sufficient to cover any Tax or other governmental charge
that may be imposed in connection with any registration of transfer or exchange
of Notes, other than exchanges pursuant to Section 9.5 not involving any
transfer.
(e) The Administrator agrees to cause the Company, and the Company
agrees, to provide such information as required under Rule 144A under the
Securities Act so as to allow resales of Notes to Qualified Institutional Buyers
in accordance herewith.
SECTION 2.4. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
(a) If any mutilated Note is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefore a
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replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(b) If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless then, in the absence of actual notice
to the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(c) In case the final installment of principal on any such mutilated,
destroyed, lost or stolen Note has become or will at the next Payment Date
become due and payable, the Company in its discretion may, instead of issuing a
replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this Section 2.4,
the Company or the Trustee may require the payment by the Noteholder of a sum
sufficient to cover any Tax or other governmental charge that may be imposed as
a result of the issuance of such replacement Note.
(e) Every replacement Note issued pursuant to this Section 2.4 in
lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.
(f) The provisions of this Section 2.4 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5. PAYMENT OF INTEREST AND PRINCIPAL; RIGHTS PRESERVED.
(a) Any installment of interest or principal, payable on any Note
that is punctually paid or duly provided for by or on behalf of the Company on
the applicable Payment Date shall be paid to the Person in whose name such Note
was registered at the close of business on the Record Date for such Payment Date
by check mailed to the address specified in the Note Register, or upon the
request of a Holder of more than $1,000,000 original principal amount of Notes,
by wire transfer of federal funds to the account and number specified in the
Note Register, in each case on such Record Date for such Person (which shall be,
as to each original purchaser of the Notes, the account and number specified by
such purchaser to the Trustee in writing, or, if no such account or number is so
specified, then by check mailed to such Person's address as it appears in the
Note Register on such Record Date).
(b) All reductions in the principal amount of a Note effected by
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payments of installments of principal made on any Payment Date shall be binding
upon all Holders of such Note and of any Note issued upon the registration of
transfer thereof or in exchange therefore or in lieu thereof, whether or not
such payment is noted on such Note. All payments on the Notes shall be paid
without any requirement of presentment but each Holder of any Note shall be
deemed to agree, by its acceptance of the same, to surrender such Note at the
Corporate Trust Office against payment of the final installment of principal of
such Note.
SECTION 2.6. PERSONS DEEMED OWNERS.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee, and any agent of the Company or the Trustee may treat the
registered Noteholder as the owner of such Note for the purpose of receiving
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee, nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.7. CANCELLATION.
All Notes surrendered for registration of transfer or exchange or
following final payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly canceled by it. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Notes held by the Trustee may be
disposed of in the normal course of its business or as directed by a Company
Order.
SECTION 2.8. NOTEHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. In the event the Trustee no longer serves as the Note Registrar,
the Company (or any other obligor upon the Notes) shall furnish to the Trustee
at least 5 Business Days before each Interest Payment Date (and in all events in
intervals of not more than 6 months) and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
SECTION 2.9. TREASURY NOTES.
In determining whether the Noteholders of the required Outstanding
Principal Amount of the Notes have concurred in any direction, waiver or
consent, Notes held or redeemed by the Company or any other obligor upon the
Notes or held by an Affiliate of the Company or such other obligor shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be
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protected in relying on any such direction, waiver or consent, only Notes
which a Responsible Officer of the Trustee knows are so owned shall be so
disregarded.
ARTICLE 3.
ACCOUNTS; COLLECTION AND
APPLICATION OF MONEYS; REPORTS
SECTION 3.1. TRUST ACCOUNTS; INVESTMENTS BY TRUSTEE.
(a) On or before the Issuance Date for any Series, the Trustee shall
establish in the name of the Trustee for the benefit of the Noteholders of such
Series and the Company to the extent of their interests therein as provided in
this Indenture and in the Servicing Agreement, the Trust Accounts designated for
such Series, which accounts shall be Eligible Bank Accounts maintained at the
Corporate Trust Office.
Subject to the further provisions of this Section 3.1(a), the
Trustee shall, upon receipt or upon transfer from another account, as the case
may be, deposit into such accounts all amounts received by it which are required
to be deposited therein in accordance with the provisions of this Indenture.
All such amounts and all investments made with such amounts, including all
income and other gain from such investments, shall be held by the Trustee in
such accounts as part of the Trust Estate as herein provided, subject to
withdrawal by the Trustee in accordance with, and for the purposes specified in
the provisions of, this Indenture.
(b) The Trustee shall hold in trust but shall not be required to
deposit in any account specified pursuant to Section 3.1(a) any payment received
by it until such time as the Trustee shall have identified to its reasonable
satisfaction the nature of such payment and, on the basis thereof, the proper
account or accounts into which such payment is to be deposited. In determining
into which of the accounts, if any, referred to above any amount received by the
Trustee is to be deposited, the Trustee may conclusively rely (in the absence of
bad faith on the part of the Trustee) on the advice of the Administrator.
Unless the Trustee is advised differently in writing by the Administrator, the
Trustee shall assume that any amount remitted to it is to be deposited into the
designated Collection Account pursuant to Section 3.3. The Trustee may
establish from time to time such deadline or deadlines as it shall determine are
reasonable or necessary in the administration of the Trust Estate after which
all amounts received or collected by the Trustee on any day shall not be deemed
to have been received or collected until the next succeeding Business Day.
(c) None of the Administrator, the Trustee nor the institution then
acting as Trustee shall have any right of set-off with respect to any Trust
Account, or any investment therein.
(d) So long as no Event of Default shall have occurred and be
continuing, all or a portion of the amounts in any Trust Account shall be
invested and reinvested by the Trustee pursuant to an Administrator Order in one
or more Eligible
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Investments. Subject to the restrictions on the maturity of investments set
forth in Section 3.1(f), each such Administrator Order may authorize the
Trustee to make the specific Eligible Investments set forth therein, to make
Eligible Investments from time to time consistent with the general
instructions set forth therein, or to make specific Eligible Investments
pursuant to instructions received in writing or by telegraph or facsimile
transmission from the employees or agents of the Administrator, as the case
may be, identified therein, in each case in such amounts as such
Administrator Order shall specify.
(e) In the event that either (i) the Administrator shall have failed
to give investment directions to the Trustee by 9:30 A.M., New York City time on
any Business Day on which there may be uninvested cash or (ii) an Event of
Default shall be continuing, the Trustee shall promptly invest and reinvest the
funds then in the designated Trust Account to the fullest extent practicable in
one or more Eligible Investments, in accordance with Section 3.2(d). All
investments made by the Trustee shall mature no later than the maturity date
therefore permitted by Section 3.1(f).
(f) No investment of any amount held in any Trust Account shall
mature later than the Deposit Date preceding the Payment Date which is scheduled
to occur immediately following the date of investment. All income or other
gains (net of losses) from the investment of moneys deposited in any Trust
Account shall be deposited by the Trustee in such account immediately upon
receipt.
(g) Any investment of any funds in any Trust Account and any sale of
any investment held in such accounts, shall be made under the following terms
and conditions:
(i) each such investment shall be made in the name of the
Trustee or in the name of a nominee of the Trustee, in each case in such
manner as shall be necessary to maintain the identity of such investments
as assets of the Trust Estate;
(ii) any certificate or other instrument evidencing such
investment shall be delivered directly to the Trustee or its agent and the
Trustee shall have sole possession of such instrument, and all income on
such investment; and
(iii) the proceeds of any sale of an investment shall be
remitted by the purchaser thereof directly to the Trustee for deposit in
the account in which such investment was held.
(h) If any amounts are needed for disbursement from any Trust Account
and sufficient uninvested funds are not collected and available therein to make
such disbursement, in the absence of an Administrator Order for the liquidation
of investments held therein in an amount sufficient to provide the required
funds, the Trustee shall select and cause to be sold or otherwise converted to
cash a sufficient amount of the investments in such accounts.
(i) The Trustee shall not in any way be held liable by reason of any
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insufficiency in any Trust Account resulting from losses on investments made in
accordance with the provisions of this Section 3.1 including, but not limited
to, losses resulting from the sale or depreciation in the market value of such
investments (but the institution serving as Trustee shall at all times remain
liable for its own debt obligations, if any, constituting part of such
investments). The Trustee shall not be liable for any investment made by it in
accordance with this Section 3.1 on the grounds that it could have made a more
favorable investment or a more favorable selection for sale of an investment.
The Trustee may trade with itself or an Affiliate in the purchase or sale of
Eligible Investments.
SECTION 3.2. ESTABLISHMENT AND ADMINISTRATION OF THE COLLECTION
ACCOUNTS. (a) The Trustee shall cause to be established and maintained a
Collection Account for each Series of Notes issued hereunder. Each Collection
Account shall be an Eligible Bank Account initially established at the office of
the Trustee, bearing a designation clearly indicating that the funds deposited
therein are held solely for the benefit of the Series. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in each Collection Account and in all proceeds thereof. Each Collection Account
shall be under the sole dominion and control of the Trustee for the benefit of
the Noteholders as their interests appear in the designated Trust Estate. If,
at any time, the Collection Account ceases to be an Eligible Bank Account, the
Administrator and the Trustee shall within 5 Business Days establish a new
Collection Account which shall be an Eligible Bank Account, transfer any cash
and/or any investments to such new Collection Account and from the date such new
Collection Account is established, it shall be the "Collection Account".
(b) The Trustee agrees, pursuant to the related Servicing Agreement,
to cause the related Servicer to segregate and sweep funds related to the Loans
held by such Servicer and to remit such funds to the Trustee for deposit into
the appropriate Collection Account.
(c) Each of the Administrator and the Company shall immediately remit
directly to the related Servicer any Payments it may receive, with a written
notice to the Servicer of such remittance.
(d) The Administrator shall direct the Trustee in writing to invest,
and the Trustee shall so invest, the amounts in each Collection Account in
specified Eligible Investments that mature not later than the next succeeding
Deposit Date; PROVIDED, that any Eligible Investment as to which the Trustee is
the obligor in its individual capacity may mature not later than such Payment
Date. If the Trustee receives no such direction, such amounts shall be invested
in mutual funds maintained by the Trustee (or an Affiliate of the Trustee),
provided such mutual funds constitute Eligible Investments; and PROVIDED,
FURTHER, that such mutual funds maintain at all times a net asset value of $1
per share. The Trustee may trade with itself or an Affiliate in the purchase or
sale of Eligible Investments and may keep any 12b-1 fees paid to it. The
Trustee shall not be liable for any losses suffered on amounts invested
hereunder so long as such
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investments are Eligible Investments satisfying the timing requirements
specified in the first sentence of this Section 3.2(d).
(e) The Administrator shall instruct the Trustee in writing to make
withdrawals and payments from each Collection Account for the purposes of
carrying out the Administrator's and the Trustee's duties hereunder.
SECTION 3.3. ESTABLISHMENT AND ADMINISTRATION OF CASH COLLATERAL
ACCOUNTS. If so designated with respect to a Series, on or prior to each
Issuance Date, the Trustee shall cause to be established and maintained at all
times a Cash Collateral Account on behalf of and in the name of the Trustee for
the benefit of the Trust Estate allocated to such Series. Each Cash Collateral
Account shall be an Eligible Bank Account initially established at the offices
of the Trustee. If, at any time, the Cash Collateral Account ceases to be an
Eligible Bank Account, the Administrator on behalf of the Trustee shall within 5
Business Days establish a new Cash Collateral Account which shall be an Eligible
Bank Account, transfer any cash and/or any investments to such new Cash
Collateral Account and from the date such new Cash Collateral Account is
established, it shall be the "Cash Collateral Account" in the name of the
Trustee for the benefit of the Trust Estate. If applicable for such Series, on
the Issuance Date, the Company shall cause to be deposited an amount equal to
the amount specified for such Series into the Cash Collateral Account, which
amounts shall be allocated in the manner provided herein or in a Supplemental
Indenture.
(a) The Administrator shall deliver or cause to be delivered to the
Trustee no later than the Business Day following the date specified for each
Series a written notice (a "Cash Collateral Account Withdrawal Notice")
requesting the withdrawal and application of funds in each Cash Collateral
Account in accordance with the terms of the designated Series, and the Trustee
shall so withdraw and allocate such funds.
(b) Funds on deposit in the Cash Collateral Account shall be invested
in accordance with Section 3.1.
SECTION 3.4. DISTRIBUTIONS.
(a) Distributions from that portion of Assets allocated to such
Series will be made by the Trustee in accordance with the terms of such Series,
or with respect to the Variable Funding Notes, as set forth in Article 13
hereof.
(b) On the first Business Day following the Payment Date on which all
Noteholders of a given Series have been paid in full, all amounts held in the
applicable Trust Accounts, if any, shall be disbursed to the Company and all
interests of the Trust Estate in all Loans allocated to such Series which have
an outstanding balance shall be reconveyed without representation or warranty
and without recourse by the Trustee to the Company.
SECTION 3.5. REPORTS TO NOTEHOLDERS. On each Payment Date,
concurrently with the distribution or allocation to the Noteholders, the Trustee
shall furnish to the
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Noteholders a report (which the Administrator covenants to timely prepare and
deliver to the Trustee at least one Business Day prior to such Payment Date)
prepared by the Administrator substantially in the form designated for such
Series. Such report shall include a certification (i) that the information
contained in such report is accurate, (ii) that no Event of Administrator
Termination, or event that with notice or lapse of time or both would become
an Event of Administrator Termination, has occurred, or if an Event of
Administrator Termination or such event has occurred and is continuing,
specifying the Event of Administrator Termination or such event and its
status and (iii) that the representations and warranties of the Administrator
contained in the Servicing Agreement are true and correct as though made on
and as of the date of such certificate.
Notwithstanding any provision of this Indenture to the contrary, the
Trustee shall have no duty or obligation with respect to the information
provided to it, including, without limitation, to verify, monitor or otherwise
supervise or administer the performance of the Servicer or the Administrator.
SECTION 3.6. RETURNED PAYMENTS. If the principal amount of any Note
or any other amount payable under any Note (including interest) shall have been
reduced by any distribution or allocation of any portion of collections or other
Payments on Loans, and thereafter such distribution or allocation is rescinded
or must otherwise be returned by or on behalf of the recipient thereof to the
Company, the Trust Estate or any other creditor of the Company for any reason,
such principal or other amount distributed or allocated in respect of such Note
shall be increased by the amount of such distribution or allocation to the
extent so returned, all as though such distribution or allocation had not been
made.
ARTICLE 4.
THE TRUST ESTATE
SECTION 4.1. ACCEPTANCE BY TRUSTEE. (a) Pursuant to each Collateral
Assignment, the Trustee will acknowledge the conveyance of the Assets and other
assets constituting the Trust Estate conveyed by the Company pursuant to such
Collateral Assignment and the Trustee will hold such Loans and all other assets
comprising the Trust Estate, to the extent allocated to a Series, in trust for
the benefit of the Noteholders of such Series subject to the terms and
provisions hereof. If so specified for a Series and pursuant to a Custody
Agreement designated for such Series, a Custodian may hold the related Loan
Documents on behalf of the Trustee.
(b) The Trustee shall perform its duties under this Section 4.1 and
hereunder on behalf of the Trust Estate and for the benefit of the Noteholders
in accordance with the terms of this Indenture and applicable law and, in each
case, taking into account its other obligations hereunder, but without regard
to:
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(i) any relationship that the Trustee or any Affiliate of the
Trustee may have with the related Obligor;
(ii) the ownership of any Note by the Trustee or any Affiliate
of the Trustee;
(iii) the Trustee's right to receive compensation for its
services hereunder or with respect to any particular transaction; or
(iv) the ownership, or holding in trust for others, by the
Trustee of any other loans or property.
SECTION 4.2. SUBSEQUENT TRANSFERS. (a) On each Assignment Date the
Company shall request that the Trust Estate acquire and the Trust Estate shall
so acquire Loans (each, a "Transfer") from the Company on the terms and subject
to the conditions of this Indenture; provided, however, that the conditions
specified in Section 4.3 shall have been satisfied; and PROVIDED, further, that
the Administrator may cause the Company to contribute (i), if applicable, Loans
that satisfy Section 11.2(a) to the Trust Estate as allocated to a Series on any
Payment Date and (ii) funds for deposit in a Cash Collateral Account, if any, at
any time.
(b) On any Business Day which is an Assignment Date after the
Issuance Date for a Series, the Company shall give the Administrator, the
Trustee and the Servicer written notice of each Transfer (in each case, a
"Transfer Notice") specifying the Outstanding Principal Balance of each Loan
transferred thereby to the Trust Estate on such Assignment Date. The
Administrator shall independently confirm and hereby represents and warrants as
to, and the Trustee may, without any duty to make any independent investigation
with respect thereto, rely on, the facts set forth in such Transfer Notice.
(c) On each Assignment Date following its delivery of a Transfer
Notice, the Company will complete, execute and deliver a Collateral Assignment
to the Administrator and the Trustee. The Administrator and the Trustee, as
custodian for and on behalf of the Trust Estate, shall thereupon execute such
Collateral Assignment and deliver executed copies thereof to each other and to
the Company and the Noteholders.
(d) Following delivery of a duly executed Collateral Assignment,
subject to the satisfaction of the conditions set forth in Sections 4.2(a) and
4.3, all Loans specified in such Collateral Assignment (including all Payments
allocable to principal and interest received after the related Cut-off Date)
will be assigned to the Trustee on behalf of the Trust Estate and such Loans
shall become Assets and part of the Trust Estate, as allocated to a particular
Series.
SECTION 4.3. CONDITIONS PRECEDENT TO ALL TRANSFERS.
Each Transfer shall be subject to the conditions precedent that:
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(a) On the related Assignment Date (including the initial Transfer on
the date hereof), the Company (with respect to itself and the Loans) and the
Administrator shall have certified and are deemed to have represented and
warranted hereunder and shall so represent and warrant in the related Collateral
Assignment that:
(i) the representations and warranties (A) of the Company and
Epic set forth in Sections 11.1 and 11.2 hereof and (B) of the
Administrator set forth in the applicable Servicing Agreement, are true and
correct on and as of such date, before and after giving effect to such
Transfer, as though made on and as of such date;
(ii) no event has occurred, or would result from such Transfer
or from the application of the proceeds therefrom, which constitutes an
Event of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse or both;
(iii) each of the Company and Epic is in material compliance
with each of its covenants set forth herein and in all Related Documents;
and
(iv) no event has occurred which constitutes an Event of
Servicing Termination or would constitute an Event of Servicing Termination
but for the requirement that notice be given or time elapse or both.
(b) The Company shall have delivered to the Trustee (and the
Noteholders of the applicable Series) an executed copy of the related Collateral
Assignment and an Officer's Certificate stating and representing and warranting
(and hereby represents and warrants) that all conditions precedent to the
effectiveness thereof as specified herein shall have been satisfied;
(c) The Custodian shall have confirmed receipt of the Loan Documents
with respect to the Loans subject to such Transfer;
(d) No Responsible Officer of the Trustee has actual knowledge that
any conditions to such Transfer have not been fulfilled and no Noteholder shall
have notified the Trustee of the same, and the Trustee shall have received such
other documents, opinions, certificates and instruments as any Noteholder or the
Trustee may request; and
(e) A Custody Agreement and a Servicing Agreement shall be in full
force and effect for the related Loans.
SECTION 4.4. GRANT OF SECURITY INTEREST; TAX TREATMENT. (a) For
purposes of legal form and the Intended Tax Characterization, it is the
intention of the parties hereto that this Indenture and each related Collateral
Assignment shall constitute a security agreement under applicable law, and that
the Company has granted to the Trustee on behalf of the Trust Estate for the
benefit of the Noteholders, the Company and other creditors of the Trust Estate,
a first priority perfected security interest in all of the Company's right,
title and interest in, to and under the Assets and the other assets
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constituting the Trust Estate. The Trustee shall treat this Indenture and
the Trust Estate as a security device for tax purposes and shall not file tax
returns or obtain an employer identification number on behalf of the Trust
Estate; provided, however, that if any Class of Notes is recharacterized as
equity interests in the Trust Estate for tax purposes, the parties hereto
agree to treat such class as partnership interests in a partnership under the
New York Uniform Partnership Act in which the Company was a general partner
and each such recharacterized Noteholder was a limited partner. In the event
of such treatment, the Administrator shall file all necessary tax returns or
reports. The provisions of this Indenture shall be construed in furtherance
of the foregoing intended tax treatment. The conveyance by the Company of
the Assets to the Trustee on behalf of the Trust Estate on each Assignment
Date shall not constitute and are not intended to result in an assumption by
the Trustee or any Noteholder (other than the Company or any Affiliate of any
obligations at the Trust Estate or of the Company) of any obligation of the
Company or the Administrator to the obligors, the insurers under any
insurance policies, or any other Person in connection with the Assets.
(b) It is the intention of the parties hereto that, with respect to
all Taxes, the Notes will be treated as indebtedness of the Company to the
Noteholders secured by the Assets (the "Intended Tax Characterization"). The
Company, the Administrator and the Trustee, by entering into this Indenture, and
each Noteholder by the purchase of a Note, agree to report such transactions for
purposes of all Taxes in a manner consistent with the Intended Tax
Characterization.
(c) The Company and the Administrator shall take no action
inconsistent with the Trustee's interest in the Assets and shall indicate or
shall cause to be indicated in its books and records held on its behalf that
each Loan and the other assets constituting the Trust Estate has been assigned
to the Trustee on behalf of the Trust Estate and the Noteholders.
SECTION 4.5. FURTHER ACTION EVIDENCING ASSIGNMENTS. (a) The Company
and the Administrator each agrees that, from time to time, at its respective
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or appropriate, or
that the Administrator, the Servicer or the Trustee or Noteholders of a Series
with a Percentage greater than 50% may reasonably request, in order to perfect,
protect or more fully evidence the security interest in the Assets allocated to
such Series or to enable the Trustee to exercise or enforce any of its rights
hereunder, and under any Collateral Assignment. Without limiting the generality
of the foregoing, the Company will, without the necessity of a request and upon
the request of the Administrator or the Trustee, execute and file (or cause to
be executed and filed) such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate including, without limitation, recording and filing
UCC-1 financing statements, amendments or continuation statements with the
office of the Secretary of State of the States of Arizona, California, Florida,
Nevada, and South Carolina, and, if necessary, any counties in such States (and
other locations): (i) each
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Assignment Date, and (ii) prior to the effective date of any change of the
name, identity or structure or relocation of its chief executive office or
any change that would or could affect the perfection pursuant to any
financing statement or continuation statement or assignment previously filed
or make any UCC-1 or continuation statement previously filed pursuant to this
Indenture seriously misleading within the meaning of applicable provisions of
the UCC (and the Company shall give the Trustee at least 30 Business Days
prior notice of any circumstance in (ii) before the same occurs). The Company
shall deliver promptly to the Trustee file-stamped copies of any such filing.
(b) (i) The Company hereby grants to each of the Administrator, the
Servicer and the Trustee a power of attorney to execute all documents on behalf
of the Company as may be necessary or desirable to effectuate the foregoing and
(ii) Epic hereby grants to the Trustee a power of attorney to execute all
documents on behalf of Epic as may be necessary or desirable to effectuate the
foregoing; provided, however, that such grant shall not create a duty on the
Trustee to file, prepare, record or monitor or any responsibility for the
contents or adequacy of any such documents.
SECTION 4.6. SUBSTITUTION OF LOANS AND RELEASE OF LIENS. (a) From
time to time, the Company, subject to the requirements of the related Series,
may Grant Substitute Loans to the Trustee for inclusion in the portion of the
Trust Estate related to such Series and may contemporaneously request the
release of a Loan (i) for which the Company intends to effect a Liquidation,
(ii) for which there is a breach of any of the representations and warranties
set forth in Sections 11.1, 11.2 and as supplemented by a Series, (iii) for
which original Loan Documents required by the related Custody Agreement have not
been delivered to the Custodian which would adversely affect the Trustee's, the
Administrator's or the Servicer's ability to enforce the obligations of the
Obligor, (iv) for which filings or other actions required in Section 4.5 have
not been taken, (v) which has ceased to be an Eligible Loan, or (vi) for which
all amounts due in respect of such Loan have been paid in full.
(b) Upon delivery of (i) a Collateral Assignment for such Substitute
Loan, (ii) receipt and verification by the Custodian of the related Loan
Documents for such Substitute Loan in accordance with the related Custody
Agreement, and (iii) such other requirements specified for such Series, the
Trustee on behalf of the Trust Estate shall release the Loan requested to be
released and shall request that the Administrator prepare a Request for Release
which the Trustee will deliver to the Custodian to release the related Loan
Documents to the Company, and the Trustee shall assign without representation or
warranty and without recourse to the Company all of the Trust Estate's right,
title and interest in such Loan. Upon such substitution, such Loan will be
released from the lien of the Indenture. Such documents of assignment shall be
prepared in accordance with Section 4.2 hereof.
ARTICLE 5.
SERVICING OF ASSETS
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SECTION 5.1. APPOINTMENT OF SERVICER. For each Series hereunder,
there shall be designated a Servicing Agreement for the servicing,
administration and collection of the Loans and the Trustee shall enforce the
provisions thereof on behalf of the Noteholders. Unless otherwise specified for
a Series, each Servicing Agreement will provide that the Administrator will
perform collection functions for all Loans which are 30 days or more delinquent.
SECTION 5.2. APPOINTMENT OF ADMINISTRATOR; MONTHLY ADMINISTRATION
FEE. (a) Epic agrees to act as the Administrator under this Indenture and the
Noteholders by their acceptance of Notes consent to Epic acting as Administrator
subject to the terms and conditions hereof. The Administrator shall have no
right to voluntarily resign from its duties and obligations hereunder.
(b) The Administrator shall conduct the duties specified herein
(together, the "Administrator Duties") in accordance with (i) customary and
prudent business practices for the performance of similar activities,
all applicable laws, rules and regulations and contracts with respect to it, its
business and properties, (ii) to the extent consistent with the foregoing, in
the same manner in which, and the same care, skill, prudence and diligence with
which, it performs similar management and administrative services for its own
account or on behalf of other Persons giving due consideration to customary and
prudent business practices.
(c) As compensation for its services hereunder, subject to the terms
and conditions hereof and thereof, the Trustee shall remit, from funds provided
to it, to the Administrator such fees as may be designated from time to time in
respect of a particular Series.
SECTION 5.3. DUTIES AND RESPONSIBILITIES OF THE ADMINISTRATOR. (a)
In addition to the other duties specified in this Indenture and in the related
Servicing Agreement, the Administrator Duties shall, on behalf of the Trust
Estate, consist of:
(i) remarketing time-share properties;
(ii) collecting of Loans that are 30 days or more past due,
including the mailing of routine past due notices, preparing and mailing of
collection letters, contacting delinquent Obligors by telephone to encourage
payment, and the mailing of reminder notices to the delinquent Obligors;
(iii) arranging for and administering repossessions and
foreclosures of the Properties related to the Loans;
(iv) disposing of each Property related to a Loan whether
following repossession, foreclosure or otherwise;
(v) provided that no Event of Default has occurred and is
continuing with respect to the related Series, modifying the terms of Loans,
PROVIDED, HOWEVER, the
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Administrator shall not modify, waive or amend the terms of any Loan unless a
default on such Loan has occurred or is imminent or unless such modification,
amendment or waiver shall not (i) alter the interest rate on or the principal
balance of such Loan, (ii) alter the final maturity of, or any other terms
of, such Loan which would have a material adverse affect on Noteholders,
(iii) materially impair the Property underlying such Loan or (iv) reduce
materially the likelihood that payments of interest and principal on such
Loan shall be made when due; PROVIDED, FURTHER, the Administrator may grant
an extension of the final maturity of a Loan if the Administrator, in its
sole discretion, determines that (a) such Loan is in default or default on
such Loan is likely to occur in the foreseeable future, and (b) that the
value of the Loan will be enhanced by such extension; PROVIDED, FURTHER, that
the Administrator shall not (1) grant more than one extension per calendar
year with respect to a Loan or (2) grant an extension for more than one
calendar month with respect to a Loan;
(vi) working with Obligors in connection with any transfer of
ownership of a Property by an Obligor to another Person, whereby the
Administrator may consent to the assumption by such Person of the Loan related
to such Property; PROVIDED, HOWEVER, in connection with any such assumption, the
rate of interest borne by, the maturity date of, the principal amount of, the
timing of payments of principal and interest in respect of, and all other
material terms of, the related Loan shall not be changed; PROVIDED, FURTHER,
that the Administrator must have the written consent of the Noteholders of any
Series which would be affected by such assumption;
(vii) reporting tax information to Obligors as required by law;
and
(viii) delivering to the Trustee and to any Noteholder with a
Percentage of at least 50% in respect of a Series upon the request of such
Noteholder the Schedule of Loans allocated to such Series as amended from time
to time, on each Assignment Date.
(b) Other than in connection with its duties to effect liquidations
of Properties and its obligation to make repurchases of Loans hereunder, Epic
shall not sell, assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist any Adverse Claim upon or written respect to,
any Loan (or any right to receive income in respect thereof), or any Collection
Account.
SECTION 5.4. EVENT OF ADMINISTRATOR TERMINATION. With respect to
each Series and upon an Event of Administrator Termination (as defined for each
Series), the Administrator may be removed and replaced with a successor
Administrator by an Act of the Noteholders.
ARTICLE 6.
EVENTS OF DEFAULT; REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
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"Event of Default," wherever used herein with respect to Notes of any
Series, means any one of the following:
(a) (i) default in the making of Principal Payments or Interest
Payments in respect of any Note of that Series when such become due and payable,
and continuance of such default for ten Business Days; or (ii) failure to make
any deposit when due hereunder or under the applicable Servicing Agreement and
continuance of such default for one Business Day; or
(b) a non-monetary default in the performance, or breach, of any
covenant of the Company or the Administrator in this Indenture and applicable to
such Series (other than a covenant dealing with a default in the performance of
which or the breach of which is specifically dealt with elsewhere in this
Section 6.1) and continuance of such default or breach for a period of 30 days
after the earliest of (i) any officer of the Company or the Administrator first
acquiring knowledge thereof, (ii) the Trustee's giving written notice thereof to
the Company or (iii) the holders of a majority of the then Outstanding Principal
Amount of the Notes of such Series giving written notice thereof to the Company
and the Trustee; or
(c) if any representation or warranty of the Company or the
Administrator made in this Indenture and applicable to such Series shall prove
to be incorrect in any material respect as of the time when the same shall have
been made, and such breach is not remedied within 30 days after notice of breach
from the Trustee or the holders of a majority of Outstanding Principal Amount of
the Notes of such Series; or
(d) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or (ii) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator, or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(e) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization, or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization, or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law, or
the consent by it to the filing of such petition or to the
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appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or similar official of the Company or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the Company's failure to pay its debts generally
as they become due, or the taking of corporate action by the Company in
furtherance of any such action; or
(f) any other Event of Default provided with respect to Notes of that
Series and with respect to the Variable Funding Notes, as specified in Article
13 hereof.
SECTION 6.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
(a) If an Event of Default of the kind specified in Section 6.1(d) or
Section 6.1(e) occurs, the unpaid principal amount of the Notes of each Series
shall automatically become due and payable at par together with all accrued and
unpaid interest thereon, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company. If an Event of Default
(other than an Event of Default of the kind described in Section 6.1(d) or
Section 6.1(e)) with respect to Notes of any Series occurs and is continuing,
then and in every such case the Trustee shall, if so directed by the Holders of
Notes evidencing at least 66-2/3% of the then Outstanding Principal Amount of
the most senior Class of such Series (or if the Notes of such Class are no
longer Outstanding, the Holders of Notes evidencing at least 66-2/3% of the then
Outstanding Principal Amount of the next most senior Class, and so on), or the
Holders of at least 66-2/3% of the then Outstanding Principal Amount of Notes of
such Series may, declare the unpaid principal amount of all the Notes of such
Series to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Noteholders), and upon any such declaration such
principal amount shall become immediately due and payable together with all
accrued and unpaid interest thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company.
Interest on all amounts due and payable under this Section 6.2 shall accrue
interest at the rate specified for each Series.
(b) At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a like percentage of Notes of such Series by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all Principal Payments on any Notes of such Series
which have become due otherwise than by such declaration of
acceleration and interest thereon from the date when the same
first became due until the date of payment or deposit at the
appropriate Note Rate, plus two percent (2%) per annum,
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(B) all Interest Payments due with respect to any
Notes of such Series and, to the extent that payment of such
interest is lawful, interest upon overdue interest from the date
when the same first became due until the date of payment or
deposit at a rate per annum equal to the appropriate Note Rates,
and
(C) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements, and
advances of each of the Trustee, the Servicer and the
Administrator, its agents and counsel;
and
(ii) all Events of Default with respect to Notes of that
Series, other than the non-payment of the Outstanding Principal Amount of
the Notes of such Series which become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 6.3. REMEDIES.
(a) If an Event of Default with respect to Notes of any Series occurs
and is continuing of which a Responsible Officer of the Trustee has actual
knowledge, the Trustee shall immediately give notice to each Noteholder of such
Series as set forth in Section 7.2 and shall solicit such Noteholders for
advice. The Trustee shall then take such action as so directed by the Holders
of at least 66-2/3% of the Outstanding Principal Amount of the Notes of such
Series, subject to the provisions of this Indenture and as provided with respect
to each Series.
(b) Following any acceleration of the Notes of any Series, the
Trustee shall have all of the rights, powers and remedies with respect to the
Trust Estate allocated to such Series as are available to secured parties under
the UCC or other applicable law, subject to subsection (d) below. Such rights,
powers and remedies may be exercised by the Trustee in its own name as trustee
of an express trust.
(c) (i) If an Event of Default specified in Section 6.1(a) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid with respect to the affected Series of
Notes.
(ii) If an Event of Default occurs and is continuing, the
Trustee may in its discretion, and at the instruction of an aggregate
Percentage of greater than 50% of the Noteholders of each affected Series
shall, proceed to protect and enforce its rights and the rights of the
Noteholders of such Series by
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such appropriate judicial or other proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or
in aid of the exercise of any power granted herein, or to enforce any
other proper remedy. The Trustee shall notify the Company, the
Administrator, the Servicer, the Noteholders of such Series of any such
action.
(d) If (i) the Trustee shall have received instructions within 45
days from the date notice pursuant to Section 6.3(a) is first given from holders
of each Class of Notes of such Series evidencing more than 50% of the aggregate
unpaid principal amount of such Class of Notes, to the effect that such Persons
approve of or request the liquidation of the Assets allocated to such Series or
(ii) upon an Event of Default set forth in Section 6.1(d) or (e), the Trustee
shall to the extent lawful, promptly sell, dispose of or otherwise liquidate the
Assets allocated to such Series in a commercially reasonable manner and on
commercially reasonable terms, which shall include the solicitation of
competitive bids; provided, however, that, upon an Event of Default set forth in
Section 6.1(d) or (e), Holders of the Notes evidencing more than 50% of the
aggregate principal amount of each Class of Notes of such Series may notify the
Trustee that such liquidation shall not occur. The Trustee may obtain a prior
determination from any such conservator, receiver or liquidator of the Company
that the terms and manner of any proposed sale, disposition or liquidation are
commercially reasonable.
SECTION 6.4. TRUSTEE MAY FILE PROOFS OF CLAIM. (a) In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company, or any other obligor upon the Notes, or the
property of the Company, or such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes or any
amounts owing on the Loans or the other assets constituting the Trust
Estate and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and any predecessor
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee and any predecessor Trustee,
their agents and counsel) and of the Noteholders allowed in such judicial
proceeding;
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and
(iii) to participate as a member, voting or otherwise, of any
official committee of creditors appointed in such matter;
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and any custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Noteholder to make such payments to the Trustee and to pay to the Trustee
any amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee and any predecessor Trustee, their agents and counsel,
and any other amounts due the Trustee and any predecessor Trustee under Section
7.6.
(b) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Noteholder any
plan of reorganization, agreement, adjustment or composition affecting the Notes
or the rights of any Noteholder thereof or affecting the Loans or the other
assets constituting the Trust Estate or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such proceeding.
SECTION 6.5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture, the Notes, the Loans or
the other assets constituting the Trust Estate may be prosecuted and enforced by
the Trustee without the possession of any of the Notes or the production thereof
in any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provisions for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, be for the benefit of the
Noteholders in respect of which such judgment has been recovered, and pursuant
to the priorities contemplated by Section 3.4.
SECTION 6.6. APPLICATION OF MONEY COLLECTED. Any money collected by
the Trustee pursuant to this Article 6 shall be deposited in the applicable
Collection Account or Accounts for disbursement in accordance with the
provisions of Article 3.
SECTION 6.7. LIMITATION ON SUITS. No Noteholder of any Series shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture or for any other remedy hereunder, unless:
(a) there is a continuing Event of Default with respect to such
Series and such Noteholder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) such Noteholder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(c) the Trustee, for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute any such proceeding; and
(d) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Noteholders of at least
66-2/3% in
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aggregate principal amount of the Outstanding Notes of such Series;
it being understood and intended that no one or more of such Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Noteholders, or to obtain or to seek to obtain priority or preference over
any other Noteholders or to enforce any right under this Indenture, except in
the manner herein provided and for the ratable benefit of all such Noteholders.
It is further understood and intended that so long as any portion of the Notes
remains Outstanding, Epic shall not have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture (other than for the
enforcement of Section 3.4) or for the appointment of a receiver or trustee
(including without limitation a proceeding under the Bankruptcy Code), or for
any other remedy hereunder. Nothing in this Section 6.7 shall be construed as
limiting the rights of otherwise qualified Noteholders to petition a court for
the removal of a Trustee pursuant to Section 7.8 hereof.
SECTION 6.8. UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Notwithstanding any other provision in this Indenture, other than the
provisions hereof limiting the right to recover amounts due on the Notes to
recoveries from the property of the allocated Trust Estate, the Holder of any
Note shall have the absolute and unconditional right to receive payment of the
principal of and interest on such Note on the Maturities for such payments,
including the Stated Maturity, and such right shall not be impaired without the
consent of such Noteholder.
SECTION 6.9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Noteholders
continue as though no such proceeding had been instituted.
SECTION 6.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost, or stolen Notes in the last paragraph of
Section 2.4, no right or remedy herein conferred upon or reserved to the Trustee
or to the Noteholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other
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appropriate right or remedy.
SECTION 6.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 6.12. CONTROL BY NOTEHOLDERS.
Except as may otherwise be provided in this Indenture, until such time
as the conditions specified in Sections 10.1(a)(i) and (ii) have been satisfied
in full, the Holders of at least 66-2/3% of the then Outstanding Principal
Amount of the Notes of any Series shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, with respect
to the Notes of such Series. Notwithstanding the foregoing,
(i) no such direction shall be in conflict with any rule of
law or with this Indenture;
(ii) the Trustee shall not be required to follow any such
direction which the Trustee reasonably believes might result in any
personal liability on the part of the Trustee for which the Trustee is not
adequately indemnified; and
(iii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with any such direction; PROVIDED that
the Trustee shall give notice of any such action to each Noteholder of such
Series.
SECTION 6.13. WAIVER OF EVENTS OF DEFAULT.
(a) The Holders of at least 66-2/3% of the then Outstanding Principal
Amount of the Notes of any Series may, by one or more instruments in writing,
waive any Event of Default on behalf of all Noteholders of such Series hereunder
and its consequences, except a continuing Event of Default:
(i) in respect of the payment of the principal of or interest
on any Note (which may only be waived by the Holder of such Note), or
(ii) in respect of a covenant or provision hereof which under
Article 9 cannot be modified or amended without the consent of the Holder
of each Outstanding Note affected (which only may be waived by the Holders
of all Outstanding Notes affected).
(b) A copy of each waiver pursuant to Section 6.13(a) shall be
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furnished by the Company to the Trustee and each Noteholder. Upon any such
waiver, such Event of Default shall cease to exist and shall be deemed to have
been cured, for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Event of Default or impair any right consequent
thereon.
SECTION 6.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree (and each Holder of any Note by
its acceptance thereof shall be deemed to have agreed) that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% of the then Outstanding Principal Amount
of the Notes of any Series, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or interest on any Note on or
after the Maturities for such payments, including the Stated Maturity as
applicable.
SECTION 6.15. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted allocated to a Series of
Notes.
SECTION 6.16. SALE OF TRUST ESTATE.
(a) The power to effect any sale of any portion of the Trust Estate
allocated to a Series of Notes pursuant to Section 6.3 shall not be exhausted by
any one or more sales as to any portion of the Trust Estate remaining unsold,
but shall continue unimpaired until the entire Trust Estate so allocated shall
have been sold or all amounts payable on the Notes of such Series shall have
been paid. The Trustee may from time to time, upon directions in accordance
with Section 6.12, postpone any public sale by public announcement made at the
time and place of such sale.
(b) To the extent permitted by applicable law, the Trustee shall not
sell to a third party the Trust Estate, or any portion thereof except as
permitted under Section 6.3(d).
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(c) In connection with a sale of all or any portion of the Trust
Estate:
(i) any one or more Noteholders may bid for and purchase the
property offered for sale, and upon compliance with the terms of sale may
hold, retain, and possess and dispose of such property, without further
accountability, and any Noteholder may, in paying the purchase money
therefore, deliver in lieu of cash any Outstanding Notes or claims for
interest thereon for credit in the amount that shall, upon distribution of
the net proceeds of such sale, be payable thereon, and the Notes, in case
the amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Noteholders after being appropriately stamped to
show such partial payment;
(ii) the Trustee shall execute and deliver an appropriate
instrument of conveyance prepared by the Administrator transferring its
interest without representation or warranty and without recourse in any
portion of the Trust Estate in connection with a sale thereof;
(iii) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Company to transfer and convey its interest in any
portion of the Trust Estate in connection with a sale thereof, and to take
all action necessary to effect such sale;
(iv) no purchaser or transferee at such a sale shall be bound
to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys; and
(v) The method, manner, time, place and terms of any sale of
all or any portion of the Trust Estate shall be commercially reasonable.
ARTICLE 7.
THE TRUSTEE
SECTION 7.1. CERTAIN DUTIES. (a) The Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee (including, without limitation, the duties
referred to in each Servicing Agreement during the continuance of an Event of
Servicing Termination, or an Event of Administrator Termination resulting in the
appointment of the Trustee as Successor Servicer under any Servicing Agreement).
(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the
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Trustee, the Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Indenture, provided
however, the Trustee shall not be required to verify or recalculate the
contents thereof.
(c) If specified for a Series, in case an Event of Default, an Event
of Servicing Termination (resulting in the appointment of the Trustee as
Successor Servicer under any Servicing Agreement) or an Event of Administrator
Termination (resulting in the appointment of the Trustee as successor
Administrator under any Servicing Agreement) has occurred and is continuing with
respect to any Series, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs; PROVIDED, HOWEVER,
that no provision in this Indenture shall be construed to limit the obligations
of the Trustee to provide notices under Section 7.2.
(d) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Noteholders pursuant to this Indenture, unless such Noteholders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(e) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, EXCEPT that:
(i) this Section shall not be construed to limit the effect of
Section 7.1(a) and (b);
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it shall be proved that
the Trustee shall have been negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
written direction of the holders of the requisite principal amount of the
outstanding Notes, or in accordance with any written direction delivered to
it under Section 6.2(a), relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture.
(f) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 7.1.
(g) The Trustee makes no representations or warranties with respect
to the Assets or the validity or sufficiency of any assignment of the Loans to
the Company or to the Trust Estate.
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(h) Notwithstanding anything to the contrary herein, the Trustee is
not required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if it shall have reasonable grounds to believe
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
SECTION 7.2. NOTICE OF EVENTS OF DEFAULT. The Trustee shall promptly
(but in any event within 5 Business Days) notify the Administrator, the Servicer
and the Noteholders of any Series upon a Responsible Officer obtaining actual
knowledge of any event which constitutes an Event of Default, an Event of
Servicing Termination, or an Event of Administrator Termination or would
constitute an Event of Default, an Event of Servicing Termination, or an Event
of Administrator Termination but for the requirement that notice be given or
time elapse or both, in each case with respect to such Series; PROVIDED,
FURTHER, that this Section 7.2 shall not limit the obligations of the Trustee to
provide notices expressly required by this Indenture.
SECTION 7.3. CERTAIN MATTERS AFFECTING THE TRUSTEE. Subject to the
provisions of Section 7.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) Any request or direction of any Noteholders, the Administrator,
the Company, or the Servicer mentioned herein shall be in writing;
(c) Whenever in the performance of its duties hereunder the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate or Opinion of Counsel;
(d) The Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be deemed authorization in respect of
any action taken, suffered, or omitted by it hereunder in good faith and in
reliance thereon;
(e) Prior to the occurrence of an Event of Default, an Event of
Servicing Termination, or an Event of Administrator Termination, or after the
curing of all Events of Default, Events of Servicing Termination or Events of
Administrator Termination which may have occurred, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper document, unless
requested in writing so to do by Noteholders of any affected Series holding an
aggregate Percentage of more than 50%; PROVIDED, HOWEVER, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
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likely to be incurred by it in the making of such investigation is, in the
reasonable opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such cost, expense or liability as a condition to
so proceeding. The reasonable expense of every such examination shall be paid
by the Administrator or, if paid by the Trustee, shall be reimbursed by the
Administrator upon demand; and
(f) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian (which may be Affiliates of the Trustee) and the
Trustee shall not be liable for any acts or omissions of such agents, attorneys
or custodians appointed with due care by it hereunder.
SECTION 7.4. TRUSTEE NOT LIABLE FOR NOTES OR LOANS. (a) The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
any Related Document, the Notes (other than the authentication thereof) or of
any Loan. The Trustee shall not be accountable for the use or application by
the Company of funds paid to the Company in consideration of conveyance of the
Loans to the Trust Estate.
(b) Except if specified for a Series, if the Trustee acts as
Successor Servicer pursuant to the related Servicing Agreement, the Trustee
shall have no responsibility or liability for or with respect to: the
validity of any security interest in any Property; the existence or
validity of any Loan, the validity of the assignment of any Loan to the
Trust Estate or of any intervening assignment; the review of any Loan, any
Loan File or the Electronic Ledger (as defined in the Servicing Agreement),
the completeness of any Loan File, the receipt by the Custodian of any Loan
or Loan File (it being understood that the Trustee has not reviewed and
does not intend to review such matters); the performance or enforcement of
any Loan; the compliance by the Administrator, the Company or the Servicer
with any covenant or the breach by the Administrator or the Company of any
warranty or representation made hereunder or in any related document or the
accuracy of any such warranty or representation; the acts or omissions of
the Administrator, the Servicer or any Obligor; or any action of the
Administrator or the Servicer taken in the name of the Trustee.
SECTION 7.5. TRUSTEE MAY OWN NOTES. The Trustee in its individual or
any other capacity may become the owner or pledgee of Notes with the same rights
as it would have if it were not Trustee.
SECTION 7.6. THE ADMINISTRATOR TO PAY TRUSTEE'S FEES AND EXPENSES.
The Administrator agrees to reimburse the Trustee upon its request for all
agreed-upon third-party expenses, disbursements and advances incurred or made by
the Trustee in its capacity as such in accordance with any provision of this
Indenture (including the
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reasonable compensation and the expenses and disbursement of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith. The obligations of the
Administrator under this Section 7.6 shall survive the termination of this
Indenture and the resignation or removal of the Trustee. The compensation of
the Trustee shall not be limited by any law on compensation of a trustee of
an express trust.
SECTION 7.7. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. Other than the
initial Trustee, the Trustee hereunder shall at all times (a) be a corporation,
depository institution, or trust company organized and doing business under the
laws of the United States of America or any state thereof authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $250,000,000, (b) be subject to supervision or examination by
federal or state authority, (c) be capable of maintaining an Eligible Bank
Account and (d) have a long-term unsecured debt rating of not less than Baa2
from the Rating Agencies, and shall be acceptable to Noteholders of each Series
with a Percentage of more than 50%. If such institution publishes reports of
condition at least annually, pursuant to or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section 7.7,
the combined capital and surplus of such institution shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.7, the Trustee shall resign
immediately in the manner and with the effect specified in Section 7.8.
SECTION 7.8. RESIGNATION OR REMOVAL OF TRUSTEE. (a) The Trustee may
at any time resign and be discharged with respect to the Notes of one or more
Series by giving 90 days' written notice thereof to the Administrator, the
Servicer, the Company, the Noteholders of such Series. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Trustee not objected to by Noteholders of such Series with a Percentage of more
than 50% within 30 days after prior written notice, by written instrument, in
quintuplicate, one counterpart of which instrument shall be delivered to each of
the Company, the Servicer, the successor Trustee and the predecessor Trustee.
If no successor Trustee shall have been so appointed and have accepted
appointment within 90 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.7 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Administrator or Noteholders of each Series with a Percentage greater than 50%
may direct, and the Administrator shall follow such direction and remove the
Trustee. If it
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removes the Trustee under the authority of the immediately preceding
sentence, the Administrator shall promptly appoint a successor Trustee not
objected to by Noteholders of each Series with a Percentage of more than 50%,
within 30 days after prior written notice, by written instrument, in
quintuplicate, one counterpart of which instrument shall be delivered to each
of the Company, the Servicer, the Noteholders, the successor Trustee and the
predecessor Trustee.
(c) The Trustee may be removed by the Administrator at any time by
giving written notice thereof to the Trustee and each of the Holders of the
Notes then outstanding. Such removal by the Administrator will become effective
unless the Holders of at least 51% of the principal amount of the Notes of each
Series then outstanding deliver a written statement to the Administrator
opposing such removal within 30 days following receipt of such notice of removal
from the Administrator.
(d) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 7.8 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 7.9.
SECTION 7.9. SUCCESSOR TRUSTEE. (a) Any successor Trustee appointed
as provided in Section 7.8 shall execute, acknowledge and deliver to each of the
Administrator, the Company, the Servicer, the Noteholders and to its predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder with like effect as if originally named a Trustee. The
predecessor Trustee shall deliver or cause to be delivered to the successor
Trustee or its custodian any related documents and statements held by it or its
custodian hereunder; and the Administrator and the Company and the predecessor
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for the full and certain vesting and confirmation in
the successor Trustee of all such rights, powers, duties and obligations.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Notes of one or more (but not all) Series, the Company, the
retiring Trustee and each successor Trustee with respect to the Notes of one or
more Series shall execute and deliver an indenture supplemental hereto wherein
each successor Trustee shall accept such appointment and which (i) shall contain
such provisions as shall be necessary or desirable to transfer and confirm to,
and to vest in, each successor Trustee all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Notes of that or those Series to
which the appointment of such successor Trustee relates, (ii) if the retiring
Trustee is not retiring with respect to all Notes, shall contain such provisions
as shall be deemed necessary or desirable to confirm that all the rights,
powers, trusts and duties of the retiring Trustee with respect to the Notes of
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that or those Series as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (iii) shall add to or change
any of the provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the Trust Estate hereunder by more than one
Trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such Trustees co-trustees of the same allocated trust
and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustee; and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Notes of that or those
Series to which the appointment of such successor Trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Notes of that
or those Series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor trustee all such rights, powers and trusts referred to in the
preceding paragraph.
(c) No successor Trustee shall accept appointment as provided in this
Section 7.9 unless at the time of such acceptance such successor Trustee shall
be eligible under the provisions of Section 7.7.
(d) Upon acceptance of appointment by a successor Trustee as provided
in this Section 7.9, the Administrator shall mail notice of the succession of
such Trustee hereunder to each Noteholder of each affected Series at its address
as shown in the Note Register. If the Administrator fails to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Company and the Administrator.
SECTION 7.10. MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, PROVIDED such corporation shall be eligible
under the provisions of Section 7.7, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 7.11. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a) At
any time or times for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Trust Estate may at the time be located or
in which any action of the Trustee may be required to be performed or taken, the
Trustee, the Administrator,
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the Servicer or the Holders of at least 51% of the Outstanding Principal
Amount of the Notes of each affected Series, by an instrument in writing
signed by it or them, may appoint, at the reasonable expense of the Trust
Estate, one or more individuals or corporations to act as separate trustee or
separate trustees or co-trustee, acting jointly with the Trustee, of all or
any part of the Trust Estate, to the full extent that local law makes it
necessary for such separate trustee or separate trustees or co-trustee acting
jointly with the Trustee to act. Notwithstanding the appointment of any
separate or co-trustee, the Trustee shall remain obligated and liable for the
obligations of the Trustee under this Indenture.
(b) The Trustee and, at the request of the Trustee, the
Administrator shall execute, acknowledge and deliver all such instruments as
may be required by the legal requirements of any jurisdiction or by any such
separate trustee or separate trustees or co-trustee for the purpose of more
fully confirming such title, rights, or duties to such separate trustee or
separate trustees or co-trustee. Upon the acceptance in writing of such
appointment by any such separate trustee or separate trustees or co-trustee,
it, he, she or they shall be vested with such title to the Trust Estate or
any part thereof, and with such rights, powers, duties and obligations as
shall be specified in the instrument of appointment, and such rights, powers,
duties and obligations shall be conferred or imposed upon and exercised or
performed by the Trustee, or the Trustee and such separate trustee or
separate trustees or co-trustees jointly with the Trustee subject to all the
terms of this Indenture, except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations shall be exercised
and performed by such separate trustee or separate trustees or co-trustee, as
the case may be. Any separate trustee or separate trustees or co-trustee
may, at any time by an instrument in writing, constitute the Trustee its
attorney-in-fact and agent with full power and authority to do all acts and
things and to exercise all discretion on its behalf and in its name. In any
case any such separate trustee or co-trustee shall die, become incapable of
acting, resign or be removed, the title to the Trust Estate and all assets,
property, rights, power duties and obligations and duties of such separate
trustee or co-trustee shall, so far as permitted by law, vest in and be
exercised by the Trustee, without the appointment of a successor to such
separate trustee or co-trustee unless and until a successor is appointed.
(c) All provisions of this Indenture which are for the benefit of the
Trustee shall extend to and apply to each separate trustee or co-trustee
appointed pursuant to the foregoing provisions of this Section 7.11.
(d) Every additional trustee and separate trustee hereunder shall, to
the extent permitted by law, be appointed and act and the Trustee shall act,
subject to the following provisions and conditions: (i) all powers, duties and
obligations and rights conferred upon the Trustee in respect of the receipt,
custody, investment and payment of monies shall be exercised solely by the
Trustee; (ii) all other rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed and exercised or
performed by the Trustee and such additional trustee or trustees and
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separate trustee or trustees jointly except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be performed,
the Trustee shall be incompetent or unqualified to perform such act or acts,
in which event such rights, powers, duties and obligations (including the
holding of title to the Properties in any such jurisdiction) shall be
exercised and performed by such additional trustee or trustees or separate
trustee or trustees; (iii) no power hereby given to, or exercisable by, any
such additional trustee or separate trustee shall be exercised hereunder by
such trustee except jointly with, or with the consent of, the Trustee; and
(iv) no trustee hereunder shall be personally liable by reason of any act or
omission of any other trustee hereunder.
If at any time, the Trustee shall deem it no longer necessary or prudent in
order to conform to such law, the Trustee shall execute and deliver all
instruments and agreements necessary or proper to remove any additional trustee
or separate trustee.
(e) Any request, approval or consent in writing by the Trustee to any
additional trustee or separate trustee shall be sufficient warrant to such
additional trustee or separate trustee, as the case may be, to take such action
as may be so requested, approved or consented to.
(f) Notwithstanding any other provision of this Section 7.11, the
powers of any additional trustee or separate trustee shall not exceed those of
the Trustee hereunder.
SECTION 7.12. PAYING AGENT AND NOTE REGISTRAR RIGHTS. So long as the
Trustee is the Paying Agent and Note Registrar, the Paying Agent and Note
Registrar shall be entitled to the rights, benefits and immunities of the
Trustee as set forth in Article 7 to the same extent and as fully as though
named in place of the Trustee.
ARTICLE 8.
COVENANTS
SECTION 8.1. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will cause the due and punctual payment of the principal
of and interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 8.2. MAINTENANCE OF OFFICE OR AGENCY; CHIEF EXECUTIVE OFFICE.
(a) The Company will maintain at the Corporate Trust Office an office
or agency where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company hereby appoints the Trustee
as its agent to receive all such presentations, surrenders, notices and demands.
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(b) The Company will not change the location of its principal place
of business without giving the Trustee at least 30 Business Days' prior written
notice thereof.
SECTION 8.3. MONEY FOR PAYMENTS TO NOTEHOLDERS TO BE HELD IN TRUST.
(a) All payments of amounts due and payable with respect to any Notes
that are to be made from amounts withdrawn from the Trust Accounts pursuant to
Section 3.4 or Section 6.6 shall be made on behalf of the Company by the
Trustee, and no amounts so withdrawn from the applicable Collection Account for
payments of Notes shall be paid over to the Company under any circumstances
except as provided in this Section 8.3, in Section 3.4 or Section 6.6.
(b) In making payments hereunder, the Trustee will hold all sums held
by it for the payment of amounts due with respect to the Notes in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided.
(c) Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of or interest on any Notes,
deposit with a Paying Agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Noteholders
entitled to such principal or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will hold all sums held by it for the payment of the principal
of or interest on Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided.
(d) Except as required by applicable law, any money held by the
Trustee in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for three years after such amount has become due and payable
to the Noteholder shall be discharged from such trust and, subject to applicable
escheat laws, and so long as no Event of Default has occurred and is continuing,
paid to the Company upon request; otherwise, such amounts shall be redeposited
in the Collection Account as Available Funds, and such Noteholder shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof (but only to the extent of the amounts so paid to the Company),
and all liability of the Trustee with respect to such trust money shall
thereupon cease.
SECTION 8.4. CORPORATE EXISTENCE; MERGER; CONSOLIDATION, ETC.
(a) The Company will keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Delaware, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in
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which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes or any of the Loans.
(b) The Company shall at all times observe and comply in all material
respects with (i) all laws applicable to it, (ii) all requirements of law in the
declaration and payment of dividends on its capital stock, and (iii) all
requisite and appropriate corporate and other formalities (including without
limitation meetings of the Company's Board of Directors and, if required by law,
its charter or otherwise, meetings and votes of the shareholders of the Company
to authorize corporate action) in the management of its business and affairs and
the conduct of the transactions contemplated hereby.
(c) The Company shall not issue or register the transfer of any of
its common stock to any Person other than Epic or an Affiliate of Epic.
(d) The Company shall not (i) consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any other Person or (ii) commingle its assets with those of any
other Person.
SECTION 8.5. PROTECTION OF TRUST ESTATE; FURTHER ASSURANCES.
The Company will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable
to:
(i) Grant more effectively the Assets comprising all or any
portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry
out more effectively the purposes hereof;
(iii) publish notice of, or protect the validity of, any Grant
made or to be made by this Indenture and perfect the security interest
contemplated hereby in favor of the Trustee in each of the Loans and all
other property included in the Trust Estate; PROVIDED, that the Company
shall not be required to cause the recordation of the Trustee's name as
lienholder on the related title documents for the Properties so long as no
Event of Default has occurred and is continuing;
(iv) enforce or cause the Servicer or the Administrator to
enforce any of the Loans in accordance with the Servicing Standard,
PROVIDED, HOWEVER, the Company will not cause the Servicer or the
Administrator to obtain on behalf of the Trustee or the Noteholders of the
related Series, any Property or to take any actions with respect to any
property the result of which would adversely affect the interests of the
Trustee or such Noteholders (including, but not limited to actions which
would cause the Trustee or the related Noteholders to be considered a
holder of title, mortgagee-in-possession, or otherwise, or an "owner" or
"operator" of Property not in compliance with applicable
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environmental statutes);
(v) preserve and defend title to the Loans (including the
right to receive all payments due or to become due thereunder), the
interests in the Properties, or other property included in the Trust Estate
and preserve and defend the rights of the Trustee in the Trust Estate
(including the right to receive all payments due or to become due
thereunder) against the claims of all Persons and parties other than as
permitted hereunder; and
(vi) cause the Trustee to be added as an additional named
insured on each of the Insurance Policies.
The Company, upon the Company's failure to do so, hereby designates the Trustee
and the Servicer its agent and attorney-in-fact to execute any financing
statement or continuation statement required pursuant to this Section 8.5;
PROVIDED, HOWEVER, that such designation shall not be deemed to create a duty in
the Trustee to monitor the compliance of the Company with the foregoing
covenants, and PROVIDED, FURTHER, that the duty of the Trustee to execute any
instrument required pursuant to this Section 8.5 shall arise only if a
Responsible Officer of the Trustee has actual knowledge of any failure of the
Company to comply with the provisions of this Section 8.5.
SECTION 8.6. SERVICING AGREEMENT.
(a) If any Authorized Officer of the Administrator shall have
knowledge of the occurrence of a default under any Servicing Agreement, the
Administrator shall promptly notify the Trustee and the Noteholders of each
affected Series, and shall specify in such notice the action, if any, the
Administrator and the Company is taking in respect of such default. Unless
consented to by the Holders of at least 66-2/3% of the then Outstanding
Principal Amount of the Notes of each affected Series, the Company may not waive
any material default under or amend the Servicing Agreement in a manner
materially adverse to the Noteholders of such Series.
SECTION 8.7. ADDITIONAL COVENANTS.
(a) The Company will not:
(i) sell, transfer, exchange or otherwise dispose of any
portion of the Trust Estate except as expressly permitted by this
Indenture;
(ii) claim any credit on, or make any deduction from, the
principal of, or interest on, any of the Notes by reason of the payment of
any taxes levied or assessed upon any portion of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this Indenture
or any Grant hereby to be impaired, or permit the lien of this Indenture to
be amended, hypothecated, subordinated, terminated or discharged, or permit
any Person to be released from any covenants or obligations under this
Indenture, except as may be expressly permitted hereby, (B) permit any
lien, charge, security interest,
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mortgage or other encumbrance to be created on or to extend to or
otherwise arise upon or burden the Trust Estate or any part thereof or
any interest therein or the proceeds thereof other than the lien of this
Indenture, or (C) except as otherwise contemplated in this Indenture,
permit the lien of this Indenture not to constitute a valid first
priority security interest in the Trust Estate.
(b) NOTICE OF EVENT OF DEFAULT. Immediately upon becoming aware of
the existence of any condition or event which constitutes a Default or an Event
of Default, the Company shall deliver to the Trustee a written notice describing
its nature and period of existence and what action the Company is taking or
proposes to take with respect thereto.
(c) REPORT ON PROCEEDINGS. Promptly upon the Company's becoming
aware of (i) any proposed or pending investigation of it by any governmental
authority or agency; or (ii) any pending or proposed court or administrative
proceeding which involves or may involve the possibility of materially and
adversely affecting the properties, business, prospects, profits or condition
(financial or otherwise) of the Company, the Company shall deliver to the
Trustee a written notice specifying the nature of such investigation or
proceeding and what action the Company is taking or proposes to take with
respect thereto and evaluating its merits.
SECTION 8.8. TAXES.
Epic shall pay all Taxes of the Company when due and payable or levied
against the Company's assets, properties or income, including any property that
is part of the Trust Estate. Epic will not seek reimbursement from the Company
for any such Taxes except to the extent of funds of the Company which may,
consistent with this Indenture, be distributed to Epic.
ARTICLE 9.
SUPPLEMENTAL INDENTURES
SECTION 9.1. SUPPLEMENTAL INDENTURES.
(a) The Company, by a Company Order, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee, for any of the following purposes:
(i) without the consent of any Noteholder; (x) to correct or
amplify the description of any property at any time subject to the lien of
this Indenture, or to better assure, convey and confirm unto the Trustee
any property subject or required to be subjected to the lien of this
Indenture; PROVIDED such action pursuant to this clause (i) shall not
adversely affect the interests of the Noteholders of any Series in any
respect; or
(y) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes of one or
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more Series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 7.9; or
(z) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Indenture; provided that such
action pursuant to this clause (z) shall not adversely affect the
interests of the Holders of Notes of any Series; or
(ii) at the option of a Variable Funding Noteholder to
establish a Series permitted upon an exchange under Section 13.6.
(b) The Trustee shall promptly deliver, at least 5 Business Days
prior to the effectiveness thereof, to each Noteholder of an affected Series a
copy of any supplemental indenture entered into pursuant to this Section 9.1(a).
SECTION 9.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
(a) With the consent of the Holders of not less than 66-2/3% of the
then Outstanding Principal Amount of the Notes of each Series affected by such
supplemental indenture and by Act of said Noteholders delivered to the Company
and the Trustee, the Company, by a Company Order, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Noteholders of
such Series under this Indenture; PROVIDED, that no supplemental indenture
shall, without the consent of the Holder of each Outstanding Note affected
thereby,
(i) change the Stated Maturity of any Note or the Principal
Payments or Interest Payments due or to become due on any Payment Date with
respect to any Note, or change the priority of payment thereof as set forth
herein, or reduce the principal amount thereof or the Note Rate thereon, or
change the place of payment where, or the coin or currency in which, any
Note or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Maturity
thereof;
(ii) reduce the percentage of the Outstanding Principal Amount
of the Notes of any Series, the consent of whose Noteholders is required
for any such supplemental indenture, for any waiver of compliance with
provisions of this Indenture or Events of Default and their consequences,
provided for in this Indenture;
(iii) modify any of the provisions of this Section or Section
6.13 except to increase any percentage or fraction set forth therein or to
provide that certain other provisions of this Indenture cannot be modified
or waived without
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the consent of the Holder of each Outstanding Note affected thereby;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding"; or
(v) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as provided in the applicable Servicing Agreement,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Noteholder of the security afforded by the lien of
this Indenture;
PROVIDED, no such supplemental indenture may modify or change any terms
whatsoever of the Indenture that could be construed as increasing the Company's
or Epic's discretion hereunder.
(b) The Trustee shall promptly deliver to each Noteholder of an
affected Series a copy of any supplemental indenture entered into pursuant to
Section 9.2(a).
SECTION 9.3. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture (a) pursuant to Section 9.1 of this Indenture or (b)
pursuant to Section 9.2 of this Indenture without the consent of each holder of
the Notes to the execution of the same, or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 7.1) shall be, fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any supplemental indenture which affects the Trustee's
own rights, duties, obligations, or immunities under this Indenture or
otherwise.
SECTION 9.4. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 9.5. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes of any Series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. New Notes of any Series so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes of
such Series.
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ARTICLE 10.
SATISFACTION AND DISCHARGE
SECTION 10.1. SATISFACTION AND DISCHARGE OF INDENTURE.
(a) This Indenture shall cease to be of further effect (except as to
any surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(i) 100 days shall have elapsed since either:
(A) all Notes theretofore authenticated and delivered (other than
(1) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.4 and (2) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
8.3(c)) have been delivered to the Trustee for cancellation; or
(B) the final installments of principal on all such Notes not
theretofore delivered to the Trustee for cancellation:
(1) have become due and payable, or
(2) will become due and payable at their Stated Maturity, as
applicable, within one year,
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Notes
not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of
Notes which have become due and payable) or to the Stated Maturity
thereof;
(ii) the Company and the Administrator have paid or caused to
be paid all other sums payable hereunder by the Company and the
Administrator for the benefit of the Noteholders and the Trustee; and
(iii) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
At such time, the Trustee shall deliver to the Company all cash, securities and
other property held by it as part of the Trust Estate other than funds deposited
with the
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Trustee pursuant to Section 10.1(a)(i)(B), for the payment and discharge of
the Notes.
(b) Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 7.6 and, if money
shall have been deposited with the Trustee pursuant to Section 10.1(a)(i)(B),
the obligations of the Trustee under Section 10.2 and Section 8.3(c) shall
survive.
SECTION 10.2. APPLICATION OF TRUST MONEY.
Subject to the provisions of Section 8.3(c), all money deposited with
the Trustee pursuant to Sections 10.1 and 8.3 shall be held in trust and applied
by it, in accordance with the provisions of the Notes and this Indenture, to the
payment to the Persons entitled thereto, of the principal and interest for whose
payment such money has been deposited with the Trustee.
SECTION 10.3. TRUST TERMINATION DATE. Upon the full application of
(a) moneys deposited pursuant to this Article 10 or (b) proceeds of the Assets
pursuant to Sections 3.4 or 6.6, the Trust Estate created by this Indenture
shall be deemed to have terminated (the "Trust Termination Date").
ARTICLE 11.
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Trustee and the Noteholders, as of each
Issuance Date and on each day until the discharge of this Indenture, as follows:
(a) The Company is a wholly-owned bankruptcy remote subsidiary of
Epic Resorts, LLC and is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and is duly qualified to
do business, and is in good standing in each jurisdiction in which the nature of
its business requires it to be so qualified and which permits such
qualification;
(b) The Company has the power and authority to own and convey all of
its properties and to execute and deliver this Indenture and the Related
Documents and to perform the transactions contemplated hereby and thereby;
(c) The Company is operated in such a manner and is constituted so
that it would not be substantively consolidated in the bankruptcy trust estate
of any Affiliate, such that the separate existence of the Company and any
Affiliate would be disregarded, and to such end:
(i) the Company maintains separate records, books of account
and financial statements from those of Epic and each other Affiliate of
Epic;
(ii) the Company does not commingle any of its assets or funds
with those of Epic or any of the other Affiliates of Epic;
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(iii) the Company maintains a separate board of directors with
at least two independent directors and observes all separate corporate
formalities, and all decisions with respect to the Company's business and
daily operations have been and shall be independently made by the officers
of the Company pursuant to resolutions of its board of directors;
(iv) other than contributions of capital, payment of dividends
and return of capital, no transactions have been entered into between the
Company and Epic or between the Company and any of the other Affiliates of
Epic except such transactions as are contemplated by this Indenture and the
Related Documents;
(v) except for such administration and collection and
functions as Epic may perform on behalf of the Company and the Trust Estate
pursuant to this Indenture and the Related Documents, the Company acts
solely in its own name and through its own authorized officers and agents
and the Company does not act as agent of Epic or any other Person in any
capacity;
(vi) except for any funds received from Epic (or from Epic
indirectly by way of any of the other Affiliates of Epic) as a capital
contribution, the Company shall not accept for its own account funds from
Epic or any of the other Affiliates of Epic; and the Company shall not
allow Epic or any of the other Affiliates of Epic otherwise to supply funds
to, or guarantee any obligation of, the Company;
(vii) the Company shall not guarantee, or otherwise become
liable with respect to, any obligation of Epic or any of the other
Affiliates of Epic; and
(viii) the Company shall at all times hold itself out to the
public under the Company's own name as a legal entity separate and distinct
from Epic and the other Affiliates of Epic.
(d) The Company is a special purpose company and has not engaged, and
does not presently engage and shall not engage, in any activity other than the
activities undertaken pursuant to this Indenture and the Related Documents and
contemplated hereby and thereby and activities ancillary or incident thereto,
and has no Debt other than the Notes;
(e) The execution, delivery and performance by the Company of this
Indenture, the Related Documents and the transactions contemplated hereby and
thereby, (i) have been duly authorized by all necessary corporate or other
action on the part of the Company, (ii) do not contravene or cause the
Company to be in default under (A) the Company's certificate of incorporation
or bylaws, (B) any contractual restriction contained in any indenture, loan
or credit agreement, lease, mortgage, security agreement, bond, note, or
other agreement or instrument binding on or affecting the Company or its
property, or (C) any law, rule, regulation, order, writ, judgment, award,
injunction, or decree applicable to, binding on or affecting the
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Company or its property, and (iii) do not result in or require the creation
of any Adverse Claim upon or with respect to any of the property of the
Company;
(f) This Indenture and the Related Documents have each been duly
executed and delivered on behalf of the Company;
(g) No consent of, or other action by, and no notice to or filing
with, any Governmental Authority or any other party, is required for the due
execution, delivery and performance by the Company of this Indenture or any of
the Related Documents or for the perfection of or the exercise by the Trustee or
the Noteholders of any of their rights or remedies thereunder which have not
been duly obtained;
(h) This Indenture and each other Related Document is the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms; except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, receivership, moratorium or other
laws relating to or affecting the rights of creditors generally, and by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in law or in equity);
(i) There is no pending or threatened action, suit or proceeding, nor
any injunction, writ, restraining order or other order of any nature against or
affecting the Company, its officers or directors, or the property of the
Company, in any court or tribunal, or before any arbitrator of any kind or
before or by any Governmental Authority (i) asserting the invalidity of this
Indenture or any of the Related Documents, (ii) seeking to prevent the sale and
assignment of any Loan or the consummation of any of the transactions
contemplated thereby, (iii) seeking any determination or ruling that might
materially and adversely affect (A) the performance by the Company of this
Indenture or any of the Related Documents or the interests of the Noteholders,
(B) the validity or enforceability of this Indenture or any of the Related
Documents, (C) any Loan, or (D) the Intended Tax Characterization, or
(iv) asserting a claim for payment of money adverse to the Company or the
conduct of its business or which is inconsistent with the due consummation of
the transactions contemplated by this Indenture or any of the Related Documents;
(j) The principal place of business and chief executive office of the
Company are located at the address in Pennsylvania indicated in Section 12.5 and
there are now no, and there have not been any, other locations where the Company
is located (as that term is used in the UCC) or keeps Records except, after the
date of this Indenture, as disclosed in writing to the Trustee and the
Noteholders and the Administrator at least 30 Business Days prior to any such
change;
(k) The legal name of the Company is as set forth in the beginning of
this Indenture and the Company has not changed its name since its formation, and
during such period, the Company did not use, nor does the Company now use any
tradenames, fictitious names, assumed names or "doing business as" names;
(l) The Company does not have any Subsidiaries;
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(m) The Company is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Indenture and each of the
Related Documents; the Company's transfers of Assets to the Trust Estate have
been and will be made for reasonably equivalent value and fair consideration;
and the Company, after giving effect to the transactions contemplated by this
Indenture and each of the Related Documents, will have an adequate amount of
capital to conduct its business in the future; and
(n) The Company has complied in all material respects with all
applicable laws, rules, regulations, and orders with respect to it, its business
and properties and all of the Assets.
SECTION 11.2. REPRESENTATIONS AND WARRANTIES AS TO EACH LOAN. (a) In
connection with the establishment of each Series of Notes (other than the
Variable Funding Notes), each of the Company and Epic will make the
representations and warranties designated with respect to such Series. With
respect to the Variable Funding Notes, each of the Company and Epic will make
the representations and warranties in Section 2.3 of the Credit Agreement.
(b) The Company and the Administrator each hereby certifies that the
representations and warranties contemplated in this Section 11.2 shall survive
the transfer of the Loans to the Trust Estate.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.1. INDEMNITIES OF THE ADMINISTRATOR.
(a) The Administrator agrees to indemnify (i) the Trust Estate from,
and hold it harmless against, any and all losses, liabilities, damages, claims
or expenses (including reasonable attorneys' fees of counsel) arising as a
result of the Administrator's acts or omissions (subject to the administration
standard set forth in Section 5.2(b)) in violation of this Indenture and (ii)
the Trustee, any separate trustee or co-trustee, if any, their directors,
officers, employees and agents, from, and hold it harmless against, any and all
losses, liabilities, damages, claims, expenses (including attorney's fees and
disbursements), fines or penalties, or judgments arising out of or in connection
with the performance by the Trustee, separate trustee, if any, or co-trustee, if
any, of its duties hereunder or in connection with the Trust Estate, or the
issuance of the Notes except to the extent the Trustee's, separate trustee's or
co-trustee's own bad faith, willful misconduct or negligence has been judicially
determined to have contributed to the loss, liability, damage, claim or expense.
(b) This Section 12.1 shall survive the termination of this Indenture
or the resignation or removal of the Trustee in respect of rights accrued prior
to such resignation or removal.
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SECTION 12.2. OFFICER'S CERTIFICATE AND OPINION OF COUNSEL AS TO
CONDITIONS PRECEDENT.
Upon any request or application by the Company (or any other obligor
upon the Notes) to the Trustee to take any action under this Indenture, the
Company (or such other obligor) shall furnish to the Trustee:
(a) an Officer's Certificate (which shall include the statements set
forth in Section 12.3) stating that, in the opinion of the signer, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel (which shall include the statements set
forth in Section 12.3) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 12.3. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 12.4. NOTICES. (a) All communications, instructions,
directions and notices to the parties thereto shall be (i) in writing (which may
be by telecopy, followed by delivery of original documentation within one
Business Day), (ii) effective when received and (iii) delivered or mailed first
class mail, postage prepaid to it at the following address:
If to the Company:
Epic Master Funding Corporation
First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
Attention: Thomas F. Flatley
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Facsimile Number: (610) 992-1590
Telephone Number: (610) 992-0100
If to the Administrator:
Epic Resorts, LLC
First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
Attention: Thomas F. Flatley
Facsimile Number: (610) 992-1590
Telephone Number: (610) 992-0100
If to the Trustee:
Marine Midland Bank
Corporate Trust Department
140 Broadway, 12th Fl.
New York, New York 10005
Facsimile Number: (212) 658-6425
Telephone Number: (212) 658-2079
or at such other address as the party may designate by notice to the other
parties hereto, which shall be effective when received.
(b) All communications and notices pursuant hereto to a Noteholder
shall be in writing and delivered or mailed first class mail, postage prepaid or
overnight courier at the address shown in the Note Register. The Trustee agrees
to deliver or mail to each Noteholder upon receipt, all notices and reports that
the Trustee may receive hereunder and under any Servicing Agreement and Related
Documents. Unless otherwise provided herein, the Trustee may consent to any
requests received under such documents or, at its option, follow the directions
of Noteholders with a Percentage of greater than 50% within 30 days after prior
written notice to the Noteholders. All notices to Noteholders (or any Class
thereof) shall be sent simultaneously. Expenses for such communications and
notices shall be borne by the Administrator.
SECTION 12.5. NO PROCEEDINGS. The Noteholders, the Administrator and
the Trustee each hereby agrees that it will not, directly or indirectly
institute, or cause to be instituted, against the Company or the Trust Estate
any proceeding of the type referred to in Section 6.1(e) so long as there shall
not have elapsed one year plus one day since the last maturity of the Notes.
ARTICLE 13.
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VARIABLE FUNDING NOTES
SECTION 13.1. DESIGNATION.
(a) DESIGNATION OF FUNDING NOTES. There is hereby created a Series
of Notes to be issued pursuant to this Indenture designated as "Epic Master
Funding Corporation -- Variable Funding Notes" (the "Funding Notes"). Forms of
the Funding Notes and of the Trustee's certificate of authentication shall be as
set forth in Exhibit C hereto.
(b) PRINCIPAL AMOUNT OF FUNDING NOTES. The maximum aggregate
principal amount of Funding Notes which may be Outstanding at any time under
this Indenture is limited to $75,000,000.
(c) MINIMUM DENOMINATIONS. The Funding Notes may be issued in
minimum denominations of $500,000 and any integral multiple of $1,000 in excess
thereof; PROVIDED that the foregoing shall not restrict or prevent the transfer
in accordance with Section 2.3 of this Indenture of any Funding Notes having a
remaining Outstanding Principal Amount of other than an integral multiple of
$1,000, or the issuance of a single Funding Note with a denomination less than
$500,000.
(d) ISSUANCE DATE. The Issuance Date in respect of the Funding Notes
shall be the Initial Funding Date.
(e) PAYMENT DATES. The first Payment Date with respect to the
Funding Notes shall be October 10, 1998. Principal and interest payments will
be made on the dates set forth in the Credit Agreement.
(f) INTEREST. The Funding Notes shall be entitled to the Funding
Notes Interest on each Payment Date. Principal and interest shall be payable to
the Holder in whose name a Funding Note is registered on the related Record
Date. No later than the second Business Day of each month, the Initial Lender
will deliver to Epic, the Servicer, the Trustee and the Company, an invoice
reflecting the amount of Funding Notes Interest the Initial Lender is entitled
to for the related Payment Date.
(g) ASSETS. The Assets allocated to the Funding Notes are as set
forth in Schedule 1, as modified from time to time in accordance with this
Indenture.
(h) ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS FOR FUNDING
NOTES. The representations and warranties with respect to Epic, the Company and
the Specified Loans, additional covenants, and conditions precedent to Advances
set forth in Sections 2, 3, 4, 8, 9, and 10 of the Credit Agreement are
incorporated into this Indenture.
(i) ADDITIONAL EVENTS OF DEFAULT AND REMEDIES FOR FUNDING NOTES. The
Events of Default and Remedies therefor described in Sections 11(a) and 11(b) of
the Credit Agreement are incorporated into this Indenture.
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(j) SERVICER AND CUSTODIAN FOR LOAN DOCUMENTS. Finova Portfolio
Services, Inc. shall act as the Servicer of the Loans and as Custodian of the
Loan Documents.
(k) MAINTENANCE OF BORROWING BASE. Upon notice from a Funding
Noteholder or actual knowledge of a Borrowing Base Deficiency, the Company shall
no later than five Business Days after such notice or knowledge of such
Borrowing Base Deficiency, either prepay principal on the Funding Notes directly
to the Noteholders in whole or in part, or Grant additional Eligible Loans to
the Trustee for the benefit of the holders of the Funding Notes, such that after
giving effect to such prepayment or Grant, or both, a Borrowing Base Deficiency
will not exist.
(l) SUBSTITUTION OF LOANS AND RELEASE OF LIENS. In connection with
Section 4.6 of this Indenture, the Trustee will not release any Loans from the
lien of this Indenture if an Event of Default has occurred and is continuing
without the prior written consent of Holders of the Funding Notes. In addition,
the substitution of more than $200,000 of Loans in any calendar month shall
require the prior written consent of the Holders of the Funding Notes.
SECTION 13.2. CERTAIN DEFINITIONS. Capitalized terms used in this
Article 13 but not defined shall have the meanings set forth in "Variable
Funding Notes Definitions" attached as Appendix A hereto and to the Credit
Agreement.
SECTION 13.3. ESTABLISHMENT AND MAINTENANCE OF FUNDING NOTES
COLLECTION ACCOUNT. Concurrently with the execution and delivery hereof, the
Trustee shall establish the Epic Master Funding Corporation -- Collection
Account, Marine Midland Bank, as Trustee" (the "Funding Notes Collection
Account").
SECTION 13.4. REQUIRED DEPOSITS TO THE FUNDING NOTES COLLECTION
ACCOUNT. (a) The Company shall cause all amounts representing payments in
respect of Specified Loans (including, without limitation all late charges and
all proceeds of any Exchange) to be remitted to the Funding Notes Collection
Account.
(b) The Trustee acting on behalf of the Holders and the Company
each agree (i) that the Funding Notes Collection Account shall be maintained
in the name of the Trustee, (ii) that the Funding Notes Collection Account
shall be subject to the exclusive dominion of the Trustee, and (iii) that the
Trustee shall have the sole right of withdrawal from the Funding Notes
Collection Account. The Company, the Holders and Epic shall timely provide
(but in no event later than two Business Days prior to the related Payment
Date) written remittance information to the Trustee specifying payment
instructions (including with respect to the Funding Notes, the Funding Notes
Interest), with respect to amounts payable on each Payment Date pursuant to
each provision of Section 13.5. The Trustee shall have no liability to the
Company, any Holder or any other Person for failure to pay funds to any
Person in accordance with Section 13.5 in the absence of timely receipt of
such written remittance instructions or in the event of
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any errors in such written remittance instructions.
SECTION 13.5. APPLICATION OF FUNDS IN THE FUNDING NOTES COLLECTION
ACCOUNT.
(a) On each Payment Date prior to an Acceleration Event (as defined
below), an Exchange or a Securitization Take-out, the Trustee shall disburse the
Available Funds in the Funding Notes Collection Account, in the following
priority:
(i) on October 10, 1998, to the Trustee, the Trustee Fee, and
thereafter, reimbursement to the Trustee of reasonable expenses incurred
during the related Due Period;
(ii) to the Servicer, the Monthly Servicing Fee, plus any
accrued and unpaid Monthly Servicing Fees with respect to any prior Due
Period;
(iii) to the Funding Noteholders, interest in an amount equal to
Funding Notes Interest, plus any accrued and unpaid Funding Notes Interest
from prior Due Periods;
(iv) to the Funding Noteholders, in reduction of the
Outstanding Principal Amount of the Funding Notes, an amount equal to the
Funding Notes Principal Payment Amount;
(v) the remaining funds in the Funding Notes Collection
Account, if any, to the Company.
(b) On each Payment Date occurring upon or after the occurrence of an
Event of Default specified in this Indenture or the Credit Agreement upon which
the Outstanding Principal Amount of the Funding Notes has been accelerated in
accordance with Section 6.2 of this Indenture (each, an "Acceleration Event"),
the Trustee shall disburse the balance of Available Funds in the following
priority:
(i) to the Trustee, reimbursement of reasonable expenses
incurred by the Trustee during the related Due Period and any unreimbursed
reasonable expenses from prior Due Periods;
(ii) to the Servicer, the Monthly Servicing Fee, plus any
accrued and unpaid Monthly Servicer Fee;
(iii) to the Funding Noteholders, interest in an amount equal to
Funding Notes Interest, plus any accrued and unpaid Funding Notes Interest;
(iv) to the Funding Noteholders, all remaining Available Funds
until the Outstanding Principal Amount of the Funding Notes has been
reduced to zero; and
(v) the remainder of funds held in the Funding Notes
Collection
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Account to the Company;
SECTION 13.6. EXCHANGES FOR NEW SERIES.
(a) From time to time, on any Business Day as long as the Funding
Notes are outstanding, and upon 7 days' written notice to the Administrator and
the Trustee, the Initial Lender on behalf of the Noteholders, may elect to
exchange all or a portion of the unpaid Outstanding Principal Amount of the
Funding Notes for one or more new Series of Notes (the "Term Notes") to be
issued in accordance with Section 2.1(a) of this Indenture (each such election,
an "Exchange").
(b) The Company agrees to cause the creation of such Series of Term
Notes under this Indenture and to execute and order the authentication of the
Notes of such Series so long as the terms of such Series of Term Notes do not
materially impair the value under GAAP of the Company's interest in the
Specified Loans.
(c) The Initial Lender may designate the Specified Loans which will
collateralize each Series of Term Notes issued hereunder at the time of an
Exchange.
(d) The Noteholders may sell, pledge or retain some or all of the
Term Notes after such Exchange.
(e) Any payments on the Specified Loans designated as collateral for
a Series of Term Notes in excess of the aggregate principal amount of and
accrued interest on such Term Notes and any prior Funding Notes from which such
Term Notes were created will be for the Company's account.
(f) At the request of the Initial Lender, the Trustee shall release
the Trust Estate to a subsequent transferee (at the direction of the Initial
Lender), which shall issue securities secured by, or representing interests in,
the Trust Estate (as so transferred), on the terms contemplated herein for the
Term Notes. The Initial Lender and the Company shall be entitled to proceeds
from such subsequent issuance in accordance with this Section 13.6.
SECTION 13.7. RESIGNATION OR REMOVAL OF TRUSTEE. Notwithstanding
Section 7.8(a), the Trustee may at any time resign and be discharged with
respect to the Funding Notes by giving 30 days' written notice thereof to the
Administrator, the Company and the Initial Lender. Upon receiving such notice
of resignation, the Administrator shall promptly appoint a successor Trustee not
objected to by Initial Lender within 30 days after prior written notice, by
written instrument, in quintuplicate, one counterpart of which instrument shall
be delivered to each of the Company, the successor Trustee and the predecessor
Trustee.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust
Indenture to be duly executed as of the day and year first above written.
EPIC MASTER FUNDING CORPORATION,
as Company
By: /s/ T. F. Flatley
---------------------------------
Name:
Title:
EPIC RESORTS, LLC,
as Administrator and individually
By: /s/ T. F. Flatley
---------------------------------
Name:
Title:
MARINE MIDLAND BANK, not in its individual
capacity, but solely as Trustee
By: /s/ Susan Barstock
---------------------------------
Name: Susan Barstock
Title: Assistant Vice President
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION. . . . . . 3
SECTION 1.1. General Definitions . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.2. Compliance Certificates and Opinions. . . . . . . . . . . .16
SECTION 1.3. Form of Documents Delivered to Trustee. . . . . . . . . . .17
SECTION 1.4. Acts of Noteholders, etc. . . . . . . . . . . . . . . . . .18
SECTION 1.5. Notice to Noteholders; Waiver . . . . . . . . . . . . . . .19
SECTION 1.6. Effect of Headings and Table of Contents. . . . . . . . . .20
SECTION 1.7. Successors and Assigns. . . . . . . . . . . . . . . . . . .20
SECTION 1.8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 1.9. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . .21
SECTION 1.10. Execution in Counterparts. . . . . . . . . . . . . . . . .21
SECTION 1.11. Inspection . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 1.12. Survival of Representations and Warranties . . . . . . . .22
SECTION 1.13. Security Forms . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE 2. THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 2.1. General Provisions. . . . . . . . . . . . . . . . . . . . .22
SECTION 2.2. Execution, Authentication, Delivery, and Dating . . . . . .25
SECTION 2.3. Transfer and Exchange . . . . . . . . . . . . . . . . . . .26
SECTION 2.4. Mutilated, Destroyed, Lost and Stolen Notes . . . . . . . .27
SECTION 2.5. Payment of Interest and Principal; Rights Preserved . . . .28
SECTION 2.6. Persons Deemed Owners . . . . . . . . . . . . . . . . . . .29
SECTION 2.7. Cancellation. . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 2.8. Noteholder Lists. . . . . . . . . . . . . . . . . . . . . .29
SECTION 2.9. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . .29
ARTICLE 3. ACCOUNTS; COLLECTION AND APPLICATION OF MONEYS; REPORTS. . . . . .30
SECTION 3.1. Trust Accounts; Investments by Trustee. . . . . . . . . . .30
SECTION 3.2. Establishment and Administration of the Collection
Accounts. . . . . . . . . . . . . . . . . . . . . . . . .32
SECTION 3.3. Establishment and Administration of Cash Collateral
Accounts. . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 3.4. Distributions . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 3.5. Reports to Noteholders. . . . . . . . . . . . . . . . . . .34
SECTION 3.6. Returned Payments . . . . . . . . . . . . . . . . . . . . .35
ARTICLE 4. THE TRUST ESTATE . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 4.1. Acceptance by Trustee . . . . . . . . . . . . . . . . . . .35
SECTION 4.2. Subsequent Transfers. . . . . . . . . . . . . . . . . . . .35
<PAGE>
SECTION 4.3. Conditions Precedent to All Transfers . . . . . . . . . . .36
SECTION 4.4. Grant of Security Interest; Tax Treatment . . . . . . . . .37
SECTION 4.5. Further Action Evidencing Assignments . . . . . . . . . . .38
ARTICLE 5. SERVICING OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 5.1. Appointment of Servicer . . . . . . . . . . . . . . . . . .40
SECTION 5.2. Appointment of Administrator; Monthly Administration
Fee . . . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 5.3. Duties and Responsibilities of the Administrator. . . . . .41
ARTICLE 6. EVENTS OF DEFAULT; REMEDIES. . . . . . . . . . . . . . . . . . . .42
SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . .42
SECTION 6.2. Acceleration of Maturity; Rescission and Annulment. . . . .44
SECTION 6.3. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . .45
SECTION 6.4. Trustee May File Proofs of Claim. . . . . . . . . . . . . .46
SECTION 6.5. Trustee May Enforce Claims Without Possession of Notes. . .47
SECTION 6.6. Application of Money Collected. . . . . . . . . . . . . . .47
SECTION 6.7. Limitation on Suits . . . . . . . . . . . . . . . . . . . .48
SECTION 6.8. Unconditional Right of Noteholders to Receive Principal
and Interest. . . . . . . . . . . . . . . . . . . . . . .48
SECTION 6.9. Restoration of Rights and Remedies. . . . . . . . . . . . .49
SECTION 6.10. Rights and Remedies Cumulative . . . . . . . . . . . . . .49
SECTION 6.11. Delay or Omission Not Waiver . . . . . . . . . . . . . . .49
SECTION 6.12. Control by Noteholders . . . . . . . . . . . . . . . . . .49
SECTION 6.13. Waiver of Events of Default. . . . . . . . . . . . . . . .50
SECTION 6.14. Undertaking for Costs. . . . . . . . . . . . . . . . . . .50
SECTION 6.15. Waiver of Stay or Extension Laws . . . . . . . . . . . . .51
SECTION 6.16. Sale of Trust Estate . . . . . . . . . . . . . . . . . . .51
ARTICLE 7. THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 7.1. Certain Duties. . . . . . . . . . . . . . . . . . . . . . .52
SECTION 7.2. Notice of Events of Default . . . . . . . . . . . . . . . .54
SECTION 7.3. Certain Matters Affecting the Trustee . . . . . . . . . . .54
SECTION 7.4. Trustee Not Liable for Notes or Loans . . . . . . . . . . .55
SECTION 7.5. Trustee May Own Notes . . . . . . . . . . . . . . . . . . .56
SECTION 7.6. The Administrator to Pay Trustee's Fees and Expenses. . . .56
SECTION 7.7. Eligibility Requirements for Trustee. . . . . . . . . . . .56
SECTION 7.8. Resignation or Removal of Trustee . . . . . . . . . . . . .57
SECTION 7.9. Successor Trustee . . . . . . . . . . . . . . . . . . . . .58
SECTION 7.10. Merger or Consolidation of Trustee . . . . . . . . . . . .59
ARTICLE 8. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 8.1. Payment of Principal and Interest . . . . . . . . . . . . .62
SECTION 8.2. Maintenance of Office or Agency; Chief Executive Office . .62
SECTION 8.3. Money for Payments to Noteholders to be Held in Trust . . .62
<PAGE>
SECTION 8.4. Corporate Existence; Merger; Consolidation, etc . . . . . .63
SECTION 8.5. Protection of Trust Estate; Further Assurances. . . . . . .64
SECTION 8.6. Servicing Agreement . . . . . . . . . . . . . . . . . . . .65
SECTION 8.7. Additional Covenants. . . . . . . . . . . . . . . . . . . .65
SECTION 8.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .66
ARTICLE 9. SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . .66
SECTION 9.1. Supplemental Indentures . . . . . . . . . . . . . . . . . .66
SECTION 9.2. Supplemental Indentures with Consent of Noteholders . . . .67
SECTION 9.3. Execution of Supplemental Indentures. . . . . . . . . . . .68
SECTION 9.4. Effect of Supplemental Indentures . . . . . . . . . . . . .69
SECTION 9.5. Reference in Notes to Supplemental Indentures . . . . . . .69
ARTICLE 10. SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . . . . . .69
SECTION 10.1. Satisfaction and Discharge of Indenture. . . . . . . . . .69
SECTION 10.2. Application of Trust Money . . . . . . . . . . . . . . . .70
ARTICLE 11. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . .71
SECTION 11.1. Representations and Warranties of the Company. . . . . . .71
SECTION 11.2. Representations and Warranties as to Each Loan . . . . . .74
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 12.1. Indemnities of the Administrator . . . . . . . . . . . . .74
SECTION 12.2. Officer's Certificate and Opinion of Counsel as to
Conditions Precedent . . . . . . . . . . . . . . . . . .75
SECTION 12.3. Statements Required in Certificate or Opinion. . . . . . .75
SECTION 12.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .75
SECTION 12.5. No Proceedings . . . . . . . . . . . . . . . . . . . . . .77
ARTICLE 13. VARIABLE FUNDING NOTES. . . . . . . . . . . . . . . . . . . . . .77
SECTION 13.1. Designation. . . . . . . . . . . . . . . . . . . . . . . .77
SECTION 13.2. Certain Definitions. . . . . . . . . . . . . . . . . . . .78
SECTION 13.3. Establishment and Maintenance of Funding Notes
Collection Account . . . . . . . . . . . . . . . . . . .78
SECTION 13.4. Required Deposits to the Funding Notes Collection
Account. . . . . . . . . . . . . . . . . . . . . . . . .79
SECTION 13.5. Application of Funds in the Funding Notes Collection
Account. . . . . . . . . . . . . . . . . . . . . . . . .79
SECTION 13.6. Exchanges for New Series . . . . . . . . . . . . . . . . .80
SECTION 13.7. Resignation or Removal of Trustee. . . . . . . . . . . . .81
</TABLE>
SCHEDULE 1 - LIST OF ASSETS ALLOCATED TO EACH SERIES.
EXHIBITS
<PAGE>
EXHIBIT A - FORM OF COLLATERAL ASSIGNMENT
EXHIBIT B - FORM OF VARIABLE FUNDING NOTE
EXHIBIT C - FORM OF RULE 144A TRANSFEREE LETTER
EXHIBIT D - FORM OF INVESTOR LETTER
<PAGE>
Exhibit 10.17
CREDIT AGREEMENT
EPIC MASTER FUNDING CORPORATION
(as Borrower),
EPIC RESORTS, LLC
and
PRUDENTIAL SECURITIES CREDIT CORPORATION
(as Initial Lender)
Dated as of September 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Advances. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Borrowings; Closings. . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Borrowing Notices . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4. Amount of Advances. . . . . . . . . . . . . . . . . . . . . 3
Section 1.5. Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.7. Payment Instructions. . . . . . . . . . . . . . . . . . . . 4
SECTION 2. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 4
Section 2.1. General Representations and Warranties of the Borrower. . . 4
Section 2.2. General Representations and Warranties of Epic and the
Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3. Representations and Warranties with Respect to the
Specified Loans . . . . . . . . . . . . . . . . . . . . . .10
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE ON INITIAL
FUNDING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 3.1. Other Agreements. . . . . . . . . . . . . . . . . . . . . .19
Section 3.2. Opinion of Special Counsel. . . . . . . . . . . . . . . . .19
Section 3.3. Opinions of Local Counsel . . . . . . . . . . . . . . . . .19
Section 3.4. Opinion of Trustee's Counsel. . . . . . . . . . . . . . . .20
Section 3.5. Organizational and Other Documents. . . . . . . . . . . . .20
Section 3.6. Necessary Consents. . . . . . . . . . . . . . . . . . . . .20
Section 3.7. Representations True; No Event of Default . . . . . . . . .20
Section 3.8. ENGAGEMENT LETTER . . . . . . . . . . . . . . . . . . . . .20
Section 3.9. PERFECTION. . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES ON ANY FUNDING DATE . . .21
Section 4.1. Performance of Obligations. . . . . . . . . . . . . . . . .21
Section 4.2. Representations True; No Event of Default . . . . . . . . .21
Section 4.3. No Merger or Change in Control. . . . . . . . . . . . . . .21
Section 4.4. Searches. . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 4.5. Consents and Approvals. . . . . . . . . . . . . . . . . . .21
Section 4.6. Proceedings, Instruments, etc.. . . . . . . . . . . . . . .22
Section 4.7. Other Documents . . . . . . . . . . . . . . . . . . . . . .22
Section 4.8. Continuance of an Event of Default or Funding
Termination Event . . . . . . . . . . . . . . . . . . . . .22
Section 4.9. Validity of Funding Notes . . . . . . . . . . . . . . . . .22
Section 4.10. Trust Receipt . . . . . . . . . . . . . . . . . . . . . . .22
Section 4.11. Membership Loans. . . . . . . . . . . . . . . . . . . . . .22
SECTION 5. CERTAIN SPECIAL RIGHTS. . . . . . . . . . . . . . . . . . . . . . .22
Section 5.1. Home Office Payment . . . . . . . . . . . . . . . . . . . .22
Section 5.2. Certain Taxes . . . . . . . . . . . . . . . . . . . . . . .23
Section 5.3. Substitution of Initial Lender. . . . . . . . . . . . . . .23
SECTION 6. ADVANCE MATURITY; ADVANCE PREPAYMENTS . . . . . . . . . . . . . . .24
Section 6.1. Advance Maturity. . . . . . . . . . . . . . . . . . . . . .24
Section 6.2. Mandatory Prepayments . . . . . . . . . . . . . . . . . . .24
Section 6.3. Voluntary Prepayments . . . . . . . . . . . . . . . . . . .25
SECTION 7. ASSIGNMENTS AND PARTICIPATIONS . . . . . . . . . . . . . . . . . . .25
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Section 7.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . .25
Section 7.2. Participations. . . . . . . . . . . . . . . . . . . . . . .26
SECTION 8. CERTAIN COVENANTS OF THE BORROWER . . . . . . . . . . . . . . . . .26
SECTION 9. CERTAIN COVENANTS OF EPIC . . . . . . . . . . . . . . . . . . . . .31
Section 9.1. Existence . . . . . . . . . . . . . . . . . . . . . . . . .31
Section 9.2. Compliance with Law, etc. . . . . . . . . . . . . . . . . .32
Section 9.3. Payment of Taxes and Claims . . . . . . . . . . . . . . . .32
Section 9.4. Inspection. . . . . . . . . . . . . . . . . . . . . . . .32
Section 9.5. Consolidation and Merger. . . . . . . . . . . . . . . . . .33
Section 9.6. Control . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 9.7. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . .33
Section 9.8. Protection of Right, Title and Interest . . . . . . . . . .34
Section 9.9. Further Assurances. . . . . . . . . . . . . . . . . . . . .35
Section 9.10. Independence. . . . . . . . . . . . . . . . . . . . . . . .35
Section 9.11. Other Agreements and Parties. . . . . . . . . . . . . . . .36
Section 9.12. Servicing Arrangements. . . . . . . . . . . . . . . . . . .36
Section 9.13. Certain Reports . . . . . . . . . . . . . . . . . . . . . .36
Section 9.14. Insurance Coverage. . . . . . . . . . . . . . . . . . . . .37
Section 9.15. Financial Covenants . . . . . . . . . . . . . . . . . . . .37
Section 9.16. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 10. INFORMATION TO BE FURNISHED TO INITIAL LENDER. . . . . . . . . . .37
Section 10.1. Information to be Furnished by the Borrower and Epic. . . .37
SECTION 11. DEFAULTS, REMEDIES AND TERMINATION. . . . . . . . . . . . . . . . .38
Section 11.1. Events of Default . . . . . . . . . . . . . . . . . . . . .38
SECTION 12. INTERPRETATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . .40
Section 12.2. Accounting Terms. . . . . . . . . . . . . . . . . . . . . .40
Section 12.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . .40
Section 12.4. Headings. . . . . . . . . . . . . . . . . . . . . . . . . .40
Section 12.5. Independence of Covenants, etc. . . . . . . . . . . . . . .40
SECTION 13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 13.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 13.2. Survival. . . . . . . . . . . . . . . . . . . . . . . . . .41
Section 13.3. Successors and Assigns. . . . . . . . . . . . . . . . . . .41
Section 13.4. Amendment and Waiver. . . . . . . . . . . . . . . . . . . .41
Section 13.5. Counterparts. . . . . . . . . . . . . . . . . . . . . . . .42
Section 13.6. Reproduction of Documents . . . . . . . . . . . . . . . . .42
Section 13.7. Consent to Jurisdiction and Venue . . . . . . . . . . . . .43
Section 13.8. No Petition . . . . . . . . . . . . . . . . . . . . . . . .43
Section 13.9. Acts of Lender. . . . . . . . . . . . . . . . . . . . . . .44
Section 13.10. Confidentiality . . . . . . . . . . . . . . . . . . . . . .44
</TABLE>
EXHIBIT A: Form of Borrowing Notice
EXHIBIT B: Opinion of Special Counsel
ANNEX A: Variable Funding Notes Definitions
-3-
<PAGE>
CREDIT AGREEMENT dated as of September 28, 1998 among Epic Master
Funding Corporation, a Delaware corporation (the "Borrower"), Epic Resorts, LLC,
a Delaware limited liability company ("Epic") and Prudential Securities Credit
Corporation (the "Initial Lender").
WHEREAS, the Borrower has requested that the Initial Lender make
advances to the Borrower and the Initial Lender is prepared to make such
advances upon the terms and subject to the conditions hereof.
WHEREAS, the advances hereunder shall be evidenced by the Borrower's
Variable Funding Notes (the "Funding Notes"), issued to the Initial Lender under
a master trust indenture, dated as of September 28, 1998 (the "Indenture"),
among the Borrower, Epic and Marine Midland Bank, as trustee (the "Trustee").
The Notes shall be entitled to the benefits of the Indenture.
WHEREAS, in connection with and pursuant to the terms and conditions
of an engagement letter dated September 28, 1998 (the "Engagement Letter"),
between Epic and Prudential Securities Incorporated ("PSI"), an affiliate of the
Initial Lender, the Initial Lender is entering into this Agreement with the
Borrower and Epic.
NOW, THEREFORE, in consideration of the covenants and the agreements
contained herein, the parties hereto agree as follows:
SECTION 1. COMMITMENT
Section 1.1. ADVANCES. The Initial Lender agrees, on the terms of
this Agreement and subject to the conditions hereof, to make Advances, beginning
on the date hereof and ending on the Commitment Termination Date, to the
Borrower in an aggregate principal amount at any one time outstanding up to but
not exceeding the amount of the Commitment as then in effect. Each Advance
shall (a) mature on the Maturity Date and (b) bear interest from the date
thereof until such Advance shall be paid in accordance with the terms hereof
(whether at maturity, mandatory prepayment, by acceleration or otherwise) and
payable on each Payment Date in accordance with the provisions of Section 13.5
of the Indenture. Interest shall be computed on an actual/360 basis, and on
each Payment Date shall equal all unpaid interest accrued in respect of the
related Interest Period. If the Borrower shall have paid or agreed to pay any
interest on any Advance in excess of that permitted by law, then it is the
express intent of the parties hereto with respect thereto that (i) to the extent
possible given the term of such Advance, all excess amounts previously paid or
to be paid by the Borrower be applied to reduce the principal amount of such
Advance and the provisions thereof immediately be deemed reformed and the
amounts thereafter collectable thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and (ii) to the extent that the reduction of the principal amount of,
and the amounts collectible under, such Advance and the reformation of the
provisions thereof described in the immediately preceding clause (i) are not
possible given the term of such Advance, such excess amount shall be deemed to
have been
<PAGE>
paid with respect to such Advance as a result of an error and upon the Lender
obtaining actual knowledge of such error, such amount shall be refunded to
the Borrower. Each Advance shall be subject to mandatory repayment as set
forth in Section 6.2 hereof. All sums payable by the Borrower under this
Agreement and the Advances shall be paid without counterclaim, set-off,
deduction or defense and without abatement, suspension, deferment, diminution
or reduction.
Section 1.2. BORROWINGS; CLOSINGS. (a) Subject to the satisfaction
of the conditions set forth in Sections 3 and 4, the initial Advance is to be
made on a date mutually agreed upon by the Borrower and the Lender (the "Initial
Funding Date"). Additional Advances may be made on subsequent Business Days
(each, a "Subsequent Funding Date", the Subsequent Funding Dates, together with
the Initial Funding Date, the "Funding Dates," and, either the Initial Funding
Date or a Subsequent Funding Date, a "Funding Date") to the extent the Lender
has received prior notice thereof in accordance with the provisions of Section
1.3 hereof and the conditions set forth in Section 4 have been satisfied.
(b) The Advances shall be evidenced by the Borrower's Funding Notes
issued pursuant to the terms of the Indenture, which Funding Notes shall be
dated the date of the delivery of such Funding Notes to the Initial Lender under
the Indenture, payable to the Initial Lender in a principal amount equal to the
maximum amount of the Commitment and as otherwise duly completed. The date and
amount of each Advance made by the Initial Lender to the Borrower, the
applicable interest rate and each payment made on account of the principal
thereof, shall be recorded by the Initial Lender on its books and, prior to any
transfer of the Funding Notes, endorsed by the Initial Lender on the schedule
attached to the Funding Notes or any continuation thereof.
(c) The Initial Lender shall be entitled to have the Funding Notes
subdivided, by exchange for Funding Notes of lesser denominations or otherwise
in connection with an assignment of all or any portion of the Advances and the
Funding Notes pursuant to the terms of this Agreement; provided that in no event
may the Funding Notes be subdivided into denominations of less than $500,000.
Section 1.3. BORROWING NOTICES. The Borrower will give notice
substantially in the form of Exhibit A hereto of each Advance (a "Borrowing
Notice") to the Initial Lender, the Trustee and the Custodian, which notice
shall be irrevocable and effective only upon receipt by the Initial Lender, the
Trustee and the Custodian. A Borrowing Notice for an Advance: (i) less than or
equal to $2,000,000 must be received by the Initial Lender, the Trustee and the
Custodian not later than 1 p.m. New York City time on the second Business Day
prior to the proposed Funding Date of such Advance; (ii) exceeding $2,000,000
but less than $5,000,000 must be received by the Initial Lender, the Trustee and
the Custodian not later than 1 p.m. New York City time on the fourth Business
Day prior to the proposed Funding Date of such Advance; and (iii) equal to or
greater than $5,000,000 must be received by the Initial Lender, the Trustee and
the
5
<PAGE>
Custodian not later than 1 p.m. New York City time on the tenth Business Day
prior to the proposed Funding Date of such Advance. The Borrower may not
request more than one Advance in any one calendar week. Accompanying each
Borrowing Notice shall be a true and correct Schedule of Loans containing the
Required Information, in electronic format with hard copies thereof, with
respect to the Loans that are the subject of the Borrowing Notice.
Section 1.4. AMOUNT OF ADVANCES. Except as provided in the next
paragraph, on each Funding Date, the Initial Lender will make an Advance to the
Borrower in amount equal to the amount requested in the related Borrowing Notice
(which amount shall equal the Loan Acquisition Price for the Eligible Loans to
be funded by such Advance) available to the account of the Borrower not later
than 5:00 P.M. (New York City time). Such funds shall be made available by the
Initial Lender to the Borrower in immediately available funds, by deposit
directly to an account designated by the Borrower to the Initial Lender. Each
request for an Advance hereunder shall be irrevocable.
Notwithstanding the previous paragraph and anything herein to the
contrary, the Initial Lender shall not be required to make an Advance in the
amount specified in the related Borrowing Notice to the Borrower if the
requested Advance (i) is in excess of the Available Facility Amount or (ii)
would, if such Advance were made, cause a Borrowing Base Deficiency. In such
event, however, the Initial Lender will make an Advance equal to the lesser of
(a) the Available Facility Amount, or (b) one dollar less than the amount which
would cause a Borrowing Base Deficiency.
Section 1.5. INDENTURE. The Funding Notes evidencing the Advances
made hereunder are to be secured pursuant to the Indenture. The Assets
allocated to secure the Borrower's obligations under this Agreement are
identified in Schedule 1 (as it may be amended from time to time) to the
Indenture.
Section 1.6. TERM. The Commitment will terminate on the Commitment
Termination Date.
Section 1.7. PAYMENT INSTRUCTIONS. Each of the Lender and Epic shall
provide written payment instructions (including the account number of the bank
account to which payments are to be directed and the name, address and ABA
number of the bank in which such account is maintained, if payments are to be
made to such party by the wire transfer of immediately available funds) to the
Trustee. No later than the second Business Day of each month, the Lender shall
also provide an invoice to Epic, the Borrower, the Trustee and the Servicer in
respect of the Funding Notes Interest due for the related Payment Date. Failure
to provide such notice shall not affect such party's right to receive any funds
to which it is otherwise entitled in accordance with the Program Documents, but
failure to deliver such notice may result in a delay in the receipt of such
funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
6
<PAGE>
Each of the Borrower and Epic represents and warrants to the Lender,
as of the date hereof, and as of each Funding Date, as follows:
Section 2.1. GENERAL REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
(a) DUE FORMATION; VALID EXISTENCE AND GOOD STANDING. The Borrower
is a corporation duly organized and validly existing in good standing under the
laws of the jurisdiction of its formation; and is duly qualified to do business
as a foreign corporation and in good standing under the laws of each
jurisdiction where the character of its property, the nature of its business or
the performance of its obligations under this Agreement makes such qualification
necessary except where the failure to be so qualified will not have a material
adverse effect on the business of the Borrower or its ability to perform its
obligations under this Agreement or any other documents or transactions
contemplated hereunder or the validity or enforceability of the Loans.
(b) POSSESSION OF LICENSES, CERTIFICATES, FRANCHISES AND PERMITS.
The Borrower holds all material licenses, certificates, franchises and permits
from all governmental authorities necessary for the conduct of its business and
has received no notice of proceedings relating to the revocation of any such
license, certificate, franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the business of the Borrower or its ability to perform its
obligations under this Agreement or any other documents or transactions
contemplated hereunder or the validity or enforceability of the Loans.
(c) AUTHORITY AND POWER. The Borrower has all requisite power and
authority to own its properties, to conduct its business, to execute and deliver
this Agreement and all documents (including the Assignments from it to Epic or
the Trustee) and transactions contemplated hereunder and to perform all of its
obligations under this Agreement and any other documents or transactions
contemplated hereunder. The Borrower has all requisite power and authority to
originate, acquire, own, purchase and receive from Epic the Loans.
(d) AUTHORIZATION, EXECUTION AND DELIVERY; VALID AND BINDING. This
Agreement and all other documents and instruments required or contemplated
hereby to be executed and delivered by the Borrower have been duly authorized,
executed and delivered by the Borrower and, assuming the due execution and
delivery by the other party or parties hereto and thereto, constitute legal,
valid and binding agreements enforceable against the Borrower in accordance with
their respective terms subject, as to the enforcement of remedies, to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in the
event of the bankruptcy, insolvency or reorganization of the Borrower and to
general principles of equity.
(e) NO VIOLATION OF LAW, RULE, REGULATION, ETC. The execution,
delivery and performance by the Borrower of this Agreement and any other
documents (including the Assignments from it to the Trustee) and transactions in
connection
7
<PAGE>
herewith to which the Borrower is a party do not (i) violate any of the
provisions of the Articles of Incorporation or by-laws of the Borrower, (ii)
violate any provision of any law, governmental rule or regulation currently
in effect applicable to the Borrower or its properties or by which the
Borrower or its properties may be bound or affected, including, without
limitation, any bulk transfer laws, (iii) violate any judgment, decree, writ,
injunction, award, determination or order currently in effect applicable to
the Borrower or its properties or by which the Borrower or its properties are
bound or affected, (iv) conflict with, or result in a breach of, or
constitute a default under, any of the provisions of any indenture, mortgage,
deed of trust, contract or other instrument to which the Borrower is a party
or by which it is bound or (v) result in the creation or imposition of any
Lien upon any of its properties pursuant to the terms of any such indenture,
mortgage, deed of trust, contract or other instrument.
(f) GOVERNMENTAL CONSENT. No consent, approval, order or
authorization of, and no filing with or notice to, any court or other
governmental authority in respect of the Borrower is required in connection with
the authorization, execution, delivery or performance by the Borrower of this
Agreement or any of the other documents or transactions contemplated hereunder,
including, without limitation, the Assignment and the sale of the Loans.
(g) FAIR CONSIDERATION. The Borrower paid fair consideration and
reasonably equivalent value in exchange for the purchase of the Loans from Epic.
(h) BULK TRANSFER. No contribution, sale, transfer, assignment or
conveyance of Loans by Epic to the Borrower contemplated by the Loan Sale
Agreement will be subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction.
(i) PLACE OF BUSINESS. The principal place of business and chief
executive office of the Borrower are located at the address set forth in the
Indenture.
Section 2.2. GENERAL REPRESENTATIONS AND WARRANTIES OF EPIC AND THE
BORROWER.
As specified, Epic and/or the Borrower each represents and warrants to
the Lender, as of the date hereof, and as of each Funding Date, as follows:
(a) ORGANIZATION AND AUTHORITY. Epic:
(i) is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(ii) has all requisite power and authority to own and operate
its properties and to conduct its business as currently conducted and as
proposed to be conducted as contemplated by the Program Documents to which it is
a party, to enter into the Program Documents to which it is a party and to
perform its obligations under the Program Documents to which it is a party; and
8
<PAGE>
(iii) has made all filings and holds all material franchises,
licenses, permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it or the
nature of its activities makes such filings, franchises, licenses, permits or
registrations necessary.
(b) PLACE OF BUSINESS. The address of the principal place of
business and chief executive office of Epic is 1150 First Avenue, Suite 900,
King of Prussia, Pennsylvania 19406 and there have been no other such locations
during the immediately preceding four months except as may have been previously
disclosed in writing to the Initial Lender.
(c) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Epic is not in violation
of any term of its certificate of formation or limited liability agreement. The
execution, delivery and performance by Epic of the Program Documents to which it
is a party do not and will not (i) conflict with or violate the certificate of
formation or limited liability agreement of Epic, (ii) conflict with or result
in a breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any Lien on any of the Properties or
assets of Epic pursuant to the terms of any instrument or agreement to which
Epic is a party or by which it is bound, or (iii) require any consent of or
other action by any trustee or any creditor of, any lessor to or any investor in
Epic.
(d) COMPLIANCE WITH LAW. Epic is in compliance with all statutes,
laws and ordinances and all governmental rules and regulations to which it is
subject, the violation of which, either individually or in the aggregate, could
materially adversely affect the business, earnings, Properties or condition
(financial or other) of Epic, each taken as a whole. The policies and
procedures set forth in the Epic Credit and Collection Policies are in material
compliance with all applicable statutes, laws and ordinances and all
governmental rules and regulations. The execution, delivery and performance of
the Program Documents to which it is a party do not and will not cause Epic to
be in violation of any law or ordinance, or any order, rule or regulation, of
any federal, state, municipal or other governmental or public authority or
agency.
(e) PENDING LITIGATION OR OTHER PROCEEDINGS. There is no pending or,
to the best of the Epic's or Borrower's knowledge, threatened action, suit,
proceeding or investigation before any court, administrative agency, arbitrator
or governmental body against or affecting Epic or the Borrower, as applicable,
which, if decided adversely, would materially and adversely affect (i) the
condition (financial or otherwise), business or operations of Epic or the
Borrower, as applicable (ii) the ability of the Borrower to perform its
obligations under, or the validity or enforceability of this Agreement or any
other documents or transactions contemplated under this Agreement, (iii) any
Property or title of any Obligor to any Property or (iv) the Trustee's ability
to foreclose or otherwise enforce the Liens of the Loans.
(f) NO DEFICIENCY ACCUMULATION. As of the Funding Date, the Borrower
has not incurred any "accumulated funding deficiency" (as such term is defined
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code) with respect to any "employee benefit plan" (as such term is
defined under
9
<PAGE>
ERISA) sponsored by the Borrower.
(g) TAXES. Epic and the Borrower have each timely filed all tax
returns (Federal, state and local) which are required to be filed and has paid
all taxes related thereto, other than those which are being contested in good
faith.
(h) TRANSACTIONS IN ORDINARY COURSE. The transactions contemplated
by this Agreement are in the ordinary course of business of Epic and the
Borrower.
(i) SECURITIES LAWS. Neither Epic nor the Borrower is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(j) PROCEEDINGS. Each of Epic and the Borrower has taken all action
necessary to authorize the execution and delivery by it of the Program Documents
to which it is a party and the performance of all obligations to be performed by
it under the Program Documents.
(k) DEFAULTS. Neither Epic nor the Borrower is in default under any
material agreement, contract, instrument or indenture to which it is a party or
by which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which would
have a material adverse effect on the transactions contemplated hereunder; and
to Epic's or the Borrower's knowledge, as applicable, no event has occurred
which with notice or lapse of time or both would constitute such a default with
respect to any such agreement, contract, instrument or indenture, or with
respect to any such order of any court, administrative agency, arbitrator or
governmental body.
(l) INSOLVENCY. Epic is solvent and will not be rendered insolvent
by, the transfer of the Loans by Epic to the Borrower. Prior to the date
hereof, Epic did not, and is not about to, engage in any business or transaction
for which any property remaining with Epic would constitute an unreasonably
small amount of capital. In addition, Epic has not incurred debts that would be
beyond Epic's ability to pay as such debts matured.
(m) NO CONSENTS. No prior consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency, is,
was or will be required for the valid execution, delivery and performance by
Epic of the Program Documents to which it is a party. Epic has obtained all
consents, approvals or authorizations of, made all declarations or filings with,
or given all notices to, all federal, state or local governmental or public
authorities or agencies which are necessary for the continued conduct by Epic of
its respective businesses as now conducted, other than such consents, approvals,
authorizations, declarations, filings and notices which, neither individually
nor in the aggregate, materially and adversely affect, or in the future will
materially and adversely affect, the business, earnings, prospects, properties
or condition (financial or other) of Epic.
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(n) NAME. The legal names of Epic and the Borrower are as set forth
in this Agreement and neither Epic nor the Borrower has any tradenames,
fictitious names, assumed names or "doing business as" names.
(o) REPAYMENT OF LOANS. Neither Epic nor the Borrower has any reason
to believe that at the time of the sale of the Loans by Epic and the purchase of
the Loans by the Borrower, that the obligations thereunder will not be paid in
full.
(p) VALIDITY OF AGREEMENT. The Program Documents to which it is a
party have been duly executed and delivered by Epic and constitute the legal,
valid and binding obligation of Epic, enforceable in accordance with their
terms.
(q) REPRESENTATIONS AND WARRANTIES IN PROGRAM DOCUMENTS. (i) The
representations of Epic contained in any document, certificate or instrument
delivered pursuant to the Program Documents are true and correct in all material
respects and the Lender may rely on such representations and warranties, if not
made directly to the Lender, as if such representations and warranties were made
directly to the Lender.
(r) INFORMATION. No document, certificate or report furnished by Epic
and the Borrower, in writing, pursuant to this Agreement or in connection with
the transactions contemplated hereby, contains or will contain when furnished
any untrue statement of a material fact or fails or will fail to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. There
are no facts relating to the Borrower as of the related Funding Date which when
taken as a whole, materially adversely affect the financial condition or assets
or business of Epic and Borrower, or which may impair the ability of Epic or the
Borrower to perform its obligations under this Agreement, which have not been
disclosed herein or in the certificates and other documents furnished by or on
behalf of Epic or the Borrower pursuant hereto or thereto specifically for use
in connection with the transactions contemplated hereby or thereby.
(s) INTENT. Epic did not sell any Loan to the Borrower with any
intent to hinder, delay or defraud any of its respective creditors.
(t) ENGAGEMENT LETTER. The Initial Lender and Epic have entered into
the Engagement Letter and Epic is not in default under the Engagement Letter.
(u) TREATMENT AS SALE. The Borrower will treat the transfer of the
Loans from Epic to Borrower as a sale for legal and accounting purposes. If a
third party, including a potential purchaser of the Loans, should inquire, Epic
will promptly indicate that the Loans have been sold and will claim no ownership
interest therein.
(v) REPRESENTATIONS AND WARRANTIES UPDATED. The representations and
warranties set forth above shall be deemed repeated on, and made as of, each
Funding Date.
Section 2.3. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
SPECIFIED LOANS. (a) With respect to each Loan, each of Epic and the Borrower
represents and
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warrants to the Lender, as of the Funding Date on which such Loan becomes a
Specified Loan, that:
(i) All Federal, state and local laws, rules and regulations,
including, without limitation, those relating to usury,
truth-in-lending, real estate settlement procedure, land sales, the
offer and sale of securities, consumer credit protection and equal
credit opportunity or disclosure, applicable to such Loan or the sale
of the timeshare estate securing such Loan have been complied with in
all material respects. No Loan was originated in, or is subject to
the laws of, any jurisdiction under which the sale, transfer,
conveyance or assignment of such Loan would be unlawful, void or
voidable.
(ii) Each of the related Assignment, related Mortgage, related
Obligor Note and each other related Loan Document is genuine and is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms (except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a
proceeding in equity or at law), and is not subject to any dispute,
right of rescission, setoff, abatement, diminution, recoupment,
counterclaim or defense of any kind.
(iii) All parties to the related Mortgage and the related
Obligor Note had legal capacity to enter into such Loan and to execute
and deliver such related Mortgage and related Obligor Note, and such
related Mortgage and related Obligor Note have been duly and properly
executed by such parties. Any amendments to such related Mortgage,
related Obligor Note or any other related Loan Document required as a
result of any mergers involving the Borrower or its predecessors, to
maintain the rights of the Borrower or its predecessors thereunder as
an obligee have been completed.
(iv) The Loan has not been satisfied, canceled, rescinded or
subordinated, in whole or in part; no portion of the Property has been
released from the Lien of the Mortgage, in whole or in part; no
instrument has been executed that would effect any such satisfaction,
cancellation, rescission, subordination or release. The terms of the
Mortgage do not provide for a release of any portion of the Property
from the Lien of the Mortgage except upon the payment of the Loan in
full.
(v) Immediately prior to the conveyance to the Trustee of a
Loan, the Borrower will own full legal and equitable title to such
Loan, free and clear of any Lien or participation or ownership
interest in favor of any other Person, and had full right and
authority to sell, transfer and assign such Loan.
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(vi) At the time Epic or its Affiliate made such Loan to the
related Obligor, Epic or its Affiliate had full power and authority to
originate such Loan and the Obligor had good and indefeasible fee
title or good and marketable fee simple title, as applicable, to the
Property securing such Loan, free and clear of all Liens, except for
Permitted Liens.
(vii) The related Mortgage contains customary and enforceable
provisions so as to render the rights and remedies of the holder
thereof adequate for the realization against the related Property of
the benefits of the security interests intended to be provided
thereby, including (a) if the Mortgage is a deed of trust, by
trustee's sale, including power of sale and/or (b) otherwise by
judicial foreclosure or power of sale. There is no exemption
available to the related Obligor which would interfere with the
obligee's right to sell at a trustee's sale or power of sale or right
to foreclose such related Mortgage, as applicable.
(viii) The Borrower and any of its Affiliates and, to the best
of the Borrower's knowledge, each other party which has had an
interest in the Mortgage is (or, during the period in which such party
held and disposed of such interest, was) in compliance with any and
all applicable filing, licensing and "doing business" requirements of
the laws of the state wherein the Property is located to the extent
necessary to permit the Borrower to maintain or defend actions or
proceedings with respect to the Loan in all appropriate forums in such
state without any further act on the part of any such party.
(ix) The homeowners' associations relating to the Resort in
which the related Property is located were duly organized and are
validly existing. A manager (the "Manager") manages such Resort and
performs services for the homeowners' associations, pursuant to an
agreement between the Manager and the respective homeowners'
associations, such contract being in full force and effect. The
Manager and the homeowners' associations have performed in all
material respects all obligations under such agreement and are not in
default under such agreement.
(x) The related Resort is insured in the event of fire,
earthquake where deemed necessary by the Borrower, or other casualty
for the full replacement value thereof, and in the event that the
Resort should suffer any loss covered by casualty or other insurance,
upon receipt of any insurance proceeds, the homeowners' associations
are required, during the time such Resort is covered by such
insurance, under the applicable governing instruments either to repair
or rebuild the portions of the Resort or to pay such proceeds to the
holders of any Mortgage secured by a timeshare estate in the portions
of the project in which the Property is located. The Resort, if
located in a designated flood plain, maintains flood insurance, with
respect to the bottom two floors of such Resort, in an amount not less
than the maximum level available under the National
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Flood Insurance Act of 1968, as amended.
(xi) The related Obligor Note is not and has not been secured
by any collateral except the Lien of the related Mortgage.
(xii) The related Obligor Note evidences a fully amortizing debt
obligation which bears a fixed rate of interest and provides for level
monthly payments of principal and interest (which is calculated on a
simple interest basis). The related Obligor Note is payable in U.S.
Dollars.
(xiii) The maximum original term of the related Obligor Note
is less than or equal to ten years.
(xiv) Other than Loans representing up to 2% of all loans in
Epic's portfolio which were originated prior to the date this
Agreement was executed (which Loans are not more than 60 days past due
as of the related Funding Date ("Permitted Delinquent Loans")), the
Loan is not more than 30 days past due in respect of any payment of
principal or interest as of the Cut-off Date.
(xv) All applicable intangible taxes and documentary stamp
taxes were paid as to the related Obligor Note and the related
Mortgage.
(xvi) The proceeds of each Loan have been fully disbursed, there
is no obligation to make future advances or to lend additional funds
under the originator's commitment or the documents and instruments
evidencing or securing the Loan and no such advances or loans have
been made since the origination of the Loan.
(xvii) The terms of each Mortgage and Obligor Note have not
been impaired, waived, altered or modified in any respect, except by
written instruments which are part of the related Loan Documents. No
other instrument has been executed or agreed to which would effect any
such impairment, waiver, alteration or modification. No Obligor has
been released from liability on or with respect to any Loan, in whole
or in part, except in such cases where such release would not
materially and adversely affect the obligee's security for the related
Loan, and any such release is reflected by a written instrument which
is a part of the related Loan Documents. If required by law or
prudent originators of similar loans in the jurisdiction where the
Resort is located, all waivers, alterations and modifications have
been filed and/or recorded in all places necessary to perfect,
maintain and continue a valid first priority Lien of the Mortgage
subject only to Permitted Liens.
(xviii) Each Loan was originated or acquired by the Borrower or
its predecessor in the normal course of its business. Each Loan
originated by the Borrower was underwritten in accordance with its
underwriting guidelines and the downpayment related to each Loan was
equal to at
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least 10% of the purchase price of the related Property. The
origination, servicing and collection practices used by the
Borrower and its Affiliates with respect to each Loan have been in
all respects, legal, proper, prudent and customary.
(xix) The related Mortgage is assignable to and by the obligee
and its successors and assigns and the related Property is assignable
upon liquidation of the related Loan, without the consent of any other
Person (including any condominium association, homeowners' or
timeshare association), and there are no other restrictions on resale
thereof.
(xx) The related Mortgage is and will be prior to any Lien on,
or other interests relating to, the related timeshare estate (other
than the lien of any condominium, homeowners' or timeshare
association, the lien for current real estate taxes and assessments
not yet due and payable and mechanic's or materialmen's liens).
(xxi) The related Obligor is not the subject of a voluntary or
involuntary bankruptcy proceeding and is not an Affiliate of the
Borrower.
(xxii) The residential units related to the Loans in the
related Resort have been completed in all material respects as
required by applicable state and local laws, free of all defects that
could give rise to any claims by the related Obligors under home
warranties or applicable laws or regulations, whether or not such
claims would create valid offset rights under the law of the State in
which the Resort is located. To the extent required by applicable
law, valid certificates of occupancy for such residential units have
been issued and are currently outstanding. The Borrower or its
Affiliate has complied in all material respects with all obligations
and duties incumbent upon the developers under its related timeshare
(each a "Declaration"), as applicable, or similar applicable documents
for the related Resort. No practice, procedure or policy employed by
the homeowners' association in the conduct of its business violates
any law, regulation, judgment or agreement, including, without
limitation, those relating to zoning, building, use and occupancy,
fire, health, sanitation, air pollution, ecological, environmental and
toxic wastes, applicable to such homeowners' association which, if
enforced, would reasonably be expected to (a) have a material adverse
impact on such timeshare association or the ability of such
homeowners' association to do business, (b) have a material adverse
impact on the financial condition of the homeowners' association, or
(c) constitute grounds for the revocation of any license, charter,
permit or registration which is material to the conduct of the
business of the homeowners' association. The related Resort and the
present use thereof does not violate any applicable environmental,
zoning or building laws, ordinances, rules or regulations of any
governmental authority, or any covenants or restrictions of record, so
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as to materially adversely affect the value or use of such Resort or
the performance by the homeowners' association of its obligations
pursuant to and as contemplated by the terms and provisions of the
related Declaration. There is no condition presently existing and no
event has occurred or failed to occur prior to the date hereof,
concerning the related Resort relating to any hazardous or toxic
materials or condition, asbestos or other environmental or similar
matters which would reasonably be expected to materially and adversely
affect the present use of such Resort or the financial condition or
business operations of the related homeowners' association, or the
value of the Funding Notes.
(xxiii) Other than with respect to delinquent payments of
principal or interest 30 days or fewer (or with respect to the
Permitted Delinquent Loans) past due as of the Cut-off Date, there is
no default, breach, violation or event of acceleration existing under
any Mortgage, the related Obligor Note or any other document or
instrument evidencing, guaranteeing, insuring or otherwise securing
the Loan, and no event which, with the lapse of time or with notice
and the expiration of any grace or cure period, would constitute a
material default, breach, violation or event of acceleration
thereunder; and the Borrower has not waived any such material default,
breach, violation or event of acceleration under the Mortgage, the
Obligor Note or any other related document.
(xxiv) There is no current obligation on the part of any other
person (including any buy down arrangement) to make payments on behalf
of the Obligor in respect of the Loan.
(xxv) The entries with respect to such Loan as set forth
on the Schedule of Loans are true and correct as of the Cut-off
Date.
(xxvi) Each rescission period applicable to the Loan has
expired.
(xxvii) No selection procedures were intentionally utilized by
the Borrower which were adverse to the Trustee or the Initial Lender
were utilized in selecting the Loans transferred to the Trustee
hereunder.
(xxviii) The weighted average of Loan Coupon Rates of the Loans
is at least 13%.
(xxix) Each Loan which has been acquired by the Borrower and
Granted to the Trustee was owned by the Borrower, prior to the
Borrower's acquisition thereof, free and clear of all Liens and was
related to a Resort.
(xxx) The capital reserves and maintenance fee levels of
the homeowners' associations related to the related Resorts are
adequate in light of the operating requirements of such homeowners'
associations.
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(xxxi) The percentage of Eligible Loans having Foreign
Obligors (other than Canadian Obligors) does not exceed 10% of the
aggregate Outstanding Principal Balance of all Eligible Loans and the
percentage of Eligible Loans having Canadian Obligors does not exceed
10% of the aggregate Outstanding Principal Balance of all Eligible
Loans.
(b) With respect to each Loan that is a Mortgage Loan, each of Epic
and the Borrower represents and warrants to the Lender, as of the Funding Date
on which such Mortgage Loan becomes a Specified Loan, that:
(i) The timeshare estate mortgaged by each Obligor
constitutes a fee or leasehold interest in real property at the
related Resort that entitles the holder of the interest to the use
of a specific property for a specified number of days each year or
every other year. The related Mortgage has been duly filed and
recorded with all appropriate governmental authorities in all
jurisdictions in which such Mortgage is required to be filed and
recorded to create a valid, binding and enforceable first Lien on
the related Property and such Mortgage creates a valid, binding and
enforceable first Lien on the related Property, subject only to
Permitted Liens; and the Borrower, to the extent applicable, is in
compliance with any Permitted Liens respecting the right to the use
of such Property. Each of the Assignments of such related Mortgage
and each related endorsement of the related Obligor Note
constitutes a duly executed, legal, valid, binding and enforceable
assignment or endorsement, as the case may be, of such related
Mortgage and related Obligor Note, and all monies due or to become
due thereunder, and all proceeds thereof.
(ii) Such Mortgage Loan is covered by a lender's title
insurance policy issued by a title insurer qualified to do business
in the jurisdiction where the related Property is located in a form
generally acceptable to prudent originators of similar mortgage
loans, insuring the Borrower or its predecessor and its successors
and assigns, as to the first priority mortgage Lien of the related
Mortgage in an amount equal to the Outstanding Principal Balance of
such Mortgage Loan. The Borrower or its assign is a named insured
of such lender's title insurance policy. Such lender's title
insurance policy is in full force and effect. No claims have been
made under such lender's title insurance policy and no prior holder
of such Mortgage Loan has done or omitted to do anything which
would impair the coverage of such lender's title insurance policy.
Full premiums for such lender's title insurance policy,
endorsements and all special endorsements have been paid.
(iii) The Borrower has not taken (or omitted to take), and
has no notice that the related Obligor has taken (or omitted to
take), any action that would impair or invalidate the coverage
provided by any hazard, title or other insurance policy relating to
such Mortgage Loan or the related
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Property.
(iv) Each Mortgage Loan is principally and directly
secured by an interest in real property.
(v) There are no delinquent or unpaid taxes, ground
rents, water charges, sewer rents, assessments outstanding with
respect to any of the Properties, nor any other outstanding Liens
or charges affecting the Properties that would result in the
imposition of a Lien on the Property affecting the Lien of the
Mortgage or otherwise materially affecting the interests of the
Borrower in the related Mortgage Loans.
(vi) The Properties and the related Resorts are free of
material damage and waste and are in good repair and fully
operational. There is no proceeding pending or threatened for the
total or partial condemnation of or affecting the Property or
taking of the Properties by eminent domain. The Properties and the
Resorts in which the Properties are located are lawfully used and
occupied under applicable law by the owner thereof.
(vii) The portions of the Resorts in which the Properties
are located which represent the common facilities are free of
material damage and waste and are in good repair and condition,
ordinary wear and tear excepted.
(viii) Neither the Obligor nor any other Person has the
right, by statute, contract or otherwise, to seek the partition of
the Property.
(ix) The related Mortgage or deed of trust gives the
obligee and its successors and assigns the right to receive and
direct the application of insurance and condemnation proceeds
received in respect of the Property, except where the related
condominium declarations, timeshare declarations or applicable
state law provide that insurance and condemnation proceeds be
applied to restoration of the improvements.
(c) In addition to any representations and warranties reasonably
requested by the Initial Lender, with respect to each Membership Loan, each of
Epic and the Borrower represents and warrants to the Lender, as of the Funding
Date on which such Membership Loan becomes a Specified Loan, that:
(i) The related Vacation Club is a nonprofit mutual
benefit corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its formation.
(ii) The related Vacation Club has all requisite power
and authority to own its properties, to conduct its business, to
execute and deliver the Vacation owner agreements, and to provide
membership certificates to its members evidencing a voting
membership in such Vacation Club.
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(iii) The related Vacation Club is the owner of the
related Resort free and clear of any liens or encumbrances subject
only to (a) the lien of real property taxes, ground rents, water
charges, sewer rents and assessments not yet due and payable, and
(b) covenants, conditions and restrictions, rights of way,
easements and other matters of public records, none of which,
individually or in the aggregate, materially interferes with the
current or intended use of the Resort.
(iv) The issuance and transfer of memberships do not and
will not require registration under the Securities Act.
(v) The related membership entitles the owner thereof to
the use of all existing and future Resorts operated by or
associated with the Vacation Club, use of property for a specific
number of days each year or every other year, to vote and
participate in corporate ownership and management of the real
estate and other assets of the Vacation Club; and ownership shall
be perpetual.
(vi) The related membership is free and clear of all
Liens.
(vii) The related Vacation Club has not taken (or omitted
to take), any action that would impair or invalidate the coverage
provided by any hazard, title or other insurance policy relating to
the related Resort.
(viii) There are no delinquent or unpaid taxes, ground rents,
water charges, sewer rents, assessments outstanding with respect to
the related Resort, nor any other outstanding Liens or charges
affecting the Resort that would materially adversely affect the
interest of the Borrower in the related Membership Loan.
(ix) The related Resort is free of material damage and
waste and are in good repair and fully operational. There is no
proceeding pending or threatened for the total or partial
condemnation of or affecting the Resort. The related Resorts are
lawfully used and occupied under applicable law by the Vacation
Club.
(x) Immediately prior to the sale, transfer and
assignment of the Loans to the Borrower, Epic had good marketable
title to, and was the sole owner of, each Membership Loan, and had
full right and authority to sell, transfer and assign such
Membership Loan.
It is understood and agreed that the representations and warranties
set forth in this Section 2.3 shall survive the sale or contribution of a
Specified Loan to the Borrower and any assignment of such Specified Loan by the
Borrower to the Trustee pursuant to the Indenture and shall continue so long as
any such Specified Loan shall
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remain outstanding until such time as such Specified Loan is repurchased
pursuant to the Indenture.
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE ON INITIAL FUNDING
DATE.
The Initial Lender's obligation to make the initial Advance hereunder
on the Initial Funding Date shall be subject to the satisfaction, prior to or
concurrently with the making of such Advance, of the conditions set forth in
Section 4 hereof, as well as the following conditions:
Section 3.1. OTHER AGREEMENTS. The Program Documents and the Funding
Notes shall each have been duly authorized by all necessary action. The
Borrower and Epic shall have duly executed and delivered the Program Documents
to which they are a party and, in the case of the Borrower, the Funding Notes
and such Program Documents are in full force and effect.
Section 3.2. OPINION OF SPECIAL COUNSEL. The Initial Lender shall
have received from Jones, Day, Reavis & Pogue, who are acting as special New
York counsel for Epic and the Borrower in connection with the transactions
contemplated by this Agreement, an opinion, dated the Initial Funding Date, in a
form satisfactory to the Initial Lender and its counsel. The Trustee shall be
entitled to specifically rely on such opinion.
Section 3.3. OPINIONS OF LOCAL COUNSEL. The Initial Lender shall
have received from Robert M. Kramer & Associates, who are acting as local
counsels for Borrower, in connection with the transactions contemplated by this
Agreement, an opinion, dated the Initial Funding Date, in a form satisfactory to
the Initial Lender and its counsel. The Trustee shall be entitled to
specifically rely on such opinion.
Section 3.4. OPINION OF TRUSTEE'S COUNSEL. The Initial Lender shall
have received the opinion of counsel to the Trustee, in form and substance
satisfactory to the Initial Lender.
Section 3.5. ORGANIZATIONAL AND OTHER DOCUMENTS. The Initial Lender
shall have received certified copies of the organizational documents of the
Borrower and of Epic and of all formalities authorizing the execution, delivery
and performance hereof and of the Program Documents to which each is a party
and, in the case of the Borrower, the Funding Note. The Borrower shall be a
special purpose bankruptcy remote corporation.
Section 3.6. NECESSARY CONSENTS. The Lender shall have received a
copy of all consents to, or releases of any lien in respect to any Specified
Loans subject or to be subject hereto, in form and substance satisfactory to the
Lender.
Section 3.7. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. The
representations and warranties of the Borrower and Epic pursuant to Sections 2.1
and 2.2 shall be true on and as of such Funding Date and the representations and
warranties with respect to
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the Specified Loans pursuant to Section 2.3 shall be true on and as of the
related Funding Date. There shall exist on such Funding Date no Default,
Event of Default or Funding Termination Event hereunder or under the
Indenture.
Section 3.8. ENGAGEMENT LETTER. Epic shall have paid all fees due
under the Engagement Letter.
Section 3.9. PERFECTION. The Lender shall have a first perfected
security interest in the Trust Estate and shall have received an opinion to
that effect from Jones, Day, Reavis & Pogue or Robert M. Kramer & Associates,
dated the Initial Funding Date, in a form satisfactory to the Initial Lender
and its counsel. The Trustee shall be entitled to specifically rely on such
opinion.
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES ON ANY FUNDING DATE.
The Initial Lender's obligation to make Advances hereunder on any
Funding Date shall be subject to the satisfaction, prior to or concurrently
with the making of such Advances, of the following conditions:
Section 4.1. PERFORMANCE OF OBLIGATIONS. The Borrower and Epic
shall each have performed in all material respects all of their respective
obligations to be performed hereunder prior to or on such Funding Date.
Section 4.2. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. The
representations and warranties of the Borrower and Epic pursuant to Sections
2.1 and 2.2 shall be true on and as of such Funding Date and the
representations and warranties with respect to the Specified Loans pursuant
to Section 2.3 shall be true on and as of the related Funding Date with the
same effect as though such representations and warranties had been made on
and as of such Funding Date. There shall exist on such Funding Date no
Default, Event of Default or Funding Termination Event hereunder or under the
Indenture.
Section 4.3. NO MERGER OR CHANGE IN CONTROL. Neither Epic nor the
Borrower shall have dissolved or liquidated or consolidated or merged with,
or been wound up into, or sold, leased or otherwise disposed of all or
substantially all of its Properties to, any Person (other than a merger into
a wholly-owned Subsidiary for the purposes of reincorporation), unless the
surviving or transferee entity has assumed all the obligations of Epic or the
Borrower hereunder, as applicable.
Section 4.4. SEARCHES. The Borrower shall have delivered to the
Initial Lender such evidence (including without limitation, Uniform
Commercial Code search certificates, releases and termination statements) as
the Initial Lender may request to establish that there are no financing
statements filed against the Collateral other than with respect to Permitted
Liens.
Section 4.5. CONSENTS AND APPROVALS. The Borrower and Epic shall
have
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obtained any necessary consents, waivers, approvals, authorizations,
registrations, filings, licenses and notifications (including, if necessary,
qualifying to do business in, and qualifying under the applicable consumer
laws of, each jurisdiction where the Borrower and Epic is then doing
business, or is expected to be doing business utilizing the proceeds of such
Advance) and the same shall be in full force and effect.
Section 4.6. PROCEEDINGS, INSTRUMENTS, ETC.. All proceedings and
actions taken on or prior to such Funding Date in connection with the
transactions contemplated by this Agreement, the Program Documents and the
Funding Note, and all instruments incident thereto, shall be in form and
substance reasonably satisfactory to the Initial Lender, and the Initial
Lender shall have received copies of all documents that the Initial Lender
may reasonably request in connection with such proceedings, actions and
transactions.
Section 4.7. OTHER DOCUMENTS. The Borrower and Epic shall have
delivered to the Initial Lender such other documents, instruments, approvals
(and if requested certified duplication of executed copies thereof) and
opinions as the Initial Lender may have reasonably requested. Each of the
Program Documents shall remain in full force and effect.
Section 4.8. CONTINUANCE OF AN EVENT OF DEFAULT OR FUNDING
TERMINATION EVENT. No Event of Default or Funding Termination Event shall
have occurred and be continuing.
Section 4.9. VALIDITY OF FUNDING NOTES. The Funding Notes are
duly and validly issued and outstanding and entitled to the benefits provided
by the Indenture.
Section 4.10. TRUST RECEIPT. The Initial Lender shall, no later
than one Business Day prior to the related Funding Date, have received a
trust receipt from the Custodian indicating that no material deficiencies
exist with respect to the Loan Documents of the Specified Loans.
Section 4.11. MEMBERSHIP LOANS. Prior to any funding of a
Membership Loan, the Initial Lender shall have approved, in its sole
discretion, such Membership Loan. The Initial Lender shall have received
such additional certificates, opinions and Loan Documents related to any
Membership Loan as the Initial Lender may reasonably request.
SECTION 5. CERTAIN SPECIAL RIGHTS.
Section 5.1. HOME OFFICE PAYMENT. Notwithstanding any provision
to the contrary in the Program Documents, the Trustee, on behalf of the
Borrower, will punctually pay from Available Funds in immediately available
funds prior to 2:00 pm, New York City time, all amounts payable with respect
to the Advances in accordance with the provisions of this Agreement and the
Indenture (without the necessity for any
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presentation or surrender thereof or any notation of such payment thereon) in
the manner and at any address as the Lender may from time to time direct in
writing. The Initial Lender agrees that, as promptly as practicable after
the payment or prepayment of any Advance, the Initial Lender will record such
payment or prepayment on the Funding Note. The Borrower will afford the
benefits of this Section 5.1 to any Assignee, each of which, by its receipt
and acceptance of a Funding Note, will be deemed to have made the same
agreement relating to the Advances as the Initial Lender has made in this
Section 5.1. The Borrower shall only be obligated to make payments on any
Advance to an Assignee in the manner provided in this Section 5.1 from and
after the time such Assignee provides to the Borrower and the Trustee written
notice of its election to receive payments in such manner and the address to
which payments are to be directed (including the account number of Assignee's
bank account to which payments are to be directed and the name, address and
ABA number of the bank in which such account is maintained, if payments are
to be made to such Assignee by the wire transfer of immediately available
funds).
Section 5.2. CERTAIN TAXES. The Borrower will pay all taxes
(other than income or franchise taxes incurred by the Lender) in connection
with the execution and delivery of this Agreement and the Indenture the
issuance of the Funding Note(s) by the Borrower, the borrowings hereunder and
any modification of the Program Documents or the Funding Note requested or
required by the Borrower and will save the Lender harmless, without
limitation as to time, against any and all liabilities (including, without
limitation, any interest or penalty for nonpayment or delay in payment, or
any income taxes paid by the Lender or any Assignee in connection with any
reimbursement by the Borrower for the payment by any other Person of any such
taxes) with respect to all such taxes. The obligations of the Borrower under
this Section 5.2 shall survive the payment in full of the Advances and the
termination of the Program Documents.
Section 5.3. SUBSTITUTION OF INITIAL LENDER. The Initial Lender
shall have the right to substitute any of the Initial Lender's Affiliates as
the maker of all or any portion of the aggregate principal amount of Advances
to be made by the Initial Lender, by written notice delivered to the
Borrower, which notice shall be signed by both the Initial Lender and such
Affiliate and shall contain such Affiliate's agreement to be bound by this
Agreement. The Borrower agrees that upon receipt of such notice (a) wherever
the word "the Initial Lender" is used in this Agreement (other than in this
Section 5.3) such word shall be deemed to refer to such Affiliate in addition
to or instead of to the Initial Lender, as the case may be, and (b) the
Initial Lender shall, to the extent of the assumption by such Affiliate of
the Initial Lender's obligations hereunder, be released from its obligations
under this Agreement. The Borrower also agrees that if the Initial Lender,
at any time, acquires from any Affiliate all or any portion of such
Affiliate's rights under this Agreement, wherever the word "the Initial
Lender" is used in this Agreement such word shall thereafter be deemed to
refer to the Initial Lender in addition to or instead of to such Affiliate,
as the case may be, and such Affiliate shall, to the extent of the assumption
by the Initial Lender of such Affiliate's obligations hereunder, be released
from all of its obligations under this Agreement. Notwithstanding any other
provision of this Section 5.3, neither the Initial Lender nor any Affiliate
thereof shall be entitled to substitute any other party as the maker of any
Advances if as a result of such
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substitution the Borrower would be required to register as an "investment
company" under the Investment Company Act of 1940, as amended.
SECTION 6. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 6.1. ADVANCE MATURITY. Each Advance shall be due and
payable on the related Maturity Date.
Section 6.2. MANDATORY PREPAYMENTS. The Borrower shall
immediately prepay, or (in the case of an Exchange) be deemed to have
prepaid, the Advances, without premium, together with interest accrued on the
amount to be prepaid to the date of prepayment and any unpaid fees with
respect thereto, (a) to the extent required on each Payment Date pursuant to
Section 13.5 of the Indenture and (b) upon the occurrence of an Exchange. No
prepayment pursuant to this Section 6.2 shall in and of itself have any
effect on the obligation of the Initial Lender to make Advances under this
Agreement nor the right of the Borrower to reborrow an amount equal to such
repayment.
As specified in Section 13.1 of the Indenture, in the event the
Borrower has received notice from the Initial Lender that a Borrowing Base
Deficiency has occurred and is continuing, the Borrower shall, no later than
five Business Days, either prepay Advances made hereunder in part or in
whole, or Grant additional Eligible Loans, or any combination of the
foregoing, such that after giving effect to such action, a Borrowing Base
Deficiency will no longer exist.
Upon the occurrence of an Event of Default, the Borrower will make
payments on the Advances in accordance with Section 11 hereof and Section
13.5 of the Indenture.
Section 6.3. VOLUNTARY PREPAYMENTS. After the last Advance is
made hereunder, the Borrower may prepay Advances in full, without premium, at
any time after the outstanding Advances are 10% or less than the aggregate
amount of Advances outstanding on the date of such final Advance.
SECTION 7. ASSIGNMENTS AND PARTICIPATIONS.
Section 7.1. ASSIGNMENTS. (a) The Borrower may not assign its
rights or obligations hereunder or under the Funding Notes without the prior
consent of the Lender in its sole discretion (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding).
(b) Pursuant to the terms of the Indenture, the Lender may assign
to any person or entity who is an "accredited investor" (as such term is
defined in Rule 501(a) promulgated under the Securities Act) (each, an
"Assignee"), all or any portion of the Advances and the Funding Notes;
provided that any assignment of a portion of the Advances and the Funding
Notes shall be in an amount not less than the Minimum
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Assignment Denomination, PROVIDED, HOWEVER, the Lender shall not sell or
assign a portion of the Advances or Funding Notes to any purchasers which are
primarily engaged in the business of timeshare development, without Epic's
prior written consent. Upon written notice to the Borrower and the Trustee
of an assignment in accordance with the preceding sentence (which notice
shall identify the Assignee and the amount of the Advances and Funding Notes
assigned), the Assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment), the obligations, rights and benefits
of the Lender hereunder with respect to the Advance(s) assigned to it. For
all purposes of this Agreement, the Assignee shall, so long as the Advance(s)
assigned to such Assignee remain unpaid, be entitled to the rights and
benefits of this Agreement with respect to the Advance(s) assigned to it as
if (and the Borrower shall be directly obligated to such Assignee under this
Agreement as if) such Assignee were the "Lender" for purposes of this
Agreement. Accordingly, unless otherwise provided, whenever any action,
waiver, notice or consent is to be provided to or by the Lender as herein
specified, such action, waiver, notice or consent shall (unless otherwise
expressly specified herein) also be provided to or by each Assignee.
(c) The Lender shall provide notice of each assignment to the
Trustee and Epic; provided that failure to provide such notice shall not
affect the validity of any assignment.
(d) Notwithstanding the provisions of this Section 7.1, no
assignment of an interest in an Advance to an entity outside the United
States of America shall be effective unless the prospective Assignee thereof
certifies to the Borrower and Epic that payments to it in respect of the
Advances will not be subject to withholding taxes imposed by any Governmental
Authority in the United States of America or any political subdivision or
taxing authority thereof or therein or that if it is subject to such
withholding taxes it will not seek reimbursement or gross-up from the
Borrower or Epic.
Section 7.2. PARTICIPATIONS. (a) The Lender may sell or agree to
sell to any person or entity who is an "accredited investor" (as such term is
defined in Rule 501(a) promulgated under the Securities Act) a participation
in all or any part of any Advance held by it or Advances made or to be made
by it, but shall not have any direct rights or benefits under this Agreement
or any Funding Note (the participant's rights against the Lender in respect
of such participation to be those set forth in the agreement executed by the
Lender in favor of the participant). All amounts payable by the Borrower to
the Lender under this Agreement shall be determined as if the Lender had not
sold or agreed to sell any participations in such Advance and as if the
Lender were funding all of such Advance in the same way that it is funding
the Advance in which no participations have been sold, provided, however, the
Lender shall not sell any participations to any purchasers which are
primarily engaged in the business of timeshare development, without Epic's
prior written consent.
(b) The Lender may furnish any information concerning the
Borrower, Epic or any of their other Affiliates in the possession of the
Lender from time to time to
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assignees and participants (including prospective assignees and
participants); provided, however, that, prior to receipt of any such
information, and prior to any inspection by a Lender, other than the Initial
Lender, pursuant to Sections 10.1(a) and 10.1(b) hereof, such assignees and
participants or prospective assignees and participants, as the case may be,
may be required by the Borrower to execute a confidentiality agreement in
form and substance reasonably acceptable to the Borrower.
SECTION 8. CERTAIN COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that so long as any Advance shall
remain unpaid:
(a) The Borrower shall be operated in such a manner that it would
not be substantively consolidated in the trust estate of any other Person in
the event of a bankruptcy or insolvency of such Person and in such regard,
the Borrower shall:
(i) not become involved in the day-to-day management of any
other Person;
(ii) not permit any Affiliate to become involved in the
day-to-day management of the Borrower except to the extent provided in
the Program Documents;
(iii) not engage in transactions with any other Person other
than those activities described herein and matters necessarily
incident thereto;
(iv) maintain separate corporate records and books of account
in a separate business office from any other Person;
(v) the financial statements and books and records of the
Borrower and of Funding reflect the separate existence of the
Borrower;
(vi) maintain its assets separately from the assets of any
other Person (including through the maintenance of a separate bank
account);
(vii) maintain separate financial statements, books and records
from any other Person;
(viii) not guarantee any other Person's obligations or advance
funds to, or accept funds from, any other Person for the payment of
expenses or otherwise permit any Affiliate to guarantee any of the
Borrower's obligations;
(ix) conduct all business correspondence of the Borrower and
other communications in the Borrower's own name;
(x) not act as an agent of any other Person in any capacity
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except pursuant to contractual documents indicating such capacity and
only in respect of transactions described herein and matters
necessarily incident thereto;
(xi) not fail to hold appropriate meetings of the Board of
Directors at least once per annum and otherwise as necessary to
authorize all corporate action;
(xii) not fail to hold meetings of the stockholders at least one
time per annum;
(xiii) not form, or cause to be formed, any subsidiaries;
(xiv) not act as an agent of an Affiliate nor permit any
Affiliate to act as its agent except to the limited extent permitted
under the Program Documents;
(xv) maintain a separate office from each Affiliate, which
office may be on premises owned or leased by an Affiliate provided
that such arrangement is set forth; and
(xvi) not engage in intercorporate transactions except to the
extent permitted under the Program Documents or as contemplated in its
certificate of incorporation, including ordinary course of business
parent-subsidiary transactions not inconsistent with any specific
provision of this Agreement including this Section 8(a).
(b) The Borrower's certificate of incorporation limits the
Borrower's activities to (i) the purchasing and lending against interests in
pools of mortgage, loans and other obligations representing part or all of
the sales price of merchandise, insurance or services or the obligations due
under leases, (ii) issuing securities secured by such obligations and (iii)
any activities incidental to the foregoing;
(c) The Borrower will keep in full effect its existence, rights
and franchises as a corporation under the laws of the State of Delaware, and
will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, the
Funding Notes or any of the Loans;
(d) The Borrower shall at all times observe and comply in all
material respects with (i) all laws applicable to it, (ii) all requirements
of law in the declaration and payment of dividends on its capital stock, and
(iii) all requisite and appropriate corporate and other formalities
(including, without limitation, meetings of the Borrower's board of directors
and, if required by law, its charter or otherwise, meetings and votes of the
shareholders of the Borrower to authorize corporate action) in the management
of its business and affairs and the conduct of the transactions contemplated
hereby;
(e) The Borrower shall not issue or register the transfer of any of
its
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capital stock to any Person other than Epic or any of its Affiliates;
(f) The Borrower shall not (i) consolidate or merge with or into
any other Person or convey or transfer its properties and assets
substantially as an entirety to any other Person or (ii) commingle its assets
with those of any other Person;
(g) The Borrower will, at all times, (i) maintain minutes of the
meetings and other proceedings of its shareholders and board of directors;
(ii) continuously maintain the resolutions, agreements and other instruments
underlying the transactions contemplated hereby and by the Program Documents
as official records of the Borrower; (iii) act solely in its corporate name
and through its duly authorized officers or agents to maintain an
arm's-length relationship with its Affiliates and (iv) pay all of its
operating expenses and liabilities from its own funds;
(h) The Borrower shall conduct its business solely in its own name
so as to not mislead others as to the identity of the corporation with which
those others are concerned, and particularly will use its best efforts to
avoid the appearance of conducting business on behalf of any of its
Affiliates or that the assets of the Borrower are available to pay the
creditors of any of its Affiliates;
(i) The Borrower will not: (a) engage in any business or activity
other than in connection with, or relating to the ownership of, the Loans and
the interests in the Property, the issuance of the Funding Notes, and the
specific transactions contemplated hereby; (b) become liable for, issue,
incur, assume, or allow to remain outstanding any indebtedness, or guaranty
any indebtedness of any Person, other than the Funding Notes, except as
contemplated Program Documents; and (c) seek dissolution or liquidation in
whole or in part or reorganization of its business or affairs;
(j) At any time and from time to time, upon the written request of
the Trustee (it being acknowledged that the Trustee shall have no obligation
to so request), and at the sole expense of the Borrower, the Borrower will
promptly and duly complete and deliver such further instruments and documents
and take such further actions as the Trustee may reasonably request (it being
acknowledged that the Trustee shall have no obligation to so request) for the
purpose of obtaining or preserving the full benefits to the Trustee on behalf
of the related Funding Noteholders under the Indenture, as supplemented from
time to time, and of the rights and powers therein granted to the Trustee on
behalf of the related Funding Noteholders, including, without limitation, the
filing of any financing or continuation statements under the Uniform
Commercial Code in effect in any jurisdiction with respect to the security
interests created hereby. The Borrower also hereby authorizes the Trustee to
file any such financing or continuation statement without the signature of
the Borrower to the extent permitted by applicable law. The Trustee shall
have no obligation to determine whether or not financing or continuation
statements need be filed or where such financing or continuation statements,
if any, need to be filed. A photographic or other reproduction of this
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction;
(k) The Borrower will not, nor will it permit or allow others to,
create,
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incur or permit to exist any lien, security interest or claim on or to the
related Assets, other than the security interests created by the Indenture.
The Borrower will defend the Trust Estate against, and will take such other
action as is necessary to remove, any lien, security interest or claim on or
to the related Assets, other than the security interests created by the
Indenture, and the Borrower will defend the right, title and interest of the
Trustee on behalf of the related Funding Noteholders in and to any of the
related Assets against the claims and demands of all persons whomsoever;
(l) The Borrower will not, nor will it permit or allow others to,
amend, modify, terminate or waive any provision of any Loan in any manner
which could reasonably be expected to materially adversely affect the value
of the related Assets;
(m) The Borrower will furnish to the Trustee from time to time
statements and schedules further identifying and describing the related
Assets and such other reports in connection with the related Assets as the
Trustee or the Noteholders may reasonably request (the Trustee not being
obligated to so request), all in reasonable detail;
(n) The Borrower will notify the Trustee promptly, in reasonable
detail, (i) of any lien or security interest (other than security interests
created hereby) on, or claim asserted against, any of the related Assets, or
(ii) of the occurrence of any other event which could reasonably be expected
to have a material adverse effect on the aggregate market value of the
related Assets or on the security interests, created under the Indenture;
(o) The Borrower will not change the location of its chief
executive office/chief place of business or remove its books and records from
the location specified in the first paragraph hereof or change its name,
identity or corporate structure to such an extent that any financing
statement filed by the Borrower or the Trustee in connection with this
Agreement would become seriously misleading, unless it shall have given the
Trustee and the Noteholders at least 30 days prior written notice thereof;
(p) The Borrower shall at any reasonable time and from time to
time upon reasonable notice to the Borrower, permit the Trustee, any
Noteholder or any agent or representative thereof, to examine and make copies
and abstracts from the records and books of account of, and visit the
properties of, the Borrower and to discuss the affairs, finances, accounts
and prospects of the Borrower with any of its officers and directors and the
Borrower's independent accountants; twice a year, or at anytime there exists
an Event of Default, upon reasonable notice to the Borrower, permit the
Trustee, or any Noteholder or any agent or representative thereof, to examine
and audit the books and records of the Borrower (including, without
limitation, any licenses necessary for the conduct of its business) which
examination and audit shall be at the expense of the Borrower, provided that
if no Event of Default is existing and continuing, the expense to the
Borrower in connection with each such audit shall not exceed $30,000;
provided further, that such rights of the Trustee or the Noteholders shall
not be exercised in such a manner so as to interfere unduly with the conduct
of
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business and operations of the Borrower and shall not be deemed to be an
obligation of the Trustee;
(q) The Borrower shall permit the Trustee or any Funding
Noteholder, at such entity's sole discretion, to conduct, or may permit an
agent of such entity to conduct a due diligence review of any Loan Documents
relating to the Loans being pledged hereunder, either before or after the
making of the related Advance (the Trustee shall not be obligated to review);
(r) The Borrower shall not, without the prior written consent of
the Trustee or of the Funding Noteholders, change, amend, modify or
supplement any of the following: (i) its certificate of incorporation; (ii)
by-laws; or (iii) its shareholders agreements, which consent shall not be
unreasonably withheld so long as such change, amendment, modification or
supplement does not adversely affect the rights of the Funding Noteholders
hereunder or in, to and under the related Assets on behalf of the Funding
Noteholders, including, without limitation, the priority of the Trustee's
security interest in the related Assets on behalf of the Funding Noteholders;
(s) The Borrower shall pay its own expenses;
(t) The Borrower will not allow a Borrowing Base Deficiency to
occur; and
(u) To the extent that a Loan is covered by insurance which
permits the related homeowner's association to pay any insurance proceeds to
the Borrower, the Borrower shall immediately remit such proceeds to the
Funding Notes Collection Account.
SECTION 9. CERTAIN COVENANTS OF EPIC.
Epic covenants and agrees that so long as any Advances shall remain
unpaid:
Section 9.1. EXISTENCE. Epic will take and fulfill, or cause to
be taken and fulfilled, all actions and conditions necessary to preserve and
keep in full force and effect its existence, rights and privileges as a
limited liability company and will not liquidate or dissolve, and it will
take and fulfill, or cause to be taken and fulfilled, all actions and
conditions necessary to qualify, and to preserve and keep in full force and
effect its qualification, to do business in each jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
requires such qualification.
Section 9.2. COMPLIANCE WITH LAW, ETC. Epic will not (a) violate
any laws, ordinances, governmental rules or regulations to which it is or may
become subject or (b) fail to obtain or maintain any patents, trademarks,
service marks, trade names, copyrights, design patents, licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its Property or to the conduct of its business.
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Section 9.3. PAYMENT OF TAXES AND CLAIMS. Epic will pay and
discharge promptly, as and when due, all taxes, assessments and governmental
charges and levies imposed upon it, its income or profits or any of its
properties; provided, however, that the foregoing need not be paid while the
same is being contested in good faith by appropriate proceedings diligently
conducted so long as:
(a) adequate reserves shall have been established in accordance
with GAAP with respect thereto; and
(b) the right of Epic, as the case may be, to use the particular
property shall not be materially and adversely affected thereby.
Section 9.4. INSPECTION. Epic will permit, upon reasonable notice
to it, the Lender, by its representatives, agents or attorneys, (a) to
examine all books of account, records, reports and other papers of Epic
relevant to its role as originator of the Loan (including the Loan Files),
(b) to make copies and take extracts from any thereof, (c) to discuss the
affairs, finances and accounts of Epic with its respective officers and
independent certified public accountants (and by this provision Epic hereby
authorizes said accountants to discuss with the Lender the finances and
accounts of Epic), and (d) to visit and inspect, at reasonable times during
normal business hours, the properties of Epic. It is understood and agreed
by the parties hereto that all reasonable expenses in connection with any
such inspection or discussion incurred by the Lender or Epic, any officers
and employees thereof and the independent certified public accountants
therefor shall be expenses payable by Epic.
Section 9.5. CONSOLIDATION AND MERGER. Epic shall not merge or
consolidate with any other Person unless (i) the entity surviving such merger
or consolidation is a corporation organized under the laws of the United
States or any State, (ii) the surviving entity, if not Epic, shall execute
and deliver to the Borrower and the Trustee, in form and substance
satisfactory to each of them, (x) an instrument expressly assuming all of the
obligations of Epic hereunder and under the Program Documents, and (y) an
Opinion of Counsel to the effect that such Person is a corporation of the
type described in the preceding clause (i), has effectively assumed the
obligations of Epic hereunder, that all conditions precedent provided for in
this Agreement relating to such transaction have been complied with, and,
that in the opinion of such counsel, all UCC financing statements and
continuation statements and amendments thereto have been executed and filed
that are necessary fully to preserve and protect the interest of the Borrower
and the Trustee in the Assets, and reciting the details of such filings, or
stating that no such action shall be necessary to preserve and protect such
interest, and (iii) immediately after giving effect to such transaction, no
Event of Default or Default shall have occurred and be continuing. Epic and
any surviving entity, if not Epic, will keep all of its material assets
within the United States at all times.
Section 9.6. CONTROL. So long as any of the Funding Notes remains
Outstanding, Epic will not sell, pledge or otherwise transfer any of the
capital stock of the Borrower held by Epic.
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Section 9.7. TAX RETURNS. (a) At all times, so long as any of
the Funding Notes or the other obligations secured by the Indenture remain
outstanding, Epic and the Borrower shall be members of the same affiliated
group within the meaning of Section 1504 of the Code (the "Epic Group") and
shall join in the filing of a consolidated return for federal income tax
purposes and, to the extent permitted by law, in the filing of consolidated
or combined returns for state, local and foreign tax purposes.
(b) Epic shall promptly pay and discharge, or cause the payment
and discharge of, all the Epic Group, or federal income taxes (and all other
material taxes) when due and payable by Epic, the Borrower, except (i) such
as may be paid thereafter without penalty or (ii) such as may be contested in
good faith by appropriate proceedings and for which an adequate reserve has
been established and is maintained in accordance with GAAP. Epic shall
promptly notify the Borrower, the Trustee and the Funding Noteholders of any
material challenge, contest or proceeding pending by or against Epic or Epic
Group before any taxing authority.
Section 9.8. PROTECTION OF RIGHT, TITLE AND INTEREST.
(a) Epic shall deliver (or cause to be delivered) to the Borrower
and the Trustee file-stamped copies of, or filing receipts for, any document
filed as provided above, as soon as available following such filing. In the
event that Epic fails to perform its obligations under this subsection, the
Borrower or the Trustee may do so, on Epic's behalf, at the expense of Epic.
Epic hereby grants the Borrower and the Trustee a power of attorney to
effectuate the provisions of the preceding sentence.
(b) Epic shall not change its name identity, or corporate
structure in any manner that would, could, or might make any UCC financing
statement or continuation statement filed by Epic in accordance with
paragraph (a) above seriously misleading within the meaning of Section
9-402(7) of the UCC, unless it shall have given the Borrower and the Trustee
at least five days' prior written notice thereof and shall have promptly
filed appropriate amendments to all previously filed UCC financing statements
or continuation statements.
(c) Epic shall give the Borrower and the Trustee at least 60 days'
prior written notice of any relocation of its principal place of business or
chief executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed UCC financing or continuation statement or of any new UCC
financing statement and shall promptly file any such amendment. Epic shall
at all times maintain each office from which it shall service the Loans and
its principal executive office, within the United States of America. Epic
shall pay all filing fees or taxes payable in respect of any UCC financing or
continuation statements required to be filed pursuant to this Section 9.8(c).
(d) Epic shall deliver to the Borrower and the Trustee promptly
after the execution and delivery of each amendment hereto, an Opinion of
Counsel either (i)
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stating that, in the opinion of such counsel, all UCC financing statements
and continuation statements necessary to preserve and protect fully the
interest of the Borrower and the Trustee in the Trust Estate have been filed,
or (ii) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
(e) OTHER LIENS OR INTERESTS. Except for the conveyances under
the Indenture, Epic will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on the
Trust Estate or any interest therein, and Epic shall defend the right, title,
and interest of the Borrower and the Trustee in, to and under the Trust
Estate against all claims of third parties claiming through or under Epic;
provided however, that Epic's obligations under this Section 9.8 shall
terminate upon the repayment in full of the Funding Note and the expiration
of any applicable preference period.
Section 9.9. FURTHER ASSURANCES. Epic will promptly execute and
deliver all further instruments and documents and take all further action
that may be necessary in order to give effect to the provisions of the
Program Documents and the transactions contemplated hereby.
Section 9.10. INDEPENDENCE. Until 367 days have elapsed following
payment and satisfaction of all obligations of the Borrower hereunder and in
respect of the Advances, Epic shall be required to (and shall assure that
each other Affiliate of Epic shall) observe the applicable legal requirements
for the recognition of the Borrower as a legal entity separate and apart from
Epic and each other Affiliate of Epic, including, without limitation,
assuring that each of the following is complied with:
(a) Epic and each other Affiliate of Epic shall maintain separate
records and books of account (each of which shall be sufficiently full and
complete to permit a determination of the assets and liabilities of Epic or
such Affiliate, as the case may be, separate and apart from those of the
Borrower and to permit a determination of the obligees thereon and the time
for performance on each of the obligations of Epic or such Affiliate, as the
case may be, separate and apart from those of the Borrower) from those of the
Borrower;
(b) neither Epic nor any of its other Affiliates shall commingle
any of its assets or funds with those of the Borrower;
(c) the board of directors of Epic shall not dictate decisions
with respect to the Borrower's business and daily operations and Epic shall
maintain its own corporate formalities and shall otherwise respect the
separate corporate identity of the Borrower;
(d) other than the making of capital contributions and the
transactions contemplated by the Loan Sale Agreement, neither Epic nor any of
its other Affiliates shall enter into any transactions with the Borrower;
(e) neither Epic nor any of its other Affiliates shall accept
appointment
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as, or act as, an agent of the Borrower except, to the extent Epic performs
certain servicing and collection functions pursuant to the Servicing
Agreement;
(f) neither Epic nor any of its other Affiliates shall advance
funds to the Borrower (except for the making of capital contributions); and
neither Epic nor any of its other Affiliates will otherwise supply funds to,
or guarantee any obligation of, the Borrower;
(g) neither Epic nor any of its other Affiliates shall guarantee,
or otherwise become liable with respect to, any obligation of the Borrower;
(h) Epic and each of its other Affiliates shall at all times hold
itself out to the public under its respective name as a legal entity separate
and distinct from the Borrower; and
(i) all financial reports prepared by Epic and each of its other
Affiliates shall comply with GAAP.
Section 9.11. OTHER AGREEMENTS AND PARTIES. Epic will comply with
all terms of the Program Documents to which it is a party. Epic will not (a)
except as otherwise expressly set forth herein and in the Indenture, agree to
any amendment, supplement or modification to or waiver of the terms of the
Program Documents to which it is a party without the consent of the Lender
(or, if multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding), (b) appoint any Successor
Servicer, without the consent of the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of the
Advances outstanding), such consent not to be unreasonably withheld or (c)
consent to the appointment of any Subservicer, without the consent of the
Lender (or, if multiple Lenders, the Lenders in respect of a majority in
aggregate principal amount of the Advances outstanding), such consent not to
be unreasonably withheld.
Section 9.12. SERVICING ARRANGEMENTS. Epic will take any
necessary action to evidence that the Specified Loans are to be serviced and
administered by the Servicer under the Servicing Agreement.
Section 9.13. CERTAIN REPORTS. Epic shall provide the Lender no
later than forty-five (45) days following the end of each quarter with its
quarterly consolidated financial statements, and ninety (90) days following
the end of each fiscal year with its audited annual consolidated financial
statements prepared by Arthur Andersen LLP or other nationally recognized
accounting firm approved by the Initial Lender, reflecting material
inter-company adjustments, all of which shall conform with GAAP. Epic shall
provide the Initial Lender no later than forty-five (45) days following the
end of each quarter with unaudited financial statements, all of which shall
conform with GAAP. Concurrently with the delivery of such financial
statements and reports, Epic shall (i) provide the Initial Lender with
summaries of all sales and recissions by each Resort, if applicable, for such
quarter, and (ii) provide the Initial Lender with an Officer's Certificate
indicating Epic's Tangible Net Worth at the end of such quarter, and a
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certification that Epic is in compliance with the financial covenants
contained in Section 9.15.
Section 9.14. INSURANCE COVERAGE. Epic will maintain insurance
coverage, for itself and its subsidiaries, that encompasses employee
dishonesty, forgery or alteration, theft, disappearance and destruction,
robbery and safe burglary, property (other than money and securities), and
computer fraud in an aggregate amount of at least $1,000,000.
Section 9.15. FINANCIAL COVENANTS. Epic will maintain a Tangible
Net Worth of at least $10,000,000 and shall otherwise meet the financial
covenants of Epic contained in "Description of Notes" in Epic's offering
memorandum (the "Offering Memorandum"), dated June 30, 1998 for its 13%
Senior Secured Notes Due 2005 (the "Senior Secured Notes"). The financial
covenants contained in the Offering Memorandum are incorporated into this
Agreement and Epic will meet such financial covenants regardless of whether
the Senior Secured Notes are retired, redeemed, refinanced or otherwise
canceled.
Section 9.16. FEES. Epic agrees to pay (i) all reasonable legal
costs, incurred under or in the implementation of this Agreement, (ii) any
third party costs incurred under or in the implementation of this Agreement,
and (iii) after the occurrence of an Event of Default, all costs and expenses
(including attorneys' fees and costs of settlement) incurred by the Lender in
enforcing any obligations of or in collecting any payments due from the
Borrower hereunder or under the Funding Notes by reason of such Event of
Default. Attorneys' fees, expenses and disbursements incurred in enforcing,
or on appeal from, a judgment pursuant hereto shall be recoverable separately
from and in addition to any other amount included in such judgment, and this
clause is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into such judgment.
SECTION 10. INFORMATION TO BE FURNISHED TO INITIAL LENDER.
Section 10.1. INFORMATION TO BE FURNISHED BY THE BORROWER AND EPIC.
The Borrower and Epic will deliver or cause to be delivered to the
Initial Lender the following:
(a) promptly (and in any event within five (5) days) after any
Executive Officer of the Borrower or Epic shall have obtained knowledge of
any Default or Event of Default, an Officer's Certificate from the Borrower
or Epic specifying the nature and period of existence thereof, what action
the Borrower or Epic has taken or is taking or proposes to take with respect
thereto, and an estimate of the time necessary to cure such condition or
event; and
(b) on each Payment Date or a request by the Initial Lender, such
other data, filings and information (including, but not limited to cumulative
data with respect to the Loans regarding delinquencies, prepayments, any
repurchases and/or
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substitutions of Loans by Epic or the Borrower) as the Initial Lender may
require to determine whether a Borrowing Base Deficiency exists or such
information the Initial Lender may from time to time reasonably request.
SECTION 11. DEFAULTS, REMEDIES AND TERMINATION.
Section 11.1. EVENTS OF DEFAULT. In addition to the Events of
Default and Remedies therefor set forth in Sections 6.1, 6.2 and 6.3 of the
Indenture, the following Events of Defaults and Remedies therefor will apply to
the Funding Notes and the Advances.
(a) ADDITIONAL EVENTS OF DEFAULT.
(1) The failure of the Borrower to cure a Borrowing Base
Deficiency as provided in Section 13.1 of the Indenture.
(2) The breach by Epic or the Borrower of any representation,
warranty, covenant or agreement in this Agreement which is not remedied
within 30 days after notice of such breach from the Trustee or the Initial
Lender.
(3) A Securitization Take-out consistent with the terms of the
Engagement Letter does not occur on or prior to April 30, 1999.
(4) An Event of Administrator Termination occurs.
(5) Any material default under the Engagement Letter.
(b) ADDITIONAL REMEDIES. In addition to any remedies provided for in
the Indenture:
(1) upon the occurrence of an Event of Default described in
paragraph (a)(3) above, the Initial Lender through its affiliate, PSI,
shall have the right to effect an auction of the Loans and PSI shall
receive an auction sale fee equal to 1.00% of the then outstanding
principal balance of the Funding Notes.
(2) upon the occurrence of an Event of Default described in
paragraph (a)(4) above or a Funding Termination Event described in Section
11.2(c) below, the Initial Lender shall have the right to remove the
Administrator and to appoint the Servicer as successor Administrator.
(3) upon the occurrence of an Event of Default described
hereunder or in the Indenture, whereby the Outstanding Principal Amount of
Funding Notes is declared due and payable (for whatever reason), any
amounts so accelerated that continue to remain outstanding, shall accrue
interest at the rate of one-month Libor plus 5.00%.
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Section 11.2. FUNDING TERMINATION EVENTS. The occurrence of any of
the following events will immediately constitute a Funding Termination Event
upon which the Commitment of the Lender hereunder shall terminate:
(a) an Event of Default under the Indenture or Section 11.1(a)
hereof;
(b) any material adverse change in the business, operations,
financial condition, properties or assets of Epic or the Borrower or the
existence of any other condition which, in the Initial Lender's sole
determination, but in good faith, constitutes an impairment of Epic's or
the Borrower's ability to perform its obligations under the Program
Documents or the Borrower's obligations under the Funding Notes; or
(c) the Epic Default Percentage exceeds 9%; or
(d) the failure of Epic or the Borrower to satisfy the conditions
precedent specified in Section 3 within 30 days of the execution of this
Agreement.
Section 11.3. BREAK-UP FEES. If a Borrowing Base Deficiency is
determined using clause (ii) of the definition of Borrowing Base:
(a) if the Borrower cures the Borrowing Base Deficiency within five
Business Days and arranges for payment in full of all amounts due the Initial
Lender in respect of principal and accrued interest on all Advances, and any
other amounts due and unpaid, the Initial Lender agrees that no break-up fee
shall be payable under the Engagement Letter.
(b) if (x)(i) the Borrower fails to cure the Borrowing Base
Deficiency within five Business Days, (ii) an Event of Default has occurred,
(iii) the Initial Lender has not yet obtained a commitment for the purchase of
the Loans securing the Advances, and (iv) the Borrower arranges for payment in
full of all amounts due the Initial Lender in respect of principal and accrued
interest on all Advances, and any other amounts due and unpaid, then (y) the
Initial Lender agrees that no break-up fees shall be payable under the
Engagement Letter.
SECTION 12. INTERPRETATION OF AGREEMENT.
Section 12.1. DEFINITIONS. Capitalized terms used herein but not
defined shall have the meanings set forth in "Variable Funding Notes
Definitions" attached as Annex A hereto and in Section 1.1 of the Indenture. To
the extent that any terms in Annex A hereto conflict with defined terms in
Section 1.1 of the Indenture, the terms in Annex A shall prevail.
Section 12.2. ACCOUNTING TERMS. All accounting terms used herein
that are not otherwise expressly defined shall have the respective meanings
given to them in accordance with generally accepted accounting principles at the
particular time.
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Section 12.3. GOVERNING LAW. THIS AGREEMENT AND THE FUNDING NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK.
Section 12.4. HEADINGS. The headings of the Sections and other
subsections of this Agreement have been inserted for convenience of reference
only and shall not affect the meaning of this Agreement.
Section 12.5. INDEPENDENCE OF COVENANTS, ETC. Each representation,
covenant or Event of Default herein shall be given independent effect so that if
any action or condition would violate any of such covenants, would breach any of
such representations or would constitute any of such Events of Default, the fact
that such action or condition would not violate or breach, any other covenant or
representation or constitute another Event of Default shall not avoid the
violation of such covenant or representation or the occurrence of such Event of
Default.
SECTION 13. MISCELLANEOUS.
Section 13.1. NOTICES. (a) All communications under this Agreement
shall be in writing and shall be delivered or mailed or sent by facsimile
transmission and confirmed in writing (i) if to the Lender, to Prudential
Securities Incorporated, Attention: Ken Leavy, One New York Plaza, 12th Floor,
New York, New York 10292, facsimile number: 212-778-8876, with copies to
Prudential Securities Incorporated-Credit Analysis Department, Attention: James
Maitland, Seaport Plaza, 199 Water Street, 27th Fl., New York, New York 10292,
facsimile number: 212-214-7678, and (ii) if to the Borrower or Epic, at the
address set forth in Section 2.2(b) or at such other address or facsimile number
as it shall have furnished in writing to the Lender.
(b) Any written communication so addressed and mailed by certified or
registered mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 13.2. SURVIVAL. All representations, warranties and
covenants made by the Borrower herein or by the Borrower in any certificate or
other instrument delivered under or in connection with this Agreement shall be
considered to have been relied upon by the Lender and shall survive regardless
of any investigation made by the Lender or on the Lender's behalf.
Section 13.3. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the parties hereof and their respective successors and assigns, and
shall inure to the benefit of and be enforceable by the parties hereof and their
respective successors and assigns permitted hereunder. Whether or not expressly
so stated and subject to the restrictions set forth herein, the provisions of
Sections 5 through 13 of this Agreement are intended to be for the Lender's
benefit and shall be enforceable by the Lender; and, provided further, that the
provisions of Sections 6.2 and 11.1 hereof shall also be for the
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benefit of, and shall be enforceable by, any Person who shall no longer be a
Lender hereunder but who shall have incurred any expense or been subjected to
any liability referred to therein while, or on the basis of being, a Lender.
Section 13.4. AMENDMENT AND WAIVER. (a) This Agreement and the
Funding Note may be amended or supplemented, and the observance of any term
hereof or thereof may be waived, with the written consent of the Borrower, Epic
and (i) on or prior to the Initial Funding Date, the Initial Lender, and (ii)
after the Initial Funding Date, the Lender (or, if multiple Lenders, Lenders
with respect to at least 66-2/3% in aggregate unpaid principal amount of the
Advances; provided, however, that no such amendment, supplement or waiver shall,
without the written consent of all Lenders, (a) change, with respect to the
Advances, the amount or time of any required prepayment or payment of principal
or premium or the rate or time of payment of interest, or change the funds in
which any prepayment or payment on the Advances is required to be made; (b)
reduce the percentage of the aggregate principal amount of Advances required for
any amendment, consent or waiver hereunder; or (c) release any material Lien of
the Trustee, held for the benefit of the Lender, on any of the Collateral or
affect the priority thereof.
(b) Any amendment, supplement or waiver effected in accordance with
this Section 13.4 shall be binding upon the Lender, each Assignee and the
Borrower.
(c) The Borrower will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of the
Program Documents or the Funding Note unless the Initial Lender (irrespective of
the amount of Advances made by it) shall be informed thereof by the Borrower and
shall be afforded the opportunity of considering the same and shall be supplied
by the Borrower with sufficient information to enable it to make an informed
decision with respect thereto. Executed or true and correct copies of any
waiver effected pursuant to the provisions of this Section 13.4 shall be
delivered by the Borrower to the Lender forthwith following the date on which
the same shall have been executed and delivered by the Lender of the requisite
percentage of Advances.
(d) Any amendment which adversely affects the Trustee's rights,
duties and immunities shall require the consent of the Trustee.
Section 13.5. COUNTERPARTS. This Agreement may be executed and
delivered simultaneously in two (2) or more counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute but one
and the same instrument.
Section 13.6. REPRODUCTION OF DOCUMENTS. This Agreement and all
documents relating hereto (other than the Funding Note), including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Initial Lender at the closing of the
Initial Lender's making of Advances, and (c)
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financial statements, certificates and other information heretofore or
hereafter furnished to the Lender, may be reproduced by the Lender by any
photographic or other similar process and the Lender may destroy any original
document so reproduced. The Borrower agrees and stipulates that, to the
extent permitted by applicable law and court or agency rules, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.
Section 13.7. CONSENT TO JURISDICTION AND VENUE. The Borrower and
Epic each hereby irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to the Program Documents or any Funding
Note may be brought in a court of record in the State of New York or in the
courts of the United States of America located in such State, (ii) consents to
the jurisdiction of each such court in any such suit, action or proceeding, and
(iii) waives any objection which it may have to the laying of venue of any such
claim that any such suit, action or proceeding has been brought in an
inconvenient forum and covenants that it will not seek to challenge the
jurisdiction of any such court or seek to oust the jurisdiction of any such
court, whether on the basis of inconvenient forum or otherwise. The Borrower
and Epic each irrevocably consent to the service of any and all process in any
such suit, action or proceeding by mail copies of such process to the Borrower
at its address for notices provided in Section 13.1 hereof. The Borrower and
Epic each agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. All mailings under this Section 13.7 shall
be by registered or certified mail, return receipt requested. Nothing in this
Section 13.7 shall affect the Lender's right to serve legal process in any other
manner permitted by law or affect the Lender's right to bring any suit, action
or proceeding against the Borrower or any of its properties in the courts of any
other jurisdiction.
Section 13.8. NO PETITION. The Lender and each Assignee hereby
covenant and agree that, until the expiration of the date which is one year and
one day after the payment in full of all Funding Notes outstanding and issued
pursuant to the Indenture, it will not institute against the Borrower, or join
in any institution against the Borrower of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any applicable bankruptcy or similar law in connection with any obligations
relating to the Advances or the Program Documents.
Section 13.9. ACTS OF LENDER. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by the Lender may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
the Lender in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments is or are delivered to the Borrower. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement if made in the manner provided
in this Section 13.9.
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(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Borrower deems
sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Lender or any Assignee shall bind the Lender and
such Assignee in respect of anything done, omitted or suffered to be done by the
Borrower in reliance thereon, whether or not notation of such action is made
upon such Funding Note.
Section 13.10. CONFIDENTIALITY. All non-public information relating
to this Agreement, the Program Documents and the transactions contemplated
thereby will be kept confidential by Epic, the Borrower and the Initial Lender.
The Initial Lender agrees to cause each assignee and Participant with which it
is a party to agree to keep such information confidential. The provisions of
this Section 13.10 shall survive the termination of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed as of the day and year first above written.
EPIC MASTER FUNDING CORPORATION
By: /s/ T. F. Flatley
--------------------------
Name:
Title:
EPIC RESORTS, LLC
By: /s/ T. F. Flatley
--------------------------
Name:
Title:
PRUDENTIAL SECURITIES
CREDIT CORPORATION
By: /s/ Jeff K. French
--------------------------
Name: Jeff K. French
Title: SVP
<PAGE>
EXHIBIT A
FORM OF BORROWING NOTICE
Prudential Securities Credit Corporation
One Seaport Plaza, 27th Floor
New York, New York 10292
Fax: (212) 214-7535
Attention: Robert Troiano
In accordance with Section 1.3 of the Credit Agreement, dated as of
September 28, 1998 (the "Credit Agreement"), by and among Epic Master Funding
Corporation (the "Borrower"), Epic Resorts, LLC, and Prudential Securities
Credit Corporation (the "Lender"), the undersigned, an authorized representative
of the Borrower gives notice to the Lender that the Borrower proposes to borrow,
in accordance and subject to the terms of the Credit Agreement, from the Lender
$[__] (the "Advance") on [DATE] (the "Proposed Funding Date"). All capitalized
terms used but not defined herein shall have the meanings given them in Section
1.1 of the Indenture and Annex A to the Credit Agreement. To the extent terms
in Section 1.1 of the Indenture and Annex A of the Credit Agreement conflict,
terms in Annex A shall prevail.
In connection with this Borrowing Notice and the requested Advance:
1. The Borrower represents that on the Proposed Funding Date, all
conditions precedent required in Sections 3 and 4 and elsewhere in the Credit
Agreement have been satisfied.
2. Pursuant to Section 1.3, the Borrower has attached hereto the
Schedule of Loans containing the Required Information in hard copy and in
electronic format.
3. No Borrowing Base Deficiency exists.
4. The Advance should be wired to [WIRING INSTRUCTIONS].
EPIC MASTER FUNDING CORPORATION
By: ____________________________
Name:
Title:
cc: Dan Lynch (PSCC - Fax: (212) 214-7533)
Peter Austin (PSCC - Fax: (212) 778-7401)
<PAGE>
Susan Barstock (Trustee - Fax (212) 658-6425)
VP - Specialty Finance (Custodian - Fax: (602) 423-3651)
<PAGE>
EXHIBIT B
FORM OF SPECIAL COUNSEL OPINION
<PAGE>
ANNEX A to Credit Agreement
VARIABLE FUNDING NOTES DEFINITIONS
The following defined terms are used in connection with (i) the Credit
Agreement, (ii) Article 13 of the Indenture, (iii) the Funding Notes, (iv) the
Loan Sale Agreement, (v) the Servicing Agreement, and (vi) the Custody Agreement
(each, as defined below). These defined terms supplement those terms defined in
Section 1.1 of the Indenture. To the extent that terms defined herein conflict
with terms defined in the Indenture, these terms shall prevail.
"ADVANCES" means the advances provided for by Section 1.1 of the
Credit Agreement.
"ASSIGNEE" shall have the meaning set forth in Section 7.1(b) of the
Credit Agreement.
"AUTHORIZED OFFICER" means, with respect to Epic or the Borrower, any
officer of Epic or the Borrower, as the case may be, who is authorized to act
for Epic or the Borrower, as the case may be, in matters relating to
transactions contemplated by the Credit Agreement.
"AVAILABLE FACILITY AMOUNT," on any date of determination, shall mean
(a) the Commitment, MINUS (b) the principal amount of all Advances outstanding
on such date.
"AVAILABLE FUNDS" means all funds held in the Funding Notes Collection
Account (as the case may be) as of the end of any Due Period.
"BOARD" shall mean, with respect to any Person, its board of directors
or, if it does not have a board of directors, its governing body which performs
the same duties as a board of directors.
"BORROWER" shall mean Epic Master Funding Corporation.
"BORROWING BASE" shall mean, an amount equal to the lesser of 88% of
(i) the aggregate Outstanding Principal Balance of Eligible Loans pledged to the
Trustee on behalf of the Initial Lender, and (ii) the market value of such
Eligible Loans as determined solely by PSI, in good faith and in a commercially
reasonable manner.
"BORROWING BASE DEFICIENCY" shall have occurred on any date in which
the Outstanding Principal Amount of the Funding Notes exceeds the Borrowing
Base.
"BORROWING NOTICE" shall have the meaning set forth in Section 1.3 of
the Credit Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time and any successor statute, together with the rules and regulations
<PAGE>
thereunder.
"COLLATERAL" shall mean that portion of the Trust Estate allocated to
the Funding Notes.
"COMMITMENT" shall mean the obligation of the Initial Lender to make
Advances in an amount equal to $75,000,000.
"COMMITMENT TERMINATION DATE" shall mean the earlier of (i) the
Maturity Date, (ii) the occurrence of an Event of Default, or (iii) the
occurrence of a Funding Termination Event.
"CREDIT AGREEMENT" shall mean the credit agreement, dated as of
September 28, 1998, by and among Epic Resorts, LLC, Epic Master Funding
Corporation, as borrower, and Prudential Securities Credit Corporation, as
initial lender.
"CUSTODIAN" shall be Finova Portfolio Services, Inc.
"CUSTODY AGREEMENT" shall be the custody agreement, dated as of
September 28, 1998, by and among the Borrower, the Lender, the Trustee and the
Custodian.
"DEFAULT" shall mean any event or condition that would become an Event
of Default after notice or passage of time or both.
"DEFAULTED LOAN" means for any date of determination, a Loan as to
which any of the following has occurred and is continuing: (i) any payment was
delinquent more than 90 days as of the end of the related Due Period; (ii) the
Servicer or the Administrator has initiated foreclosure proceedings with respect
to the related Property or has received the related deed in lieu of foreclosure;
or (iii) the Loan should be written off in accordance with the Credit and
Collection Policies.
"DOLLARS" or "$" shall mean the lawful currency of the United States
of America, and in relation to any payment, same day or immediately available
funds.
"DUE PERIOD" shall mean, (a) with respect to the initial Due Period,
the month of September, 1998, and (b) thereafter, with respect to any Payment
Date, the period commencing on the first day of the calendar month preceding the
calendar month in which such Payment Date occurs and ending on the last day of
the calendar month preceding the calendar month in which such Payment Date
occurs.
"ELIGIBLE LOAN" shall mean any Loan as to which the representations
and warranties set forth in Section 2.3(a) of the Credit Agreement are true and
correct as of the related Funding Date, and specifically excludes (a) any Loans
which payments are delinquent for 61 or more days, and (b) any Defaulted Loan.
"EPIC" shall mean Epic Resorts, LLC, a Delaware limited liability
company.
-2-
<PAGE>
"EPIC DEFAULT PERCENTAGE" shall mean, as of any Payment Date, the
percentage equivalent of the fraction, (a) the numerator of which is the sum of
(i) the outstanding principal balances of all Loans removed for Liquidation from
the Trust Estate pursuant to Section 4.6 of the Indenture, as of the date of
such removal (the "Removed Loans"), and (ii) the outstanding principal balances
of all Loans which are Defaulted Loans (without duplication), and (b) the
denominator of which is the aggregate principal balance of all Loans pledged to
the Trustee on each Funding Date (including the Removed Loans).
"EVENT OF ADMINISTRATOR TERMINATION" shall occur if there is an Event
of Default with respect to the Administrator under Section 6.1(b) or 6.1(c) of
the Indenture.
"EVENT OF SERVICING TERMINATION" shall have the meaning assigned
thereto in the Servicing Agreement.
"EVENT OF DEFAULT" shall have the meaning assigned thereto in Sections
6.1 and 13.1 in the Indenture and as supplemented by Section 11 of the Credit
Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXECUTIVE OFFICER" with respect to a Person shall mean the Chief
Executive Officer, President, Chief Operating Officer or Chief Financial
Officer.
"FAIR VALUATION" of the Properties of any Person shall be determined
on the basis of the amount which may be realized within a reasonable time,
either through collection or sale of such assets at the regular market value,
conceiving the latter as the amount which could be obtained for the property in
question within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary selling conditions.
"FOREIGN OBLIGOR" means an obligor of a Loan who is not a citizen or
resident of, and is not making payments from the "United States" (as defined in
Section 7701(a)(9) of the Code).
"FUNDING DATE" shall have the meaning set forth in Section 1.2 of the
Credit Agreement.
"FUNDING NOTEHOLDER" shall mean a Holder of a Funding Note, which
initially shall be the Initial Lender.
"FUNDING NOTES" shall mean the variable funding notes issued under
Article 13 of the Indenture.
"FUNDING NOTES COLLECTION ACCOUNT" shall have the meaning assigned to
such term in Section 13.3 of the Indenture.
-3-
<PAGE>
"FUNDING NOTES DAILY INTEREST" shall mean for any day, the product of
the Outstanding Principal Amount for the Funding Notes at the close of business
on such day (including any Advances made on such day), and the Funding Notes
Interest Rate for such day.
"FUNDING NOTES INTEREST" shall mean for any Payment Date, the sum of
Funding Notes Daily Interest for each day of the related Interest Period.
"FUNDING NOTES INTEREST RATE" shall mean a per annum rate equal to one
month Libor plus 1.50%, reset daily.
"FUNDING NOTES PRINCIPAL PAYMENT AMOUNT" shall mean, for any Payment
Date, the product of (i) 88% and (ii) the sum of (a) the amount of all Payments
allocable to principal in respect of the Specified Loans for the related Due
Period, and (b) the Unpaid Principal Balance of any Defaulted Loan.
"FUNDING TERMINATION EVENT" shall have the meaning set forth in
Section 11.2 of the Credit Agreement.
"GAAP" shall mean, as of the date of any determination with respect
thereto, generally accepted accounting principles as understood and applied in
the United States at the time in question.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"INDENTURE" shall be the indenture, dated as of September 28, 1998, by
and among Epic Resorts, LLC, as administrator, Epic Master Funding Corporation,
and Marine Midland Bank, as trustee.
"INITIAL FUNDING DATE" shall have the meaning set forth in Section 1.2
of the Credit Agreement.
"INITIAL LENDER" shall mean Prudential Securities Credit Corporation,
its successors and permitted assigns.
"INTEREST PERIOD" shall mean the calendar month preceding the related
Payment Date.
"INVESTMENT" shall mean any loan, advance, extension of credit (except
for accounts and notes receivable for merchandise sold or services furnished in
the ordinary course of business, and amounts paid in advance on account of the
purchase price of merchandise to be delivered to the payor within one year of
the date of the advance), or purchase of stock, notes, bonds or other securities
or capital contribution to any Person, whether in cash or other property. The
amount of any Investment shall be its cost (the amount of cash or the fair
market value of other property given in exchange therefor).
-4-
<PAGE>
"LENDER" shall mean the Initial Lender and any Assignees thereof.
"LIBOR" shall mean, with respect to any date of calculation, an
interest rate per annum equal to the rate appearing on the Telerate Page 3750 on
such date as determined by the Lender in good faith.
"LIEN" shall mean any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, civil law, statute, civil code or
contract, whether or not such interest shall be recorded or perfected and
whether or not such interest shall be contingent upon the occurrence of some
future event or events or the existence of some future circumstance or
circumstances, and including the lien, privilege, security interest or other
encumbrance arising from a mortgage, deed of trust, hypothecation, cession,
transfer, assignment, pledge, adverse claim or charge, conditional sale or trust
receipt, or from a lease, consignment or bailment for security purposes. The
term "LIEN" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting property. For the purposes of the
Credit Agreement, a Person shall be deemed to be the owner of any property that
such Person shall have acquired or shall hold subject to a conditional sale
agreement or other arrangement (including a leasing arrangement) pursuant to
which title to the property shall have been retained by or vested in some other
Person for security purposes.
"LOAN ACQUISITION PRICE" shall mean the lesser of (i) 88% of the
Unpaid Principal Balance for Eligible Loans as of the date of purchase under the
Loan Sale Agreement, and (ii) 88% of the aggregate market value of such Eligible
Loans, as determined solely by PSI, in good faith and in a commercially
reasonable manner.
"LOAN FEE" shall have the meaning set forth in Section 18 of the
Servicing Agreement.
"LOAN SALE AGREEMENT" shall mean the Loan Sale Agreement dated as of
September 28, 1998 between the Borrower and Epic, pursuant to which the Borrower
agrees to acquire Eligible Loans from Epic or its Affiliates, as from time to
time further amended, supplemented or modified.
"MATURITY DATE" in respect of any Advance shall mean the one year
anniversary of the Initial Funding Date.
"MINIMUM ASSIGNMENT DENOMINATION" shall mean $500,000.
"MONTHLY SERVICER FEE" shall mean, as of any Payment Date, the sum of
(a) a fee, payable monthly, equal to the product of (i) the Loan Fee, and
(ii) the total number of Loans included in the Trust Estate and allocated to the
Funding Notes at any time during the immediately preceding Due Period and (b)
Reimbursable Servicer Expenses.
"OFFICER'S CERTIFICATE" (i) with respect to the Trustee, any duly
authorized
-5-
<PAGE>
officer, including any vice president, assistant vice president, or any
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by any of the above-designated officers and (ii)
with respect to Epic, the Servicer or the Borrower shall mean a certificate
executed on behalf of such party by the Chairman of the Board, the President
or any Vice President of the relevant entity.
"PAYMENT DATE" shall mean the 10th day of each month (unless such day
is not a Business Day, then the next day that is a Business Day) and ending on
the Maturity Date.
"PERMITTED LIENS" shall mean:
(a) Liens created under the Indenture;
(b) Liens securing taxes, assessments, governmental charges or levies
not yet due or the payment of which is not then required by Section 9.3 of the
Credit Agreement; and
(c) any Lien which is a mechanics lien assessed against a Property
securing a Specified Loan.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency or political
subsection thereof).
"PROGRAM DOCUMENTS" shall mean the Credit Agreement, the Loan Sale
Agreement, the Indenture, the Servicing Agreement, the Collateral Assignments,
the Custody Agreement, the Engagement Letter and the Notes.
"PSI" shall mean Prudential Securities Incorporated.
"RECEIPT" shall be defined in Section 3.1(d) of the Custody Agreement.
"REIMBURSABLE SERVICER EXPENSES" means reasonable and customary
expenses of the Servicer.
"REQUIREMENT OF LAW" shall mean, as to any Person, any law, treaty,
rule or regulation, or determination of an arbitrator or Governmental Authority,
in each case applicable to or binding upon such Person or to which such Person
is subject, whether federal, state or local (including, without limitation,
usury laws, the federal Truth in Lending Act and Regulation Z and Regulation B
of the Board of Governors of the Federal Reserve System).
"SECURITIES" shall mean, with respect to any Person, any shares of any
class of such Person's capital stock, or any options or warrants to purchase its
capital stock or other security exchangeable for or convertible into its capital
stock.
-6-
<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended from time to time.
"SECURITY INTEREST" shall mean the security interest and rights
created under the Indenture in the Collateral in favor of the Trustee.
"SECURITIZATION TAKE-OUT" shall mean a transaction pursuant to which
the Loans and other related Assets constituting the Trust Estate are either
reconveyed by the Trustee to the Borrower, or deemed thereafter to be held by
the Trustee for the benefit of securityholders other than the Noteholders, of a
trust other than the Trust Estate, and in either case, and such reconveyance or
new collateral holding arrangement, is in connection with the public issuance or
private placement of securities rated by at least one of the Rating Agencies and
backed by the Loans and other related Assets.
"SERVICER" Finova Portfolio Services, Inc. an Arizona corporation,
and its successors and its permitted assigns, or any successor entity designated
as such under the Servicing Agreement.
"SERVICING AGREEMENT" shall mean the Servicing Agreement, dated as of
September 28, 1998 among the Servicer, the Borrower and the Trustee.
"SOLVENT" shall mean, with respect to any Person, that:
(a) the Properties of such Person, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of such Person;
(b) based on current projections, which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect such Person's judgment based on present circumstances of the most likely
set of conditions and such Person's most likely course of action for the period
projected, such Person believes it has sufficient cash flow to enable it to pay
its debts as they mature; and
(c) such Person does not have an unreasonably small capital with
which to engage in its anticipated business.
"SPECIFIED LOAN" shall mean each Loan pledged by the Borrower to the
Trustee under the Indenture as security for its obligations under the Credit
Agreement and under the Indenture.
"SUBSEQUENT FUNDING DATE" shall have the meaning set forth in Section
1.2 of the Credit Agreement.
-7-
<PAGE>
"TANGIBLE NET WORTH" shall equal a Person's (i) net worth as
calculated under GAAP, less (ii) receivables from stockholders or Affiliates,
less (iii) intangible assets as calculated under GAAP.
"TRUSTEE" shall be Marine Midland Bank.
"TRUSTEE FEE" shall be $2,000 per annum.
"UNPAID PRINCIPAL BALANCE" means the unpaid principal amount for such
Loan as of the end of the most recent Due Period, or in the case of the Initial
Funding, on a date agreed upon by the Lender and the Borrower on the Initial
Funding Date.
-8-
<PAGE>
Exhibit 21.1
STATE OF
SUBSIDIARY ORGANIZATION
- ---------- -------------
Epic Travel, LLC . . . . . . . . . . . . . . . . . . . . Delaware
London Bridge Resort, LLC. . . . . . . . . . . . . . . . Delaware
Daytona Beach Regency, Ltd.. . . . . . . . . . . . . . . .Florida
Resort Management, LLC . . . . . . . . . . . . . . . . . Delaware
Resort Investment, LLC . . . . . . . . . . . . . . . . . Delaware
Epic Resorts - Hilton Head, LLC. . . . . . . . . . . . . Delaware
Epic Resorts - Palm Springs Marquis Villas, LLC. . . . . Delaware
Epic Resorts - Scottsdale Links Resort, LLC. . . . . . . Delaware
Epic Resorts - Westpark Resort, LLC. . . . . . . . . . . Delaware
Epic Warrant Co. . . . . . . . . . . . . . . . . . . . . Delaware
Epic Marketing, LLC . . . . . . . . . . . . . . . . . . Delaware
Epic Resorts Management, LLC . . . . . . . . . . . . . . Delaware
Epic Resorts - Vacation Showplace, LLC . . . . . . . . . Delaware
Epic Master Funding Corporation . . . . . . . . . . . . Delaware
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated May 22, 1998, and to all references to our Firm, included in or
made a part of this registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
October 21, 1998
<PAGE>
EXHIBIT 24.13
MEMBER AND OFFICERS OF
EPIC RESORTS--VACATION SHOWPLACE, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts--Vacation
Showplace, LLC, a Delaware limited liability company (the "Company"), do
hereby constitute and appoint, Thomas F. Flatley and Scott J. Egelkamp and
each of them, with full power of substitution and resubstitution, as
attorneys-in-fact or attorney-in-fact of the undersigned, for him and in his
name, place and stead, to execute and file with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 one or more
Registration Statement(s) on Form S-4 relating to the registration for sale
of debt securities (the "Securities") of Epic Resorts, LLC and Epic Capital
Corp., which have been guaranteed by the Company, with any and all
amendments, supplements and exhibits thereto (including pre-effective and
post-effective amendments or supplements), to execute and file any and all
other applications or other documents to be filed with the Commission and all
documents required to be filed with any state securities regulating board or
commission pertaining to such Securities registered pursuant to the
Registration Statement(s) on Form S-4, with any and all amendments,
supplements and exhibits thereto each such attorney to have full power to act
with or without the others, and to have full power and authority to do and
perform, in the name and on behalf of the undersigned, every act whatsoever
necessary, advisable or appropriate to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and approving the act of said attorneys and any of them and
any such substitute.
EXECUTED as of October 15, 1998.
/s/ T. F. Flatley /s/ Scott J. Egelkamp
- ------------------------------ ------------------------------------------
Thomas F. Flatley, President Scott J. Egelkamp, Secretary and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
(Principal Accounting Officer)
/s/ T. F. Flatley
- ------------------------------
Epic Resorts, LLC, Sole Member
By: Thomas F. Flatley
Title: President
<PAGE>
EXHIBIT 24.14
MEMBER AND OFFICERS OF
EPIC MARKETING, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Marketing, LLC, a
Delaware limited liability company (the "Company"), do hereby constitute and
appoint, Thomas F. Flatley and Scott J. Egelkamp and each of them, with full
power of substitution and resubstitution, as attorneys-in-fact or
attorney-in-fact of the undersigned, for him and in his name, place and
stead, to execute and file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-4 relating to the registration for sale of debt
securities (the "Securities") of Epic Resorts, LLC and Epic Capital Corp.,
which have been guaranteed by the Company, with any and all amendments,
supplements and exhibits thereto (including pre-effective and post-effective
amendments or supplements), to execute and file any and all other
applications or other documents to be filed with the Commission and all
documents required to be filed with any state securities regulating board or
commission pertaining to such Securities registered pursuant to the
Registration Statement(s) on Form S-4, with any and all amendments,
supplements and exhibits thereto each such attorney to have full power to act
with or without the others, and to have full power and authority to do and
perform, in the name and on behalf of the undersigned, every act whatsoever
necessary, advisable or appropriate to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and approving the act of said attorneys and any of them and
any such substitute.
EXECUTED as of October 15, 1998.
/s/ T. F. Flatley /s/ Scott J. Egelkamp
- ------------------------------ ------------------------------------------
Thomas F. Flatley, President Scott J. Egelkamp, Secretary and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
(Principal Accounting Officer)
/s/ T. F. Flatley
- ------------------------------
Epic Resorts, LLC, Sole Member
By: Thomas F. Flatley
Title: President
<PAGE>
EXHIBIT 24.15
MEMBER AND OFFICERS OF
EPIC RESORTS MANAGEMENT, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts Management,
LLC, a Delaware limited liability company (the "Company"), do hereby
constitute and appoint, Thomas F. Flatley and Scott J. Egelkamp and each of
them, with full power of substitution and resubstitution, as
attorneys-in-fact or attorney-in-fact of the undersigned, for him and in his
name, place and stead, to execute and file with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 one or more
Registration Statement(s) on Form S-4 relating to the registration for sale
of debt securities (the "Securities") of Epic Resorts, LLC and Epic Capital
Corp., which have been guaranteed by the Company, with any and all
amendments, supplements and exhibits thereto (including pre-effective and
post-effective amendments or supplements), to execute and file any and all
other applications or other documents to be filed with the Commission and all
documents required to be filed with any state securities regulating board or
commission pertaining to such Securities registered pursuant to the
Registration Statement(s) on Form S-4, with any and all amendments,
supplements and exhibits thereto each such attorney to have full power to act
with or without the others, and to have full power and authority to do and
perform, in the name and on behalf of the undersigned, every act whatsoever
necessary, advisable or appropriate to be done in the premises as fully and
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and approving the act of said attorneys and any of them and
any such substitute.
EXECUTED as of October 15, 1998.
/s/ T. F. Flatley /s/ Scott J. Egelkamp
- ------------------------------ ------------------------------------------
Thomas F. Flatley, President Scott J. Egelkamp, Secretary and Treasurer
(Principal Executive Officer) (Principal Financial Officer)
(Principal Accounting Officer)
/s/ T. F. Flatley
- ------------------------------
Epic Resorts, LLC, Sole Member
By: Thomas F. Flatley
Title: President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN REGISTRATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK>0001068052
<NAME>EPIC RESORTS LLC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 301,221
<SECURITIES> 0
<RECEIVABLES> 37,897,911
<ALLOWANCES> 750,061
<INVENTORY> 7,962,552
<CURRENT-ASSETS> 0
<PP&E> 13,523,767
<DEPRECIATION> 3,552,379
<TOTAL-ASSETS> 56,288,174
<CURRENT-LIABILITIES> 1,613,989
<BONDS> 42,890,714
0
0
<COMMON> 0
<OTHER-SE> 10,577,702
<TOTAL-LIABILITY-AND-EQUITY> 56,288,174
<SALES> 30,103,561
<TOTAL-REVENUES> 40,290,688
<CGS> 7,336,861
<TOTAL-COSTS> 23,509,667
<OTHER-EXPENSES> 4,827,872
<LOSS-PROVISION> 1,391,467
<INTEREST-EXPENSE> 3,748,063
<INCOME-PRETAX> 6,813,619
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,813,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,137,248
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
