<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
13% Senior Secured Notes due 2005.............. $130,000,000 100% $130,000,000 $38,350
Subsidiary Guarantees of 13% Senior Secured
Notes due 2005............................... -- -- -- (2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act.
(2) Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable
for the Subsidiary Guarantees (as defined herein). The Subsidiary Guarantors
issuing such Subsidiary Guarantees are listed on Table 1 to this
Registration Statement Cover Page.
------------------------------
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
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED , 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 CERTAIN FACTORS
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
ii
<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, subject to the
approval of such mortgage by the Department of the Interior--Bureau of Indian
Affairs (the "Bureau of Indian Affairs"). As Vacation Ownership Interests are
sold, the Mortgages thereon will be released. As of March 31, 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 $19.9 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
iii
<PAGE>
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 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 sources for this data include, without limitation, the American
iv
<PAGE>
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
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
<PAGE>
<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. 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 three months ended March 31, 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 49.4% of such sales for the
twelve months ended March 31, 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 $ 13,172 400 612
Daytona Beach Regency Daytona Beach, FL 11/96 11,171 422 2,295
Westpark Resort Las Vegas, NV 9/98 11,400 7,752 0
Scottsdale Links Resort Scottsdale, AZ 10/98 15,500 11,628 0
Palm Springs Palm Springs, CA 10/98 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
first 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 one off-site sales
center in Fresno, California and is developing an additional off-site sales
center in Philadelphia, Pennsylvania, which is expected to be operational by
the end of 1998. 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 $4.6 million
of revenue and had an operating margin of 47.9% for the twelve months ended
March 31, 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
2
<PAGE>
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 $13,172 and $11,171, respectively as of March 31, 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. As of March 31, 1998,
the Company had a vacation ownership receivables portfolio totaling
approximately $40.6 million in principal amount, with a weighted average
contractual yield of approximately 15.0% for the three months ended March 31,
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. The Company has a firm commitment with a
financial institution affiliated with the Initial Purchaser to provide the
Company with a non-recourse vacation ownership interest loan participation
facility (the "New Receivables Facility"), which, if consummated, 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 vacation ownership as an alternative to
traditional vacation lodging establishments increases. Set forth below is
certain information relating to the vacation ownership industry.
3
<PAGE>
<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) obtaining and
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
4
<PAGE>
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.
OBTAINING AND UTILIZING THE NEW RECEIVABLES FACILITY. If consummated,
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.
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 (the "Hilton Head Debt") 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 "Daytona Beach Acquisition"). 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.
5
<PAGE>
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").
The following chart describes the structure of the Company following the
Restructuring and the Acquisitions:
[LOGO]
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.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................. 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
"Certain U.S. Federal Tax Considerations."
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 Rights Agreement. Holders of the Original
Notes who do not
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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
<PAGE>
<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 "Certain United States Federal
Tax Considerations") 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 "Certain United States Federal Tax
Considerations."
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 March 31, 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 $19.9 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>
11
<PAGE>
<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>
12
<PAGE>
<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>
13
<PAGE>
<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.
15
<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 three-month
periods ended March 31, 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 THREE
AS OF OR FOR THE YEAR ENDED, MONTHS ENDED,
------------------------------------------- ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
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 $ 6,290 $ 7,413
Resort operations....................................... 5,029 6,074 6,652 1,582 1,497
Interest income and other............................... 704 1,208 3,535 716 1,199
------------- ------------- ------------- ----------- -----------
Total revenues.................................... 14,023 17,866 40,291 8,588 10,109
Cost of sales--vacation ownership interests............. 3,154 3,544 7,337 1,595 1,795
Resort operations expense............................... 4,103 4,806 4,599 1,204 939
Selling and marketing expenses.......................... 3,452 4,307 11,574 2,327 2,903
General and administrative expenses..................... 1,322 2,014 3,188 692 793
Depreciation and amortization........................... 644 799 772 207 198
Provision for losses.................................... 474 492 1,391 280 327
Financing and closing costs............................. 460 323 868 101 222
Interest expense........................................ 894 2,143 3,748 907 1,017
------------- ------------- ------------- ----------- -----------
Income (loss) before minority interest and extraordinary
item.................................................. (480) (562) 6,814 1,275 1,915
Minority interest....................................... -- (473) 1,676 446 543
------------- ------------- ------------- ----------- -----------
Income (loss) before extraordinary item................. (480) (89) 5,138 829 1,372
Extraordinary gain on settlement of debt................ 5,077 -- -- -- --
------------- ------------- ------------- ----------- -----------
Net income (loss)....................................... $ 4,597 $ (89) $ 5,138 $ 829 $ 1,372
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
OTHER DATA AND CREDIT STATISTICS:
EBITDA (1).............................................. $ 1,058 $ 2,859 $ 9,844 $ 1,990 $ 2,632
Pro Forma EBITDA (1).................................... 1,058 2,386 11,520 2,436 3,175
Weighted average interest rate on notes receivable at
period end............................................ 14.2% 14.4% 14.9% 14.5% 15.0%
Number of resorts at period end......................... 1 2 2 2 2
Average sales price of vacation ownership interests
sold.................................................. $ 11,157 $ 12,466 $ 11,746 $ 11,649 $ 12,014
Number of vacation ownership interests sold............. 743 849 2,563 540 617
Ratio of earnings to fixed charges (2).................. 0.46 0.88 2.29 1.79 2.31
BALANCE SHEET DATA:
Mortgages receivable, net............................... $ 7,641 $ 20,996 $ 37,148 $ 23,943 $ 40,558
Inventory, net.......................................... 12,032 12,741 7,963 11,820 7,231
Total assets............................................ 28,269 43,034 56,288 45,918 59,950
Notes payable........................................... 18,780 34,009 42,891 35,813 44,323
Stockholder's equity.................................... 8,763 8,163 10,578 8,795 12,113
</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
16
<PAGE>
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 THREE MONTHS ENDED
------------------------------------------ ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net income (loss)......................... $ 4,597 $ (89) $ 5,138 $ 829 $ 1,372
Interest expense.......................... 894 2,143 3,748 907 1,017
Capitalized interest expense included in
cost
of sales................................ -- 6 186 47 45
Income taxes (a).......................... -- -- -- -- --
Depreciation and amortization............. 644 799 772 207 198
Extraordinary item........................ (5,077) -- -- -- --
------------ ------------- ------------- ----------- -----------
EBITDA.................................... 1,058 2,859 9,844 1,990 2,632
Minority interest......................... -- (473) 1,676 446 543
------------ ------------- ------------- ----------- -----------
Pro Forma EBITDA (b)...................... $ 1,058 $ 2,386 $ 11,520 $ 2,436 $ 3,175
------------ ------------- ------------- ----------- -----------
------------ ------------- ------------- ----------- -----------
</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.
17
<PAGE>
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. No assurance can be given that the Acquisitions or future
acquisitions will be profitable. See "Business--The Acquisitions."
MANAGEMENT OF GROWTH
The Company's anticipated rapid growth 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
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.
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<PAGE>
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 March 31, 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 $147.2 million. 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 $2.0
million for the three months ended March 31, 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. See "Description
of Notes."
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
has received a firm commitment from a financial institution affiliated with the
Initial Purchaser to provide the Company with the New Receivables Facility.
However, no assurance can be given that the New Receivables Facility will be
entered into or that funding will be provided on the terms discussed herein, if
at all, or that the Company will be able to obtain sufficient external sources
of liquidity on attractive terms, or at all. The Company's proposed New
Receivables Facility, if consummated, will include, among other things, various
representations and warranties, conditions to funding, eligibility requirements
for collateral, affirmative, negative and financial covenants and events of
default. 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.
19
<PAGE>
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 March 31, 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 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 proposed 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. To the extent the
Company's receivables bear
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interest at a fixed rate and its borrowings bear interest at a variable rate,
the Company bears the risk of increases in interest rates.
Under the Company's current receivables facilities, the Company bears the
risk of delinquencies and defaults by buyers who finance the purchase of their
Vacation Ownership Interests through the Company. The New Receivables Facility,
if consummated, will permit the Company to sell its Vacation Ownership Interests
Receivable to a limited-purpose receivables subsidiary on a non-recourse basis.
Such Vacation Ownership Interests Receivable 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. If the New
Receivables Facility is consummated, the Company may be able to finance a
substantial portion of its customers' purchases of Vacation Ownership Interests
from the funds provided by such facility. No assurance can be given, however, as
to when the New Receivables Facility will be consummated, if at all, and if
consummated, 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. 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 three-month period ended March 31,
1998 and the year ended December 31, 1997, the Company charged $0.3 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."
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 problems associated 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
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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 October 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.
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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 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.
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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 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 other 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 or any other members of senior management could have a
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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, 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 QUARTERLY RESULTS
The Company's earnings 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,
inventory write-downs, levels of loan losses, and the potential impact of
adverse weather and other natural disasters at the Company's resorts. Material
fluctuations in operating results may also occur due to the requirement that the
Company use of the percentage of completion method of accounting. 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
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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 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 coverage. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could lose its investment in a
resort as well as the anticipated future revenues from such resort, 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
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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.
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 "Certain United States Federal Tax
Considerations") 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 "Certain United States Federal Tax Considerations."
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
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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."
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."
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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.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 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 MARCH 31, 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..................... $ 44,323 $ 19,908
13% Senior Secured Notes due 2005...................................................... -- 127,243
----------- -----------
Total long-term debt............................................................... 44,323 147,151
Total stockholder's equity............................................................... 12,113 13,266
----------- -----------
Total capitalization............................................................... $ 56,436 $ 160,417
----------- -----------
----------- -----------
</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 three-month periods ended March 31, 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
THREE-MONTHS ENDED
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
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 $ 6,290 $ 7,413
Resort operations............................... 5,565 5,592 5,029 6,074 6,652 1,582 1,497
Interest income and other....................... 56 51 704 1,208 3,535 716 1,199
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ 14,193 13,753 14,023 17,866 40,291 8,588 10,109
Cost of sales--vacation ownership interests..... 3,193 3,008 3,154 3,544 7,337 1,595 1,795
Resort operations expense....................... 4,350 4,217 4,103 4,806 4,599 1,204 939
Selling and marketing expenses.................. 3,047 3,104 3,452 4,307 11,574 2,327 2,903
General and administrative expenses............. 1,357 1,385 1,322 2,014 3,188 692 793
Depreciation and amortization................... 591 586 644 799 772 207 198
Provision for losses............................ 473 458 474 492 1,391 280 327
Financing and closing costs..................... 217 271 460 323 868 101 222
Interest expense................................ 700 502 894 2,143 3,748 907 1,017
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary item............................ 265 222 (480) (562) 6,814 1,275 1,915
Minority interest............................... -- -- -- (473) 1,676 446 543
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item......... 265 222 (480) (89) 5,138 829 1,372
Extraordinary gain on settlement of debt........ -- -- 5,077 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ 265 $ 222 $ 4,597 $ (89) $ 5,138 $ 829 $ 1,372
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA AND CREDIT STATISTICS:
EBITDA(1)....................................... $ 1,556 $ 1,310 $ 1,058 $ 2,859 $ 9,844 $ 1,990 $ 2,632
Pro Forma EBITDA(1)............................. 1,556 1,310 1,058 2,386 11,520 2,436 3,175
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 2
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(2)........... 1.38 1.44 0.46 0.88 2.29 1.79 2.31
BALANCE SHEET DATA:
Mortgages receivable, net....................... $ 610 $ 801 $ 7,641 $ 20,996 $ 37,148 $ 23,943 $ 40,558
Inventory, net.................................. 16,350 14,620 12,032 12,741 7,963 11,820 7,231
Total assets.................................... 25,954 24,476 28,269 43,034 56,288 45,918 59,950
Notes payable................................... 20,117 18,399 18,780 34,009 42,891 35,813 44,323
Stockholder's equity............................ 5,051 5,316 8,763 8,163 10,578 8,795 12,113
</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 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 or 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):
31
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........ $ 265 $ 222 $ 4,597 $ (89) $ 5,138 $ 829 $ 1,372
Interest expense......... 700 502 894 2,143 3,748 907 1,017
Capitalized interest
expense included in cost
of sales................ -- -- -- 6 186 47 45
Income taxes (a)......... -- -- -- -- -- -- --
Depreciation............. 591 586 644 799 772 207 198
Extraordinary item....... -- -- (5,077) -- -- -- --
------------ ------------ ------------ ------------ ------------ ----------- -----------
EBITDA................... 1,556 1,310 1,058 2,859 9,844 1,990 2,632
Minority interest........ -- -- -- (473) 1,676 446 543
------------ ------------ ------------ ------------ ------------ ----------- -----------
Pro forma EBITDA (b)..... $ 1,556 $ 1,310 $ 1,058 $ 2,386 $ 11,520 $ 2,436 $ 3,175
------------ ------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ------------ ----------- -----------
</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
Offering closed January 1, 1997 and reflects the elimination of minority
interests 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.
32
<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.
33
<PAGE>
Assuming that the New Receivables Facility is consummated, 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 THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
TOTAL REVENUES. For the three months ended March 31, 1998, the Company
recognized total revenues of $10.1 million compared to $8.6 million for the
three months ended March 31, 1997, an increase of $1.5 million, or 17.4%. This
increase is primarily the result of a $1.1 million increase in sales of Vacation
Ownership Interests to $7.4 million during 1998 from $6.3 million during 1997,
an increase of 17.5%.
Sales of Vacation Ownership Interests increased primarily as a result of (i)
a 3.1% increase in the average sales price of Vacation Ownership Interests; and
(ii) a 14.3% increase in the number of Vacation Ownership Interests sold from
540 to 617.
Interest income and other increased 71.4% to $1.2 million for the three
months ended March 31, 1998 from $0.7 million for the comparable period in 1997
due to a 69.9% increase in the principal amount of net customer mortgages
receivable to $40.6 million from $23.9 million, and an increased average yield
on the Company's customer mortgages receivable portfolio to 15.0% from 14.5%.
Resort operations revenue decreased 6.3%, to $1.5 million for the three months
ended March 31, 1998 from $1.6 million for the comparable period in 1997, as a
result of fewer suites being available for rent, which, however, is a direct
result of more Vacation Ownership Interests having been sold.
COST OF SALES. Cost of sales for Vacation Ownership Interests as a
percentage of sales of Vacation Ownership Interests decreased to 24.2% for the
three months ended March 31, 1998 from 25.4% for the comparable period in 1997,
reflecting higher average selling prices for Vacation Ownership Interests at
both the London Bridge Resort and the Daytona Beach Regency.
RESORT OPERATIONS EXPENSE. Resort operations expense decreased 33.3% to
$0.9 million for the three months ended March 31, 1998 from $1.2 million for the
comparable period in 1997, 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 increased
to 39.2% for the three months ended March 31, 1998 from 37.0% for the comparable
period in 1997. The increase in selling and marketing expenses, as a percentage
of sales of Vacation Ownership Interests, is attributable to (i) higher lodging
costs for potential customers taking mini-vacation tours in Daytona Beach during
peak seasons such as Daytona 500 week and spring break, (ii) increased
conversion activity and (iii) increased sales of Vacation Ownership Interests,
which reduced the number of available suites during the three months ended March
31, 1998 as compared to the comparable period in 1997.
34
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
14.3% to $0.8 million for the three months ended March 31, 1998 from $0.7
million for the comparable period in 1997. However, as a percentage of total
revenues, these costs decreased to 7.8% to $0.9 million for the three months
ended March 31, 1998 from 8.1% for the comparable period in 1997. This $0.1
million increase in general and administrative expenses was primarily the result
of additional employee costs incurred in generating increased sales volumes,
offset by the effect of leveraging these costs over a larger revenue base.
INTEREST EXPENSE. Interest expense totaled $1.0 million and $0.9 million
for the three months ended March 31, 1998 and 1997, respectively. This 11.1%
increase reflects higher borrowings to fund growth in the Company's operations.
The average outstanding balance of interest-bearing debt increased to $43.6
million for the three months ended March 31, 1998 from $34.9 million for the
comparable period in 1997. The weighted average interest rate for the Company's
financing arrangements secured by notes receivable was 10.7% and 11.2% for the
three months ended March 31, 1998 and 1997, respectively.
PROVISION FOR LOAN LOSSES. Provision for loan losses as a percentage of
sales of Vacation Ownership Interests declined to 4.4% for the three months
ended March 31, 1998 from 4.5% for the comparable period in 1997. The Company
periodically monitors its provision for loan losses to provide for future losses
associated with any defaults on customer notes receivable and provides for
additions to the allowance for loss on receivables through its provision for
loan losses on an annual basis. Management believes that the provision is
adequate for such future losses.
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.
35
<PAGE>
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.
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.
36
<PAGE>
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.
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.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Cash and cash equivalents decreased by $0.2 million for the three months
ended March 31, 1998, and increased by approximately $0.2 million for the three
months ended March 31, 1997.
Net cash used in operating activities was $1.0 million and $0.6 million for
the three months ended March 31, 1998 and 1997, respectively. The net change is
primarily attributable to an increase in the Company's receivables from the
Associations during the three months ended March 31, 1998 as compared to the
same period in 1997 as well as a decrease in accounts payable during the three
months ended March 31, 1998 as compared to the same period in 1997.
Net cash used in investing activities was $0.2 million and $0.7 million for
the three months ended March 31, 1998 and 1997, respectively. The net change is
primarily attributable to higher construction activities during the three months
ended March 31, 1997, including the refurbishing of the on-site sales center at
the London Bridge Resort.
37
<PAGE>
Net cash provided by financing activities was $1.0 million and $1.5 million
for the three months ended March 31, 1998 and 1997, respectively. The decrease
during the three months ended March 31, 1998 as compared to the same period in
1997 is primarily attributable to the increase in notes payable of $1.2 million
offset by increased payments on the notes payable of $1.4 million, and the
additional financing costs of $0.6 million during the three months ended March
31, 1997 and a decrease in distributions to the sole stockholder of $0.3
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from operations through the sale and financing of
Vacation Ownership Interests, resort operations 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 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). If the New Receivables Facility is consummated, 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 March
31, 1998, the Company had $44.3 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 $23.0
million receivables facility (the "Existing Receivables Facility") will be
repaid and terminated when the New Receivables Facility is consummated. The
Existing Receivables Facility bears interest at prime plus 2.5% per annum (11%
per annum at March 31, 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 March 31, 1998 the
outstanding principal balance under the Existing Receivables Facility was
approximately $19.9 million.
The Company has a firm commitment from an affiliate of the Initial Purchaser
(the "Receivables Lender") to provide the Company with the New Receivables
Facility, a non-recourse $75 million vacation ownership loan participation
facility. Under this facility, the Company will sell its Vacation Ownership
Interest Receivables to a wholly-owned limited purpose, bankruptcy remote
subsidiary of the Company, and such Receivables Lender will purchase from the
receivables subsidiary 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 the receivables subsidiary. The
commitment provides for advance rates of 50% for unseasoned receivables (those
for which the related obligor has made less than three contractual payments) and
between 70% and 80% for seasoned receivables (those for which the related
obligor has made three or more contractual payments). Borrowings under the
facility will bear interest at LIBOR plus 1.50%. Indebtedness under the facility
will be non-recourse to the Company. The facility is intended to provide
non-recourse interim funding for the Vacation Ownership Interests Receivable
pending their permanent funding through receivables securitization transactions.
The commitment is subject to customary conditions, including execution of
definitive documentation. If the New Receivables
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<PAGE>
Facility is consummated, it is expected that the Company will be able to fund a
significant portion of its future development from funds provided by such
facility.
The Company's capital resources are provided from the following sources: (i)
cash flows from operations, (ii) proceeds from the Existing Receivables Facility
and, if consummated, 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."
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 for the next twelve months. The Company may, in the future, require
additional credit facilities or issuances of other corporate debt or equity
securities 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.
39
<PAGE>
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. 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, as well as the Company's potential exposure to the
failure of such suppliers and third party service providers to become Year 2000
compliant. 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.
40
<PAGE>
BUSINESS
Epic Resorts, LLC is a nationwide developer and marketer of high quality
vacation ownership resorts located in proven, major tourist destinations. 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 three months ended March 31, 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
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<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 49.4% of such sales for the twelve months ended March 31, 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
- ----------------------------- ----------------------------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
London Bridge Lake Havasu City, AZ 8/91 $ 13,172 400 612
Resort
Daytona Beach Daytona Beach, FL 11/96 11,171 422 2,295
Regency
Westpark Resort Las Vegas, NV 9/98 11,400 7,752 0
Scottsdale Links Scottsdale, AZ 10/98 15,500 11,628 0
Resort
Palm Springs Palm Springs, CA 10/98 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 9,843
Resort
Daytona Beach 0
Regency
Westpark Resort 0
Scottsdale Links 0
Resort
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 the London Bridge
Resort, Daytona Beach Regency and the Planter's Quarters Resort for the
first 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 one off-site sales
center in Fresno, California and is developing an additional center in
Philadelphia, Pennsylvania, which is expected to be operational by mid 1998.
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 $4.6 million of revenue and had an
operating margin of 47.9% for the twelve months ended March 31, 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
42
<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 $13,172 and $11,171, respectively as of
March 31, 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. As of March 31, 1998,
the Company had a vacation ownership receivables portfolio totaling
approximately $40.6 million in principal amount, with a weighted average
contractual yield of approximately 15.0% for the three months ended March 31,
1998. 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 has a firm commitment with a
financial institution affiliated with the Initial Purchaser to provide the
Company with the New Receivables Facility, which, if consummated, will enable
the Company to turn such receivables 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 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
43
<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) obtaining and
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
44
<PAGE>
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.
OBTAINING AND UTILIZING THE NEW RECEIVABLES FACILITY. If consummated, 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.
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, 1988, 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
45
<PAGE>
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."
46
<PAGE>
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 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. 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
46
<PAGE>
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 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.
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
47
<PAGE>
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. 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
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<PAGE>
October 1998, except in the case of Palm Springs Marquis Villas, which the
Company expects to receive by January 1999.
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 expects to commence 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.
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<PAGE>
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 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 will be completed in phases of eight to nine suites each, with
construction commencing in the third quarter of 1998. 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. One of the Company's primary means of selling
Vacation Ownership Interests is through the efforts of on-site sales forces at
each of its resorts. A variety of marketing programs are employed to generate
prospects for these sales efforts, which include 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. Additionally, incentive premiums are offered to guests to encourage
resort tours, such as entertainment tickets, hotel stays, gift certificates or
free meals. Prospective target customers are identified through various means of
profiling. Cross-marketing efforts target current customers for opportunities to
sell additional Vacation Ownership Interests at the owner's home resort or at
another of the Company's resorts.
The Company also believes it is strategically positioned to enter new
markets by utilizing its existing and planned off-site sales centers. The
Company leases one off-site sales center in Fresno, California and is currently
constructing another center in Philadelphia, Pennsylvania. In addition, the
Company plans to add another off-site sales center by the end of 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 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 sales representatives are a critical component of the 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 has developed, and continues to enhance, a computer database
which tracks its vacation ownership marketing and sales programs. Management
believes that as its operations grow, this database will become an increasingly
significant asset that will enable the Company to focus its sales efforts to
more effectively utilize marketing and referral opportunities.
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<PAGE>
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 three months ended March 31, 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 and a fixed interest
rate. At the closing of a sale, the Company delivers the deed to the Vacation
Ownership Interest purchaser and secures repayment of the purchaser's obligation
by obtaining a mortgage on the 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 March 31, 1998, respectively. The table
below sets forth additional information relating to the Company's notes
receivable (amounts in thousands).
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Notes receivable, gross, secured by Vacation Ownership Interests.... $ 21,732,059 $ 37,897,911 $ 41,401,896
Reserve for loan losses............................................. (736,211) (750,061) (843,622)
------------- ------------- -------------
Notes receivable, net............................................... $ 20,995,848 $ 37,147,850 $ 40,558,274
------------- ------------- -------------
------------- ------------- -------------
Charge-offs......................................................... $ 448,359 $ 1,377,617 $ 233,528
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
LOAN UNDERWRITING
Consistent with industry practice, Vacation Ownership Interest financing is
not subject to extensive loan underwriting criteria, but 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."
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The collection procedures under the New Receivables Facility, if
consummated, will be set forth in the definitive documentation relating to such
facility. Such documentation has not yet been executed.
LOAN LOSS RESERVES
Reserve for loan losses as a percentage of period-end notes receivable was
4.7%, 4.7% and 4.4% at December 31, 1996, December 31, 1997 and March 31, 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 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."
In addition, the Company has a firm commitment with a financial institution
affiliated with the Initial Purchaser to provide the Company with the New
Receivables Facility after the consummation of the Offering. See "Management's
Discussion and Analysis of Results of Operational Financial Condition" for a
description of such facility.
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 $78,107 in fiscal 1997 and the first quarter
of 1998, respectively. The Company expects that its receivables servicing will
not change substantially if the New Receivables Facility is consummated.
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
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<PAGE>
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, 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."
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EMPLOYEES
As of May 31, 1998, the Company employed a total of 643 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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<PAGE>
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.
OTHER SIGNIFICANT EMPLOYEES OF THE COMPANY
<TABLE>
<CAPTION>
NAME POSITION
- ----------------- ---------------------------------------------------
<S> <C>
C. Todd Lynch Director of Vacation Ownership Development
Farzin Ferdosi Director of Vacation Ownership Development
Lund Stucki Director of Resort Operations
</TABLE>
TODD LYNCH AND FARZIN FERDOSI have 18 and 16 years, respectively, of
experience in the development and operation of vacation ownership resorts. They
have both participated in the start up of sales for several vacation ownership
resorts across the country and have extensive experience in the management and
supervision of on-site and off-site sales offices.
LUND STUCKI joined Epic in 1987 as General Manager of London Bridge Resort
and became Director of Resort Operations in 1992. Mr. Stucki has over 16 years
of experience in management and supervision of vacation and resort units. Prior
to joining Epic, Mr. Stucki served in a number of sales, marketing and
management capacities in the hospitality industry.
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
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<PAGE>
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 is in the process of purchasing an annual
renewable term life insurance policy on Mr. Flatley from The Midland Life
Insurance Company promptly following the consummation of the Offering. This
policy is expected to have a face value of $18 million, and will be renewable
until 2047, when Mr. Flatley reaches the age of 95. The Company will be the sole
beneficiary of such policy.
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. The Existing Receivables Facility bears interest at prime plus 2.5%
(11.0% at March 31, 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 mortgages receivable and is collateralized by the specific mortgages
receivable. As of March 31, 1998, the outstanding balance under the Existing
Receivables Facility was approximately $19.9 million.
The Company has a firm commitment from an affiliate of the Initial Purchaser
(the "Receivables Lender") to provide the Company with the New Receivables
Facility, a non-recourse $75 million vacation ownership loan participation
facility. Under this facility, the Company will sell its Vacation Ownership
Interest Receivables to a wholly-owned limited purpose, bankruptcy remote
subsidiary of the Company, and such Receivables Lender will purchase from the
receivables subsidiary 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 the receivables subsidiary. The
commitment provides for advance rates of 50% for unseasoned receivables (those
for which the related obligor has made less than three contractual payments) and
between 70% and 80% for seasoned receivables (those for which the related
obligor has made three or more contractual payments). Borrowings under the
facility will bear interest at LIBOR plus 1.50%. Indebtedness under the facility
will be non-recourse to the Company. The facility is intended to provide
non-recourse interim funding for the Vacation Ownership Interests Receivable
pending their permanent funding through receivables securitization transactions.
The commitment is subject to customary conditions, including execution of
definitive documentation. If consummated, the Company expects to use borrowings
under the New Receivables Facility to repay the outstanding loans under the
Existing Receivables Facility.
The Existing Receivables Facility includes, and the New Receivables Facility
is expected to 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, subject to approval of such mortgage by the Bureau of Indian
Affairs.
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
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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 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
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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 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.
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(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 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
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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 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.
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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 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
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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. 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
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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 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
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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").
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 Note 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 Note 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 Note 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.
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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.
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
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contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"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,
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(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 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 a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in
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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 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
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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 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
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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.
"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.
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"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; (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
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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 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.
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"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 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
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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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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
In the opinion of Jones, Day, Reavis & Pogue, special tax counsel to the
Company, the following is a description of the principal 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
103
<PAGE>
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.
104
<PAGE>
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
105
<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.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
I. EPIC RESORTS, INC.
Report of Independent Public Accountants............................................................ F-2
Combined Balance Sheets as of December 31, 1997, 1996 and March 31, 1998 (Unaudited)................ F-3
Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995, and the Three
Months Ended March 31, 1998 and 1997 (Unaudited).................................................. F-4
Combined Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1997, 1996
and 1995, and the Three Months Ended March 31, 1998 (Unaudited)................................... F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995, and the
Three Months Ended March 31, 1998 and 1997 (Unaudited)............................................ F-6
Notes to Combined Financial Statements.............................................................. F-7
II. LONDON BRIDGE RESORT, INC.
Report of Independent Public Accountants............................................................ F-16
Balance Sheets as of December 31, 1997 and 1996..................................................... F-17
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995........................... F-18
Statements of Changes in Stockholder's Equity for the Years Ended December 31, 1997, 1996 and
1995.............................................................................................. F-19
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................... F-20
Notes to Financial Statements....................................................................... F-22
III. DAYTONA BEACH REGENCY, LTD.
Report of Independent Public Accountants............................................................ F-28
Balance Sheets as of December 31, 1997 and 1996..................................................... F-29
Statements of Income for the Year Ended December 31, 1997 and for the period from inception (April
8, 1996) through December 31, 1996................................................................ F-30
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-31
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-32
Notes to Financial Statements....................................................................... F-33
</TABLE>
F-1
<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-2
<PAGE>
EPIC RESORTS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 48,650 $ 248,079 $ 27,135
Cash in escrow.................................... 202,404 53,142 139,103
Mortgages receivable, net of allowance of $843,622
(unaudited), $750,061 and $736,211 as of March
31, 1998, December 31, 1997 and 1996,
respectively.................................... 40,558,274 37,147,850 20,995,848
Inventory......................................... 7,231,463 7,962,552 12,741,087
Property and equipment, net....................... 9,996,932 9,971,388 8,429,264
Deferred financing costs, net..................... 1,193,418 677,159 613,764
Other assets...................................... 719,202 228,004 87,669
----------- ------------ ------------
Total assets................................ $59,950,343 $ 56,288,174 $ 43,033,870
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.................................. $ 816,984 $ 983,704 $ 719,926
Accrued expenses.................................. 679,747 520,735 414,722
Due to Homeowners' Association.................... -- 56,408 59,288
Advance deposits.................................. 268,854 53,142 139,103
Notes payable..................................... 44,323,145 42,890,714 34,008,682
----------- ------------ ------------
Total liabilities........................... 46,088,730 44,504,703 35,341,721
Minority Interest................................. 1,748,564 1,205,769 (470,602)
Commitments and contingencies (Note 9)............ -- -- --
Stockholder's Equity.............................. 12,113,049 10,577,702 8,162,751
----------- ------------ ------------
Total liabilities and stockholder's
equity.................................... $59,950,343 $ 56,288,174 $ 43,033,870
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EPIC RESORTS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED, FOR THE YEAR ENDED
---------------------------- -------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Sales of vacation ownership
interests........................ $ 7,412,766 $ 6,290,321 $ 30,103,561 $ 10,583,527 $ 8,289,785
Resort operations.................. 1,497,233 1,581,918 6,651,552 6,074,429 5,029,222
Interest income.................... 1,199,326 716,111 3,535,575 1,207,977 703,813
------------- ------------- ------------- ------------- -------------
10,109,325 8,588,350 40,290,688 17,865,933 14,022,820
------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales of vacation ownership
interests........................ 1,794,980 1,595,170 7,336,861 3,543,853 3,153,516
Resort operations.................. 938,281 1,203,912 4,599,059 4,805,702 4,103,109
Selling and marketing costs........ 2,903,198 2,326,876 11,573,747 4,306,702 3,451,965
General and administrative......... 793,407 692,516 3,188,269 2,014,015 1,322,263
Provision for doubtful accounts.... 327,089 280,125 1,391,467 492,056 473,539
Depreciation and amortization...... 197,740 207,157 771,330 798,904 643,941
Financing and closing costs........ 222,383 100,520 868,273 322,934 460,242
Interest expense................... 1,017,328 907,221 3,748,063 2,142,911 894,464
------------- ------------- ------------- ------------- -------------
8,194,406 7,313,497 33,477,069 18,427,077 14,503,039
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interest
and extraordinary item............... 1,914,919 1,274,853 6,813,619 (561,144) (480,219)
Minority interest...................... 542,795 446,363 1,676,371 (472,995) --
------------- ------------- ------------- ------------- -------------
Income (loss) before extraordinary
item................................. 1,372,124 828,490 5,137,248 (88,149) (480,219)
Extraordinary gain on settlement of
debt (Note 7)........................ -- -- -- -- 5,077,456
------------- ------------- ------------- ------------- -------------
Net income (loss)...................... $ 1,372,124 $ 828,490 $ 5,137,248 $ (88,149) $ 4,597,237
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<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 MARCH 31, 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
Net income (unaudited).......................... 1,372,124
-------------
BALANCE, MARCH 31, 1998 (unaudited)............... $ 12,113,049
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EPIC RESORTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED FOR THE YEAR ENDED
------------------------ ----------------------------------------
MARCH 31, MARCH 31, 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)............................... $ 1,372,124 $ 828,490 $5,137,248 $ (88,149) $4,597,237
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and amortization................. 197,740 207,157 771,330 798,904 643,941
Amortization of financing fees................ 43,025 28,436 173,605 75,201 72,881
Provision for doubtful accounts............... 327,089 280,125 1,391,467 492,056 473,539
Minority Interest............................. 542,795 446,363 1,676,371 (470,602) --
Extraordinary gain on early
settlement of debt.......................... -- -- -- -- (5,077,456)
Change in assets and liabilities--
Cash in escrow.............................. (149,262) 78,116 85,961 (88,509) (20,812)
Mortgages receivable........................ (3,737,513) (3,226,813) (17,543,469) (712,110) (6,323,252)
Inventory................................... 731,089 921,568 4,778,535 (709,259) 2,588,253
Other assets................................ (491,198) (146,532) (140,335) 12,960 54,667
Accounts payable............................ (166,720) (77,720) 263,775 237,219 114,513
Accrued expenses............................ 159,012 216,943 106,013 221,872 244,015
Due to Association.......................... (56,408) (59,288) (2,880) 59,288 --
Advance deposits............................ 215,712 (78,116) (85,961) 88,509 (9,585)
----------- ----------- ------------ ------------ ------------
Net cash used in operating activities..... (1,012,515) (581,271) (3,388,340) (82,620) (2,642,059)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (223,284) (728,362) (2,313,454) (1,489,094) (980,326)
----------- ----------- ------------ ------------ ------------
Net cash used in investing activities..... (223,284) (728,362) (2,313,454) (1,489,094) (980,326)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................... 5,340,691 4,163,028 24,846,989 7,566,143 15,845,186
Payments on notes payable....................... (3,908,260) (2,358,985) (15,964,957) (5,472,540) (10,769,873)
Payment of deferred financing costs............. (559,284) (102,715) (237,000) (31,793) (396,250)
Contributions................................... 163,223 133,592 602,865 947,730 --
Distributions................................... -- (330,312) (3,325,159) (1,459,404) (1,150,664)
----------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities.............................. 1,036,370 1,504,608 5,922,738 1,550,136 3,528,399
----------- ----------- ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (199,429) 194,975 220,944 (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............ $ 48,650 $ 222,110 $ 248,079 $ 27,135 $ 48,713
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid................................... $ 1,005,226 $ 837,621 $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-6
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 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-7
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 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-8
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 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-9
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 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 THREE FOR THE YEAR ENDED
MONTHS ENDED ---------------------------
MARCH 31, 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................... 327,089 1,391,467 492,057
Charge-offs....................................... (233,528) (1,377,617) (448,360)
------------- ------------ ------------
Balance, end of period............................ $ 843,622 $ 750,061 $ 736,211
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
4. INVENTORY:
Inventory and accumulated cost of vacation ownership interests consist of
the following as of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ 2,479,430 $ 2,479,430 $ 2,479,430
Development costs................................. 31,521,661 30,492,374 27,880,128
------------ ------------ ------------
34,001,091 32,971,804 30,359,558
Less: accumulated vacation ownership interest cost
of sales........................................ (24,083,757) (22,415,969) (15,332,303)
Less: resort property valuation allowance......... (2,685,871) (2,593,283) (2,286,168)
------------ ------------ ------------
$ 7,231,463 $ 7,962,552 $ 12,741,087
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 1998 AND 1997 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
MARCH 31, 31, 31,
1998 1997 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................................. $2,913,029 $2,913,029 $2,909,304
Building and improvements............................. 9,105,108 8,806,349 7,880,795
Furniture, fixtures and equipment..................... 1,864,162 1,804,389 772,187
---------- ---------- ----------
13,882,299 13,523,767 11,562,286
Less- Accumulated depreciation........................ 3,885,367 3,552,379 3,133,022
---------- ---------- ----------
$9,996,932 $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>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred financing costs.......................... $ 1,641,808 $1,082,524 $ 845,524
Less- Accumulated amortization.................... 448,390 405,365 231,760
----------- ------------ ------------
$ 1,193,418 $ 677,159 $ 613,764
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-11
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 1998 AND 1997 IS UNAUDITED)
7. NOTES PAYABLE:
Notes payable consist of the following as of:
<TABLE>
<CAPTION>
MARCH 31, 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 March 31, 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....... $ 19,907,777 $ 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% (11.19%, 11.22% and 11.0% at March 31, 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........................................................ 9,718,874 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 March 31, 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... 2,107,693 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 March 31, 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............................. 3,306,149 3,593,197 7,071,365
</TABLE>
F-12
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 1998 AND 1997 IS UNAUDITED)
7. NOTES PAYABLE: (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 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% (11.69%, 11.72% and 11.5% at March 31,
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..................... 3,000,737 2,605,453 1,175,822
Acquisition loan payable not to exceed $3.15 million, with interest
payable at LIBOR plus 6% (11.69%, 11.72% and 11.5% at March 31,
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........................................ 1,828,680 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........................ 161,040 182,380 265,997
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.............................................................. 379,650 314,403 --
Other note payable.................................................. 3,912,545 3,912,545 3,912,545
------------- ------------- -------------
Total notes payable................................................. $ 44,323,145 $ 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-13
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 1998 AND 1997 IS UNAUDITED)
8. RELATED PARTY TRANSACTIONS: (CONTINUED)
March 31, 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-14
<PAGE>
EPIC RESORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(INFORMATION AS OF MARCH 31, 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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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................. 33
Business.............................. 41
Management............................ 55
Principal Members..................... 57
Certain Relationships and Related
Transactions........................ 57
Description of Other Indebtedness..... 58
The Exchange Offer.................... 59
Description of Notes.................. 69
Certain United States Federal Tax
Considerations...................... 100
Plan of Distribution.................. 105
Legal Matters......................... 106
Experts............................... 106
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.
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 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.
24.11 Power of Attorney--Epic Warrant Co.
24.12 Power of Attorney--Epic Travel, 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
*To be filed by amendment.
(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 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.
II-4
<PAGE>
(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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 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
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 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
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 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
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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 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 August 13, 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
Registration Statement has been signed by the following persons in the
capacities indicated on August 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS F. FLATLEY President (Principal
- ------------------------------ Executive Officer) and
Thomas F. Flatley Sole Member
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Scott J. Egelkamp Accounting Officer)
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
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>
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.
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 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.
24.11 Power of Attorney--Epic Warrant Co.
24.12 Power of Attorney--Epic Travel, LLC.
25 Statement of Eligibility of Trustee, United States Trust Company of New York, on Form T-1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
*To be filed by amendment.
<PAGE>
Exhibit 2.1
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into on
this May 7, 1998 by and between Epic Resort, Inc., a Delaware corporation
(hereinafter referred to as "Purchaser") and Scottsdale Links Apartments Limited
Partnership, an Arizona limited partnership (hereinafter referred to as
"Seller").
RECITALS
Seller is the owner of a 228 unit apartment complex known as the Scottsdale
Links which is located at 16858 North Perimeter Drive, Scottsdale, Arizona, the
legal description of which is set forth on Exhibit "A" attached hereto and made
a part hereof (hereinafter referred to as the "Land"). The Seller is currently
completing construction of the 228 unit apartment complex ("Apartment Complex")
located on the Land.
Seller has agreed to sell, and Purchaser has agreed to purchase, the Land,
including the Apartment Complex and all other improvements thereon, and all
other property associated therewith, for the price and on the terms and
conditions as more specifically set forth below.
Purchaser intends to convert the Apartment Complex into a time share
condominium. If Purchaser converts the Apartment Complex into a time share
condominium, Purchaser will attempt to sell time share intervals to retail
purchasers who as owners of time share intervals will be entitled to stay in
apartments without the payment of rental payments ("Time Share Intervals").
NOW, THEREFORE, for and in consideration of the above stated premises and
other good and valuable considerations, the receipt and sufficiency of which is
hereby acknowledged; the parties hereto agree as follows:
1. PURCHASE AND SALE. Seller agrees to sell to Purchaser and Purchaser
agrees to purchase form Seller, upon all of the terms, covenants and conditions
hereinafter set forth, the following:
(a) The Land;
(b) The Apartment Complex, including, without limitation, the
buildings, parking areas, sign structures and other structures and improvements
on the Land (collectively referred to as the "Improvements");
(c) All furniture, furnishings, supplies, equipment and fixtures,
carpeting, inventory, appliances, water fountains, elevators and all other
tangible personal property of any type which is located on the Land and/or is
used or useful in connection with any business operations of the improvements
thereon, or the repair and maintenance of the Land and Improvements, all of
which are collectively referred to as the "Personal Property";
<PAGE>
(d) Easements and all other rights appurtenant to the Land including
without limitation, easements and rights-of-way for access, drainage, water,
utilities and other purposes incident to the use of the Land and Improvements
(collectively referred to as the "Appurtenances");
(e) All rights of the Seller in all building permits, certificates of
occupancy and other permits, licenses, governmental approvals, and agreements
which have been or are being utilized in connection with the ownership,
operation, and maintenance of the Land and Improvements (collectively referred
to as the "Licenses and Permits");
(f) Leases, tenancy agreements (but excluding any employment
contracts) which exist with respect to the ownership, operation and maintenance
of the Land, Personal Property and Improvements (collectively referred to as the
"Leases and Contracts");
(g) Sellers' interest in the name "Scottsdale Links" as well as any
logos, signs, trademarks and other rights relating to said name, telephone
number(s) of the Improvements and all intangible personal property used in the
operation, repair and maintenance of the Land, Improvements and Personal
Property (collectively referred to as the "Intangible Property");
(h) All records concerning the operation of the Property including
but not limited to accounting books and records applicable thereto (collectively
referred to as the "Records");
(i) All architectural drawings of the Improvements and plans and
specifications (e.g., including but not limited to structural, electrical,
plumbing, landscaping, etc.) utilized in the development of the Land and
construction of the Improvements (collectively referred to as the "Plans");
(j) All manufacturers, sales and service warranties applicable to the
Land, Personal Property and Improvements (collectively referred to as the
"Warranties").
For purposes of this Agreement, the conveyance of the foregoing property
shall be deemed to be all inclusive and all, the Land, Improvements, Personal
Property, Appurtenances, Licenses and Permits, Lease and Contacts, Intangible
Property, Records, Plans and Warranties (collectively referred to herein as the
"Property") shall be excluded, except as may be excluded by written consent of
the Purchaser.
2. PURCHASE PRICE
(a) The total purchase price ("Purchase Price") for the Property
shall be Twenty Five Million Five Hundred Sixty Five Thousand
Dollars ($25,565,000) payable in good funds by wire transfer at
Closing as hereafter defined. In the event that the prepayment
fee due HUD is less than 10 percent, the difference will be
deducted from the purchase price.
2
<PAGE>
(b) Out of the Purchase Price, as a condition to the Closing, the
Seller shall pay and/or satisfy all obligations which are liens
and encumbrances against the Property, including without
limitation the following:
(i) the existing Mortgage held by _________________ as
recorded on __________, in Official Records Block _____
at Page _____ of the Public Records of _______ County
("First Mortgage");
(ii) current and delinquent real estate taxes on the Property;
and
(iii) all outstanding local and state tax obligations relating
to the Property.
Purchaser assumes no liabilities, mortgages, obligations or indebtedness
relating to the Property. All liabilities, mortgages, obligations or
indebtedness which are, a lien or encumbrance on the Property which otherwise
relate to or can affect the Property shall be satisfied in full by Seller on or
before the date of Closing.
(c) Within five (5) days after execution of this Agreement by both
parties, Purchaser will deposit with Security Title Agency, Sue Leonard, Escrow
Officer, 2398 E. Camelback Rd., Suite 272, Phoenix, Arizona 85016 (the "Escrow
Agent"), the sum of One Hundred Thousand ($100,000.00) less the amount that
Seller advanced in relation to the existing HUD financing on the land ("Net
Deposit") to serve as an escrow deposit and to secure Purchaser's performance
hereunder. If this Agreement is not terminated by the Purchaser in accordance
with Section 3 below, the Purchaser shall deposit a further One Hundred Thousand
($100,000.00) with the Escrow Agent within five days after the expiration of the
Due Diligence Period, as defined in Section 3. The initial One Hundred Thousand
Dollars and the additional One Hundred Dollars are hereafter referred to as the
"Deposit." The Net Deposit and the additional One Hundred Thousand Dollars
shall be held in an interest bearing account with a commercial bank or savings
and loan association with all earnings to accrue to Purchaser's benefit, unless
Seller retains the Deposit as a result of a default by Purchaser hereunder in
which event the Deposit, together with interest thereon, shall be paid to
Seller. The Deposit shall be credited to Purchaser against the Purchase Price,
at Closing.
3. INSPECTION RIGHTS OF PURCHASER.
From the date this Agreement is executed through the Closing Date,
Purchaser shall have the right to inspect all of Seller's records and documents
relating to the ownership, construction and condition of the Property, and to
physically inspect the Property, including any environmental, asbestos and radon
testing, and to otherwise satisfy itself as to the acceptability of the Property
for Purchaser's intended use. Purchaser and Purchaser's agents shall have the
right to ingress and egress to the Property for the inspections contemplated
herein. If for any reason the condition of the Property is not satisfactory to
Purchaser, in Purchaser's sole discretion, Purchaser may terminate this
Agreement by sending written notice of termination to the Seller within thirty
(30) days of the date this Agreement is executed by both Purchaser and Seller
("Due Diligence Period"), whereupon the Net Deposit with all interest shall be
returned to Purchaser and the parties shall thereafter have no further
responsibilities or obligations to each other. In the
3
<PAGE>
event the Purchaser terminates this Agreement and the Seller proceeds to pay
off the HUD financing on the Land, the Seller agrees to reimburse Purchaser
for the amount that Purchaser advanced, as outlined in paragraph 2(c) above.
4. CONDITION OF TITLE.
(a) At Closing, Seller shall convey to Purchaser by special warranty
deed good and marketable fee simple title to the Land and title to the other
Property by a Bill of Sale by an Assignment of Contracts and Warranties. Title
to the Land shall further be (i) free and clear of all liens, restriction,
easements, encumbrances, claims or liens by contractors, subcontractors,
mechanics and materialmen, leases, tenancies and other title objections except
for those listed on Schedule 4(g) attached (the "Permitted Exceptions"); and
(ii) insurable as aforesaid at ordinary rates by any reputable title insurance
company licensed to do business in the State of Arizona. Title to the Property
other than the Land shall be conveyed free of all security interests, debts and
clams by third parties.
(b) If title to the Land cannot be conveyed to Purchaser at the time
of Settlement in accordance with the requirements of this Agreement, then
Purchaser shall have the option of:
(i) taking such title as Seller can convey without abatement
of the Purchase Price provided, however, that if there are liens, encumbrances,
defects or other objections to title (other than the Permitted Exceptions) which
are or have been or reasonably can be reduced to a monetary amount, Seller shall
pay and discharge same and shall deliver to Purchaser at Closing all
instruments, in recordable form, sufficient to satisfy of record such liens,
encumbrances, defects or other objections to title together with the cost of
recording or filing said instruments, or
(ii) terminating this Agreement by giving written notice to
Seller, in which case the Deposit and all interest earned thereon shall be
returned to Purchaser whereupon, neither party shall have further rights,
liabilities or obligations hereunder. Nothing contained herein shall preclude
Purchaser from maintaining an action for specific performance and/or damages
against Seller for a breach of this Agreement, if title to the Property cannot
be conveyed by Seller to Buyer at Closing in accordance with the requirements of
this Agreement by reason of Seller's affirmative act or intentional omission
with respect only to those matter set forth in 4(c) below resulting in a failure
to comply with any term, covenant, condition or provision contained herein
relating to the condition of title.
(c) Seller warrants that at all times while this Agreement remains in
effect, Seller will not, except to the extent specifically set forth herein, (i)
execute any easements, covenants, conditions, restrictions, or rights-of-way
with respect to the Land; (ii) mortgage or encumber the Land; (iii) enter into
any recorded or unrecorded contracts or leases with respect to the Land; (iv)
lease more than seventy (70) apartments contained in the Apartment Complex;
(v) execute any lease for an apartment in the Apartment Complex for a term in
excess of one year, (vi) seek any zoning changes or other governmental approvals
with respect to the Land; or (vii) do, or voluntarily permit to be done,
anything which would adversely affect the condition of title to the Land from
and after the date of this Agreement through the completion of Settlement.
4
<PAGE>
5. SURVEY
If Seller does not have a current ALTA survey of the Property
available, Purchaser may, obtain, at Purchaser's expense, a current survey of
the Property, prepared and certified by a duly licensed land surveyor acceptable
to Purchaser. Seller will cooperate with Purchaser in obtaining a survey.
6. SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller and each its partners, hereby make the representations and
warranties set forth in this Section 6. All of Seller's representations and
warranties shall be true and correct as of the date of closing, shall be deemed
ratified by Seller's act of Closing, and any Schedules, documents or information
to be furnished by Seller shall be updated and furnished to Purchaser at
Closing. From and after the date of this Agreement, and until Closing, Seller
shall not take any action or make any admission, which would have the effect of
violating any of the representations or warranties of Seller contained in this
Agreement. Seller has delivered to Purchaser, the documents listed on Exhibit C
and warrants that the same, and all information reflected therein, are
completely accurate and current in all respects. Purchaser shall rely only on
the documents listed on Exhibit C and on the representation and warranties
contained in this Agreement. All of the warranties and representations of
Seller and its partners shall survive closing and the conveyance of the Property
to Purchaser.
(a) The execution of this Agreement and the fulfillment of Seller's
obligations hereunder shall not constitute or result in a breach of any term or
provision of any existing mortgage, lease or other agreement to which Seller is
a party or by which Seller is bound. All persons or entities whose joinder in
the Deed would be necessary to convey title to Buyer hereunder have been
identified herein as "Seller." This Agreement and all other instruments and
documents to be executed and delivered by Seller to Purchaser hereunder or
pursuant hereto have been or will be duly executed and delivered by Seller and
constitute (or will constitute, as to those instruments and documents to be
executed and delivered) the legal, valid and binding obligations of Seller and
enforceable against Seller in accordance with their respective terms.
(b) Seller has received no written official notice, nor any informal
written or oral notice of any contemplated condemnation proceedings against the
whole or any part of the Property.
(c) The Seller has provided to the Buyer a copy of the approved
minutes of the Scottsdale City Council Meeting which demonstrates the Property
received approval for a use permit for time share in its R-5 zoning
classification. Seller has no knowledge of any moratoria or similar conditions
that will prevent the development and operation upon the Land of residential
time share units. Seller has no knowledge of any current violations of any
building, zoning or other requirements of any applicable governmental authority
affecting the Property.
(d) Seller has no knowledge of any fact or condition which would
result in the termination or reduction of the current access from the Land and
Improvements existing public
5
<PAGE>
streets; and Seller has no knowledge of any proposed road widening or other
construction activity within the vicinity of the Land.
(e) Seller has no knowledge of any latent or patent defect or design
deficiency in the foundation, structure, roof, paved areas or mechanical
systems of the Improvements, including, without limitation, the heating,
ventilation and cooling systems, the electrical system, the plumbing system or
the elevators.
(f) Seller has no actual knowledge of any lawsuits presently pending
or any lawsuits that have been threatened concerning the Property or any portion
thereof, or Seller's title or right to convey the Property or any portion
thereof hereunder, nor has Seller any knowledge of any claims or liens existing
or threatened against the Property or any part thereof, other than those filed
of record prior to the execution date of this Agreement.
(g) Seller is in sole and undisputed possession of the Property and
no other person or entity is entitled to possession of all or any portion of the
Property. There are no leases with respect to the Property other than the
leases set forth on Schedule 6(g).
(h) There are no other contracts, leases, agreements, understandings
or other obligations existing with respect to the Property or any portion
thereof, other than as are reflected on Exhibit C in this Agreement.
(i) No person, firm, corporation, or other entity has any right or
option to acquire the Property, or any part thereof.
(j) Seller has received notice from the City of Scottsdale regarding
the formation of the Reatta Pass Improvement District which would result in an
assessment against the property. Seller has determined to its own satisfaction
that this assessment would benefit the Property by removing it from the existing
flood zone upon completion of the improvement. Seller makes no representations
or warranties as to this opinion or conclusion and Purchaser must satisfy itself
as to this condition. Seller has received no notice and has no knowledge of any
other pending liens, increased assessments or tax rates, or any special
assessments to be made against the Property by governmental authority.
(k) Seller is current in all sales and use tax obligations relating
to the Property.
(l) Seller is neither a "foreign person" nor "foreign corporation" as
those terms are defined in the United States Internal Revenue Code, as amended,
and Seller shall ratify this warranty by affidavit at the time of closing.
(m) Public water, public sanitary sewer, electricity, and the
telephone services have been installed to the Improvements through appropriate
easements.
6
<PAGE>
(n) Except as disclosed on Schedule 6(n):
(i) To Seller's actual knowledge, the Land and Improvements
("Premises") do not contain any Hazardous Materials.
(ii) To Seller's actual knowledge, there are no underground or
above-ground storage tanks on or under the Premises, and Seller has no knowledge
of the removal of any underground or above-ground storage tanks from the
Premises.
(iii) To Seller's actual knowledge, there are no transformers
containing or contaminated with Hazardous Materials on the Premises, and Seller
has no knowledge of the removal of any such transformers from the Premises.
(iv) Seller has not engaged in or permitted any Hazardous
Materials Use in, at, under, or in connection with the Premises nor, to Seller's
knowledge, has any previous owner or tenant of the Premises engaged in or
permitted any Hazardous Materials Use in, at, under, on or in connection with
the Premises.
(v) Seller has not received notice or actual knowledge of:
(1) any claim, demand, investigation, enforcement, response, removal, remedial
or other governmental or regulatory action instituted or threatened, against
Seller or the Premises pursuant to any Hazardous Materials Law, (2) any claim,
demand, suit or action made or threatened by any person against Seller or the
Premises relating to any form of damage, loss or injury resulting from or
claimed to result from, any Hazardous Materials on, about, beneath or arising
from the Premises or any alleged violation of any Hazardous Material Law; and
(3) any communication to or from any governmental or regulatory agency arising
out of or in connection with Hazardous Materials on, about, beneath, arising
from or generated at the Premises, including without limitation, any notice of
violation, citation, complaint, order directive, request for information or
response thereto, notice letter, demand letter or compliance schedule. If
discovered prior to Closing, Seller shall immediately advise Purchaser of any of
the claims or communications listed in clauses (1) through (3) above and also
shall immediately advise Purchaser of the discovery of any Hazardous Materials
on, about, beneath, or arising from the Premises or the discovery of any
condition on, arising from the Premises or the discovery of any condition on,
about, beneath or arising from the Premises which might give rise to liability,
the imposition of a statutory lien or require response, removal or remedial
action under any Hazardous Material Law.
(vi) As used, in this Agreement, "Hazardous Materials" shall
mean "Hazardous Substances" as defined under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9501 et
seq.)
(vii) As used in this agreement, "Hazardous Material Law" shall
mean a federal, state, or local statute, law, ordinance, code, regulation, rule,
order or decree (whether by court or by a governmental or quasi-governmental
entity or agency having authority), in effect on the date hereof.
(viii) As used in this Agreement, "Hazardous Materials Use"
shall mean activities involving, directly or indirectly, the manufacture, leak,
spill, emission, deposit,
7
<PAGE>
discharge, release, use, transportation, generation, treatment, storage,
disposal or handling of Hazardous Materials.
7. CLOSING.
Closing shall be held on or before June 30, 1998. The exact date and
time of Closing shall be designated by Purchaser on not less than five (5) days
written notice to Seller. Closing shall take place at the office of Escrow
Agent at 2398 E. Camelback Rd., Suite 272, Phoenix, Arizona 85016 (the
"Closing").
8. CLOSING DOCUMENTS.
(a) At the Closing, Seller shall execute and/or deliver the following
documents all in form and content acceptable to Purchaser:
(i) A Special Warranty Deed (in the form attached as Exhibit
B) free and clear of all mortgages, liens and encumbrances and subject only to
the Permitted Exceptions;
(ii) Bill of Sale for all Personal Property;
(iii) An assignment of Seller's right, title and interest in
and to all Appurtenances, Licenses and Permits, those Leases and Contracts which
Purchaser has elected to assume, Intangible Property, Records, Plans and
Warranties;
(iv) An Affidavit reciting that there are no contractor's
liens against the Land and that, within the past ninety (90) days, there have
been no improvements, alterations or repairs for which the costs thereof remain
unpaid, with the exception of anything caused by Purchaser, that, except as
previously disclosed to Purchaser, the Land is free and clear of all liens,
taxes, encumbrances and claims whatsoever, with the exception of real estate
taxes for the year of closing; that there are no parties in possession or with a
right or claim to possession; and that affiant has received no notice of any
violations of County or municipal ordinances pertaining to the Property;
(v) A Standard FIRPTA affidavit acknowledging that Seller is
not a "foreign person" as defined and set forth in Section 1445 of the Internal
Revenue Code (or, in the event Seller is a "foreign person", providing Purchaser
with sufficient information for Purchaser to comply with the withholding
requirements thereof);
(vi) An affidavit of real property value as required by the
Arizona Revised Statutes;
(vii) Appropriate certificates or resolutions of authority
confirming the authority of the individual(s) executing the closing documents;
and
(viii) Such other and further documents as may be reasonably
appropriate to consummate the transaction in accordance with the provisions of
this Agreement.
8
<PAGE>
(b) At the Closing, Purchaser shall pay Seller the Purchase Price and
execute and/or deliver such documents as may be reasonably appropriate to
consummate the transaction in accordance with the provisions of this Agreement.
9. ACCESS; CONDUCT PRIOR TO CLOSING.
(a) At all times prior to Closing, Purchaser shall have complete
access to the Property for any purpose deemed necessary or appropriate by
Purchaser, provided that Purchaser shall not damage the Property or interfere
with the conduct of business thereon, and shall indemnify Seller for any loss or
damages thereby caused.
(b) Prior to Closing, Seller shall not enter into any new contracts
or other agreements affecting the Property without obtaining the prior written
consent of Purchaser. Seller agrees to finish construction of the Improvements
in accordance with the Plans and obtain a Certificate of Occupancy for the
Improvements, prior to Closing. Seller shall also continuously maintain every
part of the Property in good condition, ordinary wear and tear excepted, and to
continue the conduct of business therein, in accordance with a standard of
operation and quality consistent with present condition of the Property. Seller
further agrees to maintain all existing insurance in place through the date of
Closing.
10. CONDITIONS TO CLOSING.
(a) Purchaser's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Seller set
forth in this Agreement shall be true and correct in all respects on and as of
the date of Closing as though made at that time.
(ii) Seller shall have performed, satisfied and complied with
all of the covenants, agreements, and conditions required by this Agreement to
be performed or complied with by it on or before the date of Closing, including,
without limitation, the completion of the construction of the Improvements in
accordance with the Plans and the obtaining of a Certificate of Occupancy for
the Improvements.
(iii) Seller shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors or admitted in writing its
inability to pay its debts as they mature or have been adjudicated as bankrupt
or have filed a petition in voluntary bankruptcy or a petition or answer seeking
reorganization under the Bankruptcy Act or any other similar law or statute of
the United States or any state, and no such petition shall have been filed
against it.
(b) Seller's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Purchaser
set forth in this Agreement shall be true and correct in all respects on and as
of the date of Closing as though made at that time.
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(ii) Purchaser shall have performed, satisfied and complied
with all of the covenants, agreements, and conditions required by this Agreement
to be performed or complied with by it on or before the date of Closing.
(iii) Purchaser shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors or admitted in writing its
inability to pay its debts as they mature or have been adjudicated as bankrupt
or have filed a petition in voluntary bankruptcy or a petition or answer seeking
reorganization under the Bankruptcy Act or any other similar law or statute of
the United States or any state, and no such petition shall have been filed
against it.
(iv) Purchase by Clark-Wayland, Inc., of all the partnership
interests of Scottsdale Links Apartments, L.P. not owned or controlled by
Clark-Wayland, Inc., or its affiliates.
(v) Appropriate certificates or resolutions of authority
confirming that Purchaser is duly formed, validly existing and authorized to
enter into and perform under the Agreement.
11. CLOSING EXPENSES.
Purchaser shall be responsible for payment, at Closing, of the
following: the costs of recording the Deed; title insurance premium;
documentary stamps, including any local surtax, applicable to the Deed. Seller
shall be responsible for payment, at Closing, of the costs of recording any
corrective instruments and any transfer taxes.
12. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
adjusted as of the date of Closing:
(a) Real and personal property taxes shall be prorated based upon the
current year's tax with due allowance made for the maximum allowable discount
and exemptions if allowed for said year. If the current year's assessment is
not available, then taxes will be prorated based upon the tax assessment for the
Property for the immediately preceding year, with due allowance made for the
maximum allowable discount and exemptions if allowed for said year.
(b) Certified government liens or special assessment liens, if any,
will be paid by the Seller. Pending governmental liens, if any, will be assumed
by the Purchaser.
(c) Security deposits, if any, form tenant's leases and other
contracts, deposits, including advance booking deposits, prepaid rent and
escrows held in connection with tenancies of the Property shall be transferred
to Purchaser.
(d) Rents and other revenues shall be prorated. Proration of rents
shall be of those actually received and Purchaser shall be entitled to all rents
and other income accruing from and after the date of Closing. Any rentals or
other sums due Seller before Closing, but not yet collected as of the date of
Closing, shall be the Seller's exclusive responsibility to collect.
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(e) All utility charges, including but not limited to, telephone
service, gas, water and sewer, and electric power shall be prorated as of the
date of Closing. At least ten (10) days prior to Closing, Seller shall notify
all utilities servicing the Property of the contemplated change in ownership,
and direct that current billings for services rendered up to the date of Closing
be directed to Seller and that all future billings for services rendered on or
after the Closing Date be directed to Purchaser with no interruption of service.
Such notice shall be provided in writing and copies of same furnished by Seller
to Purchaser. Only deposits, standby charges and other prepayments which may be
assignable and are assigned to Purchaser shall be paid for by Purchaser at
Closing. Non-assignable deposits and other charges shall be refunded to Seller
and replaced by Purchaser with appropriate adjustment to the proration.
(f) All other income, receivables, claims and rights to revenue
derived from the Property accruing or relating to the period up to the date of
Closing shall belong to the Seller and it shall be Seller's exclusive
responsibility to collect same if it has not done so by Closing. All other
income relating to the Property shall be paid to the Purchaser.
(g) Insurance premiums relating to the Property shall be prorated if
Purchaser elects to assume such insurance.
(h) Any unpaid operating expenses incurred during the month of
Closing shall be prorated.
13. EMPLOYEES.
On or after Closing, Purchaser may, in its sole discretion, employ
some or all of the employees of Seller, and Seller shall cause such employees to
become employees of Purchaser; provided, however, that Purchaser shall not
assume any payroll or payroll tax obligations of Seller or the cost of any
employee benefits which may be afforded by Seller to its employees.
Notwithstanding the foregoing, Purchaser acknowledges that all employees of
Seller are employees at will, without written employment agreements, and without
any collective bargaining agreements and that Seller can make no representation
or warranty that any one or more of their existing employees will accept or
continue employment with the Seller.
14. RISK OF LOSS; POSSESSION.
Risk of loss shall remain with Seller pending completion of the
Closing. Seller shall deliver possession of the Property to Purchaser at
Closing. If the Property, or any portion thereof, is damaged by fire or other
casualty prior to Closing, Purchaser shall have the option of either taking the
Property as damaged, together with either a credit against the cash to close in
the amount of any insurance proceeds payable by virtue of such loss or damage,
or of canceling this Agreement and receiving a return of the Deposit, together
with any interest earned thereon.
15. INDEMNIFICATION.
Seller shall indemnify Purchaser and hold and save Purchaser harmless
of and from any and all loss, cost, damage, injury or expense, including
attorney's fees, arising out of or in any way related to:
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(a) any material inaccuracy in the representations and warranties of
Seller hereunder; and
(b) any claims for injury to or death of persons, damage to property,
contract liabilities, taxes, expenses or claims of any kind, whether direct or
contingent, associated with the ownership, operation, management or control of
the Property or any part thereof, arising due to or out of events or
transactions occurring prior to the Closing hereunder, except as otherwise
provided in this Agreement.
16. EMINENT DOMAIN.
If all or any portion of the Property shall be taken through the
exercise of the power of eminent domain prior to the Closing, then in such
event, the Purchaser shall have the option either:
(a) To take title at the Closing without any abatement or adjustment
in the Purchase Price, in which event the Seller shall assign its rights in any
condemnation award to the Purchaser, or the Purchaser shall receive the
condemnation award from the Seller if it is paid prior to the Closing by means
of a credit against the cash to close and any excess shall be paid in cash to
Purchaser at Closing; or
(b) To cancel this Agreement and obtain an immediate and unqualified
refund of the Deposit, together with any interest earned thereon, whereupon each
party shall be released from any and all further obligations hereunder.
17. DEFAULT BY PURCHASER.
If Purchaser fails to perform the covenants of this Agreement,
Seller's remedies shall be limited to the retention of the Deposit, together,
with any interest earned thereon, as agreed and liquidated damages in full
settlement of any claims, whereupon the parties shall be relieved and released
from all further obligations under this Agreement. The parties agree that this
provision for liquidated damages is a bona fide attempt by the parties to
resolve the amount of the damages which would be sustained by the Seller in the
event of the breach of this Agreement by the Purchaser, and the parties
recognize that at the actual amount of such damages, if any, would be
speculative and extremely difficult of ascertainment. Notwithstanding the
foregoing, Purchaser shall be entitled to written notice and ten (10) days
opportunity to cure any default, and any deadline shall be extended for the
period of cure.
18. DEFAULT BY SELLER.
If the Seller fails to perform any of the covenants of this Agreement
and/or fails to close as provided herein and/or any of the conditions of closing
set forth in Section 10(a) have not taken place by June 30, 1998 then Purchaser
may: (a) proceed to close or (b) rescind this Agreement in which event
Purchaser shall be entitled to an immediate and unqualified refund of the
Deposit, together with any interest earned thereon; or (c) obtain specific
performance of Seller's obligations hereunder; notwithstanding the foregoing,
Seller shall be entitled to written
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notice and ten (10) days opportunity to cure any default, and any deadline shall
be extended for the period of cure.
19. WAIVER.
The waiver of any condition or provision of this Agreement or of any
breach or default under any of the terms of this Agreement by either party must
be in writing and shall not be deemed to be nor shall the same constitute a
waiver of any subsequent condition, provision, breach or default.
20. NOTICES.
Any notice required or permitted to be given by this Agreement shall
be given or made in writing, and shall be served personally by messenger or
courier service, or mailed in the United States by prepaid, registered or
certified mail return receipt requested, as follows:
If to Seller:
Clark-Wayland, Inc.
4117 N. 44th St.
Phoenix, AZ. 55015
Attn.: Jere Clark
Fax: (602) 840-1183
If to Purchaser:
Epic Resorts, Inc.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Fax: (510) 992-1029
Attn: Thomas F. Flatley
Any notice given in accordance with the provisions of this
subparagraph shall be deemed to be effective: (i) if personally delivered, on
the date of such delivery with such delivery to be confirmed by a signed
receipt, (ii) if mailed, two days after same is postmarked, postage prepaid, or
(iii) by telecopier, if telecopied to a telecopier number provided by the other
party. Each party may give notice to the other party of a change of its
address, or telecopy number, for the purpose of giving notice under this
Agreement.
21. BROKERAGE.
Each party represents and warrants to the other than neither he, nor
it, nor any of their agents has directly or indirectly dealt with, been shown or
otherwise consulted any broker or agent thereof in connection with this
transaction, and that no real estate brokerage commission is due in connection
with this transaction. Each party hereby indemnifies and holds the other party
harmless against any claim or loss (including attorney's fees) which may be
asserted against the other by reason of any claims or determinations in
contravention of the representations and
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warranties contained in this Paragraph. Purchaser acknowledges that various
partners/officers of Seller may be licensed by the State of Arizona are real
estate salesmen or real estate brokers.
22. INTERPRETATION; SEVERABILITY.
This Agreement shall be construed and enforced in accordance with the
laws of the State of Arizona. The article headings in this Agreement are for
convenient reference only and shall not have the effect of modifying or amending
the expressed terms and provisions of this Agreement, nor shall they be used in
connection with the interpretation hereof. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the personal liability or obligation with respect to
same. In case any one or more of the provisions of this Agreement or the
application thereof shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof and
any other application thereof shall in no way be affected or impaired. Any
reference herein to time periods of less than six (6) days shall in the
computation thereof exclude Saturdays, Sundays and legal holidays, and any time
period provided for herein which shall end on a Saturday, Sunday or legal
holiday shall extend to 5:00 p.m. of the next full business day.
23. COSTS; ESCROW AGENT.
All costs, including attorneys' fees, paid by either party in the
enforcement or defense of this Agreement, including proceedings in appellate
courts, shall be paid to the prevailing party. In the event of any dispute
among the parties with respect to disbursement of the Deposit, the Escrow Agent
shall have the right to render same into a court of appropriate jurisdiction and
to interplead both parties hereto and thereafter be free from further liability
to the parties or hereunder. Except for willful misconduct, the Escrow Agent
shall be excused from all responsibility, including insolvency of any
depository, absolutely.
24. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the documents and information to be furnished
pursuant hereto, contain the entire agreement between the parties with respect
to this transaction, and no representation, warranties or agreements have been
made or, if made, have not been relied upon by either party except those
specifically referred to herein. This Agreement may only be amended, modified
or supplemented by written instrument signed by the parties hereto.
25. BINDING EFFECT.
All of the terms, covenants and conditions herein contained are and
shall be binding upon and inure to the benefit of both parties, their personal
representatives, heirs, successors and assigns.
26. ASSIGNABILITY.
This Contract may be assigned by Purchaser to an affiliate.
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27. RECORDING.
Each party agrees not to record this Contract or any notice or
memorandum thereof in the public records.
28. COUNTERPART.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be an original, but all counterparts
shall together constitute one and the same instrument.
29. EFFECTIVE DATE.
This Agreement shall be binding on the date when this Purchase and
Sale Agreement has been fully executed by the Purchaser and Seller.
30. ACCEPTANCE.
At the option of Purchaser, this Agreement shall be void and the
Deposit returned to Purchaser unless Seller has delivered to Purchaser a signed
original counterpart hereof no later than 5:00 p.m., ______________, 1998.
31. CONFIDENTIALITY.
The parties hereto agree to keep this Agreement and its terms
confidential and not to disclose any terms to any third parties until Closing,
except to potential lenders, surveyors, title agent and other parties requiring
information in connection with Purchaser's inspection or other rights under this
Agreement.
32. JOINDER OF PARTNERS.
By their execution at the Closing of the Joinder of Partners in the
form attached as Exhibit D of this Agreement, each of the partners of Seller do
hereby, in their individual capacities, ratify and confirm the accuracy of each
of Seller's representations and warranties contained herein and without limiting
the provisions of Section 15 of this Agreement, do hereby agree to indemnify
Purchaser from any loss, cost, damage, injury or expense, including attorney's
fees, arising out of or in any way related to any inaccuracy in the
representations and warranties of Seller hereunder.
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IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed on the day and year indicated below.
SELLER:
WITNESSES: SCOTTSDALE LINKS APARTMENTS, LLP
By its general partner Clark-Wayland, Inc.
By: /s/ John Clark
-------------------------------
Name:
-----------------------------
Date: May 7, 1998
-----------------------------
PURCHASER:
EPIC RESORTS, INC.
By: /s/ T. F. Flarley
-------------------------------
Thomas F. Flatley, President
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EXHIBIT A
Legal Description of the Land
That portion of the Northeast quarter of Section 1, Township 3 North, Range 4
East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona,
more particularly described as follows:
COMMENCING at the North quarter corner of said Section 1;
Thence South 00 degrees 53 minutes 46 seconds West, along the West line of
said Northeast quarter, 45.00 feet to point on the Southerly right of way line
of Bell Road marking the POINT OF BEGINNING;
Thence South 89 degrees 52 minutes 20 seconds East, along said right of way
line, 788.10 feet;
Thence South 00 degrees 07 minutes 40 seconds West, 94.57 feet to a point
marking the beginning of a tangent curve, having a radius of 150.00 feet to the
left;
Thence Southeasterly, along the arc of said curve, through a central angle
of 69 degrees 52 minutes 27 seconds, having an arc distance of 182.93 feet;
Thence South 69 degrees 44 minutes 47 seconds East 85.64 feet to a point
marking the beginning of a tangent curve, having a radius of 150.00 feet to the
right;
Thence Southeasterly, along the arc of said curve, through a central angle
of 49 degrees 02 minutes 59 seconds, having an arc distance of 128.41 feet;
Thence South 20 degrees 41 minutes 48 seconds East 46.78 feet;
Thence South 79 degrees 15 minutes 10 seconds West 16.63 feet;
Thence South 71 degrees 34 minutes 00 seconds West 47.46 feet;
Thence South 73 degrees 16 minutes 09 seconds West 566.07 feet;
Thence South 61 degrees 23 minutes 15 seconds West 547.83 feet to a point
marking the intersection of the Northerly line of the Granite Reef Aqueduct with
the aforementioned West line of the Northeast quarter of Section 1;
Thence North 00 degrees 53 minutes 46 seconds East, along said West line,
842.03 feet (record) 842.02 (measured) to the POINT OF BEGINNING.
<PAGE>
WHEN RECORDED, RETURN TO:
Epic Resorts, Inc.
Attn: Thomas F. Flatley
1150 First Ave., Suite 900
King of Prussia, PA 19406
________________________________________________________________________________
EXHIBIT B
SPECIAL WARRANTY DEED
FOR THE VALUABLE CONSIDERATION OF Ten Dollars ($10.00) and other good and
valuable consideration, Scottsdale Links Apartments Limited Partnership, an
Arizona limited partnership, hereinafter called the Grantor, does hereby sell
and convey to Epic Resorts, Inc., a Delaware corporation, the real property
situated in Maricopa County, Arizona described on "Exhibit A" attached hereto
and incorporated herein by reference ("the Land"), together with all rights,
privileges and easements appurtenant thereto.
Subject to current taxes and other assessments, reservations in patents and
all easements, rights-of-way, encumbrances, liens, covenants, conditions,
restrictions, obligations and liabilities as may appear of record and other
matters which a physical inspection or an accurate and current ALTA survey of
the Land would disclose, the Grantor hereby binds itself to warrant and defend
title to said Land as against all acts of Grantor herein and none other, subject
to the matter above set forth.
DATED this ______ day of ________________, 1998.
By: SCOTTSDALE LINKS APARTMENTS, L.P.
By its general partner Clark-Wayland, Inc.
By:_______________________________________
Jere Clark, President
STATE OF Arizona )
)ss.
County of Maricopa )
This instrument was acknowledged before me this _____ day of ______________,
1998 by Jere Clark, President of Clark-Wayland, Inc., general partner of
Scottsdale Links Apartments Limited Partnership, on behalf of the partnership.
_______________________________ ___________________________________________
My Commission Expires Notary Public
<PAGE>
EXHIBIT C
List of documents provided by Seller to Purchaser
Phase I Environmental Site Assessment dated September 22, 1995 prepared by
Environmental Site Assessments, Inc.
Property Management Agreement dated July 9, 1997 by and between Scottsdale Links
Apartments, L.P. and McElroy Management Corporation
Multiple Dwelling Unit Telecommunications Service and Non-Exclusive Access
Agreement dated July 18, 1997 by and between Scottsdale Links Apartments, L.P.
and Cox Communications Phoenix, Inc.
Marketing Agreement dated July 18, 1997 by and between Scottsdale Links
Apartments, L.P. and Cox Communications Phoenix, Inc.
Agreement for New Multi-Tenant Residential Properties by and between U S West
Communications, Inc. and Clark-Wayland Builders acting as agent for Scottsdale
Links Apartments, L.P.
Gas Main Extension Agreement dated November 5, 1997 between Southwest Gas
Corporation and Clark-Wayland
Copy of Scottsdale City Council meeting minutes dated November 18, 1997
<PAGE>
EXHIBIT D
JOINDER OF PARTNERS OF SCOTTSDALE LINKS APARTMENTS L.P.
For value received, the receipt and sufficiency of which is hereby
acknowledged, and as a material inducement to Purchaser's offer to purchase the
Property, the undersigned partners of the Scottsdale Links Apartments, LLP
("Partners") join in the execution of the foregoing Purchase and Sale Agreement
by Scottsdale Links Apartments, LLP.
Specifically, the undersigned Partners hereby represents and warrants to
Purchase that they/it are personally familiar with Seller's operation of the
Property and that each of Seller's representations and warranties contained
therein are accurate. Further, the Partners do hereby agree to be bound by the
provisions of Section 15 of the Agreement as though they were a party thereto.
General Partner:
Clark-Wayland, Inc.
By:__________________________________
President
Limited Partners:
__________________________________
__________________________________
<PAGE>
EXHIBIT 2.2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made and entered into on June
__, 1998 by and between Epic Resorts - Palm Springs Marquis Villas, Inc., a
Delaware corporation ("Purchaser"), Palm Springs Marquis, Inc., a Delaware
corporation ("Company"), and Mark Bragg ("Shareholder"). For purposes of this
Agreement, the Company and the Shareholder are hereinafter referred to
collectively as the ("Sellers").
RECITALS
Purchaser is a company engaged in the development of time shared resorts
and the sale of time share interests in the resorts it develops. Shareholder is
the sole owner of the Company. The Company leases three parcels of real
property. On two of the parcels, there is located a one hundred sixty three
(163) room hotel and on the third parcel, there is located one hundred and one
(101) villa units. The real property is located in Palm Springs, California.
Shareholder owns all of the issued and outstanding shares of the capital stock
of the Company ("Company Shares").
In accordance with the provisions of this Agreement, Purchaser will loan
the Shareholder Two Hundred and Fifty Thousand ($250,000) Dollars within five
(5) days of the execution of this Agreement and will purchase all of the Villa
Assets, as hereinafter defined, for a total price of Fourteen Million
($14,000,000) Dollars on or before June 30, 1998, all as set forth in this
Agreement.
ARTICLE I
LOAN, CONSIDERATION AND CLOSING
Section 1.1 INCORPORATION OF RECITALS. The recitals set forth above
are incorporated herein by reference and are a part of this Agreement.
Section 1.2 LOAN, TIME AND PLACE FOR CLOSING.
(a) Within five (5) days after execution of this Agreement by both
parties, Purchaser will loan Shareholder Two Hundred Fifty Thousand ($250,000)
Dollars ("Loan"). The Loan will bear at 10% interest per annum and will have a
term of ninety (90) days from the date the Loan is made. The Loan will be
evidenced by a promissory note executed by the Shareholder and the Shareholder's
wife in the form attached as Schedule 1.2(a).
(b) The Closing, as hereafter defined, shall take place at the time
set forth in Section 1.6. The Closing is subject to the conditions set forth in
Article VI and Article VII being satisfied or waived, time being of the essence.
The Closing will take place, at the offices of Schlecht, Shevlin & Shoenberger,
801 East Tahquitz Canyon Way, Suite 100, Palm Springs, California 92263-2744,
or such other place as the parties hereto may agree upon. The exact date of the
Closing shall be established by a written notice sent by Purchaser to
Shareholder.
<PAGE>
(c) If the failure to conclude this transaction is due to the refusal
and failure of Sellers to perform their obligations under this Agreement,
Purchaser may seek to enforce this Agreement with an action of specific
performance, in lieu of, any other rights and remedies available to the
Purchaser under this Agreement, or at law or in equity, including, without
limitation an action to recover their actual damages resulting from the default
of Sellers. If the failure to conclude this transaction is due to the refusal
and failure of Purchaser to perform its obligations under this Agreement,
Sellers may seek to enforce this Agreement with an action of specific
performance, in lieu of, any other rights and remedies available to the Sellers
under this Agreement, or at law or in equity, including, without limitation, an
action to recover their actual damages resulting from the default of Purchaser.
Section 1.2 VILLA ASSETS.
(a) The Company is the lessee under a certain ground lease (the "Villa
Ground Lease") described as follows, covering the real property described as
follows: Business Lease (No. PSL-253) dated November 23, 1979, as amended,
entered into by and between Steven Allen Rice, as lessor, and Western Ventures,
Inc., as lessee, and recorded on August 9, 1983, as Instrument No. 160117 in the
Official Records of Riverside County, California, which Villa Ground Lease
covers the following Real Property located in Riverside County, California:
Blocks 21 and 24 as shown on the Official Plat of the Survey on file in the
Bureau of Land Management, in Section 14, Township 4 South, Range 4 East, San
Bernardino Base and Meridian. Western Ventures, Inc. has heretofore assigned
its interest in the Villa Ground Lease to the General Partnership. The General
Partnership has heretofore assigned its interest in the Villa Ground Lease to
the Limited Partnership, Banque Paribas acquired title from the Limited
Partnership by the Trustee's Deed and the Company has heretofore acquired from
Banque Paribas its interest in the Third Ground Lease by the Paribas Assignment.
(b) The real property which is leased by the Company under the Villa
Ground Lease is improved with one hundred one (101) villa units, together with
related parking and other facilities and appurtenances ("Villa Building"). For
purposes of this Agreement, the following personal and real property are
hereinafter referred to as the ("Villa Assets"):
(i) the Villa Ground Lease and all amendments thereto is
attached to this Agreement as Schedule 1.2(b)(i);
(ii) all improvements located on the real property subject to
the Villa Ground Lease, including, without limitation, the Villa
Buildings, swimming pools, garages, maintenance buildings, and parking
lots ("Villa Improvements");
(iii) all easements and all other rights appurtenant to the real
property which is subject to the Villa Ground Lease, including without
limitation, easements and rights-of-way for access, drainage, water,
utilities and other purposes incident to the use of the land and
improvements located on the Villa Ground Lease (collectively referred to
as the "Villa Appurtenances");
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(iv) all personal property located in or on the Villa
Improvements, including but not limited to all furniture, equipment,
furnishings, fixtures, linen, china, glass, silver, uniforms, kitchen
equipment and supplies, other equipment, toiletries, housekeeping and
laundry supplies, paper and accounting supplies, restaurant supplies and
other operating supplies, together with all replacements and additions
thereto ("Villa Personal Property"), an inventory of the Villa Personal
Property as of ________ is attached hereto as Schedule 1.2(b)(iv);
(v) all cash, deposits and accounts receivable paid for the
occupancy of the Villa Improvements where the occupancy will take place
after the Closing Date and all rights under insurance policies insuring
the Villa Improvements for damage which occurred prior to the Closing
Date ("Villa Current Assets");
(vi) all building permits, certificates of occupancy and other
permits, licenses, governmental approvals, and agreements which have been
or are being utilized in connection with the ownership, operation, and
maintenance of the Villa Improvements (collectively referred to as the
"Villa Licenses and Permits"), a listing of the Villa Licenses and
Permits is attached hereto as Schedule 1.2(b)(vi);
(vii) leases, room reservations and tenancy agreements under
which the Company has given any person or entity the right to occupy any
portion of the Villa Improvements (collectively referred to as the "Villa
Occupancy Leases");
(viii) the name "Marquis Villa" as well as any logos, signs,
trademarks and other rights relating to said name, telephone number(s) of
the Villa Improvements and all intangible personal property used or
useful in the operation, repair and maintenance of the Villa Improvements
(collectively referred to as the "Villa Intangible Property");
(ix) all architectural drawings of the Villa Improvements and
plans and specifications (e.g., including, but not limited to structural,
electrical, plumbing, landscaping, etc.) utilized in the development of
the Villa Improvements and construction of the Villa Improvements in the
possession of the Company (collectively referred to as the "Villa
Plans");
(x) all manufacturers, sales and service warranties applicable
to the Villa Improvements and Villa Property (collectively referred to as
the "Villa Warranties"), a list of all Villa Warranties is attached as
Schedule 1.2(b)(x).
Section 1.3 NON-ASSUMPTION OF LIABILITY. Effective upon the Closing
Date, the Sellers hereby indemnify the Purchaser against all liabilities and
obligations of any nature, whether legal or equitable, matured or contingent,
known or unknown, foreseen or unforeseen, ordinary or extraordinary, patent or
latent, arising out of occurrences prior to the Closing Date pertaining to: (a)
any occurrence or circumstance (whether know or unknown) which constitutes, or
which by the lapse of time or giving notice (or both) would constitute, a breach
or default under any lease, contract, or other instrument or agreement or
obligation (whether written or oral) relating or
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pertaining to the Company and or Villa Assets; (b) injury to or death of any
person or damage to or destruction of any property, whether based on
negligence, breach of warranty, or any other theory occurring, taking place
on or relating or pertaining to the Company or Villa Assets; (c) violation of
the requirements of any governmental authority or of the rights of any third
person, including, without limitation, any requirements relating to the
reporting and payment of federal, state, local or other income sales, use,
franchise, excise or property tax liabilities of the Company for all periods
prior to the Closing Date; (d) existence of any Hazardous Materials (as
hereinafter defined in Section 3.6) on the real property subject to the Villa
Ground Lease or the disposal of any waste generated by, from or in connection
with the Villa Improvements; (e) any agreement or arrangement between Company
and the employees of the Company or any labor or collective bargaining unit
representing any such employees entered into and/or accruing on and prior to
the Closing Date; (f) any severance pay obligation of the Company or any
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) or any other fringe
benefit program maintained or sponsored by the Company or to which the
Company contributes or any contributions, benefits or liabilities therefor or
any liability for the withdrawal or partial withdrawal from or termination of
any such plan or program by the Company, all accruing and/or entered into on
or prior to the Closing Date; (g) the debts and obligations of Company
arising and/or created on or prior to the Closing Date; and (h) liabilities
or obligations of the Sellers for brokerage or other commissions relative to
this Agreement or the transactions contemplated hereunder. Sellers agrees to
indemnify Purchaser and the Company, its successors and assigns from and
against all of the above liabilities and obligations in accordance with
Section 8.1 of this Agreement.
Section 1.4 EXISTING LOANS. On the Closing Date, the Villa Assets may
be encumbered by either the following loans or by a loan held by Textron, Inc.
("Existing Debt"); provided that any loan secured by the Villa Assets, except
for the Textron, Inc. loan, may be prepaid at the Closing. As of the date
hereof, the Existing Debt is evidence by the following instruments: (i) a
Promissory Note in the amount of $9,750,000 dated March 27, 1997 executed by the
Company to the order of Backacre Bridge Capital, L.L.C. and (ii) a Promissory
Note in the amount of $1,000,000 dated March 27, 1997 executed by the Company to
the order of Blackacre Palm Springs, L.L.C. If the Existing Debt is a loan held
by Textron, Inc., any pre-payment penalty will be paid at Closing by Purchaser.
Section 1.5 AGREEMENT TO SELL VILLA ASSETS; CONSIDERATION.
(a) At the Closing Date, the Company agrees to transfer and deliver to
Purchaser all of the Villa Assets and Purchaser agrees to purchase and pay for
the Villa Assets, the total consideration of $14,000,000 ("Purchase Price"), as
adjusted as set forth in this Section 1.5. The Loan, if not pre or re-paid as
of the Closing Date, will be credited against the Purchase Price and the
principal and interest owned on all Existing Debt will be paid at Closing by the
Sellers out of the Purchase Price. The Loan, if credited against the Purchase
Price, shall be deemed paid in full.
(b) Purchaser shall be responsible for payment, at Closing, of the
following: the costs of recording the Deed; all of any pre-payment penalty on
the Existing Debt; documentary stamps,
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including any local surtax, applicable to the Deed. Sellers shall be
responsible for payment, at Closing, of the costs of recording any corrective
instruments and any transfer taxes.
(c) The following shall be prorated and adjusted as of the date of
Closing:
(i) Real and personal property taxes shall be prorated based
upon the current year's tax with due allowance made for the maximum
allowable discount and exemptions if allowed for said year. If the
current year's assessment is not available, then taxes will be prorated
based upon the tax assessment for the Villa Property for the immediately
preceding year, with due allowance made for the maximum allowable
discount and exemptions if allowed for said year. The tax proration
shall be subsequently readjusted upon receipt of the actual tax bill
within ten (10) days after written request of either party hereto. This
provision shall survive the termination of this Agreement and the
conveyance of the Villa Assets to Purchaser.
(ii) Certified governmental liens or special assessment liens on
the Villa Assets, if any, will be paid by the Sellers. Pending
governmental liens on the Villa Assets, if any, will be assumed by the
Purchaser unless the improvement for which the lien has been levied has
been substantially completed as of the date of Closing, in which event
Sellers shall pay for such pending liens.
(iii) Security deposits, if any, from tenant's leases and other
contracts, deposits, including advance booking deposits, prepaid rent and
escrows held in connection with or the occupancy of the Villa
Improvements Property shall be transferred to Purchaser.
(iv) Rents and other revenues shall be prorated. Proration of
rents shall be of those actually received and Purchaser shall be entitled
to all rents and other income accruing from and after the date of
Closing. Any rentals or other sums due Sellers before Closing, but not
yet collected as of the date of Closing, shall be the Seller's exclusive
responsibility to collect.
(v) All utility charges, including but not limited to,
telephone service, gas, water and sewer, and electric power shall be
prorated as of the Closing Date. At least ten (10) days prior to
Closing, Seller shall notify all utilities servicing the Villa
Improvements of the contemplated change in ownership, and direct that
current billings for services rendered up to the Closing Date be directed
to the Company and that all future billings for services rendered on or
after the Closing Date be directed to Purchaser with no interruption of
service. Such notice shall be provided in writing and copies of same
furnished by Sellers to Purchaser. Only deposits, standby charges and
other prepayments which may be assignable and are assigned to Purchaser
shall be paid for by Purchaser at Closing. Non-assignable deposits and
other charges shall be refunded to the Company and replaced by Purchaser
with appropriate adjustment to the proration.
(vi) All other income, receivables, claims and rights to revenue
derived from the Villa Assets accruing or relating to the period up to
the Closing Date shall belong to
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the Company and it shall be Company exclusive responsibility to collect
same if it has not done so by Closing. All other income relating to the
Villa Assets shall be paid to the Purchaser.
(vi) Insurance premiums relating to the Villa Assets shall be
prorated if Purchaser elects to assume such insurance.
Section 1.6 CLOSING DATE.
(a) Following execution of this Agreement, Purchaser and Sellers shall
be obligated to consummate the transfer of the Villa Assets to Purchaser and the
payment of the purchase price set forth in Section 1.5 by Purchaser to the
Company strictly in accordance with terms set forth herein on the latter of June
30, 1998 or within five (5) days after the conditions set forth in Article VI
and Article VII have been satisfied or waived, time being of the essence. For
purposes of this Agreement, the day that the deliveries set forth in Section
1.6(b) and 1.6(c) are made and the purchase price is paid by the Purchaser to
the Company shall be referred to as the ("Closing Date") and the actions of
delivering the items set forth in Section 1.6(b) and 1.6(c) shall be referred to
as the ("Closing").
(b) At the Closing, purchaser shall deliver or cause to be delivered,
all duly and properly executed, and authorized (where applicable) the following:
(i) the Purchase Price by good funds delivered by wire transfer
to First American Title Insurance Company, as escrow agent ("Escrow
Company");
(ii) a copy of resolutions of the directors of Purchaser
authorizing the execution and delivery of this Agreement and each other
agreement to be executed in connection herewith (collectively, the
"Collateral Documents") and the consummation of the transactions
contemplated herein and therein; and
(iii) such other and further documents as may be reasonable
appropriate to consummate the transaction in accordance with the
provisions of this Agreement.
(c) At the Closing, Sellers shall deliver to Escrow Company or cause
to be delivered, all duly and properly executed, authorized and issued (where
applicable) the following:
(i) An assignment of the Villa Ground Lease in recordable form,
free and clear of all mortgages, liens and encumbrances and subject only
to the Permitted Exceptions, as hereinafter defined;
(ii) Bill of Sale for all Villa Current Assets;
(iii) An assignment of the Company's right, title and interest in
and to the Villa Licenses and Permits, Villa Occupancy Leases, Villa
Plans and Villa Warranties;
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(iv) An Affidavit reciting that there are no contractor's liens
against the real property which is subject to the Villa Ground Lease and
that, within the past one hundred and twenty (120) days, there have been
no improvements, alterations or repairs for which the costs thereof
remain unpaid, with the exception of anything previously disclosed to
Purchaser, the real property subject to the Villa Ground Lease and the
Villa Ground Land is free and clear of all liens, taxes, encumbrances and
claims whatsoever, with the exception of real estate taxes for the year
of closing; that there are no parties in possession or with a right or
claim to possession; and that affiant has received no notice of any
violations of County or municipal ordinances pertaining to the real
property which is subject to the Villa Ground Lease;
(v) A Standard FIRPTA affidavit acknowledging that the Company
is not a "foreign person" as defined and set forth in Section 1445 of the
Internal Revenue Code (or, in the event the Company is a "foreign
person," providing Purchaser with sufficient information for Purchaser to
comply with the withholding requirements thereof);
(vi) A standard "gap" affidavit in the form required by the
title company issuing a title insurance policy to Purchaser on the
leasehold interest of the Villa Ground Lease;
(vii) Appropriate certificates or resolutions of authority
confirming the authority of the individual(s) executing the closing
documents; and
(viii) Such other and further documents as may be reasonably
appropriate to consummate the transaction in accordance with the
provisions of this Agreement.
Section 1.7 TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date:
(a) by mutual written agreement of Purchaser and Sellers;
(b) by Purchaser or Sellers, in the event the other makes a material
misrepresentation under this Agreement or breaches a material covenant or
agreement under this Agreement; or
(c) by purchaser or Sellers, if the Closing Date shall not have
occurred by June 30, 1998, or such other date as may be agreed to by the parties
hereto in writing, due to the non-fulfillment of a condition precedent to such
party's obligation to close as set forth at Article VII or VIII hereof, as
applicable (through no fault or breach by the terminating party).
In the event this Agreement is terminated as provided herein, this
Agreement shall become void and be of no further force and effect and no party
hereto shall have any further liability to any other party hereto, except that
this Section 1.7, and Article IX, Section 9.4, and Section 9.13 shall survive
and continue in full force and effect, notwithstanding termination. The
termination of this Agreement shall not limit, waive or prejudice the remedies
available to the parties, at law or in equity, for a breach of this Agreement.
If this Agreement is terminated, all
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due diligence and other documentation delivered to Purchaser by the Sellers
shall be returned to the Sellers.
ARTICLE II
CONDITION OF TITLE
Section 2.1 OWNERS TITLE POLICY. As a condition to Purchaser's
obligation to consummate the transaction, the Purchaser on the Closing Date
shall be able to obtain, with respect to the Villa Ground Lease, an extended
coverage owner's policy of title insurance from the Escrow Company, dated as of
the Closing Date, in the amount equal to the fair market value of such Villa
Improvements. The title policy shall include comprehensive, access, contiguity
and non-imputation endorsements, and shall insure title to a leasehold estate in
the Villa Ground lease and the easement rights as to the tunnel under Calle
Encilia vested in the Company under the Villa Ground Lease, subject only to the
Permitted Exceptions permitted by Section 2.2 hereof (the "Owners Policy").
Sellers shall pay the cost of the Owners Policy.
Section 2.2 PERMITTED EXCEPTIONS. The Owners Policy shall insure that
Purchaser has good and marketable title to the Villa Ground Lease, without any
exceptions whatsoever except those (i) listed on Schedule 2.2 attached hereto,
(ii) the standard printed exceptions to, exclusions from, coverage contained in
the Owners Policy, (iii) matters created by or with the written consent of
Purchaser, and (iv) matters that may be disclosed by an inspection of the Villa
Improvements or which are approved by Purchaser in writing ("Permitted
Exceptions"). At Closing, if there are any exceptions to title other than as
set forth above, Sellers shall satisfy and or remove the exceptions by the
payment of money up to an amount of money equal to the Purchase Price.
Section 2.3 SURVEY. The Sellers shall furnish Purchaser with a survey
relating to all of the real property which is subject to the Villa Ground Lease
and Villa Improvements that is sufficiently current and detailed to enable the
Escrow Company to issue the Owners Policy without a survey exception. If a new
survey is required, Sellers and Purchaser shall share the cost of such survey.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
With knowledge that Purchaser is relying upon the representations,
warranties and covenants herein contained, Sellers jointly and severely
represent and warrant to Purchaser and make the following covenants for
Purchaser's benefit. The representations and warranties shall be true as of the
date of this Agreement and on the Closing Date. When the phrase "to Sellers'
knowledge" or any equivalent phrase is used in this Agreement, the phrase shall
mean the actual knowledge of any Sellers or the information and/or knowledge the
Shareholder would actually possess had such Shareholder acted with due diligence
in the conduct of his duties as an officer, director or employee of the Company.
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Section 3.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
state of their incorporation, with full power and authority to own its
properties and conduct its business as now being conducted. The Company does
not own any stock or interest in any other corporation, partnership, or other
business organization. The Shareholder, at Closing, will own all of the
outstanding securities issued by the Company.
Section 3.2 CONDITION OF PERSONAL PROPERTY. All of the Villa Personal
Property is in reasonably good condition, normal wear and tear excepted, and is
sufficient in type, quantity and quality to maintain the Villa Improvements and
rent out the rooms contained in the Villa Improvements in the same manner as the
Company currently conducts operations.
Section 3.3 CONDITION OF VILLA IMPROVEMENTS.
(a) All of the Villa Improvements, including all mechanical systems
such as heating, air conditioning, electrical and plumbing, are in reasonably
good condition, normal wear and tear excepted. Sellers have no knowledge of any
latent or patent defect or design deficiency in the foundation, structure, roof,
paved areas or mechanical systems of the Villa Improvements, including, without
limitation, the heating, ventilation and cooling systems, the electrical system,
the plumbing system or the elevators. The Company has not received any written
notice from any insurance carrier which has issued a policy of insurance with
respect to all or any portion of the Villa Improvements or the operation thereof
of any defects or deficiencies or requesting the performance of any repairs,
alterations or other work with respect to the Villa Improvements.
(b) Sellers have not received any written official notice, or any
informal written or oral notice of any contemplated condemnation proceedings
against the whole or any part of the Villa Improvements.
(c) The real property which is the subject of the Villa Ground Lease
is presently zoned to permit the development and operation thereon of
residential time share units, subject only to the receipt of a conditional use
permit; there are no moratoria or similar conditions that will prevent the
development and operation of the Villa Improvements into residential time share
units; there are no current violations of any building, zoning or other
requirements of any applicable governmental authority affecting the Villa
Improvements.
(d) The Sellers have no knowledge of any fact or condition which would
result in the termination or reduction of the current access from the Villa
Improvements existing public streets; and Sellers has no knowledge of any
proposed road widening or other construction activity within the vicinity of the
Villa Improvements.
(e) The Company is in sole and undisputed possession of the Villa
Improvements and no other person or entity is entitled to possession of all or
any portion of the Villa Improvements or the real property which is subject to
the Villa Ground Lease. There are no leases with respect to the Villa
Improvements, other than the Villa Ground Lease.
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(f) The Sellers have not received any notice and has no knowledge of
any pending liens, increased assessments or tax rates, or any special
assessments to be made against the Villa Improvements by any governmental
authority.
(g) Public water, public sanitary sewer, electricity, and telephone
services have been installed to the Villa Improvements through appropriate
easements.
Section 3.4 ENVIRONMENTAL COMPLIANCE. Except as disclosed on Schedule
3.4,
(a) The Villa Improvements and the real property which is the subject
of the Villa Ground Lease ("Villa Premises") do not contain any Hazardous
Materials, as hereafter defined.
(b) There are no underground or above-ground storage tanks on or under
the Villa Premises, and Sellers has no knowledge of the removal of any
underground or above-ground storage tanks from the Premises.
(c) There are no transformers containing or contaminated with
Hazardous Materials on the Villa Premises, and Sellers has no knowledge of the
removal of any such transformers from the Villa Premises.
(d) The Sellers have not engaged in or permitted any hazardous
Materials Use in, at, under, or in connection with the Villa Premises nor, to
Seller's knowledge, has any previous owner or tenant of the Villa Premises
engaged in or permitted any Hazardous Materials Use in, at, under, on or in
connection with the Villa Premises.
(e) Sellers has not received notice or actual knowledge of: (i) any
claim, demand, investigation, enforcement, response, removal, remedial or other
governmental or regulatory action instituted or threatened, against Sellers or
the Villa Premises pursuant to any Hazardous Materials Law; (ii) any claim,
demand, suit or action made or threatened by any person against Sellers or the
Villa Premises relating to any form of damage, loss or injury resulting from or
claimed to result from, any Hazardous Materials Law; and (iii) any communication
to or from any governmental or regulatory agency arising out of or in connection
with Hazardous Materials on, about, beneath, arising from or generated at the
Villa Premises, including without limitation, any notice of violation, citation,
complaint, order directive, request for information or response thereto, notice
letter, demand letter or compliance schedule. If discovered prior to the
Closing Date, Sellers shall immediately advise Purchaser of any of the claims or
communications listed in clauses (i) through (iii) above and also shall
immediately advise Purchaser of the discovery of any Hazardous Materials on,
about, beneath, or arising from the Villa Premises or the discovery of any
condition on, arising from the Villa Premises or the discovery of any condition
on, about, beneath, or arising from the Villa Premises which might give rise to
liability, the imposition of a statutory lien or require response, removal or
remedial action under any Hazardous Materials Law.
(f) As used, in this Agreement, "Hazardous Materials" shall mean (i)
asbestos in any form; (ii) urea formaldehyde foam insulation; (iii) transformers
or other equipment which contain
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dialectic fluid containing levels of polycholorinated biphenyls (PCB's) in
excess of 50 parts per million; (iv) lead paint; (v) any substance or
residual deemed hazardous or toxic, or required to be disclosed, reported
treated removed, disposed of or cleaned up by any applicable Hazardous
Materials law; and (vi) any other substance residual or material to which
exposure is prohibited, limited or regulated by any federal, state or local
authority, or which, even if not so regulated, is known to pose a hazard to
the health and safety of the occupants of the Villa Premises or of property
adjacent to the Villa Premises.
(g) As used in this Agreement, "Hazardous Materials Law" shall mean a
federal, state, or local statute, law, ordinance, code, regulation, rule, order
or decree (whether by court or by a governmental or quasi-governmental entity or
agency having authority), in effect on the date hereof or hereafter enacted,
promulgated or issued.
(h) As used in this Agreement, "Hazardous Materials Use" shall mean
activities involving, directly or indirectly, the manufacture, leak, spill,
emission, deposit, discharge, release, use, transportation, generation,
treatment, storage, disposal or handling of Hazardous Materials.
Section 3.5 TITLE.
(a) The Company has good and marketable title to, or a valid leasehold
interest in, all of Villa Assets both real property and personal property, each
free and clear of any mortgages, pledges, liens, encumbrances, charge, claim,
security agreement or title retention or other security arrangement ("Liens"),
except for the Permitted Encumbrances with respect to the Villa Ground Lease and
except for the types of liens set forth in subparagraphs (i) through (iii)
("Allowed Encumbrances").
(i) Liens imposed by law and incurred in the ordinary course of
business for indebtedness not yet due to carriers, warehousemen, laborers
or materialmen and the like;
(ii) Liens in respect of pledges or deposits under workmen's
compensation laws or similar legislation; and
(iii) Liens for property taxes, assessments, or governmental
charges not yet subject to penalties for nonpayment.
(b) The Company does not lease any of the Villa Assets, except for the
real property which is leased under the Villa Ground Lease. The Villa Ground
Lease attached to this Agreement is the entire instrument and/or instruments
constituting the Villa Ground Lease and there are no amendments to the Villa
Ground Lease except as set forth as part of Schedule 1.2(b)(i).
Section 3.6 POLICIES OF INSURANCE. All insurance policies, performance
bonds, and letters of credit insuring the Company with respect to the Villa
Assets which have not expired are listed on Schedule 3.6 attached hereto.
Schedule 3.6 includes the names and addresses of the
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insurers and sureties, policy and bond numbers, types of coverage or bond,
time periods or projects covered and the names and addresses of all known
banks, beneficiaries, agents or agencies with respect to each listed
insurance policy, performance bond and letter of credit. All current
insurance policies, performance bonds and letters of credits relating to the
Villa Assets are in force and effect and the premiums thereon are not
delinquent. Except as set forth in Schedule 3.6, the Company has not
received any notification from any insurance carrier denying or disputing any
claim made by any of the Company or denying or disputing any coverage for any
such claim or denying or disputing the amount of any claim. The Company have
no claim against any of their insurance carriers under any of policies
insuring them pending or anticipated and there has been no occurrence of any
kind which would give rise to any such claim.
Section 3.7 EMPLOYEES, PENSION, AND ERISA. The Villa Assets do not
include any rights or obligations under any contract of employment with an
officer or other employee of the Company or any Collective Bargaining
Agreements. The Villa Assets do not include any rights or obligations under any
employee benefit plans, funds or programs (within the meaning of the Code or the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) whether
currently maintained and/or established or sponsored by the Company (whether or
not they are now terminated) or to which the Company contributes, or has an
obligation to contribute in the future, including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions ("Plans"), whether or not the Plans are or are intended to be (i)
covered or qualified under the Code, ERISA or any other applicable law, (ii)
written or oral, (iii) funded or unfunded, or (iv) generally available to all
employees of the Company.
Section 3.8 LEGAL PROCEEDINGS. There are no lawsuits presently pending
nor have any lawsuits been threatened concerning the Villa Assets or any portion
thereof, or Seller's title or right to convey the Villa Assets or any portion
thereof hereunder, nor have Sellers any knowledge or any claims or liens
existing or threatened against the Villa Assets or any part thereof, other than
those listed on Schedule 3.8 attached.
Section 3.9 LEGAL COMPLIANCE. The Shareholder and the Company have the
right, power, legal capacity and authority to enter into, and perform their
obligations under this Agreement, and, except as set forth in Schedule 3.9, no
approvals or consents of any other persons, business or governmental units are
necessary to be obtained by Sellers or the Company in connection with the
transactions, filings with or notices to, contemplated by this Agreement.
Except as disclosed in Schedule 3.9 to this Agreement, the execution and
performance of this Agreement will not result in a material breach of or
constitute a material default or result in the loss of any material right or
benefit under:
(a) Any charter, by-law, agreement or other document to which the
Company is a party or by which the Company or any of its properties is bound,
including, without limitation, any agreement by or between any shareholder of
the Company; or
(b) Any decree, order or rule of any court or governmental authority
which is binding on the Company or on any property of the Company; or
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(c) Any permit, certificate or license issued by any governmental
authority under which the Company operates or pursuant to which the property of
the Company is bound; or
(d) Any agreement to which the Company is bound, including, without
limitation, the Villa Ground Lease, bank loan documents, agreements with
customers or suppliers and leases for equipment.
Section 3.10 TRANSACTION INTERMEDIARIES. No agent, broker, financial
advisor or other person acting pursuant to the express authority of the Company
is entitled to any commission or finder's fee in connection with the
transactions contemplated by this Agreement, except for a commission owed to
George David by the Sellers.
Section 3.11 DISCLOSURE. The representations and warranties of Sellers
contained in this Agreement, or in any Schedule or other document delivered by
Sellers pursuant hereto, do not contain any untrue statement of a material fact,
or omit any statement of a material fact necessary to make the statements
contained not misleading. If, prior to Closing, Sellers become aware of any
inaccuracy or misrepresentation or omission in any of the Schedules, they shall
immediately advise Purchaser in writing of the inaccuracy, misrepresentation or
omission.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
With knowledge that Sellers is relying upon the representations,
warranties and covenants contained herein, Purchaser represents and warrants to
Sellers and makes the following covenants for Seller's benefit. The
representations and warranties shall be true as of the date of this Agreement
and on the Closing Date.
Section 4.1 ORGANIZATION AND EXISTENCE. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and has all requisite corporate power and authority to
carry on its business as now conducted. Purchaser has all requisite corporate
power and authority to consummate the transactions contemplated by this
Agreement.
Section 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution,
delivery and performance of this Agreement by Purchaser has been duly authorized
and approved by the Board of Directors of Purchaser. No further corporate
action is necessary on the part of Purchaser to consummate this Agreement in
accordance with its terms. Purchaser has full authority to enter into and
perform its obligations under this Agreement, and neither the execution,
delivery nor performance by Purchaser of this Agreement will (i) result in a
violation or breach of any term or provision nor constitute a default under the
certificate of incorporation or bylaws of Purchaser or under any contract or
agreement to which Purchaser is a party or by which it is bound, or violate any
order, writ, injunction or decree of any court, administrative agency or
governmental body, or (ii) result in a violation or breach of any term or
provision, or constitute a default or accelerate the performance required, under
any indenture, mortgage, deed
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of trust or other contract or agreement to which Purchaser is a party or by
which it or its properties is bound.
ARTICLE V
ADDITIONAL AGREEMENTS OF THE PARTIES
Section 5.1 ACCESS TO RECORDS. Sellers will give to Purchaser and its
representatives, from the date hereof until the Closing Date, full access during
normal business hours, upon reasonable notice, to all of the properties, books,
contracts, documents and records of the Company, and will make available to
Purchaser and its representatives all additional financial statements of and all
information with respect to the business and affairs of the Company that the
other party may reasonably request.
Section 5.2 CONTINUATION OF BUSINESS. Sellers will operate the Villa
Assets until the Closing Date in the ordinary course of business, consistent
with past practice, so as to preserve its business organizations intact, to
assure, to the extent possible to preserve for Purchaser the relationships of
the suppliers, customers, and others who furnish goods and services with respect
to the Villa Assets.
Section 5.3 CONTINUATION OF INSURANCE. Sellers will keep in existence
all policies of insurance insuring the Company against liability and property
damage, fire and other casualty through the Closing Date, consistent with the
policies currently in effect.
Section 5.4 STANDSTILL AGREEMENT. Until the Closing Date, unless this
Agreement is earlier terminated pursuant to the provisions hereof, Sellers will
not, directly or indirectly, solicit offers for the shares or of the Company or
for the Villa Assets or for a merger or consolidation involving the Company, or
respond to inquiries from, share information with, negotiate with or in any way
facilitate inquiries or offers from, third parties who express or who have
heretofore expressed an interest in acquiring the Villa Assets or the Company by
merger, consolidation or other combination.
Section 5.5 CONSENTS. Sellers and Purchaser shall cooperate with each
other and use their bests efforts to obtain all approvals, authorizations and
consents required to be obtained to consummate the transaction set forth in this
Agreement, including, without limitation, the approval of every regulatory
agency of federal, state, or local government that may be required in the
opinion of either Purchaser or Sellers.
ARTICLE VI
CONDITIONS OF PURCHASER
The obligations of Purchaser to effect the transaction contemplated by
this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of each of the following items which are conditions to the Closing Date:
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Section 6.1 COMPLIANCE BY SELLERS. Sellers shall have performed and
complied with all material obligations and conditions required by this Agreement
to be performed or complied with by Sellers and the Company at or prior to the
Closing Date. All representations and warranties of Sellers contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes expressly permitted by this Agreement.
Section 6.2 LITIGATION AFFECTING THIS TRANSACTION. There shall be no
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transaction contemplated by this Agreement or which
might affect the right of Purchaser to own, operate in its entirety or control
the Company, which, as a result of the transaction contemplated by this
Agreement, might affect such right as to Purchaser or any affiliate thereof
subsequent to the Closing Date and which, in the judgment of the Board of
Directors of Purchaser, made in good faith and based upon advice of its counsel,
makes it advisable to proceed with the transaction contemplated by this
Agreement.
Section 6.3 FISCAL CONDITION OF BUSINESS. There shall have been no
material adverse change in the Villa Assets and the Villa Assets shall not have
suffered any material loss or damage, since the date of this Agreement.
Section 6.4 CONSENTS. All approvals, authorizations and consents
required to be obtained shall have been obtained, including, without limitation,
(i) the consent of the United States Department of the Interior Bureau of Indian
Affairs to the assignment of the Villa Ground Lease to the Purchaser, (ii) the
consent of the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Act, if required; and (iii) the approval of every regulatory agency of federal,
state, or local government that may be required in the opinion of either
Purchaser or Sellers. Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to Purchaser and its counsel, of the granting
of such approvals, authorizations and consents.
ARTICLE VII
CONDITIONS OF SELLER
The obligations of Sellers to effect the transaction contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
each of the following conditions:
Section 7.1 COMPLIANCE BY PURCHASER. Purchaser shall have performed
and complied with all material obligations and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date. All representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes expressly permitted by this Agreement.
Section 7.2 LITIGATION AFFECTING THIS TRANSACTION. There shall be no
actual or threatened action by or before any court which seeks to restrain,
prohibit or invalidate the transaction contemplated by this Agreement and which,
in the judgment of Sellers, made in good
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faith and based upon advice of its counsel, makes it advisable to proceed
with the transaction contemplated by this Agreement.
Section 7.3 CONSENTS. All approvals, authorizations and consents
required to be obtained shall have been obtained, including, without limitation,
(i) the consent of the United States Department of the Interior Bureau of Indian
Affairs to the assignment of the Villa Ground Lease to the Purchaser, (ii) the
consent of the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Act, if required; and (iii) the approval of every regulatory agency of federal,
state, or local government that may be required in the opinion of either
Purchaser or Sellers. Sellers shall have been furnished with appropriate
evidence, reasonably satisfactory to Sellers and its counsel, of the granting of
such approvals, authorizations and consents.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 INDEMNIFICATION BY SELLERS. Sellers agrees that they will
jointly and severally indemnify, defend, protect and hold harmless Purchaser and
its officers, shareholders, directors, agents, employees, legal representatives,
successors and assigns from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, penalties, costs and expenses
whatsoever (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation), whether arising out of
occurrences prior to, at, or after the date of this Agreement, from: (a) any
breach of, misrepresentation in, untruth in or inaccuracy in the representations
and warranties by the Sellers, set forth in this Agreement or in the Schedules
attached to this Agreement; (b) nonfulfillment or nonperformance of any
agreement, covenant or condition on the part of Sellers made in this Agreement
and to be performed by Sellers before or after the Closing Date; (c) violation
of the requirements of any governmental authority relating to the reporting and
payment of federal, state, local or other income, sales, use, franchise, excise
or property tax liabilities of the Company arising or accrued prior to the
Closing Date; and (d) any claim by a third party that, if true, would mean that
a condition for indemnification set forth in subsections (a), (b), or (c) of
this Section 8.1 of this Agreement has occurred.
Section 8.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees that it
will indemnify, defend, protect and hold harmless Sellers and its officers,
shareholders, directors, agents, employees, heirs, legal representatives,
successors and assigns, as applicable, from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, penalties, costs
and expenses whatsoever (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation), incurred by it, as a
result of or incident to: (a) any breach of, misrepresentation in, untruth in
or inaccuracy in the representations and warranties of Purchaser set forth in
this Agreement; (b) nonfulfillment or nonperformance of any agreement, covenant
or condition on the part of Purchaser made in this Agreement and to be performed
by Purchaser before or after the Closing Date; (c) any claim by a third party
that, if true, would mean that a condition for indemnification set forth in
subsections (a), (b), or (c) of this Section 8.2 has occurred.
Section 8.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY
CLAIMS.
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(a) If any third party shall notify a party to this Agreement (the
"Indemnified Party") with any respect to any matter (a "Third Party Claim") that
may give rise to a claim for indemnification against any other party to this
Agreement (the "Indemnifying Party") under this Article VIII, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party is thereby prejudiced. Such notice shall state the amount of the claim
and the relevant details thereof.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
satisfactory to the Indemnified party so long as (i) the Indemnifying Party
notifies the Indemnified Party in writing within ten (10) days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party pursuant to the
provisions of Article VIII, as applicable, from and against the entirety of any
adverse consequences (which will include, without limitation, all losses,
claims, liens, and attorneys' fees and related expenses) the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
monetary damages and does not seek an injunction or equitable relief, (iv)
settlement of, or adverse judgment with respect to the Third Party Claim is not,
in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 8.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in (but not control) the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which will not be unreasonably withheld), and
(iii) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (which will not be unreasonably
withheld). In the case of (c)(ii) or (c)(iii) above, any such consent to
judgment or settlement shall include, as an unconditional term thereof, the
release of the Indemnifying Party from all liability in connection therewith.
(d) If any condition set forth in Section 8.3(b) above is or becomes
unsatisfied, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate and the Indemnified Party
need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith, (ii) the Indemnifying Party will reimburse the Indemnified
Party promptly
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and periodically for the cost of defending against the Third Party Claim
(including attorneys' fees and expenses), and (iii) the Indemnifying Party
will remain responsible for any adverse consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this
Article VIII.
Section 8.4 PROCEDURE FOR NON-THIRD PARTY CLAIMS. If Purchaser or
Sellers wishes to make a claim for indemnity under Section 8.1 or Section 8.2,
as applicable, and the claim does not arise out of a third party notification
which makes the provisions of Section 8.3 applicable, the party desiring
indemnification ("Indemnified Party") shall deliver to the party from which
indemnification is sought ("Indemnifying Party") a written demand for
indemnification ("Indemnification Demand"). The Indemnification Demand shall
state: (a) the amount of losses, damages or expenses to which the Indemnified
Party has incurred or has suffered or is expected to incur or suffer to which
the Indemnified Party is entitled to indemnification pursuant to Section 8.1 or
Section 8.2, as applicable; (b) the nature of the event or occurrence which
entitles the Indemnified Party to receive payment under Section 8.1 or Section
8.2, as applicable. If the Indemnifying Party wishes to object to an
Indemnification Demand, the Indemnifying Party must send written notice to the
Indemnified Party stating the objections and the grounds for the objections
("Indemnification Objection"). If no Indemnification Objection is sent within
thirty (30) days after the Indemnification Demand is sent, the Indemnifying
Party shall be deemed to have acknowledge the correctness of the claim or claims
specified in the Indemnification Demand and shall pay the full amount claimed in
the Indemnification Demand within forty-five (45) days of the day the
Indemnification Demand is dated. If for any reason the Indemnifying Party does
not pay the amounts claimed in the Indemnification Demand, within thirty days of
the Indemnification Demand's date, the Indemnified Party may institute legal
proceedings to enforce payment of the indemnification claim contained in the
Indemnification Demand and any other claim for indemnification that the
Indemnified Party may have.
Section 8.5 SURVIVAL OF CLAIM. All of the respective representations,
warranties and obligations of the parties to this Agreement shall survive
consummation of the transactions contemplated by this Agreement as follows: (i)
all representations and warranties pertaining to federal, state and local taxes,
including, without limitation, the representations and warranties set forth in
Section 3.11 shall survive until the expiration of the applicable statute of
limitations on any claim which can be brought against the Company by tax
authorities or governmental agencies or governmental units and (ii) all
representations and warranties other than set forth in (i) above shall survive
until two years from the Closing Date. Notwithstanding the prior sentence which
provides that the representations and warranties expire after certain stated
periods of time, if within the stated period of time, a notice of a claim for
indemnification or Indemnification Demand is given, or a suit or action based
upon representation or warranty is commenced, the Indemnified Party shall not be
precluded from pursuing such claim or action, or from recovering from the
Indemnifying Party (whether through the courts or otherwise) on the claim or
action, by reason of the expiration of the representation or warranty.
Section 8.6 PROMPT PAYMENT. In the event that any party is required to
make any payment under this Article VIII, such party shall promptly pay the
Indemnifying Party the amount so determined. If there should be a dispute as to
the amount or manner of determination of any
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indemnity obligation owed under this Article VIII, the Indemnifying Party
shall, nevertheless, pay when due such portion, if any, of the obligation as
shall not be subject to dispute. The portion in dispute shall be paid upon a
final and non-appealable resolution of such dispute. Upon the payment in
full of any claim, the Indemnifying Party shall be subrogated to the rights
of the Indemnified Party against any person with respect to the subject
matter of such claim.
ARTICLE IX
OTHER PROVISIONS
Section 9.1 ASSIGNMENT; BINDING EFFECT; AMENDMENT. This Agreement and
the rights of the parties hereunder may be assigned by Purchaser to any
corporation or entity which is wholly owned by the Purchaser. Except as set
forth in the prior sentence, this Agreement may not be assigned by the parties
hereto. This Agreement, 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 only by a written instrument executed by all
parties hereto.
Section 9.2 ENTIRE AGREEMENT. This Agreement, is the final, complete
and exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as the Agreement. The Agreement supersedes, and cannot be
varied, contradicted or supplemented by evidence of any prior to contemporaneous
discussions, correspondence, or oral or written agreements of any kind. The
parties to this Agreement have relied on their own advisors for all legal,
accounting, tax or other advice whatsoever with respect to the Agreement and the
transactions contemplated hereby.
Section 9.3 COUNTERPARTS. This Agreement 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.
Section 9.4 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party.
(a) If to Purchaser, addressed to it at:
President
1150 First Avenue, Suite 900
King of Prussia, Pa. 19406
with a copy to:
Robert M. Kramer, Esq.
Robert M. Kramer & Associates, P.C.
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
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(b) If to Sellers, addressed to them at:
Mark Bragg
801 E. Tahquitz Canyon Way, Suite 101
Palm Springs, California 92262
James Schlecht
801 E. Tahquitz Canyon Way, Suite 100
Palm Springs, California 92263-2744
with a copy to:
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and five business days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received, if earlier. Any
party may change the address for notice by notifying the other parties of such
change in accordance with this Section 9.4.
Section 9.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
Section 9.6 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 Agreement 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 of default occurring before or after that waiver.
Section 9.7 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
Section 9.8 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
Section 9.9 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed form this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
Section 9.10 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation
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arises, this Agreement shall be construed as if drafted jointly by the
parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign
statute shall be deemed to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "Including"
means included, without limitation.
Section 9.11 EXTENSION OR WAIVER OF PERFORMANCE. Either Sellers or
Purchaser may extend the time for or waive the performance of any of the
obligations of the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, provided that any such
extension or waiver shall be in writing and signed by Sellers and Purchaser.
Section 9.12 LIABILITIES OF THIRD PARTIES. Nothing in this Agreement,
whether expressed or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective officers, shareholders, directors, affiliates, subsidiaries,
parents, agents, employees, legal representatives, successors and assigns, nor
is anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provisions give any third parson any rights of subrogation or action over or
against any party to this Agreement.
Section 9.13 ARBITRATION.
(a) Each and every controversy or claim arising out of or relating to
this Agreement shall be settled by arbitration in Los Angeles, California, in
accordance with the commercial rules (the "Rules") of the American Arbitration
Association then obtaining, and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notwithstanding the foregoing, this
Agreement to arbitrate shall not bar any party from seeking temporary or
provisional remedies in any Court having jurisdiction. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement,
which such demand shall set forth in the same degree of particularity as
required for complaints under the Federal Rules of Civil Procedure the claims to
be submitted to arbitration. Additionally, the demand for arbitration shall be
stated with reasonable particularly with respect to such demand with documents
attached as appropriate. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statutes of limitations.
(b) The arbitrators shall have the authority and jurisdiction to
determine their own jurisdiction and enter any preliminary awards that would aid
and assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall deem appropriate in their
discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
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(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be taken, if ordered by the arbitrators in accordance with the
Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The
arbitrators shall have the authority to modify, amend or change the discovery
plans of the parties upon application by either party, if good cause appears for
doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to Sellers and Purchaser in connection with the
negotiation of and consummation of the transactions under this Agreement shall
be entitled to represent their respective party in any and all proceedings under
this Section or in any other proceeding (collectively, "Proceedings"). Sellers
and Purchaser, respectively, waive the right and agree they shall not seek to
disqualify any such counsel in any such Proceedings for any reason, including
but not limited to the fact that such counsel or any member thereof may be a
witness in any such Proceedings or possess or have learned of information of a
confidential or financial nature of the party whose interests are adverse to the
party represented by such counsel in any such Proceedings.
Section 9.14 COUNTERPARTS. This Assignment may be executed in any
number of counterparts, each of which, when executed and delivered, shall be an
original, but all counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
EPIC RESORTS PALM SPRINGS MARQUIS VILLAS, INC.
By: /s/ Thomas F. Flatley
------------------------------------------------
Thomas F. Flatley
President
PALM SPRINGS MARQUIS, INC.
By: /s/ Mark A. Bragg
------------------------------------------------
Mark A. Bragg
President
/s/ Mark A. Bragg
---------------------------------------------------
Mark A. Bragg, Individually as Shareholder
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Schedule 1.2(a)
Promissory Note
<PAGE>
Schedule 1.2(a)
PROMISSORY NOTE
May 25, 1998
Montgomery County, Pennsylvania
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned (each jointly and severally and herein collectively referred to and
obligated as "Debtor") promises to pay to the order of EPIC RESORTS, INC.
("Lender") at its offices in Montgomery County, Pennsylvania, or at any other
location that Lender may designate, in lawful money of the United States, the
Principal sum of Two Hundred Fifty Thousand -- and -- 00/100 Dollars, together
with the interest that accrues on the unpaid principal balance of this Note.
INTEREST shall accrue on the unpaid principal balance of this Note at the rate
of ten (10%) percent per annum.
INTEREST ACCRUAL - Interest shall be calculated hereunder for the actual number
of days that the principal is outstanding, based on a year of three hundred and
sixty (360) days. Interest shall continue to accrue on the principal at the
rate(s) specified above notwithstanding any demand for payment, acceleration
and/or the entry of judgment against any Obligor ("Obligor", as used herein,
includes Debtor and all other persons liable, whether sole, joint or several,
absolutely or contingently, on any of the Obligations, including endorsees,
sureties and guarantors), until all amounts owing on this Note have been paid in
full.
PREPAYMENT - This Note may be prepaid, in whole or in part, without penalty.
However, any prepayment shall be applied to the installments payable hereunder
in their inverse order of maturity (last installment due credited first) and the
number of installments shall be correspondingly reduced. No prepayment shall
reduce the amount of or relieve Debtor form paying any scheduled installment
until the principal and interest of this Note has been paid in full.
LATE PAYMENTS - If any payment of principal or interest is not received in full
by Lender within ten (10) days after the due date thereof, there shall be added
to the Obligations a late charge equal to four cents ($.04) for each dollar
($1.00) of the amount past due. This late charge shall be immediately due and
payable, without notice or demand. Any payments received after 3:00 p.m. shall
be deemed to have been received on the next Bank day.
EVENTS OF DEFAULT- Each of the following shall constitute an "Event of Default":
(1) the nonpayment within five (5) days of its due date of any amount payable
under this Note or of any amount when due under or on any of the Obligations, or
the failure of any Obligor to observe or perform any agreement of any nature
whatsoever with Lender; (2) any Obligor becomes insolvent or makes an assignment
for the benefit of creditors, or a petition is filed by or against any Obligor
under any state or federal law or statute alleging that Obligor is insolvent or
unable to pay debts
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as they mature or under any provisions of the Federal Bankruptcy Code; (3)
the entry of any judgment against any Obligor which remains unsatisfied for
fifteen (15) days or the issuing of any attachment, levy or garnishment
against any property of any Obligor, or the occurrence of any substantial
change in the financial condition of any Obligor which, in this sole,
reasonable judgment of Lender, is materially adverse; (4) the dissolution,
merger, consolidation or reorganization of any Obligor which is a corporation
or partnership without the prior written consent of Lender; and (5) the
death, incarceration or adjudication of legal incompetence of any Obligator
who is a natural person.
LENDER'S RIGHTS UPON DEFAULT - Upon the occurrence of any Event of Default, and
without the necessity of giving any prior written notice to any Obligor, Lender
may do any or all of the following: (1) Accelerate the maturity of this Note
and all amounts payable hereunder and demand immediate payment thereof; (2)
Against Debtor and commence any other legal action on this; (3) Exercise its
right of set-off and all of the rights and remedies of a secured party under the
Pennsylvania Uniform Commercial Code (or under the laws of any other
jurisdiction in which any collateral security for the obligations may be
located), and all of its rights and remedies under any security agreement,
pledge agreement, mortgage, power, or other document issued in connection with
or arising out of or relating to any of the Obligations (the "Loan Documents");
and (4) Upon five (5) days prior written notice to Debtor, Lender may at its
option begin accruing interest, in addition to the interest provided for above,
if any, at a rate not to exceed five percent (5%) per annum on the unpaid
principal, which interest shall be paid upon demand; however, no interest shall
accrue in excess of the maximum amount then allowed by law.
COLLECTION - To the extent permitted by law, Debtor: (1) waives the right of
inquisition on any real estate levied on, voluntarily condemns the same,
authorizes the prothonotary or clerk to enter upon the Writ of Execution this
voluntary condemnation and agrees that any real estate may be sold on a Writ of
Execution; (2) waives and releases all relief from all appraisement, stay,
exemption or appeal laws of any state now in force or hereafter enacted; and (3)
releases all errors in such proceedings. If a copy of this Note, verified by
affidavit by or on behalf of Lender shall have been filed in such action, it
shall not be necessary to file the original Note as a warrant of attorney.
APPLICATION OF FUNDS- All sums realized by Lender on account of the Obligations,
from whatever source received, shall be applied first to any fees and expenses
(including attorneys' fees) incurred by Lender, second to accrued and unpaid
interest and late charges, and then to principal. Debtor waives and releases
any right to require Lender to collect any of the Obligations from any
collateral under any theory of marshalling of assets or otherwise. Debtor
authorizes Lender to apply the proceeds of any collateral in which Obligor has
any right, title or interest against any of the obligations in any manner or
order that Lender may determine.
PAYMENT OF COSTS AND ATTORNEYS' FEES - Debtor shall be liable, and shall
reimburse Lender on demand, for all attorneys' fees and expenses incurred by
Lender in the event that Lender engages an attorney to represent it in
connection with (1) any alleged default by any Obligor under any of the Loan
Documents issued in connection with or arising out of any of the Obligations,
(2) the enforcement of any of the Lender's rights and remedies under any of the
Loan
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documents, (3) any potential and/or actual Bankruptcy or other insolvency
proceedings commenced by or against any Obligor and/or (4) any potential
and/or actual litigation arising out of or related to any of the foregoing,
the Loan Documents or any of the Obligations. Debtor shall also be liable
and shall reimburse Lender on demand for all other cost and expenses incurred
by Lender in connection with the collection, preservation and/or liquidation
of any collateral security for any of the Obligations and/or in the
enforcement of any Obligor's obligations under this Note.
MISCELLANEOUS - Debtor hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law, Debtor
hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note. The rights and
privileges of Lender under this Note shall inure to the benefit of its
successors and assigns. All representations, warranties and agreements of
Debtor made in connection with this Note shall bind Debtor's personal
representatives, heirs, successors and assigns. If any provision of this Note
shall for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Note
shall be construed as if such invalid or unenforceable provision had never been
contained herein. The waiver or failure of Lender to exercise any right or
remedy to which it may be entitled in any Event of Default shall not be deemed
to be a waiver in any subsequent Event of Default. The rights and remedies of
Lender under this Note and the other Loan Documents shall be in addition to any
other rights and remedies available to Lender at law or in equity, all of which
may be exercised singly or concurrently. This Note has been delivered to and
accepted by Lender in Pennsylvania and shall be governed by the laws of that
State. The parties agree to the exclusive jurisdiction of the federal and state
courts located in Pennsylvania in connection with any matter arising hereunder,
including the collection and enforcement hereof, except as Lender may otherwise
elect.
IN WITNESS WHEREOF, Debtor has duly executed this Note the day and year
first above written and has hereunder set hand and seal.
By: /s/ Mark Bragg
----------------------------------
Mark Bragg, President of
Palm Springs Marquis, Inc.
By: /s/ Mark Bragg
----------------------------------
Mark Bragg, Individually as
shareholder
3
<PAGE>
Schedule 1.2(b)(i)
Third Ground Lease and Amendments
<PAGE>
PURCHASE AGREEMENT
REGARDING PALM SPRINGS MARQUIS VILLAS, INC.
BETWEEN
EPIC RESORTS - PALM SPRINGS MARQUIS VILLAS, INC.
PALM SPRINGS MARQUIS, INC.
and
MARK BRAGG
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - Loan, Consideration and Closing. . . . . . . . . . . . . . . . 1
Section 1.1 Incorporation of Recitals. . . . . . . . . . . . . . . 1
Section 1.2 Loan, Time and Place for Closing . . . . . . . . . . . 1
Section 1.2 Villa Assets . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Non-Assumption of Liability. . . . . . . . . . . . . . 3
Section 1.4 Existing Loans . . . . . . . . . . . . . . . . . . . . 4
Section 1.5 Agreement to Sell Villa Assets; Consideration. . . . . 4
Section 1.6 Closing Date . . . . . . . . . . . . . . . . . . . . . 6
Section 1.7 Termination. . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II - Condition of Title. . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1 Owners Title Policy. . . . . . . . . . . . . . . . . . 8
Section 2.2 Permitted Exceptions . . . . . . . . . . . . . . . . . 8
Section 2.3 Survey . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III - Representations and Warranties of Sellers. . . . . . . . . . 8
Section 3.1 Organization and Standing. . . . . . . . . . . . . . . 8
Section 3.2 Condition of Personal Property . . . . . . . . . . . . 9
Section 3.3 Condition of Villa Improvements. . . . . . . . . . . . 9
Section 3.4 Environmental Compliance . . . . . . . . . . . . . . . 10
Section 3.5 Title. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6 Policies of Insurance. . . . . . . . . . . . . . . . . 11
Section 3.7 Employees, Pension, and ERISA. . . . . . . . . . . . . 12
Section 3.8 Legal Proceedings. . . . . . . . . . . . . . . . . . . 12
Section 3.9 Legal Compliance . . . . . . . . . . . . . . . . . . . 12
Section 3.10 Transaction Intermediaries . . . . . . . . . . . . . . 13
Section 3.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV - Representations and Warranties of Purchaser . . . . . . . . . 13
Section 4.1 Organization and Existence . . . . . . . . . . . . . . 13
Section 4.2 Authority Relative to this Agreement . . . . . . . . . 13
ARTICLE V - Additional Agreements of the Parties . . . . . . . . . . . . . 14
Section 5.1 Access to Records. . . . . . . . . . . . . . . . . . . 14
Section 5.2 Continuation of Business . . . . . . . . . . . . . . . 14
Section 5.3 Continuation of Insurance. . . . . . . . . . . . . . . 14
Section 5.4 Standstill Agreement . . . . . . . . . . . . . . . . . 14
Section 5.5 Consents . . . . . . . . . . . . . . . . . . . . . . . 14
i
<PAGE>
ARTICLE VI - Conditions of Purchaser . . . . . . . . . . . . . . . . . . . 14
Section 6.1 Compliance by Sellers. . . . . . . . . . . . . . . . . 14
Section 6.2 Litigation Affecting This Transaction. . . . . . . . . 15
Section 6.3 Fiscal Condition of Business . . . . . . . . . . . . . 15
Section 6.4 Consents . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII - Conditions of Seller . . . . . . . . . . . . . . . . . . . . 15
Section 7.1 Compliance by Purchaser. . . . . . . . . . . . . . . . 15
Section 7.2 Litigation Affecting This Transaction. . . . . . . . . 15
Section 7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII - Indemnification . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.1 Indemnification by Sellers . . . . . . . . . . . . . . 16
Section 8.2 Indemnification by Purchaser . . . . . . . . . . . . . 16
Section 8.3 Procedure for Indemnification with Respect to Third
Party Claims. . . . . . . . . . . . . . . . . . . . . 16
Section 8.4 Procedure for Non-Third Party Claims . . . . . . . . . 18
Section 8.5 Survival of Claim. . . . . . . . . . . . . . . . . . . 18
Section 8.6 Prompt Payment . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX - Other Provisions. . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.1 Assignment; Binding Effect; Amendment. . . . . . . . . 19
Section 9.2 Entire Agreement . . . . . . . . . . . . . . . . . . . 19
Section 9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . 19
Section 9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.5 Governing Law. . . . . . . . . . . . . . . . . . . . . 20
Section 9.6 No Waiver. . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.7 Time of the Essence. . . . . . . . . . . . . . . . . . 20
Section 9.8 Captions . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.9 Severability . . . . . . . . . . . . . . . . . . . . . 20
Section 9.10 Construction . . . . . . . . . . . . . . . . . . . . . 20
Section 9.11 Extension or Waiver of Performance . . . . . . . . . . 21
Section 9.12 Liabilities of Third Parties . . . . . . . . . . . . . 21
Section 9.13 Arbitration. . . . . . . . . . . . . . . . . . . . . . 21
Section 9.14 Counterparts . . . . . . . . . . . . . . . . . . . . . 22
ii
<PAGE>
SECTION OF DISCLOSURE SCHEDULE
1.2(a) Promissory Note
1.2(b)(i) Third Ground Lease and Amendments
1.2(b)(iv) Villa Personal Property
1.2(b)(vi) Villa Licenses and Permits
1.2(b)(x) Villa Warranties
2.2 Permitted Exceptions to Real Property Title
3.4 Environmental Compliance
3.6 Insurance Policies, Performance Bonds and Letters of Credit
3.8 List and Synopsis of All Litigation
3.9 Required Consents
iii
<PAGE>
EXHIBIT 2.3
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into
on this May 8, 1998 by and between Epic Resort, Inc., a Delaware corporation
(hereinafter referred to as "Purchaser") and Westpark II Partnership, L.L.C.
(hereinafter referred to as "Seller").
RECITALS
Seller is the owner of a 153 apartment complex ("Apartment Complex")
known as the Westpark Phase II which is located at 5165 South Decatur
Boulevard, Las Vegas, Nevada 89103 the legal description of which is set
forth on Exhibit "A" attached hereto and made a part hereof (hereinafter
referred to as the "Land").
Seller has agreed to sell, and Purchaser has agreed to purchase, the
Land, including the Apartment Complex and all other improvements thereon, and
all other property associated therewith, for the price and on the terms and
conditions as more specifically set forth below.
NOW, THEREFORE, for and in consideration of the above stated premises
and other good and valuable considerations, the receipt and sufficiency of
which is hereby acknowledged; the parties hereto agree as follows:
1. PURCHASE AND SALE. Seller agrees to sell to Purchaser and
Purchaser agrees to purchase from Seller, upon all of the terms, covenants
and conditions hereinafter set forth, the following:
(a) The Land;
(b) The Apartment Complex, including, without limitation, the
buildings, parking areas, sign structures and other structures and
improvements on the Land (collectively referred to as the "Improvements");
(c) All furniture, furnishings, supplies, equipment and fixtures,
carpeting, inventory, appliances, water fountains, elevators and all other
tangible personal property of any type which is located on the Land and/or is
used or useful in connection with any business operations of the improvements
thereon, or the repair and maintenance of the Land and Improvements, all of
which are collectively referred to as the "Personal Property." A list of the
personal property is attached as Exhibit __;
(d) Easements and all other rights appurtenant to the Land
including, without limitation, easements and rights-of-way for access,
drainage, water, utilities and other purposes incident to the use of the Land
and Improvements (collectively referred to as the "Appurtenances");
<PAGE>
(e) All rights of the Seller in all building permits, certificates
of occupancy and other permits, licenses, governmental approvals, and
agreements which have been or are being utilized in connection with the
ownership, operation, and maintenance of the Land and Improvements
(collectively referred to as the "Licenses and Permits");
(f) Leases, tenancy agreements (but excluding any employment
contracts) which exist with respect to the ownership, operation and
maintenance of the Land, Personal Property and Improvements (collectively
referred to as the "Leases and Contracts");
(g) Seller and Purchaser will mutually agree on the usage of the
name "Westpark" as well as any logos, signs, trademarks and other rights
relating to said name, telephone number(s). The Improvements and all
intangible personal property used or useful in the operation, repair and
maintenance of the Land, Improvements and Personal Property (collectively
referred to as the "Intangible Property");
(h) All records concerning the operation of the Property
including, but not limited to accounting books and records applicable thereto
(collectively referred to as the "Records");
(i) All architectural drawings of the Improvements and plans and
specifications (e.g., including, but not limited to structural, electrical,
plumbing, landscaping, etc.) utilized in the development of the Land and
construction of the Improvements (collectively referred to as the "Plans").
This is subject to the ownership of the above items by Seller;
(j) All manufacturers, sales and service warranties applicable to
the Land, Personal Property and Improvements (collectively referred to as the
"Warranties").
For purposes of this Agreement, the conveyance of the foregoing property
shall be deemed to be all inclusive and no Land, Improvements, Personal
Property, Appurtenances, Licenses and Permits, Leases and Contracts,
Intangible Property, Records, Plans and Warranties (collectively referred to
herein as the "Property") shall be excluded, except as may be excluded by
written consent of the Purchaser.
2. PURCHASE PRICE.
(a) The total purchase price ("Purchase Price") for the Property
shall be Fifteen Million Nine Hundred Sixty Thousand ($15,960,000) Dollars
payable in good funds by wire transfer at Closing as hereafter defined.
(b) Out of the Purchase Price, as a condition to the Closing, the
Seller shall pay and/or satisfy all obligations which are liens and
encumbrances against the Property, including without limitation the following:
(i) current and delinquent real estate taxes on the Property;
and
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<PAGE>
(ii) all outstanding local and state tax obligations relating
to the Property.
Purchaser assumes no liabilities, mortgages, obligations or indebtedness
relating to the Property. All liabilities, mortgages, obligations or
indebtedness which are, or can, with the passage of time, become a lien or
encumbrance on the Property or which otherwise relate to or can affect the
Property shall be satisfied in full by Seller on or before the date of
Closing.
(c) Within five (5) days after execution of this Agreement by both
parties, Purchaser will deposit with United Title of Las Vegas, Nevada (the
"Escrow Agent"), the sum of One Hundred Fifty Thousand ($150,000.00) to serve
as an escrow deposit and to secure Purchaser's performance hereunder. The
One Hundred Fifty Thousand Dollars is hereafter referred to as the "Deposit."
The Deposit shall be held in an interest bearing account with a commercial
bank or savings and loan association with all earnings to accrue to
Purchaser's benefit, unless Seller retains the Deposit as a result of a
default by Purchaser hereunder in which event the Deposit, together with
interest thereon, shall be paid to Seller. The Deposit shall be paid to
Seller and credited to Purchaser against the Purchase Price, at Closing.
3. INSPECTION RIGHTS OF PURCHASER. From the date this Agreement is
executed through the Closing Date, Purchaser shall have the right to inspect
all of Seller's records and documents relating to the ownership, construction
and condition of the Property, and to physically inspect the Property,
including any environmental, asbestos and radon testing, and to otherwise
satisfy itself as to the acceptability of the Property for Purchaser's
intended use. Purchaser and Purchaser's agents shall have the right of
ingress and egress to the Property for the inspections contemplated herein.
If for any reason the condition of the Property is not satisfactory to
Purchaser, in Purchaser's sole discretion, Purchaser may terminate this
Agreement by sending written notice of termination to the Seller within
thirty (30) days of the date this Agreement is executed by both Purchaser and
Seller ("Due Diligence Period"), whereupon the Deposit with all interest
shall be returned to Purchaser and the parties shall thereafter have no
further responsibilities or obligations to each other.
4. CONDITION OF TITLE.
(a) At Settlement, Seller shall convey to Purchaser by special
warranty deed good and marketable fee simple title to the Land and title to
the other Property by a Bill of Sale by an Assignment of Contracts and
Warranties. Title to the Land shall further be (i) free and clear of all
liens, restrictions, easements, encumbrances, claims or liens by contractors,
subcontractors, mechanics and materialmen, leases [except as permitted in 4(c)],
tenancies and other title objections except for those listed on Schedule 4(a)
attached (the "Permitted Exceptions"); and (ii) insurable as aforesaid at
ordinary rates by any reputable title insurance company licensed to do business
in the State of Nevada. Title to the Property other than the Land shall be
conveyed free of all security interests, debts and claims by third parties.
(b) If title to the land cannot be conveyed to Purchaser at the
time of Settlement in accordance with the requirements of this Agreement,
then Purchaser shall have the option of:
3
<PAGE>
(i) taking such title as Seller can convey without
abatement of the Purchase Price provided, however, that if there are liens,
encumbrances, defects or other objections to title (other than the Permitted
Exceptions) which are or have been or reasonably can be reduced to a monetary
amount, Seller shall pay and discharge same and shall deliver to Purchaser at
Closing all instruments, in recordable form, sufficient to satisfy of record
such liens, encumbrances, defects or other objections to title together with
the cost of recording or filing said instrument; or
(ii) terminating this Agreement by giving written notice to
Seller, in which case the Deposit and all Interest earned thereon shall be
returned to Purchaser whereupon, neither party shall have further rights,
liabilities or obligations hereunder. Nothing contained herein shall
preclude Purchaser from maintaining an action for specific performance and/or
damages against Seller for a breach of this Agreement, if title to the
Property cannot be conveyed by Seller to Buyer at Closing in accordance with
the requirements of this Agreement by reason of Seller's affirmative act or
intentional omission with respect only to those matters set forth in 4(c)
below resulting in a failure to comply with any term, covenant, condition or
provision contained herein relating to the condition of title.
(c) Seller warrants that at all times while this Agreement remains
in effect, Seller will not, except to the extent specifically set forth
herein, (i) execute any easements, covenants, conditions, restrictions, or
rights-of-way with respect to the Land; (ii) mortgage or encumber the Land;
(iii) enter into any recorded or unrecorded contracts or leases with respect
to the Land; (iv) lease more than fifty five apartments contained in the
Apartment Complex; (v) execute any lease for an apartment in the Apartment
Complex for a term in excess of six months; (vi) seek any zoning changes or
other governmental approvals with respect to the Land; or (vii) do, or
voluntarily permit to be done, anything which would adversely affect the
condition of title to the Land from and after the date of this Agreement
through the completion of Settlement.
5. SURVEY. If Seller does not have a current ALTA survey of the
Property available, Purchaser may, obtain, at Purchaser's expense, a current
survey of the Property, prepared and certified by a duly licensed land
surveyor acceptable to Purchaser. Seller will cooperate with Purchaser in
obtaining a survey.
6. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller and each of its
partners, hereby make the representations and warranties set forth in this
Section 6. All of Seller's representations and warranties shall be true and
correct, as of the date of closing, shall be deemed ratified by Seller's act
of Closing, and any Schedules, documents or information to be furnished by
Seller shall be updated and furnished to Purchaser at Closing. From and
after the date of this Agreement, and until Closing, Seller shall not take
any action or make any admission, which would have the effect of violating
any of the representations or warranties of Seller contained in this
Agreement. The delivery and disclosure of any Schedule, document or
information by Seller shall constitute Seller's and its partners' certificate
and warranty that the same, and all information reflected therein, are
completely accurate and current in all respects. All of the warranties and
representations of Seller and its partners shall survive closing and the
conveyance of the Property to Purchaser.
4
<PAGE>
(a) The execution of this Agreement and the fulfillment of
Seller's obligations hereunder shall not constitute or result in a breach of
any term or provision of any existing mortgage, lease or other agreement to
which Seller is a party or by which Seller is bound. All persons or entities
whose joinder in the Deed would be necessary to convey title to Buyer
hereunder have been identified herein as "Seller." This Agreement and all
other instruments and documents to be executed and delivered by Seller to
Purchaser hereunder or pursuant hereto have been or will be duly executed and
delivered by Seller and constitute (or will constitute, as to those
instruments and documents to be executed and delivered) the legal, valid and
binding obligations of Seller and enforceable against Seller in accordance
with their respective terms.
(b) Seller has received no written official notice, nor any
informal written or oral notice of any contemplated condemnation proceedings
against the whole or any part of the Property.
(c) There are no current violations of any building, zoning or
other requirements of any applicable governmental authority affecting the
Property.
(d) Seller has no knowledge of any fact or condition which would
result in the termination or reduction of the current access from the Land
and Improvements on existing public streets; and Seller has no knowledge of
any proposed road widening or other construction activity within the vicinity
of the Land.
(e) Seller has no knowledge of any latent or patent defect or
design deficiency in the foundation, structure, roof, paved areas or
mechanical systems of the Improvements, including, without limitation, the
heating, ventilation and cooling systems, the electrical system, the plumbing
system or the elevators.
(f) There are no lawsuits presently pending nor have any lawsuits
been threatened concerning the Property or any portion thereof, or Seller's
title or right to convey the Property or any portion thereof hereunder, nor
has Seller any knowledge of any claims or liens existing or threatened
against the Property or any part thereof, other than those filed of record
prior to the execution date of this Agreement.
(g) Seller is in sole and undisputed possession of the Property
and no other person or entity is entitled to possession of all or any portion
of the Property. There are no leases with respect to the Property other than
the leases set forth on Schedule 6(g).
(h) There are no other contracts, leases, agreements,
understandings or other obligations existing with respect to the Property or
any portion thereof, other than as are reflected in this Agreement and the
schedules and other information to be furnished hereunder.
(i) No person, firm, corporation, or other entity has any right or
option to acquire the Property, or any part thereof.
5
<PAGE>
(j) Seller has received no notice and has no knowledge of any
pending liens, increased assessments or tax rates, or any special assessments
to be made against the Property by governmental authority.
(k) Seller is current in all sales and use tax obligations
relating to the Property.
(l) Seller is neither a "foreign person" nor "foreign corporation"
as those terms are defined in the United States Internal Revenue Code, as
amended, and Seller shall ratify this warranty by affidavit at the time of
closing.
(m) Public water, public sanitary sewer, electricity, and
telephone services have been installed to the Improvements through
appropriate easements.
(n) Except as disclosed on Schedule 6(n):
(i) To the best of Seller's knowledge, the Land and
Improvements ("Premises") do not contain any Hazardous Materials.
(ii) To the best of Seller's knowledge, there are no
underground or above-ground storage tanks on or under the Premises, and
Seller has no knowledge of the removal of any underground or
above-ground storage tanks from the Premises.
(iii) To the best of Seller's knowledge, there are no
transformers containing or contaminated with Hazardous Materials on the
Premises, and Seller has no knowledge of the removal of any such
transformers from the Premises.
(iv) Seller has not engaged in or permitted any Hazardous
Materials Use in, at, under, or in connection with the Premises nor, to
Seller's knowledge, has any previous owner or tenant of the Premises
engaged in or permitted any Hazardous Materials Use in, at, under, on or
in connection with the Premises.
(v) Seller has not received notice or actual knowledge of:
(1) any claim, demand, investigation, enforcement, response, removal,
remedial or other governmental or regulatory action instituted or
threatened, against Seller or the Premises pursuant to any Hazardous
Materials Law; (2) any claim, demand, suit or action made or threatened
by any person against Seller or the Premises relating to any form of
damage, loss or injury resulting from or claimed to result from, any
Hazardous Materials on, about, beneath or arising from the Premises or
any alleged violation of any Hazardous Materials Law; and (3) any
communication to or from any governmental or regulatory agency arising
out of or in connection with Hazardous Materials on, about, beneath,
arising from or generated at the Premises, including without limitation,
any notice of violation, citation, complaint, order directive, request
for information or response thereto, notice letter, demand letter or
compliance schedule. If discovered prior to Settlement, Seller shall
immediately advise Buyer of any of the claims or communications listed
in clauses (1) through (3) above and also shall immediately advise Buyer
of the discovery of any Hazardous Materials on, about, beneath, or
arising from the Premises or the discovery of any conditions on, arising
from the Premises or the discovery
6
<PAGE>
of any condition on, about, beneath, or arising from the Premises which
might give rise to liability, the imposition of a statutory lien or
require response, removal or remedial action under any Hazardous
Materials Law.
(vi) As used, in this Agreement, "Hazardous Materials" shall
mean (i) asbestos in any form; (ii) urea formaldehyde foam insulation;
(iii) transformers or other equipment which contain dialectic fluid
containing levels of polycholorinated biphenyls (PCB's) in excess of 50
parts per million; (iv) lead paint; (v) any substance or residual deemed
hazardous or toxic, or required to be disclosed, reported treated
removed, disposed of or cleaned up by any applicable Hazardous Materials
Law, and (vi) any other substance residual or material to which exposure
is prohibited, limited or regulated by any federal, state or local
authority, or which, even if not so regulated, is known to pose a hazard
to the health and safety of the occupants of the Premises or of property
adjacent to the Premises.
(vii) As used in this Agreement, "Hazardous Materials Law"
shall mean a federal, state, or local statute, law, ordinance, code,
regulation, rule, order or decree (whether by court or by a governmental
or quasi-governmental entity or agency having authority), in effect on
the date hereof or hereafter enacted promulgated or issued.
(viii) As used in this Agreement, "Hazardous Materials Use"
shall mean activities involving, directly or indirectly, the
manufacture, leak, spill, emission, deposit, discharge, release, use,
transportation, generation, treatment, storage, disposal or handling of
Hazardous Materials.
7. CLOSING. Closing shall be held on or before June 30, 1998. The
exact date and time of Closing shall be designated by Purchaser on not less
than five (5) days notice (which for purposes hereof may be verbally
communicated by Purchaser's counsel to Seller's counsel). Closing shall take
place at the office of Escrow Agent at United Title of Las Vegas, Nevada (the
"Closing").
8. CLOSING DOCUMENTS.
(a) At the Closing, Seller shall execute and/or deliver the
following documents all in form and content acceptable to Purchaser:
(i) A Statutory Warranty Deed free and clear of all
mortgages, liens and encumbrances and subject only to the Permitted
Exceptions;
(ii) Bill of Sale for all Personal Property;
(iii) An assignment of Seller's right, title and interest in
and to all Appurtenances, Licenses and Permits, those Leases and
Contracts which Purchaser has elected to assume, Intangible Property,
Records, Plans and Warranties;
7
<PAGE>
(iv) An Affidavit reciting that there are no contractor's
liens against the Land and that, within the past ninety (90) days, there
have been no improvements, alterations or repairs for which the costs
thereof remain unpaid, with the exception of anything caused by
Purchaser; that, except as previously disclosed to Purchaser, the Land
is free and clear of all liens, taxes, encumbrances and claims
whatsoever, with the exception of real estate taxes for the year of
closing; that there are no parties in possession or with a right or
claim to possession; and that affiant has received no notice of any
violations of County or municipal ordinances pertaining to the Property;
(v) A Standard FIRPTA affidavit acknowledging that Seller
is not a "foreign person" as defined and set forth in Section 1445 of
the Internal Revenue Code (or, in the event Seller is a "foreign
person," providing Purchaser with sufficient information for Purchaser
to comply with the withholding requirements thereof);
(vi) A standard "gap" affidavit in the form required by the
title company issuing a title insurance policy to Purchaser;
(vii) Appropriate certificates or resolutions of authority
confirming the authority of the individual(s) executing the closing
documents; and
(viii) Such other and further documents as may be reasonably
appropriate to consummate the transaction in accordance with the
provisions of this Agreement.
(b) At the Closing, Purchaser shall pay Seller the Purchase Price
and execute and/or deliver such documents as may be reasonably appropriate to
consummate the transaction in accordance with the provisions of this
Agreement.
9. ACCESS; CONDUCT PRIOR TO CLOSING.
(a) At all times prior to Closing, Purchaser shall have complete
access to the Property for any purpose deemed necessary or appropriate by
Purchaser, provided that Purchaser shall not damage the Property or interfere
with the conduct of business thereon, and shall indemnify Seller for any loss
or damages thereby caused.
(b) Prior to Closing, Seller shall not enter into any new
contracts or other agreements affecting the Property without obtaining the
prior written consent of Purchaser. Seller agrees to finish construction of
the Improvements in accordance with the Plans and obtain a Certificate of
Occupancy for the Improvements, prior to Closing. Seller shall also
continuously maintain every part of the Property in good condition, ordinary
wear and tear excepted, and to continue the conduct of business therein, in
accordance with a standard of operation and quality consistent with present
condition of the Property. Seller further agrees to maintain all existing
insurance in place through the date of Closing.
10. CONDITIONS TO CLOSING.
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(a) Purchaser's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Seller set
forth in this contract shall be true and correct in all respects on and
as of the date of closing as though made at that time.
(ii) Seller shall have performed, satisfied and complied
with all of the covenants, agreements, and conditions required by this
contract to be performed or complied with by it on or before the date of
Closing, including, without limitation, the completion of the
construction of the Improvements in accordance with the Plans and the
obtaining of a Certificate of Occupancy for the Improvements.
(iii) Seller shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors or admitted in
writing its inability to pay its debts as they mature or have been
adjudicated as bankrupt or have filed a petition in voluntary bankruptcy
or a petition or answer seeking reorganization under the Bankruptcy Act
or any other similar law or statute of the United States or any state,
and no such petition shall have been filed against it.
(b) Seller's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Purchaser
set forth in this contract shall be true and correct in all respects on
and as of the date of closing as though made at that time.
(ii) Purchaser shall have performed, satisfied and complied
with all of the covenants, agreements, and conditions required by this
contract to be performed or complied with by it on or before the date of
Closing.
(iii) Purchaser shall not be in receivership or dissolution
or have made any assignment for the benefit of creditors or admitted in
writing its inability to pay its debts as they mature or have been
adjudicated as bankrupt or have filed a petition in voluntary bankruptcy
or a petition or answer seeking reorganization under the Bankruptcy Act
or any other similar law or statute of the United States or any state,
and no such petition shall have been filed against it.
(iv) Purchaser will negotiate an agreement with Seller with
terms satisfactory to Purchaser regarding the leasing of a building
currently under construction adjacent to the Land which will be used as
sales and administration offices.
11. CLOSING EXPENSES. Purchaser shall be responsible for payment, at
Closing, of the following: the costs of recording the Deed; title insurance
premium; documentary stamps, including any local surtax, applicable to the
Deed. Seller shall be responsible for payment, at Closing, of the costs of
recording any corrective instruments and any transfer taxes.
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12. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
adjusted as of the date of Closing:
(a) Real and personal property taxes shall be prorated based upon
the current year's tax with due allowance made for the maximum allowable
discount and exemptions if allowed for said year. If the current year's
assessment is not available, then taxes will be prorated based upon the tax
assessment for the Property for the immediately preceding year, with due
allowance made for the maximum allowable discount and exemptions if allowed
for said year. The tax proration shall be subsequently readjusted upon
receipt of the actual tax bill within ten (10) days after written request of
either party hereto. This provision shall survive the termination of this
Agreement and the conveyance of the Property to Purchaser.
(b) Certified governmental liens or special assessment liens, if
any, will be paid by the Seller. Pending governmental liens, if any, will be
assumed by the Purchaser unless the improvement for which the lien has been
levied has been substantially completed as of the date of Closing, in which
event Seller shall pay for such pending liens.
(c) Security deposits, if any, from tenant's leases and other
contracts, deposits, including advance booking deposits, prepaid rent and
escrows held in connection with tenancies of the Property shall be
transferred to Purchaser.
(d) Rents and other revenues shall be prorated. Proration of rents
shall be of those actually received and Purchaser shall be entitled to all
rents and other income accruing from and after the date of Closing. Any
rentals or other sums due Seller before closing, but not yet collected as of
the date of Closing, shall be Seller's exclusive responsibility to collect.
(e) All utility charges, including but not limited to, telephone
service, gas, water and sewer, and electric power shall be prorated as of the
date of Closing. At least ten (10) days prior to Closing, Seller shall
notify all utilities servicing the Property of the contemplated change in
ownership, and direct that current billings for services rendered up to the
date of Closing be directed to Seller and that all future billings for
services rendered on or after the Closing Date be directed to Purchaser with
no interruption of service. Such notice shall be provided in writing and
copies of same furnished by Seller to Purchaser. Only deposits, standby
charges and other prepayments which may be assignable and are assigned to
Purchaser shall be paid for by Purchaser at Closing. Non-assignable deposits
and other charges shall be refunded to Seller and replaced by Purchaser with
appropriate adjustment to the proration.
(f) All other income, receivables, claims and rights to revenue
derived from the Property accruing or relating to the period up to the date
of Closing shall belong to the Seller and it shall be Seller's exclusive
responsibility to collect same if it has not done so by Closing. All other
income relating to the Property shall be paid to the Purchaser.
(g) Insurance premiums relating to the Property shall be prorated
if Purchaser elects to assume such Insurance.
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(h) Any unpaid operating expenses incurred during the month of
Closing shall be prorated; provided that Purchaser's responsibility shall not
exceed $5,000.
13. EMPLOYEES. On or after closing, Purchaser will not solicit
Seller's employees to change their employment without prior written consent
of Seller; provided however, that Purchaser shall not assume any payroll or
payroll tax obligations of Seller or the cost of any employee benefits which
may be afforded by Seller to its employees. Notwithstanding the foregoing,
Purchaser acknowledges that all employees of Seller are employees at will,
without written employment agreements, and without any collective bargaining
agreements and that Seller can make no representation or warranty that any
one or more of their existing employees will accept or continue employment
with the Seller.
14. RISK OF LOSS; POSSESSION. Risk of loss shall remain with Seller
pending completion of the Closing. Seller shall deliver possession of the
Property to Purchaser at Closing. If the Property, or any portion thereof,
is damaged by fire or other casualty prior to Closing, Purchaser shall have
the option of either taking the Property as damaged, together with either a
credit against the cash to close in the amount of any insurance proceeds
payable by virtue of such loss or damage, or of canceling this Agreement and
receiving a return of the Deposit, together with any interest earned thereon.
15. INDEMNIFICATION. Seller, and each of its partners, shall indemnify
Purchaser and hold and save Purchaser harmless of and from any and all loss,
cost, damage, injury or expense, including attorney's fees, arising out of or
in any way related to:
(a) Any inaccuracy in the representations and warranties of Seller
hereunder; and
(b) Any claims for injury to or death of persons, damage to
property, contract liabilities, taxes, expenses or claims of any kind,
whether direct or contingent, associated with the ownership, operation,
management or control of the Property or any part thereof, arising due to or
out of events or transactions occurring prior to the Closing hereunder,
except as otherwise provided in this Agreement.
16. EMINENT DOMAIN. If all or any portion of the Property shall be
taken through the exercise of the power of eminent domain prior to the
Closing, then in such event, the Purchaser shall have the option either:
(a) To take title at the Closing without any abatement or
adjustment in the Purchase Price, in which event the Seller shall assign its
rights in any condemnation award to the Purchaser, or the Purchaser shall
receive the condemnation award from the Seller if it is paid prior to the
Closing by means of a credit against the cash to close and any excess shall
be paid in cash to Purchaser at Closing; or
(b) To cancel this Agreement and obtain an immediate and
unqualified refund of the Deposit, together with any interest earned thereon,
whereupon each party shall be released from any and all further obligations
hereunder.
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17. DEFAULT BY PURCHASER. If Purchaser fails to perform the covenants
of this Agreement, Seller's remedies shall be limited to the retention of the
Deposit, together with any interest earned thereon, as agreed and liquidated
damages in full settlement of any claims, whereupon the parties shall be
relieved and released from all further obligations under this Agreement. The
parties agree that this provision for liquidated damages in a bona fide
attempt by the parties to resolve the amount of the damages which would be
sustained by the Seller in the event of the breach of this Agreement by the
Purchaser, and the parties recognize that the actual amount of such damages,
if any, would be speculative and extremely difficult of ascertainment.
Notwithstanding the foregoing, Purchaser shall be entitled to written notice
and ten (10) days opportunity to cure any default, and any deadline shall be
extended for the period of cure.
18. DEFAULT BY SELLER. If Purchaser fails to perform the covenants of
this Agreement and/or fails to close as provided herein and/or any of the
conditions of closing set forth in Section 10(a) have not taken place by June
30, 1998 the Purchaser may: (a) proceed to close or (b) rescind this
Agreement in which event Purchaser shall be entitled to an immediate and
unqualified refund of the Deposit, together with any interest earned thereon;
or (c) obtain specific performance of Seller's obligations hereunder;
notwithstanding the foregoing, Seller shall be entitled to written notice and
ten (10) days opportunity to cure any default, and any deadline shall be
extended for the period of cure.
19. WAIVER. The waiver of any condition or provision of this Agreement
or of any breach or default under any of the terms of this Agreement by
either party must be in writing and shall not be deemed to be nor shall the
same constitute a waiver of any subsequent condition, provision, breach or
default.
20. NOTICES. Any notice required or permitted to be given by this
Agreement shall be given or made in writing, and shall be served personally
by messenger or courier service, or mailed in the United States by prepaid,
registered or certified mail return receipt requested, as follows:
If to Seller: Westpark II Partnership, L.L.C.
4435 South Eastern Avenue
Las Vegas, NV 89119
Fax: 702/737-1490
Attn: Dan K. Shaw
If to Purchaser: Epic Resorts, Inc.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Fax: 610/992-1029
Attn: Thomas F. Flatley
Any notice given in accordance with the provisions of this
subparagraph shall be deemed to be effective: (i) if personally delivered,
on the date of such delivery with such delivery to be confirmed by a signed
receipt, (ii) if mailed, two days after same is postmarked, postage prepaid,
or (iii) by telecopier, if telecopied to a telecopier number provided by the
other
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party. Each party may give notice to the other party of a change of its
address, or telecopy number, for the purposes of giving notice under this
Agreement.
21. BROKERAGE. Each party represents and warrants to the other that
neither he, nor it, nor any of their agents has directly or indirectly dealt
with, been shown or otherwise consulted any broker or agent thereof in
connection with this transaction, and that no real estate brokerage
commission is due in connection with this transaction. Each party hereby
indemnifies and holds the other party harmless against any claim or loss
(including attorneys' fees) which may be asserted against the other by reason
of any claims or determinations in contravention of the representations and
warranties contained in this Paragraph.
22. INTERPRETATION; SEVERABILITY. This Agreement shall be construed
and enforced in accordance with the laws of the State of Nevada. The article
headings in this Agreement are for convenient reference only and shall not
have the effect of modifying or amending the expressed terms and provisions
of this Agreement, nor shall they be used in connection with the
interpretation hereof. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the personal liability or obligation with respect to same. In
case anyone or more of the provisions of this Agreement or the application
thereof shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions hereof and
any other application thereof shall in no way be affected or impaired. Any
reference herein to time periods of less than six (6) days shall in the
computation thereof exclude Saturdays, Sundays and legal holidays, and any
time period provided for herein which shall end on a Saturday, Sunday or
legal holiday shall extend to 5:00 p.m. of the next full business day.
23. COSTS; ESCROW AGENT. All costs, including attorneys' fees, paid by
either party in the enforcement or defense of this Agreement, including
proceedings in appellate courts, shall be paid to the prevailing party. In
the event of any dispute among the parties with respect to disbursement of
the Deposit, the Escrow Agent shall have the right to tender same into a
court of appropriate jurisdiction and to interplead both parties hereto and
thereafter be free from further liability to the parties or hereunder.
Except for willful misconduct, the Escrow Agent shall be excused from all
responsibility, including insolvency of any depository, absolutely.
24. ENTIRE AGREEMENT, AMENDMENT. This Agreement and the documents and
information to be furnished pursuant hereto, contain the entire agreement
between the parties with respect to this transaction, and no representation,
warranties or agreements have been made or, if made, have not been relied
upon by either party except those specifically referred to herein. This
Agreement may only be amended, modified or supplemented by written instrument
signed by the parties hereto.
25. BINDING EFFECT. All of the terms, covenants and conditions herein
contained are and shall be binding upon and inure to the benefit of both
parties, their personal representatives, heirs, successors and assigns.
26. ASSIGNABILITY. This Contract may be assigned by Purchaser to an
affiliate or other entity.
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27. RECORDING. Each party agrees not to record this Contract or any
notice or memorandum thereof in the public records.
28. COUNTERPART. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an
original, but all counterparts shall together constitute one and the same
instrument.
29. EFFECTIVE DATE. This Agreement shall be binding on the date when
this Purchase and Sale Agreement has been fully executed by the Purchaser and
Seller.
30. ACCEPTANCE. At the option of Purchaser, this Agreement shall be
void unless Seller has delivered to Purchaser a signed original counterpart
hereof no later than 5:00 P.M., _________________, 1998.
31. CONFIDENTIALITY. The parties hereto agree to keep this Agreement
and its terms confidential and not to disclose any terms to any third parties
until Closing, except to potential lenders, surveyors, title agent and other
parties requiring information in connection with Purchaser's inspection or
other rights under this Agreement.
32. JOINDER OF PARTNERS. By their execution of this Agreement, each of
the partners of the Seller do hereby, in their individual capacities, ratify
and confirm the accuracy of each of Seller's representations and warranties
contained herein and without limiting the provisions of Section 15 of this
Agreement, do hereby agree to indemnify Purchaser from any loss, cost,
damage, injury or expense, including attorney's fees, arising out of or in
any way related to any inaccuracy in the representations and warranties of
Seller hereunder.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed on the day and year indicated below:
SELLER:
Witness: WESTPARK II PARTNERSHIP, L.L.C.
By:/s/illegible
- ----------------------------- -------------------------------
-------------------------------
Date: May 9, 1998
-----------------------------
PURCHASER:
EPIC RESORTS, INC.
By: /s/T.F. Flatley
-------------------------------
Thomas F. Flatley, President
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JOINDER OF OWNERS OF MEMBER INTERESTS ("OWNERS")
OF THE WESTPARK II PARTNERSHIP, L.L.C.
For value received, the receipt and sufficiency of which is hereby
acknowledged, and as a material inducement to Purchaser's offer to purchase
the Property, the undersigned owners of the Westpark II Partnership, L.L.C.
joins in the execution of the foregoing Purchase and Sale Agreement by
Westpark II Partnership, L.L.C.
Specifically, the undersigned owners hereby represents and warrants to
Purchaser that they/it are personally familiar with Seller's operation of the
Property and that each of Seller's representations and warranties contained
therein are accurate. Further, the owners do hereby agree to be bound by the
provisions of Section 15 of the Agreement as though they were a party thereto.
Westpark II Partnership, L.L.C.
Owners:
/s/Illegible
----------------------------------
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Exhibit 2.4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into
on this May 13, 1998 by and between Epic Resorts, Inc., a Delaware
corporation (hereinafter referred to as "Purchaser") and Planter's Preserve,
L.L.C. (hereinafter referred to as "Seller"). For purposes of this
Agreement, the term "Purchaser" shall also include any corporate subsidiary
of Epic Resorts, Inc. to which Epic Resorts, Inc., assigns this Agreement.
RECITALS
Seller is the owner of a property that consists of approximately 16
acres that is currently zoned for 160 timeshare units, that is located on
Coggins Point Road, Hilton Head Island, South Carolina, 29938 the legal
description of which is set forth on Exhibit "A" attached hereto and made a
part hereof (the "Land"). Currently completed are 36 units ("Timeshare
Units"), clubhouse and other related amenities ("Improvements").
Seller is a limited liability company having as its members J. Dudley
King, Jr., Judy P. Trew, RBC Enterprises, Inc. and Herb Alfree ("Members").
At or prior to the Closing of this Agreement, Epic Resorts, Inc. will form a
wholly owned subsidiary, which will acquire the Property, as hereinafter
defined, under the terms of this Agreement ("Subsidiary"). At the Closing
Judy P. Trew will exchange her member's interest in the Seller for a
Twenty-five (25%) percent stock ownership interest in the Subsidiary.
Seller has agreed to sell, and Purchaser has agreed to purchase, the
Property, including the Timeshare Units and all other improvements thereon,
and all other property associated therewith, for the price and on the terms
and conditions as more specifically set forth below.
NOW, THEREFORE, for and in consideration of the above stated premises
and other good and valuable considerations, the receipt and sufficiently of
which is hereby acknowledged; the parties hereto agree as follows:
1. JOINDER OF MEMBERS.
The Members of the Seller do hereby enter into this Agreement and
agree to be bound by its terms. At or prior to the Closing of this
Agreement, Judy P. Trew ("Trew") hereby agrees to withdraw as a member of the
Seller in exchange for receiving at Closing a twenty-five (25%) percent stock
interest in the Subsidiary. Upon the withdraw of Trew as a member of the
Seller, Trew shall not be entitled to receive any portion of the Purchase
Price, as hereafter defined, paid to Seller by Purchaser. As a condition to
the Closing under this Agreement, Trew and Epic Resorts, Inc., shall enter
into a Shareholders Agreement and a Marketing Agreement satisfactory to them
both, and a Management Agreement and a Development Management Agreement, both
with companies affiliated with Trew, satisfactory to Trew and Purchaser.
<PAGE>
2. PURCHASE AND SALE.
Seller agrees to sell to Purchaser and Purchaser agrees to purchase
from Seller, upon all of the terms, covenants and conditions hereinafter set
forth, the following:
(a) The Land;
(b) The unconveyed Timeshare Units, including, without limitation,
the buildings, parking areas, sign structures and other structures and
improvements on the Land (collectively referred to as the "Improvements");
(c) All furniture, furnishings, supplies, equipment and fixtures,
carpeting, inventory, appliances, water fountains, elevators and all other
tangible personal property of any type which is located on the Land and/or is
used or useful in connection with any business operations of the improvements
thereon or the repair and maintenance of the Land and Improvements, except
for items located on the Land that are not owned by Seller, all of which are
listed in Schedule 2(c) (collectively referred to as the "Personal Property");
(d) Easements and all other rights appurtenant to the Land
including, without limitation, easements and rights-of-way for access,
drainage, water, utilities and other purposes incident to the use of the Land
and Improvements (collectively referred to as the "Appurtenances");
(e) All rights of the Seller in all building permits, certificates
of occupancy and other permits, licenses, governmental approvals, and
agreements which have been or are being utilized in connection with the
ownership, operation, and maintenance of the Land and Improvements
(collectively referred to as the "Licenses and Permits");
(f) Leases, tenancy agreements (but excluding any employment
contracts) which exist with respect to the ownership, operation and
maintenance of the Land, Personal Property and Improvements (collectively
referred to as the "Leases and Contracts");
(g) Sellers' interest in the name "Planters Quarters" as well as
any logos, signs, trademarks and other rights relating to said name,
telephone number(s) of the Improvements and all intangible personal property
used or useful in the operation, repair and maintenance of the Land,
Improvements and Personal Property (collectively referred to as the
"Intangible Property");
(h) All records concerning the operation of the Property including
but not limited to accounting books and records applicable thereto
(collectively referred to as the "Records");
(i) All architectural drawings of the Improvements and plans and
specifications (e.g., including but not limited to structural, electrical,
plumbing, landscaping, etc.) utilized in the development of the Land and
construction of the Improvements (collectively referred to as the "Plans");
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(j) All manufacturers, sales and service warranties applicable to
the Land, Personal Property and Improvements (collectively referred to as the
"Warranties");
(k) All contracts with Timeshare owners and rights and remedies
thereunder;
(l) All receivables owing to Seller at time of Closing, including
but not limited to payments owed by Timeshare Unit purchasers,
For purposes of this Agreement, the conveyance of the foregoing property
shall be deemed to be all inclusive and no Land, Improvements, Personal
Property, Appurtenances, Licenses and Permits, Leases and Contracts,
Intangible Property, Records, Plans and Warranties (collectively referred to
herein as the "Property" shall be excluded, except as may be excluded by
written consent of the Purchaser. The transfer of the items described in
sub-paragraphs (k) and (l) shall be without recourse, which the parties agree
and acknowledge means that Purchaser shall have no recovery against Seller in
the event of non-payment of amounts due and owing under the contracts
described in sub-paragraph (k) or non-payment of the receivables described in
subparagraph (1).
Purchaser shall as of the Closing Date assume the Leases and Contracts,
in instances in which the other party to the contract consents. Seller shall
use its best efforts to obtain such consents. Purchaser shall not assume
Seller Marketing Agreement with RBC Enterprises, Inc., dated ___________.
3. PURCHASE PRICE.
(a) The total purchase price ("Purchase Price") for the Property
shall be Three Million Eight Hundred Twenty One Thousand ($3,821,000) Dollars
payable in good funds by wire transfer at Closing, as hereafter defined, plus
the sum of debt being assumed by Purchaser under subparagraph 3(b). The
Purchase Price will be allocated $1,771,000 to J. Dudley King, Jr.,
$1,025,000 to RBC Enterprises, Inc. and $1,025,000 to Herb Alfree.
(b) The Sellers shall represent and warrant that the only
liabilities of Company at Closing shall be: (i) a first mortgage to Finova
Capital Corporation with a funded balance at Closing not to exceed $3,800,000
plus the sum of money advanced by Finova for construction financing set forth
in Schedule 3(b) prepared by Seller (the "Company Debt"), (ii) a non-recourse
loan regarding golf memberships with American Golf, (iii) Finova debt related
to consumer receivables, and (iv) other current cash liabilities not to
exceed $250,000 exclusive of Members Loan Interest Payable as listed on
Schedule 3(b).
(c) Within five (5) days after execution of this agreement by both
parties, Purchaser will deposit with the law firm of Purchaser's counsel,
Robert M. Kramer & Associates, P.C. (the "Escrow Agent"), the sum of Fifty
Thousand ($50,000.00) to serve as an escrow deposit and to secure Purchaser's
performance hereunder. The Fifty Thousand Dollars is hereafter referred to
as the "Deposit". The Deposit shall be held in an interest bearing account
with a commercial bank or savings and loan association with all earnings to
accrue to Purchaser's benefit, unless Seller retains the Deposit as a result
of a default by Purchaser hereunder in which
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event the Deposit, together with interest thereon, shall be paid to Seller.
The Deposit shall be paid to Seller and credited to Purchaser against the
Purchase Price, at Closing.
(d) If Purchaser does not terminate this Agreement pursuant to
paragraph 4 of this Agreement (below), then Robert M. Kramer & Associates,
P.C. shall withdraw as Escrow Agent and transfer the Deposit to Seller's
counsel, W. Thomas Vernon, King & Vernon, P.A., which thenceforth shall act
as Escrow Agent and Purchaser shall deposit with the Escrow Agent an
additional sum of Fifty Thousand ($50,000.00) Dollars to additionally secure
Purchaser's performance hereunder ("Additional Deposit"). The Deposit and
Additional Deposit shall be held in an interest bearing account with a
commercial bank or savings and loan association with all earnings to accrue
to Purchaser's benefit, unless Seller retains the Deposit and Additional
Deposit as a result of a default by Purchaser hereunder in which event the
Deposit and Additional Deposit, together with interest thereon, shall be paid
to Seller. The Deposit and Additional Deposit shall be paid to Seller and
credited to Purchaser against the Purchase Price, at Closing.
4. INSPECTION RIGHTS OF PURCHASER.
From the date this Agreement is executed through the Closing Date,
Purchaser shall have the right to inspect all of Seller's records and
documents relating to the ownership, construction and condition of the
Property, and to physically inspect the Property, including any
environmental, asbestos and radon testing, and to otherwise satisfy itself as
to the acceptability of the Property for Purchaser's intended use. Purchaser
and Purchaser's agents shall have the right of ingress and egress to the
Property for the inspections contemplated herein. If for any reason the
condition of the Property is not satisfactory to Purchaser, in Purchaser's
sole discretion, Purchaser may terminate this Agreement by sending written
notice of termination to the Seller within thirty (30) days of the date this
Agreement is executed by both Purchaser and Seller ("Due Diligence Period"),
whereupon the Deposit with all interest shall be returned to Purchaser and
the parties shall thereafter have no further responsibilities or obligations
to each other.
5. CONDITION OF TITLE.
(a) At Closing, Seller shall convey to Purchaser by special
warranty deed good and marketable fee simple title to the Land and title to
the other Property by a Bill of Sale and an Assignment of Contracts and
Warranties. Title to the Land shall further be (i) free and clear of all
liens, restrictions, easements, encumbrances, claims or liens by contractors,
subcontractors, mechanics and materialmen, leases, tenancies and other title
objections except for those identified in paragraph 3(b) and those listed on
Schedule 5(a) attached (the "Permitted Exceptions"); and (ii) insurable as
aforesaid at ordinary rates by any reputable title insurance company licensed
to do business in the State of South Carolina. Title to the Property other
than the Land shall be conveyed free of all security interests, debts and
claims by third parties, except those listed on Schedule 5 (a).
(b) If title to the Land cannot be conveyed to Purchaser at the
time of Closing in accordance with requirements of this Agreement, then
Purchaser shall have the option of:
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(i) taking such title as Seller can convey without abatement
of the Purchase Price provided, however, that if there are liens,
encumbrances, defects or other objections to title (other than the Permitted
Exceptions) which are or have been or reasonably can be reduced to a monetary
amount, Seller shall pay and discharge same and shall deliver to Purchaser at
Closing all instruments, in recordable form, sufficient to satisfy of record
such liens, encumbrances, defects or other objections to title together with
the cost of recording or filing said instruments; or
(ii) terminating this Agreement by giving written notice to
Seller, in which case the Deposit and Additional Deposit and all interest
earned thereon shall be returned to Purchaser whereupon, neither party shall
have further rights, liabilities or obligations hereunder. Nothing contained
herein shall preclude Purchaser from maintaining an action for specific
performance and/or damages against Seller for a breach of this Agreement, if
title to the Property cannot be conveyed by Seller to Buyer at Closing in
accordance with the requirements of this Agreement by reason of Seller's
affirmative act or intentional omission with respect only to those matters
set forth in 5(c) below resulting in a failure to comply with any term,
covenant, condition or provision contained herein relating to the condition
of title.
(c) Seller warrants that at all times while this Agreement remains
in effect, Seller will not, except to the extent specifically set forth
herein, (i) execute any easements, covenants, conditions, restrictions, or
rights-of-way with respect to the Land; (ii) mortgage or encumber the Land;
(iii) enter into any recorded or unrecorded contracts or leases with respect
to the Land; (iv) execute any lease for the Timeshare Units; (v) seek any
zoning changes or other governmental approvals with respect to the Land; or
(vi) do, or voluntarily permit to be done, anything which would adversely
affect the condition of title to the Land from and after the date of this
Agreement through the completion of Closing.
6. SURVEY.
If Seller does not have a current ALTA survey of the Property
available, Purchaser may obtain, at Purchaser's expense, a current survey of
the Property, prepared and certified by a duly licensed land surveyor
acceptable to Purchaser. Seller will cooperate with Purchaser in obtaining a
survey.
7. SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller and each of its Members, hereby make the representations and
warranties set forth in this Section 7. All of Seller's representations and
warranties shall be true and correct as of the date of closing, shall be
deemed ratified by Seller's act of Closing, and any Schedules, documents or
information to be furnished by Seller shall be updated and furnished to
Purchaser at Closing. From and after the date of this Agreement, and until
Closing, Seller shall not take any action or make any admission, which would
have the effect of violating any of the representations or warranties of
Seller contained in this Agreement. The delivery and disclosure of any
Schedule, document or information by Seller shall constitute Seller's and its
Members' certificate and warranty that the same, and all information
reflected therein, are completely
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accurate and current in all respects. All of the warranties and
representations of Seller and its Members shall survive closing and the
conveyance of the Property to Purchaser.
(a) The execution of this Agreement and the fulfillment of
Seller's obligations hereunder shall not constitute or result in a breach of
any term or provision of any existing mortgage, lease or other agreement to
which Seller is a party or by which Seller is bound, except that the parties
acknowledge and agree that Finova's approval is required for any assumption
by purchaser of financing extended by Finova. All persons or entities whose
joinder in the Deed would be necessary to convey title to Buyer hereunder
have been identified herein as "Seller." This Agreement and all other
instruments and documents to be executed and delivered by Seller to Purchaser
hereunder or pursuant hereto have been or will be duly executed and delivered
by Seller and constitute (or will constitute, as to those instruments and
documents to be executed and delivered) the legal, valid and binding
obligations of Seller and enforceable against Seller in accordance with their
respective terms.
(b) Seller has received no written official notice, nor any
informal written or oral notice of any contemplated condemnation proceedings
against the whole or any part of the Property.
(c) The Land is presently zoned to permit the development and
operation thereon of residential time share units; there are no moratoria or
similar conditions that will prevent the development and operation upon the
Land of residential time share units; there are no current violations of any
building, zoning or other requirements of any applicable governmental
authority affecting the Property.
(d) Seller has no knowledge of any fact or condition which would
result in the termination or reduction of the current access from the Land
and Improvements on existing public streets; and Seller has no knowledge of
any proposed road widening or other construction activity within the vicinity
of the Land.
(e) Seller has no knowledge of any latent or patent defect or
design deficiency in the foundation, structure, roof, paved areas or
mechanical systems of the Improvements, including, without limitation, the
heating, ventilation and cooling systems, the electrical system, the plumbing
system or the elevators.
(f) There are no lawsuits presently filed and served, nor are
there, to the knowledge of Seller, any lawsuits that are pending or have been
threatened concerning the Property or any portion thereof, or Seller's title
or right to convey the Property or any portion thereof hereunder, nor has
Seller any knowledge of any claims or liens existing or threatened against
the Property or any part thereof, other than those filed of record prior to
the execution date of this Agreement.
(g) Seller is in sole and undisputed possession of the Property
and (except for Timeshare Unit owners lawfully on the Premises) no other
person or entity is entitled to possession of all or any portion of the
Property.
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(h) There are no other contracts, leases, agreements,
understandings or other obligations existing with respect to the Property or
any portion thereof, other than as are reflected in this Agreement and the
schedules and other information to be furnished hereunder.
(i) No person, firm, corporation, or other entity has any right or
option to acquire the Property, or any part thereof.
(j) Seller has received no notice and has no knowledge of any
pending liens, increased assessments or tax rates, or any special assessments
to be made against the Property by governmental authority, except for a
notice of a county-wide reassessment.
(k) Seller is current in all sales and use tax obligations
relating to the Property.
(l) Seller is neither a "foreign person" nor "foreign corporation"
as those terms are defined in the United States Internal Revenue Code, as
amended, and Seller shall ratify this warranty by affidavit at the time of
closing.
(m) To the Seller's knowledge, public water, public sanitary
sewer, electricity, and telephone services have been installed to the
Improvements through appropriate easements.
(n) Except as disclosed on Schedule 7(n):
(i) To Seller's actual knowledge, the Land and Improvements
("Premises") do not contain any Hazardous Materials.
(ii) To Seller's actual knowledge, there are no underground
or above-ground storage tanks on or under the Premises, and Seller has no
knowledge of the removal of any underground or above-ground storage tanks
from the Premises.
(iii) To Seller's actual knowledge, there are no transformers
containing or contaminated with Hazardous Materials on the Premises, and
Seller has no knowledge of the removal of any such transformers from the
Premises.
(iv) Seller has not engaged in or permitted any Hazardous
Materials Use in, at, under, or in connection with the Premises nor, to
Seller's knowledge, has any previous owner or tenant of the Premises engaged
in or permitted any Hazardous Materials Use in, at, under, on or in
connection with the Premises.
(v) Seller has not received notice or actual knowledge of:
(1) any claim, demand, investigation, enforcement, response, removal,
remedial or other governmental or regulatory action instituted or threatened,
against Seller or the Premises pursuant to any Hazardous Materials Law; (2)
any claim, demand, suit or action made or threatened by any person against
Seller or the Premises relating to any form of damage, loss or injury
resulting from or claimed to result from, any Hazardous Materials on, about,
beneath or arising from the Premises or any alleged violation of any
Hazardous Materials Law; and (3) any communication to or from any
governmental or regulatory agency arising out of or in connection with
Hazardous
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Materials on, about, beneath, arising from or generated at the Premises,
including without limitation, any notice of violation, citation, complaint,
order directive, request for information or response thereto, notice letter,
demand letter or compliance schedule. If discovered prior to Closing, Seller
shall immediately advise Buyer of any of the claims or communications listed
in clauses (1) through (3) above and also shall immediately advise Buyer of
the discovery of any Hazardous Materials on, about, beneath, or arising from
the Premises or the discovery of any condition on, arising from the Premises
or the discovery of any condition on, about, beneath, or arising from the
Premises which might give rise to liability, the imposition of a statutory
lien or require response, removal or remedial action under any Hazardous
Materials Law.
(vi) As used, in this Agreement, "Hazardous Materials" shall
mean (i) asbestos in any form; (ii) urea formaldehyde foam insulation; (iii)
transformers or other equipment which contain dialectic fluid containing
levels of polychlorinated biphenyls (PCB's) in excess of 50 parts per
million; (iv) lead paint; (v) any substance or residual deemed hazardous or
toxic, or required to be disclosed, reported treated removed, disposed of or
cleaned up by any applicable Hazardous Materials law, and (vi) any other
substance residual or material to which exposure is prohibited, limited or
regulated by any federal, state or local authority, or which, even if not so
regulated, is known to pose a hazard to the health and safety of the
occupants of the Premises or of property adjacent to the Premises.
(vii) As used in this Agreement, "Hazardous Materials Law"
shall mean a federal state, or local statute, law, ordinance, code,
regulation, rule, order or decree (whether by court or by a governmental or
quasi-governmental entity or agency having authority), in effect on the date
hereof or hereafter enacted, promulgated or issued.
(viii) As used in this Agreement, "Hazardous Materials Use"
shall mean activities involving, directly or indirectly, the manufacture,
leak, spill, emission, deposit, discharge, release, use, transportation,
generation, treatment, storage, disposal or handling of Hazardous Materials.
8. CLOSING.
Closing shall be held on or before June 30, 1998. The exact date
and time of Closing shall be designated by Purchaser on not less than five
(5) days notice (which for purposes hereof may be verbally communicated by
Purchaser's counsel to Seller's counsel). Closing shall take place at the
office of Escrow Agent at 1426 Richland Street, Columbia, South Carolina
29201 (the "Closing").
9. CLOSING DOCUMENTS.
(a) At the Closing, Seller shall execute and/or deliver the
following documents all in form and content acceptable to Purchaser:
(i) A Statutory Warranty Deed free and clear of all
mortgages, liens and encumbrances and subject only to the Permitted
Exceptions;
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(ii) Bill of Sale for all Personal Property;
(iii) An assignment of Seller's right, title and interest in
and to all Appurtenances, Licenses and Permits, those Leases and Contracts
which Purchaser has elected to assume, Intangible Property, Records, Plans
and Warranties;
(iv) An Affidavit reciting that there are no contractor's
liens against the Land and that, within the past ninety (90) days, there have
been no improvements, alterations or repairs for which the costs thereof
remain unpaid, with the exception of the items except as listed in Schedule
9(a)(iv) and anything caused by Purchaser; that, except as previously
disclosed to Purchaser, the Land is free and clear of all liens, taxes,
encumbrances and claims whatsoever, with the exception of real estate taxes
for the year of closing; that there are no parties in possession or with a
right or claim to possession; and that affiant has received no notice of any
violations of County or municipal ordinances pertaining to the Property;
(v) A Standard FIRPTA affidavit acknowledging that Seller
is not a "foreign person" as defined and set forth in Section 1445 of the
Internal Revenue Code (or, in the event Seller is a "foreign person,"
providing Purchaser with sufficient information for Purchaser to comply with
the withholding requirements thereof);
(vi) A standard "gap" affidavit in the form required by the
title company issuing a title insurance policy to Purchaser;
(vii) Appropriate certificates or resolutions of authority
confirming the authority of the individual(s) executing the closing
documents; and
(viii) Such other and further documents as may be reasonably
appropriate to consummate the transaction in accordance with the provisions
of this Agreement.
(b) At the Closing, Purchaser shall pay Seller the Purchase Price
and execute and/or deliver such documents as may be reasonably appropriate to
consummate the transaction in accordance with the provisions of this
Agreement.
10. ACCESS; CONDUCT PRIOR TO CLOSING.
(a) At all times prior to Closing, Purchaser shall have complete
access to the Property for any purpose deemed necessary or appropriate by
Purchaser, provided that Purchaser shall not damage the Property or interfere
with the conduct of business thereon, and shall indemnify Seller for any loss
of damages thereby caused.
(b) Prior to Closing, Seller shall not enter into any new or
terminate any existing (including the RBC Enterprises, Inc. Sales and
Marketing Contract) contracts or other agreements (including the RBC
Enterprises, Inc. Sales and Marketing Contract) contracts or other agreements
affecting the Property without obtaining the prior written consent of
Purchaser, except for sales of Timeshare Units in the ordinary course of
business. Seller agrees to continue in the normal course of business the
construction of those improvements set out in Schedule
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10(b) in accordance with the Plans for those items. Notwithstanding any
provision of this Agreement to the contrary, Seller shall have the right to
utilize income and loan funds and any other funds related to the project for
the purpose of completion of construction as called for herein. Seller shall
also continuously maintain every part of the Property in good condition,
ordinary wear and tear excepted, and to continue the conduct of business
therein, in accordance with a standard of operation and quality consistent
with present condition of the Property. Seller further agrees to maintain
all existing insurance in place through the date of Closing.
11. CONDITIONS TO CLOSING.
(a) Purchaser's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Seller set
forth in this contract shall be true and correct in all respects on and as of
the date of closing as though made at that time.
(ii) Seller shall have performed, satisfied and complied
with all of the covenants, agreements, and conditions required by this
contract to be performed or complied with by it on or before the date of
Closing.
(iii) Seller shall not be in receivership or dissolution or
have made any assignment for the benefit of creditors or admitted in writing
its inability to pay its debts as they mature or have been adjudicated as
bankrupt or have filed a petition in voluntary bankruptcy or a petition or
answer seeking reorganization under the Bankruptcy Act or any other similar
law or statute of the United States or any state, and no such petition shall
have been filed against it.
(iv) Finova's approval of the assumption by Purchaser of all
financing extended by it in connection with the Property and the release of
Seller's Members from the personal guaranty of such financing.
(b) Seller's obligation to close shall be subject to the
satisfaction, in advance of Closing, of the following:
(i) All of the representations and warranties of Purchaser
set forth in this contract shall be true and correct in all respects on and
as of the date of closing as though made at that time.
(ii) Purchaser shall have performed, satisfied and complied
with all of the covenants, agreements, and conditions required by this
contract to be performed or complied with by it on or before the date of
Closing.
(iii) Purchaser shall not be in receivership or dissolution
or have made any assignment for the benefit of creditors or admitted in
writing its inability to pay its debts as they mature or have been
adjudicated as bankrupt or have filed a petition in voluntary bankruptcy
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or a petition or answer seeking reorganization under the Bankruptcy Act or
any other similar law or statute of the United States or any state, and no
such petition shall have been filed against it.
(iv) Finova's approval of the assumption by Purchaser of all
financing extended by it in connection with the Property and the release of
Seller's Members from the personal guaranty of such financing.
12. CLOSING EXPENSES.
Purchaser shall be responsible for payment, at Closing, of the
following: the costs of recording the Deed; title insurance premium; title
exam and attorneys' fees for closing; documentary stamps, including any local
surtax, applicable to the Deed. Seller shall be responsible for payment, at
Closing, of the costs or recording any corrective instruments and any
transfer taxes. Purchaser and Seller shall be responsible for the payment of
their respective attorneys' fees.
13. PRORATIONS AND ADJUSTMENTS.
The following shall be prorated and adjusted as of the date of
Closing:
(a) Real and personal property taxes shall be prorated based upon
the current year's tax with due allowance made for the maximum allowable
discount and exemptions if allowed for said year. If the current year's
assessment is not available, then taxes will be prorated based upon the tax
assessment for the Property for the immediately preceding year, with due
allowance made for the maximum allowable discount and exemptions if allowed
for said year. The tax proration shall be subsequently readjusted upon
receipt of the actual tax bill within ten (10) days after written request of
either party hereto. This provision shall survive the termination of this
Agreement and the conveyance of the Property to Purchaser.
(b) Certified governmental liens or special assessment liens, if
any, will be paid by the Seller. Pending governmental liens, if any, will be
assumed by the Purchaser unless the improvement for which the lien has been
levied has been substantially completed as of the date of Closing, in which
event Seller shall pay for such pending liens.
(c) Security deposits, if any, from tenant's leases and other
contracts, deposits, including advance booking deposits, prepaid rent and
escrows held in connection with tenancies of the Property shall be
transferred to Purchaser.
(d) Rents and other revenues shall be prorated. Proration of
rents shall be of those actually received and Purchaser shall be entitled to
all rents and other income accruing from and after the date of Closing. Any
rentals or other sums due Seller before closing, but not yet collected as of
the date of Closing, shall be Seller's exclusive responsibility to collect.
(e) All utility charges, including but not limited to, telephone
service, gas, water and sewer, and electric power shall be prorated as of the
date of Closing. At least ten (10) days prior to Closing, Seller shall
notify all utilities servicing the Property of the contemplated
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change in ownership, and direct that current billings for services rendered
up to the date of Closing be directed to Seller and that all future billings
for services rendered on or after the Closing Date be directed to Purchaser
with no interruption of service. Such notice shall be provided in writing and
copies of same furnished by Seller to Purchaser. Only deposits, standby
charges and other prepayments which may be assignable and are assigned to
Purchaser shall be paid for by Purchaser at Closing. Non-assignable deposits
and other charges shall be refunded to Seller and replaced by Purchaser with
appropriate adjustment to the proration.
(f) All other income, receivables, claims and rights to revenue
derived from the Property accruing or relating to the period up to the date
of Closing shall belong to Purchaser and it shall be Purchaser's exclusive
responsibility to collect same.
(g) Insurance premiums relating to the Property shall be prorated
if Purchaser elects to assume such Insurance.
14. EMPLOYEES.
On or after Closing, Purchaser may, in its sole discretion, employ
some or all of the employees of Seller, and Seller shall encourage such
employees to become employees of Purchaser; provided, however, that Purchaser
shall not assume any payroll or payroll tax obligations of Seller or the cost
of any employee benefits which may be afforded by Seller to its employees.
Notwithstanding the foregoing, Purchaser acknowledges that all employees of
Seller are employees at will, without written employment agreements, and
without any collective bargaining agreements and that Seller can make no
representation or warranty that any one or more of their existing employees
will accept or continue employment with the Seller.
15. RISK OF LOSS; POSSESSION.
Risk of loss shall remain with Seller pending completion of the
Closing. Seller shall deliver possession of the Property to Purchaser at
Closing. If the Property, or any portion thereof, is damaged by fire or
other casualty prior to Closing, Purchaser shall have the option of either
taking the Property as damaged, together with either a credit against the
cash to close in the amount of any insurance proceeds payable by virtue of
such loss or damage, or of canceling this Agreement and receiving a return of
the Deposit, together with any interest earned thereon.
16. INDEMNIFICATION.
Seller, and each of its Members, shall indemnify Purchaser and hold
and save Purchaser harmless of and from any and all loss, cost, damage,
injury or expense, including attorney's fees, arising out of or in any way
related to:
(a) Any inaccuracy in the representations and warranties of Seller
or the Members; and
(b) Any claims for injury to or death of persons, damage to property,
contract liabilities, taxes, expenses or claims of any kind, whether direct or
contingent, associated with the
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ownership, operation, management or control of the Property or any part
thereof, arising due to or out of events or transactions occurring prior to
the Closing hereunder, except as otherwise provided in this Agreement and
excluding claims, etc. based upon Timeshare owner defaults on contracts and
Promissory Notes to acquire timeshare intervals in the Property executed in
the ordinary course of Seller's business.
(b) Purchaser shall indemnify Seller for any and all loss, cost,
damage, injury or expense, including attorneys' fees, arising out of or in
any way related to:
(1) Any inaccuracy in the representations and warranties of
Purchaser or its subsidiary; and
(2) any claims for injury to or death of persons, damage to
property, contract liabilities, taxes, expenses or claims or any kind,
whether direct or contingent, associated with the ownership, operation,
management or control of the Property or any part thereof, arising due to or
out of events or transactions occurring after the Closing hereunder; provided
that this indemnity does not apply where the event giving rise to liability
causes a representation or warranty of Seller to be false.
Notwithstanding the foregoing provisions of this paragraph 16, no party shall
assert a claim for indemnification, unless all claims of such party for
indemnification have a value of $15,000 or more, in the aggregate. No claim
for indemnification shall be made unless the fact or set of facts, event or
occurrence that gives rise to the claim comes into existence within two years
of the date of the Closing.
17. EMINENT DOMAIN.
If all or any portion of the Property shall be taken through the
exercise of the power of eminent domain prior to the Closing, then in such
event, the Purchaser shall have the option either:
(a) To take title at the Closing without any abatement or
adjustment in the Purchase Price, in which event the Seller shall assign its
rights in any condemnation award to the Purchaser, or the Purchaser shall
receive the condemnation award from the Seller if it is paid prior to the
Closing by means of a credit against the cash to close and any excess shall
be paid in cash to Purchaser at Closing; or
(b) To cancel this Agreement and obtain an immediate and
unqualified refund of the Deposit, together with any interest earned thereon,
whereupon each party shall be released from any and all further obligations
hereunder.
18. DEFAULT BY PURCHASER.
If Purchaser fails to perform the covenants of this Agreement,
Seller's remedies shall be limited to the retention of the Deposit, together
with any interest earned thereon, as agreed and liquidated damages in full
settlement of any claims, whereupon the parties shall be
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relieved and released from all further obligations under this Agreement. The
parties agree that this provision for liquidated damages is a bona fide
attempt by the parties to resolve the amount of the damages which would be
sustained by the Seller in the event of the breach of this Agreement by the
Purchaser, and the parties recognize that the actual amount of such damages,
if any, would be speculative and extremely difficult of ascertainment.
Notwithstanding the foregoing, Purchaser shall be entitled to written notice
and ten (10) days opportunity to cure any default, and any deadline shall be
extended for the period of cure.
19. DEFAULT BY SELLER.
If the Seller fails to perform the covenants of this Agreement
and/or fails to close as provided herein and/or any of the conditions of
closing set forth in Section 9(a) have not taken place by June 30, 1998 then
Purchaser may: (a) proceed to close or (b) rescind this Agreement in which
event Purchaser shall be entitled to an immediate and unqualified refund of
the Deposit, together with any interest earned thereon; or (c) obtain
specific performance of Seller's obligations hereunder; notwithstanding the
foregoing, Seller shall be entitled to written notice and ten (10) days
opportunity to cure any default, and any deadline shall be extended for the
period of cure.
20. WAIVER.
The waiver of any condition or provision of this Agreement or of
any breach or default under any of the terms of this Agreement by either
party must be in writing and shall not be deemed to be nor shall the same
constitute a waiver of any subsequent condition, provision, breach or default.
21. NOTICES.
Any notice required or permitted to be given by this Agreement
shall be given or made in writing, and shall be served personally by
messenger or courier service, or mailed in the United States by prepaid,
registered or certified mail return receipt requested, as follows:
If to Seller: Planters Preserve, L.L.C.
P.O. Box 5686
Hilton Head, SC 29938
with copies to: B. Dean Pierce, Esq.
King & Vernon, P.A.
1426 Richland Street
P.O. Box 7667
Columbia, SC 29202
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Scott Alfree, Esq.
Scholten and Fant
Suite 202 - Old Kent Building
P.O. Box 454
Grand Haven, MI 49417-0454
If to Purchaser: Epic Resorts, Inc.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Fax: 610/992-1029
Attention: Thomas F. Flatley
Any notice given in accordance with the provisions of this subparagraph shall
be deemed to be effective: (i) if personally delivered, on the date of such
delivery with such delivery to be confirmed by a signed receipt, (ii) if
mailed, two days after same is postmarked, postage prepaid, or (iii) by
telecopier, if telecopied to a telecopier number provided by the other party.
Each party may give notice to the other party of a change of its address, or
telecopy number, for the purposes of giving notice under this Agreement.
22. BROKERAGE.
Each party represents and warrants to the other that neither he,
nor it, nor any of their agents has directly or indirectly dealt with, been
shown or otherwise consulted any broker or agent thereof in connection with
this transaction, and that no real estate brokerage commission is due in
connection with this transaction, with the exception that Purchaser has
engaged George David as its broker in connection with this transaction and
Purchaser is solely responsible for paying George David's compensation. Each
party hereby indemnifies and holds the other party harmless against any claim
or loss (including attorneys' fees) which may be asserted against the other
by reason of any claims or determinations in contravention of the
representations and warranties contained in this Paragraph.
23. INTERPRETATION; SEVERABILITY.
This Agreement shall be construed and enforced in accordance with
the laws of South Carolina and any dispute arising out of this Agreement
shall be heard in a federal or state court sitting in Beaufort County, South
Carolina or the federal court district that includes such county the federal
or state court sitting in Beaufort County, South Carolina. The article
headings in this Agreement are for convenient reference only and shall not
have the effect of modifying or amending the expressed terms and provisions
of this Agreement, nor shall they be used in connection with the
interpretation hereof. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the personal liability or obligation with respect to same. In
case anyone or more of the provisions of this Agreement or the application
thereof shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions hereof and
any other application thereof shall in no way be affected or impaired. Any
reference herein to time periods of less than six (6) days shall in the
computation thereof exclude Saturdays, Sundays and legal
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holidays, and any time period provided for herein which shall end on a
Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next full
business day.
24. COSTS; ESCROW AGENT.
All costs, including attorneys' fees, paid by either party in the
enforcement or defense of this Agreement, including proceedings in appellate
courts, shall be paid to the prevailing party. In the event of any dispute
among the parties with respect to disbursement of the Deposit, the Escrow
Agent shall have the right to tender same into a court of appropriate
jurisdiction and to interplead both parties hereto and thereafter be free
from further liability to the parties or hereunder. Except for willful
misconduct, the Escrow Agent shall be excused from all responsibility,
including insolvency of any depository, absolutely. The parties acknowledge
that the Escrow Agent is the law firm which represents Purchaser in
connection with this transaction and that in the event of any dispute or
litigation hereunder, it may continue to do so and to serve as Escrow Agent
hereunder.
25. ENTIRE AGREEMENT, AMENDMENT.
This Agreement and the documents and information to be furnished
pursuant hereto, contain the entire agreement between the parties with
respect to this transaction, and no representation, warranties or agreements
have been made or, if made, have not been relied upon by either party except
those specifically referred to herein. This Agreement may only be amended,
modified or supplemented by written instrument signed by the parties hereto.
26. BINDING EFFECT.
All of the terms, covenants and conditions herein contained are and
shall be binding upon and inure to the benefit of both parties, their
personal representatives, heirs, successors and assigns.
27. ASSIGNABILITY.
This Contract may be assigned by Purchaser to an affiliate (which
shall be an entity with the same owners of 50 percent or more of the
outstanding shares or interest) of Purchaser.
28. RECORDING.
Each party agrees not to record this Contract or any notice or
memorandum thereof in the public records.
29. COUNTERPART.
This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be an original, but all
counterparts shall together constitute one and the same instrument.
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30. EFFECTIVE DATE.
This Agreement shall be binding on the date when this Purchase and
Sale Agreement has been fully executed by the Purchaser and Seller.
31. ACCEPTANCE.
At the option of Purchaser, this Agreement shall be void unless
Seller has delivered to Purchaser a signed original counterpart hereof no
later than 5:00 P.M., May 19, 1998.
32. CONFIDENTIALITY.
The parties hereto agree to keep this Agreement and its terms
confidential and not to disclose any terms to any third parties until
Closing, except to potential lenders, surveyors, title agent and other
parties requiring information in connection with Purchaser's inspection or
other rights under this Agreement.
SELLER:
PLANTERS PRESERVE, L.L.C.
/s/ Dwight Trew By: /s/ J. Dudley King, Jr.
- ---------------------------- --------------------------------
Date: 5/18/98
------------------------------
/s/ Judy P. Trew
PURCHASER:
EPIC RESORTS, INC.
By:/s/Thomas F. Flatley
- ---------------------------- ---------------------------------
Thomas F. Flatley, President
5/19/98
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JOINDER OF MEMBERS OF PLANTERS PRESERVE, L.L.C.
For value received, the receipt and sufficiency of which is hereby
acknowledged, and as a material inducement to Purchaser's offer to purchase
the Property, the undersigned Members of the Planter's Preserve, L.L.C.
("Members") join in the execution of the foregoing Purchase and Sale
Agreement by Planter's Preserve, L.L.C.
Specifically, the undersigned Members hereby represents and warrants to
Purchaser that they/it are personally familiar with Seller's operation of the
Property and that each of Seller's representations and warranties contained
therein are accurate. Further, the Members do hereby agree to be bound by
the provisions of Section 16 of the Agreement as though they were a party
thereto.
Members:
/s/J. Dudley King, Jr.
-------------------------------------------
J. Dudley King, Jr.
/s/Judy P. Trew
-------------------------------------------
Judy P. Trew
RBC Enterprises, Inc.
By:
----------------------------------------
18
<PAGE>
JOINDER OF MEMBERS OF PLANTERS PRESERVE, L.L.C.
For value received, the receipt and sufficiency of which is hereby
acknowledged, and as a material inducement to Purchaser's offer to purchase
the Property, the undersigned Members of the Planter's Preserve, L.L.C.
("Members") join in the execution of the foregoing Purchase and Sale
Agreement by Planter's Preserve, L.L.C.
Specifically, the undersigned Members hereby represents and warrants to
Purchaser that they/it are personally familiar with Seller's operation of the
Property and that each of Seller's representations and warranties contained
therein are accurate. Further, the Members do hereby agree to be bound by
the provisions of Section 16 of the Agreement as though they were a party
thereto.
Members:
/s/Herb Alfree
-------------------------------------------
Herb Alfree
/s/J. Dudley King, Jr.
-------------------------------------------
J. Dudley King, Jr.
/s/Judy P. Trew
-------------------------------------------
Judy P. Trew
RBC Enterprises, Inc.
By:
----------------------------------------
19
<PAGE>
JOINDER OF MEMBERS OF PLANTERS PRESERVE. L.L.C.
For value received, the receipt and sufficiency of which is hereby
acknowledged, and as a material inducement to Purchaser's offer to purchase
the Property, the undersigned Members of the Planter's Preserve, L.L.C.
("Members") join in the execution of the foregoing Purchase and Sale
Agreement by Planter's Preserve, L.L.C.
Specifically, the undersigned Members hereby represents and warrants to
Purchaser that they/it are personally familiar with Seller's operation of the
Property and that each of Seller's representations and warranties contained
therein are accurate. Further, the Members do hereby agree to be bound by
the provisions of Section 16 of the Agreement as though they were a party
thereto.
Members:
-------------------------------------------
Herb Alfree
-------------------------------------------
J. Dudley King, Jr.
-------------------------------------------
Judy P. Trew
RBC Enterprises, Inc.
By: /s/ Illegible
---------------------------------------
20
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
LIMITED LIABILITY COMPANY
FIRST: The name of the limited liability company is:
Epic Resorts, LLC
SECOND: The address of the Company's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the Company's registered agent at such address is
The Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed, signed and acknowledged this
Certificate of Formation this 26th day of June, 1998.
By: /s/ Thomas F. Flatley
--------------------------------
Name: Thomas F. Flatley
Title: Organizer and Sole Member
<PAGE>
EXHIBIT 3.2
THE MEMBERSHIP INTERESTS EVIDENCED BY THIS DOCUMENT ARE SUBJECT TO RESTRICTIONS
ON ASSIGNMENT AND TRANSFER SET FORTH HEREIN. THE MEMBERSHIP INTERESTS HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNTIL SUCH MEMBERSHIP INTERESTS
HAVE BEEN SO REGISTERED OR UNTIL THE MANAGING MEMBER HAS RECEIVED AN OPINION OF
LEGAL COUNSEL, OR OTHER ASSURANCES SATISFACTORY TO THE MANAGING MEMBER, THAT
THE MEMBERSHIP INTEREST MAY LEGALLY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT
SUCH REGISTRATION, ALL AS PROVIDED IN THIS DOCUMENT.
OPERATING AGREEMENT
OF
EPIC RESORTS, LLC
dated as of
July 7, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. ORGANIZATIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Formation of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Purpose of the Company; Business. . . . . . . . . . . . . . . . . . . . . . . .1
1.4 Principal Place of Business, Office and Agent . . . . . . . . . . . . . . . . .1
1.5 Term of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.6 Fictitious Business Name Statement; Other Certificates. . . . . . . . . . . . .2
1.7 Status of Members; Names and Addresses. . . . . . . . . . . . . . . . . . . . .2
1.8 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. CAPITALIZATION MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Original Members; Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.3 Additional Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.4 Additional Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.5 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.6 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.7 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. CAPITAL ACCOUNTS AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.1 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.2 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.3 Allocations of Book Income and Loss . . . . . . . . . . . . . . . . . . . . . .5
4.4 Tax Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.5 Allocations Upon Transfer of Interests; Admissions; Changes . . . . . . . . . .6
5. DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.1 Limitation on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.2 Distributions Prior to Liquidation and Winding-Up . . . . . . . . . . . . . . .7
5.3 Distributions Upon Liquidation and Winding-Up . . . . . . . . . . . . . . . . .7
5.4 Set Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6. MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.1 Powers of the Managing Member.. . . . . . . . . . . . . . . . . . . . . . . . .8
6.2 Limitations on the Power of the Managing Member . . . . . . . . . . . . . . . 10
6.3 Duties of the Managing Member . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Tax Matters Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Transactions with Other Members and Affiliates. . . . . . . . . . . . . . . . 12
6.6 Board of Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Authority of the Board of Managers. . . . . . . . . . . . . . . . . . . . . . 13
7. POWERS AND DUTIES OF AND LIMITATIONS UPON THE MEMBERS. . . . . . . . . . . . . . . 13
- ii -
<PAGE>
Page
----
7.1 Rights of the Non-Managing Members. . . . . . . . . . . . . . . . . . . . . . 13
7.2 Limitations on the Rights of Non-Managing Members; Members' Dissenter's
Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Limited Liabilities of the Members. . . . . . . . . . . . . . . . . . . . . . 14
7.4 Procedures to Obtain Member Approval. . . . . . . . . . . . . . . . . . . . . 14
8. TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 General Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Securities Law Representations and Transfer Restrictions. . . . . . . . . . . 17
8.4 Certain Permitted Transfers by Members. . . . . . . . . . . . . . . . . . . . 17
8.5 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. DISSOLUTION OF THE COMPANY AND DISTRIBUTIONS
UPON DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 No Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.3 Election to Continue the Company. . . . . . . . . . . . . . . . . . . . . . . 18
9.4 Winding-Up and Liquidation of the Company . . . . . . . . . . . . . . . . . . 19
9.5 Time for Winding-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.6 Final Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10. STANDARD OF CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11. AMENDMENT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.1 Amendment by Managing Member. . . . . . . . . . . . . . . . . . . . . . . . . 21
11.2 Other Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.3 Execution of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.1 Grant of Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.2 Irrevocable Nature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.3 Transfer of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.2 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.3 Notice of Tax Examinations. . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.4 Whole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.6 Binding Nature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.7 Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.8 Counterparts; Further Documents . . . . . . . . . . . . . . . . . . . . . . . 24
13.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
- iii -
<PAGE>
OPERATING AGREEMENT
OF
EPIC RESORTS, LLC
THIS OPERATING AGREEMENT OF EPIC RESORTS, LLC, a Delaware limited liability
company (the "Company"), (this "Agreement") is entered into as of July 7, 1998
by and between Epic Membership Corp., a Delaware corporation, as the managing
member (the "Managing Member"), and Thomas F. Flatley, as the non-managing
member (the "Non-Managing Member"). Unless the context otherwise requires,
terms which are capitalized and not otherwise defined in context shall have the
meanings set forth or cross-referenced in SECTION 2 of this Agreement.
In consideration of the mutual covenants and subject to the terms and
conditions of this Agreement, the Members hereby agree as follows:
1. ORGANIZATIONAL MATTERS
1.1 FORMATION OF THE COMPANY. The Company was formed as a limited
liability company under the Act upon the execution and filing with the Secretary
of State of Delaware of the Certificate of Formation of the Company.
1.2 NAME. The name of the Company is: "EPIC RESORTS, LLC".
1.3 PURPOSE OF THE COMPANY; BUSINESS. The Company has been formed for the
purposes of (a) acquiring and developing vacation ownership resorts and
marketing and selling vacation ownership interests in such resorts, (b) any
other activity or purpose which is lawful for a limited liability company to
engage in under the Act, and (c) engaging in such other activities incidental or
ancillary thereto as the Managing Member deems desirable or necessary.
1.4 PRINCIPAL PLACE OF BUSINESS, OFFICE AND AGENT. The principal place of
business and mailing address of the Company and the office where the records
described in SECTION 6.3(1) shall be kept shall be 1150 First Avenue, Suite
900, King of Prussia, Pennsylvania 19406, or at such other location as shall be
specified from time to time by the Managing Member. The statutory agent of the
Company in Delaware shall be The Corporation Trust Company, with a mailing
address of 1209 Orange Street, Wilmington, Delaware 19801. The Managing
Member, from time to time and without further amendment to this Agreement, may
change the statutory agent in Delaware or the principal place of business of the
Company. The Company also may establish additional places of business or offices
for maintenance of records as it may determine are necessary or appropriate.
1.5 TERM OF COMPANY. The Company commenced upon the filing with the
Secretary of State of Delaware of the Certificate of Formation, and, unless
sooner dissolved under SECTION 9.1, shall continue in perpetuity.
<PAGE>
1.6 FICTITIOUS BUSINESS NAME STATEMENT; OTHER CERTIFICATES. The Managing
Member shall, from time to time, register the Company as a foreign limited
liability company and file such fictitious or trade name statements or
certificates in such jurisdictions and offices as the Managing Member considers
necessary or appropriate. The Company may do business under any fictitious
business names deemed desirable by the Managing Member. The Managing Member
shall, from time to time, file or cause to be filed such certificates of
amendment, certificates of cancellation, or other certificates as such Managing
Member deems necessary or desirable under the Act or under the laws of any
jurisdiction in which the Company is doing business to establish and continue
the Company as a limited liability company or to protect the limited liability
of the Members.
1.7 STATUS OF MEMBERS; NAMES AND ADDRESSES. The Managing Member, and
additional or substituted Managing Members, the Non-Managing Member and any
additional or substituted Non-Managing Members shall be members, as that term is
used in the Act, subject to the terms and provisions of this Agreement. The
Managing Member shall maintain at the Company's principal place of business a
list that sets forth: the names and business or residence addresses of the
Members, separately identified as to their status as Managing Member or
Non-Managing Member.
1.8 BY-LAWS. The By-Laws of the Company, as the same have been executed
and delivered by the Members, and as hereafter amended from time to time as
provided therein, are hereby incorporated herein by reference and constitute a
part of this Agreement. If any provision of this Agreement conflicts with any
provision of the By-laws, the terms and provision of this Agreement shall
control.
2. DEFINITIONS
2.1 "ACT" means the Delaware Limited Liability Company Act set forth in
Title 6 Chapter 18, Sections 18-101 ET SEQ. of the Delaware Code, as amended
from time to time. Any reference to the Act shall automatically include a
reference to any subsequent or successor limited liability company law in
Delaware.
2.2 "AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the "controlled"
Person, whether through ownership of voting securities, by contract or
otherwise. The term "Affiliate" shall also include any Person who is related by
blood or marriage to the Person in question.
2.3 "AGREEMENT" means this Agreement as amended from time to time as
provided in ARTICLE 11.
2.4 "BOARD" or "BOARD OF MANAGERS" shall mean the Board of Managers of the
Company created under SECTION 6.6.
2
<PAGE>
2.5 "BOOK" means the method of accounting prescribed for compliance with
the capital account maintenance rules set forth in Article II of APPENDIX A, as
distinguished from any accounting method which the Company may adopt for other
purposes such as financial reporting.
2.6 "BY-LAWS" means the By-Laws of the Company attached hereto as
APPENDIX B.
2.7 "CAPITAL ACCOUNT" means the capital account of a Member maintained in
accordance with SECTION 4.1.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended. References
to specific sections of the Code shall be deemed to include references to
corresponding provisions of any succeeding internal revenue law of the United
States of America.
2.9 "COMPANY" means EPIC RESORTS, LLC, a Delaware limited liability
company, and any limited liability company continuing the business of the
Company after dissolution, as provided herein.
2.10 "FISCAL YEAR" means the fiscal year of the Company as determined by
the Managing Member from time to time, and, initially, means a fiscal year
ending on December 31.
2.11 "INTEREST" means a membership interest in the Company, including
such Member's Share, any and all benefits to which a Member may be entitled
under this Agreement and the obligations of a Member under this Agreement,
whether as a Managing Member or a Non-Managing Member. Each Interest will
consist of one or more Units, which will be represented by a certificate as
provided in the By-laws.
2.12 "MANAGER" means a member of the Board.
2.13 "MANAGING MEMBER" means Epic Membership Corp. or any successor or
substitute Managing Member in its capacity as Managing Member. Reference to a
particular Managing Member by name or otherwise shall not, unless the context
clearly requires otherwise, include a Member that was or is its predecessors or
successors in interest.
2.14 "MEMBERS" means and includes all of the Managing Members and
Non-Managing Members. Reference to a "Member" means any one of the Members.
A Managing Member having or acquiring an Interest as a Non-Managing Member
shall also be a Non-Managing Member and, for all purposes of this Agreement,
references to Members of any class or their Interests do not include such
Members in their capacities as Members of another class or their Interests as
another class of Member. Where an Interest is owned in joint tenancy or
tenancy in common, the joint tenants or tenants in common with respect to
such Interest shall be considered one Member. Reference to any Member shall,
unless the context clearly requires otherwise, include his predecessor and
successor (other than a mere assignee) in interest.
2.15 "MEMBER APPROVAL" means the approval of those Members holding more
than 50% of the Units outstanding at such time.
3
<PAGE>
2.16 NON-MANAGING MEMBER" means each person admitted to the Company as a
Non-Managing Member as long as that person holds an Interest as a Non-Managing
Member in the Company and any successor to a Non-Managing Member who has been
admitted as a Non-Managing Member to the Company.
2.17 "PERMITTED TRANSFEREE" means
(a) a Member;
(b) the Company;
(c) with the approval of the Managing Member, a trust set up for the
benefit of the transferor or a Permitted Transferee; or
(d) upon the death of a Member, the executor or legal representative
handling such deceased Member's estate; provided, however, that such executor or
legal representative shall have executed a counterpart of this Agreement on
behalf of such deceased Member's estate agreeing to be bound hereby as a Member.
2.18 "PERSON" or "PERSON" means and includes any natural person and any
corporation, firm, partnership, trust, estate, limited liability company or
other entity resulting from any form of association.
2.19 "SERVICE" means the Internal Revenue Service, or its successor
administrative agency, under the laws of the United States.
2.20 "SHARE" means, with respect to any Member, a percentage determined
pursuant to SECTION 4.2.
2.21 "TMP" has the meaning set forth in SECTION 6.4.
2.22 "TRANSFER" means any sale, assignment, pledge, hypothecation,
encumbrance, disposition, transfer (including, without limitation, a transfer by
will or intestate distribution), gift or attempt to create or grant a security
interest in any Interest or interest therein or portion thereof, whether
voluntary or involuntary, by operation of law or otherwise.
2.23 "UNIT" means a unit of a Member's Interest in the Company.
2.24 "WARRANT" means a warrant to purchase one or more Units in the
Company.
4
<PAGE>
3. CAPITALIZATION MATTERS
3.1 ORIGINAL MEMBERS; MERGER. The Company was formed by Thomas F. Flatley
and was merged on July 1, 1998 with Epic Resorts, Inc., a Delaware corporation
wholly-owned by Mr. Flatley, with the Company as the surviving entity.
3.2 CAPITALIZATION. The number of Units which the Company is authorized
to have outstanding is 2,000,000 Units. The Units will be represented by
certificates, as provided in the By-laws.
3.3 ADDITIONAL MEMBERS. New Members may be admitted upon such terms and
conditions and for such capital contributions as may be approved by the Managing
Member; PROVIDED that any Person who exercises a Warrant shall be admitted as a
Non-Managing Member.
3.4 ADDITIONAL CONTRIBUTIONS. No Member shall be obligated to make any
additional capital contribution to the Company except as may be determined by
the unanimous written consent of all the Members.
3.5 INTEREST. No Member shall be paid interest on capital contributions
to the Company.
3.6 WITHDRAWAL. No Member shall be entitled to withdraw any portion of
its paid-in capital contribution and no Member shall have any right to a return
of capital except through distributions as provided in ARTICLE 5 of this
Agreement.
3.7 PREEMPTIVE RIGHTS. No Members shall have any preemptive rights with
respect to the issuance of any Units.
4. CAPITAL ACCOUNTS AND ALLOCATIONS
4.1 CAPITAL ACCOUNTS. A Capital Account shall be maintained for each
Member in the manner set forth in Article II of APPENDIX A, which is attached to
and is a part of this Agreement.
4.2 SHARES. Each Member's Share shall be a percentage equal to (a) the
number of outstanding Units owned by such Member divided by (b) the aggregate
number of Units outstanding at such time. Initially each Member's Shares will
be the respective percentage set forth in Schedule 3.1. In the event that new
Members are added, the Shares of the Members shall be adjusted to reflect the
Units issued to such new Members.
4.3 ALLOCATIONS OF BOOK INCOME AND LOSS. Except as otherwise provided in
this Article 4, and subject to the provisions of Article III of APPENDIX A:
(a) The Company's net Book income for each Fiscal Year shall be
allocated among the Members as follows:
5
<PAGE>
(i) first, to any Members who have previously been allocated
net Book loss pursuant to SECTION 4.3(b), in such a manner as to reverse
the effects of such prior allocations in the inverse order in which such
prior allocations were made;
(ii) second, to the Members in the amounts and proportions
necessary to cause the Capital Account balances of all Members to be in
proportion to their respective Shares; and
(iii) third, to the Members in proportion to their respective
Shares.
(b) The Company's net Book loss for each Fiscal Year shall be
allocated among the Members as follows:
(i) first, to the Members in proportion to their respective
Shares, until the Capital Account balances of all Members have been reduced
to zero; PROVIDED, that if any Member's Capital Account balance is reduced
to zero pursuant to this SECTION 4.3(b)(i) when one or more other Members
have positive Capital Account balances, further losses pursuant to this
SECTION 4.3(b)(i) shall be allocated to such other Members in proportion to
their respective Shares, and shall not be allocated to any Member whose
Capital Account has been reduced to zero; and
(ii) second, to the Members in proportion to their respective
Shares.
(c) In the event that the Company converts to corporation status and
such corporation consummates an initial public offering of its capital stock,
then, prior to any allocations of Book income or loss under paragraph (a) or (b)
of this Section 4.3, each holder of a Warrant who has exercised such Warrant and
has thereby become a Member will receive a special allocation of Book income
(including, if necessary, items of gross income) in an amount sufficient to
cause his Capital Account balance to bear the same relationship to the total of
all Capital Accounts as the number of Units held by such former warrantholder
bears to the total number of Units then outstanding. If the Company's Book
income is insufficient to allow this special allocation to be made, the Company
will sell shares of corporation stock to generate sufficient gain to permit such
special allocation to be made in full. To the extent such sales of corporation
stock are made, the consideration that the Member will receive in exchange for
such Member's Units will consist partially or wholly of cash.
4.4 TAX ALLOCATIONS. Except as otherwise provided in Article IV of
APPENDIX A, all items of income, gain, loss, and deduction shall be allocated
for federal income tax purposes in the same manner as the corresponding
allocation for Book purposes.
4.5 ALLOCATIONS UPON TRANSFER OF INTERESTS; ADMISSIONS; CHANGES. Items
allocated pursuant to this ARTICLE 4 to any Interest or portion thereof, which
may have been acquired, transferred or as to which there is a changed allocation
during any year or period shall be allocated among the Persons who were or were
deemed to be holders of such Interests or portions thereof during such year or
period, by the use of any convention which is elected by the
6
<PAGE>
Managing Member and permitted under the Code, including, without limitation,
an interim closing of the books using a half-month convention. Unless the
Company notifies the Persons who were or were deemed to be holders of such
Interests or portions thereof during such year or period, such allocations
shall be made in proportion to the number of days that each such Person was
recognized as the Person who was or was deemed to be the holder of the
Interests or portion thereof during such year or period, without regard to
the operations of the Company during the year or period in which such Persons
are or are deemed to be the holders thereof, and without regard to the date,
amount, or recipient of any distributions which may have been made with
respect to such Interests. The Company shall treat assignees (regardless of
whether or not they are admitted as Members) as holders for purposes of this
ARTICLE 4 and shall be entitled to rely on the books and records of the
Company to determine the dates as of which any Person is or is deemed to be a
holder of an Interest and any such determination made in good faith shall be
conclusive and binding upon all holders.
5. DISTRIBUTIONS
5.1 LIMITATION ON DISTRIBUTIONS.
(a) The Company shall not make any distribution of cash, except to
the extent that the Company then has cash available in excess of the sum of
(i) amounts required to pay or make provision for all Company expenses, plus
(ii) all reserves that are considered necessary or appropriate by the Managing
Member. To the extent that the Managing Member reasonably foresees that the
Company will receive cash or other consideration to satisfy liabilities not yet
due and payable, the Company shall not be required to establish reserves or make
other provision to satisfy such liabilities prior to making distributions under
this ARTICLE 5.
(b) Distributions of cash shall only be made to the extent cash is
available to the Company without requiring (i) the sale of Company assets or the
pledge of Company assets at a time or on terms that the Managing Member believes
are not in the best interests of the Company or (ii) a reduction in reserves
that the Managing Member believes are necessary or desirable for working capital
or other Company purposes.
(c) Anything in this Agreement to the contrary notwithstanding, the
Company shall not make any distribution of cash or other property to any Member
pursuant to any provision of this Agreement if such distribution would be in
violation of any loan or credit agreement or indenture to which the Company is a
party or by which it is bound.
5.2 DISTRIBUTIONS PRIOR TO LIQUIDATION AND WINDING-UP. Subject to
SECTION 5.1, prior to the commencement of liquidation and winding up, the
Managing Member may, in its sole discretion, make distributions of cash to the
Members in proportion to their respective Shares.
5.3 DISTRIBUTIONS UPON LIQUIDATION AND WINDING-UP. During the winding-up
period of the Company and through the final liquidation of its assets, the
Managing Member, subject to SECTION 5.4, shall distribute cash and other assets
of the Company to the Members in proportion
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to their respective Capital Account balances. Assets distributed in-kind
shall be distributed pro-rata in-kind as well as value.
5.4 SET OFF. The Company shall be entitled to set off against any
distribution by the Company to any Member any amounts due and owing by such
Member to the Company but any amount so set-off shall be deemed to have been
distributed to such Member for all purposes of this Agreement.
6. MANAGEMENT
6.1 POWERS OF THE MANAGING MEMBER. Subject to the limitations imposed by
the Act and this Agreement, including without limitation, the limitations in
Sections 6.2, 6.5 and 6.7, the Managing Member shall have the power to conduct,
manage, control, and make all decisions affecting the conduct of the ordinary
business, assets and affairs of the Company, including, but not limited to, the
power to:
(a) establish, maintain, deposit in and withdraw from checking,
savings, custodial and other accounts in the name of the company in such banks,
savings and loan associations, trust companies or other financial institutions
as the Managing Member may from time to time select;
(b) invest any funds of the Company in short-term obligations, money
market funds, interest bearing accounts, certificates of deposit, banker's
acceptances or commercial paper, until such time as the funds are required for
Company purposes or until the Managing Member elects to distribute cash to the
Members;
(c) execute any notifications, statements, reports, returns or other
filing that are necessary or desirable to be filed with any state or federal
agency, commission, or authority, including any state or federal securities
commission;
(d) purchase or incur the cost of any insurance covering the
potential liabilities of the Company, the Managing Member, and any shareholder,
director, officer, member, manager or employee of the Managing Member or any
agent acting on behalf of the Company, including, without limitation,
liabilities resulting from any such Person's service at the request of the
Managing Member on behalf of the Company, as a director, officer, general
partner, manager or member;
(e) commence or defend litigation pertaining to the Company, its
business or assets, or submit a claim or liability of the Company to arbitration
or reference, provided that the Company shall not bear the expenses of any
litigation brought against the Managing Member acting in such capacity or any
officer, director, manager or member of the Managing Member except in accordance
with Section 10.3;
(f) enter into, make and perform such contracts, agreements and other
undertakings, and to do such other acts, as it may deem necessary or advisable
for, or as may be
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incidental to, the conduct of the business contemplated by this Agreement;
including, without limitation, contracts, agreements, undertakings and
transactions with any Member or with any other person or entity which is an
Affiliate of any Member;
(g) negotiate, enter into, execute and exercise any rights of the
Company or grant any waivers or consents on behalf of the Company pursuant to
any and all agreements, contracts, guaranties, documents, certificates and other
instruments necessary in connection with the management and operation of the
Company and accomplishment of its purposes or the conduct of its business;
(h) sell, exchange, dispose of, transfer, pledge, refinance or
otherwise alienate all or part of the assets of the Company and, prior to the
liquidation and winding-up period of the Company following dissolution, reinvest
any proceeds resulting from the sale or other disposition of all or any part of
the assets of the Company in such instruments as are permitted by paragraph (a)
above;
(i) issue notes of the Company and borrow money and make, issue,
accept, endorse and execute promissory notes, drafts, bills of exchange,
guarantees and other instruments and evidences of indebtedness and secure the
payment thereof by mortgage, pledge, or assignment of or grant or a security
interest in, all or any part of the Company's then current or after acquired
assets;
(j) do all things necessary to create and enforce the Company's
remedies relating to the Members' obligations to make contributions under this
Agreement;
(k) make tax elections on behalf of the Company;
(l) authorize or approve all actions in connection with any
distribution to Members under this Agreement including, without limitation, when
to make a distribution, the amount of any distribution;
(m) perform any and all acts necessary to pay any and all Company
liabilities and other amounts authorized to be paid by the Company pursuant to
the provisions of this Agreement;
(n) employ, on behalf of and in the name of the Company, accountants,
attorneys, brokers, consultants or other persons, firms or entities as it shall
determine is proper, including persons and entities who may, subject to Section
6.5, be Affiliates, or who perform services for, or have business, financial,
family or other relationships with any Member;
(o) admit Persons as Non-Managing Members at any time or from time to
time or accept additional capital contributions from any Non-Managing Member at
any time or from time to time;
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(p) admit a Person as a substitute Non-Managing Member upon the
Transfer of an Interest in accordance with the provisions of Section 8; and
(q) delegate to the Officers, other employees and agents of the
Company the authority to conduct the business of the Company in the ordinary
course in accordance with this Agreement and any policy of delegation that may
be adopted and revised from time to time by the Board. Any power not delegated
by the Managing Member shall remain with the Managing Member.
(r) do, or omit, all other acts, and execute, acknowledge or deliver
all other instruments, which are necessary to effectuate any of the foregoing,
to carry out the purposes of the Company, or which are otherwise desirable.
None of the powers granted in this Section shall be interpreted as broadening or
extending powers which are specifically limited by other provisions of this
Agreement, including, without limitation, those in Section 6.2 and 6.7.
6.2 LIMITATIONS ON THE POWER OF THE MANAGING MEMBER.
Notwithstanding Section 6.1, without Member Approval to the specific act, the
Managing Member shall have no authority to cause the Company to:
(a) acquire any general partner or similar unlimited liability
interest in any Person;
(b) do any act in contravention of this Agreement;
(c) possess Company property or assign any rights in specific Company
property for other then a Company purpose, or commingle any Company bank
accounts or moneys with funds of the Managing Member or any other Person;
(d) assign the property of the Company in trust for creditors or on
the assignee's promise to pay the debts of the Company;
(e) dispose of the good will of the business of the Company;
(f) do any other act that would make it impossible to carry on the
ordinary business of the Company;
(g) confess a judgment; or
(h) merge or consolidate the Company with any domestic or foreign
entity.
6.3 DUTIES OF THE MANAGING MEMBER. In carrying out its obligations, the
Managing Member, on behalf of the Company and at the expense of the Company,
shall:
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(a) take all actions which may be necessary or appropriate for the
continuation of the Company's valid existence as a limited liability company
under the laws of the State of Delaware and of each other jurisdiction in which
such existence is necessary to protect the limited liability of the Members or
to enable the Company to conduct its business;
(b) cause the Company to give any and all notices that the Company is
required to give to the Members, or any of them, under this Agreement;
(c) conduct the affairs of the Company in compliance with the
applicable laws and in the best interests of the Company and of the Members;
(d) not permit the use of Company funds or assets for other than the
benefit of the Company;
(e) furnish or cause the Company's accountants to furnish to each
Member within ninety days after the end of each calendar year, all information
required for federal and state income tax reporting purposes with respect to the
Company, including, without limitation, a copy of Schedule K-1 to the Company's
federal income tax return for the calendar year most recently ended;
(f) prepare and file all necessary informational federal income tax
forms on behalf of the Company and arrange for the filing by the Company of any
and all state and local income and franchise tax returns required to be filed by
the Company;
(g) furnish or cause the Company's accountants to furnish to each
Non-Managing Member, not less than ninety days after the end of the calendar
year, an audited balance sheet for the Company as of the year most recently
ended and the related statements of income and retained earnings, and a
statement of the balance of that Non-Managing Member's Capital Account as of the
end of such year together with a worksheet setting forth in reasonable detail
the calculation of that balance;
(h) obtain and maintain on behalf of the Company such all risk,
public liability, workmen's compensation, officer and directors, errors and
omissions, fidelity, forgery and other insurance, if any, as may be available on
commercially reasonable terms and as may be deemed necessary or appropriate by
the Managing Member;
(i) provide or arrange for all necessary clerical and administrative
personnel;
(j) hold all Company property in the Company name;
(k) use reasonable efforts not to cause the Company to incur debts or
other liabilities or obligations beyond the Company's ability to pay such
liabilities; and
(l) maintain and preserve during the term of the Company and for five
years thereafter, or for such longer time as is necessary to determine the cost
basis of the Company
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assets, at the Company office designated under Section 1.4 (or, if the
Company has been terminated, at the location designated by the Managing
Member in written notice to the Non-Managing Members), complete and accurate
books of account in accordance with the provisions of this Agreement, a list
of the names and addresses of each Member, copies of the Certificate of
Formation of the Company, this Agreement, copies of all tax returns of the
Company for the most recent five-year period during the term of the Company.
6.4 TAX MATTERS MEMBER. Subject to applicable law, the Code and/or any
Treasury Regulation to the contrary:
(a) The Managing Member shall be the Company's tax matters partner
pursuant to Section 6231(a)(7) of the Code (the "TMP"). The TMP shall be the
liaison between the Company and the Service and the coordinator of the Company's
actions pursuant to a Service tax audit of the Company.
(b) The TMP shall have the duties and authority specifically
delegated to a "tax matters partner" under the Code and applicable treasury
regulations as well as such other duties and authority as may from time to time
be delegated to it by the Members. The duties of the TMP shall include, but not
be limited to, the following: (i) to furnish to the Service, when properly
requested pursuant to the Code, the name, address, profits interest and taxpayer
identification number of each person and/or entity who or which was a Member in
the Company at any time during the Company's taxable year; and (ii) to keep each
Member informed of all administrative and judicial proceedings for the
adjustment, at the Company level, of Company items.
6.5 TRANSACTIONS WITH OTHER MEMBERS AND AFFILIATES.(a) The Company shall
not purchase or sell goods or services from or to, or enter into any arrangement
or agreement with, the Managing Member or any of its Affiliates unless the
transaction has received Member Approval.
(b) Except as otherwise limited by Section 6.5(a), the Managing
Member may, on behalf of the Company, purchase or sell goods or services from,
to, or enter into any arrangement or agreement with, any Non-Managing Member,
any Affiliate, any of their respective partners, shareholders, officers,
directors or employees, or any Affiliate of any of such Persons, on terms and
conditions which are commercially reasonable or are not materially less
favorable to the Company than those available from unaffiliated third parties
offering similar goods or services of good quality in the same geographic area.
All profits and income earned by any such Person as a result of any such
transaction shall belong to such Person and not to the Company.
6.6 BOARD OF MANAGERS.
(a) INITIAL BOARD OF MANAGERS. There shall be a Board of Managers
(the "Board") initially composed of five members. The initial managers
comprising the Board shall
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be Thomas F. Flatley, Robert M. Kramer, James A. Ditanna, Scott J. Egelkamp
and Gerald C. Clark.
(b) DESIGNATED MEMBERS OF THE BOARD OF MANAGERS. The Managers shall
be elected by the Managing Member or its successors and assigns.
(c) TERM OF SERVICE. Each Manager shall serve until the earlier of
his or her death, resignation or removal. Any Manager may resign at any time by
delivering his or her written resignation to the Chairman.
(d) REIMBURSEMENT OF EXPENSES. Managers shall be reimbursed for all
reasonable expenses incurred in connection with attending meetings of the Board
and shall receive such fees, if any, as may be approved from time to time by the
Board.
6.7 AUTHORITY OF THE BOARD OF MANAGERS.
(a) DELEGATION OF AUTHORITY TO BOARD. The Board shall act solely in
an advisory capacity to the Managing Member, unless the Managing Member
delegates specific authority to the Board.
(b) QUORUM FOR TRANSACTION OF BUSINESS. To constitute a quorum at
any meeting of the Board where specific authority has been delegated to the
Board for the transaction of business at such meeting, there shall be present at
least a majority of the Managers. At any meeting of the Board at which a quorum
is present, the approval of a majority of the Managers shall be necessary to
constitute an action by the Board and shall be binding on the Managing Member.
7. POWERS AND DUTIES OF AND LIMITATIONS UPON THE MEMBERS
7.1 RIGHTS OF THE NON-MANAGING MEMBERS. Each Non-Managing Member shall be
entitled (i) at its expense, personally or through one or more representatives,
upon 5 business days' prior written notice, during regular business hours at the
office of the Company maintained under Section 1.5, to inspect and copy all
books of account, records, list of Members, agreements, certificates and tax
returns and reports required to be kept by the Managing Member pursuant to this
Agreement; (ii) to obtain from time to time and upon reasonable demand subject
to such confidentiality provisions as the Managing Member reasonably considers
appropriate, true and full information regarding the state of the business and
the financial condition of the Company, and, promptly after becoming available,
copies of the Company's federal, state and local income tax returns and reports
for each calendar year; (iii) to engage in activities related and/or competitive
with the Company; and (iv) to have such additional rights as are elsewhere
provided in this Agreement or by mandatory requirements of applicable law.
7.2 LIMITATIONS ON THE RIGHTS OF NON-MANAGING MEMBERS; MEMBERS'
DISSENTER'S RIGHTS. (a) Except as otherwise provided in this Agreement, no
Non-Managing Member (in its capacity as a Non-Managing Member) shall have the
right to: (a) take any part whatsoever in the
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management and control of the ordinary business of the Company; (b) sign for
or bind the Company; (c) require partition of the Company property or compel
any sales or appraisals of Company assets or of a deceased Member's Interest
(despite any provisions of law to the contrary); (d) sell or assign such
Non-Managing Member's Interest in the Company or constitute the buyer or
assignee thereof a substituted Non-Managing Member; or (e) have such
Non-Managing Member's capital contributions repaid, demand property other
than cash in payment of such Non-Managing Member's capital contributions or
receive interest on such Non-Managing Member's capital contributions.
(b) No member shall be entitled to any relief as a dissenting Member
in the event of any merger of consolidation involving the Company, PROVIDED,
HOWEVER, that all Members shall be entitled to receive fair value for their
Interests in the event of any such merger or consolidation.
7.3 LIMITED LIABILITIES OF THE MEMBERS. (a) No Member shall have any
obligation to make contributions to the Company nor any liability for any
Company obligations. Any liability of a Member to return distributions from the
Company shall be limited to the mandatory requirements of the Act.
(b) No Member has any obligation to present business opportunities to
the Company.
7.4 PROCEDURES TO OBTAIN MEMBER APPROVAL. (a) Member Approval may be
given by a vote taken at a meeting of the Members duly called, convened and held
in accordance with this Agreement or by written action that may consist of one
or more counterparts delivered to the Managing Member or, if there is no
Managing Member, to the Non-Managing Members requesting such action, which
counterpart or counterparts shall set forth the proposed action to be taken and
contain signatures sufficient to constitute Member Approval at such time. The
Managing Member shall keep complete and accurate records and notify all Members
of the substance of any such written action.
(b) All Members shall be bound to all other Members by any action
taken with, or authorized by Member Approval. Each Member shall exercise all of
his or its rights and powers as a Member under this Agreement and applicable law
in a manner designed to effectuate the action taken or authorized by the Members
and shall execute, acknowledge and deliver such consents, approvals, agreements
or other documents or instruments as may be furnished from time to time by the
Managing Member in order to effectuate the actions taken or authorized pursuant
to Member Approval.
(c) Meetings of the Members may be called by the Managing Member or
by Member Approval. Notice of the time and place of a special meeting of the
Members shall be effective if given in accordance with Section 13.1 at least 5
business days prior to the date of the special meeting. Notices of such meeting
shall identify the purpose of the meeting or the business to be transacted at
the meeting, but the failure to specifically identify an action to be
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taken or business to be transacted shall not invalidate any action taken or
business transacted at a meeting.
(d) Meetings of the Members may be held at any location, within or
without the United States. Members may participate in a meeting by means of a
conference telephone or similar communications equipment by means of which all
Persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
(e) Whenever notice is required to be given under this SECTION 7.4, a
waiver of notice, signed by the Member entitled to notice, whether before or
after the time of the meeting, shall be deemed equivalent to notice. A Member's
attendance at a meeting shall constitute a waiver of notice of that meeting,
except when the Member attends a meeting for the express purposes of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
(f) Each Member entitled to vote at a meeting or to express consent
or dissent to any Company action in writing without a meeting may authorize
another Person to act for him by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support and irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the Interest itself or an interest in the Company generally.
(g) Successors in interest to Members who have not been admitted as
substitute Members (and the Shares attributable to the Interests to which they
have succeeded) shall be ignored in determining whether any percentage required
by this SECTION 7.4.
(h) Each Member shall be entitled to notice in accordance with the
provisions of SECTION 7.4 of any meeting of the Members and to attend and
participate at any such meeting. If any Member Approval has been obtained by
written action, each Member shall be furnished promptly with a copy of the
writing by which such Member Approval was given.
8. TRANSFERS OF INTERESTS
8.1 GENERAL RESTRICTION. No Member shall, voluntarily or by operation of
law, sell, assign, pledge, transfer or otherwise dispose of all or any interest
in its Units except in accordance with all the provisions of this SECTION 8.
The Company shall not recognize any Transfer of any or all of any Units, or any
interest therein, except Transfers made in accordance with the terms and
provisions of this Agreement and the By-Laws.
8.2 GENERAL PROVISIONS. Notwithstanding any other provision of this
Agreement:
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(a) Each Transfer may be effected only with the prior written
approval of the Managing Member and with documentation approved in form and
substance by the Company. Such documentation must include an agreement by the
transferee to be bound by all of the terms and provisions of this Agreement
including, without limitation, an acknowledgment and agreement that the Units or
portion of or interest in the Units transferred shall be and remain subject to
the restrictions set forth in this SECTION 8. Such documentation and such other
information as the Company shall reasonably request shall be submitted to the
Company at least ten days prior to any proposed Transfer and such proposed
Transfer may not be effected if the transferor is given written advice by the
Company within ten days after such submission that: (i) additional material or
information is required, (ii) additional assurance of compliance with SECTION
8.3 is required, (iii) the documentation submitted is not satisfactory or
(iv) there has been an adverse determination under SECTION 8.2(c).
(b) Each transferor shall reimburse or cause the reimbursement of the
Company for all expenses incurred by the Company relating to the Transfer,
including, without limitation, all attorney's fees, filing fees and similar
expenses.
(c) No Transfer shall be permitted if, in the opinion of the Managing
Member: (i) the transferee does not have a good reputation as to honesty or
integrity or is reputed to be of a litigious nature, or (ii) has business
interests incompatible or competitive with those of the Company, or (iii) such
Transfer alone or in conjunction with one or more other Transfers, would
(A) result in a violation of applicable securities laws, (B) cause termination
of the Company under Section 708(b)(1)(B) or any other Section of the Code;
(C) cause a decrease, by reason of the application of Section 168 of the Code,
in the amount of annual depreciation otherwise available to the Company; (D)
cause any Member to be considered a fiduciary with respect to any benefit plan
qualified under the Employee Retirement Security Act; or (E) be an event which
would constitute a violation or breach (or with the giving of notice or passage
of time would constitute a violation or breach) of any law, regulation,
ordinance, agreement or instrument by which the Company or any of its property
is bound.
(d) Any Member who voluntarily Transfers or attempts to Transfer any
portion of or interest in its Interest or to effect the admission of a successor
Member if the Managing Member concludes that such a Transfer or admission would
have an adverse impact of the type described in SECTION 8.2 (c)(iii) shall be
liable to the Company, the Managing Member and the Members for any taxes, fines,
damages or losses which may be due from them or the Company or suffered by the
Company, the Managing Member or the Members if such Transfer actually has an
adverse impact of the type described in SECTION 8.2(c)(iii).
(e) Any attempted Transfer which is not made in accordance with, or
which violates any of, the provisions of this SECTION 8, shall be null and void
and have no effect and the Company shall be under no obligation to recognize any
such Transfer.
(f) Any provision of this SECTION 8 may be waived by the Members
other than the Member proposing to make or which has made the Transfer as to
which the waiver is sought.
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If there are no Members hereby authorized to make such waiver, it may be made
upon Member Approval.
(g) Any transferee who receives Units pursuant to a Transfer
permitted by this SECTION 8 shall receive and hold such Units subject to the
terms and provisions of this Agreement and shall be admitted as a Member upon
the satisfaction of all of the provisions of this SECTION 8.
8.3 SECURITIES LAW REPRESENTATIONS AND TRANSFER RESTRICTIONS. Each Member
executing this Agreement represents and warrants to the Company and the other
Members that the Units which were or are to be purchased or otherwise acquired
by such Member have been or will be purchased or acquired for investment for its
own account and not as nominee or agent of a principal undisclosed to the
Company or with a view toward the distribution thereof in a manner which would
require the registration of the offer and sale of Units under the Securities Act
of 1933 (the "Securities Act"). No offer and sale of Units has been registered
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and the rules and regulations promulgated pursuant
thereto. Notwithstanding any other provision of this Agreement, but subject to
express written waiver by the Managing Member in the exercise of its good faith
and reasonable judgment, no Units of a Member may be Transferred without the
registration of the Units under the Securities Act or until the Company shall
have received such legal opinions as the Managing Member in its good faith and
reasonable discretion deems appropriate in light of the facts and circumstances
relating to such proposed Transfer together with such representations,
warranties and indemnifications from the transferor and the transferee as the
Managing Member in its good faith and reasonable discretion deems appropriate to
confirm the accuracy of the facts and circumstances that are the basis for any
such opinion, and to protect the Company and the other Members from any
liability resulting from any such Transfer. Such opinions, representations,
warranties and indemnities may be required to include, without limitation,
assurance that the transaction is exempt under applicable federal and state
securities laws.
8.4 CERTAIN PERMITTED TRANSFERS BY MEMBERS.
(a) Subject to the other provisions of this SECTION 8, a Member may
voluntarily Transfer any or all of its Units to any Permitted Transferee.
(b) Subject to the other provisions of this SECTION 8, any change in
the legal identity of a corporate Member resulting from any merger,
consolidation or other reorganization shall be permitted. In each such case,
the entity resulting from any such merger, consolidation or reorganization shall
receive and hold or continue to hold the Units subject to all of the terms and
provisions of this Agreement.
8.5 LEGENDS. All certificates, if any, issued to certificate Units now or
hereafter owned by the Members shall bear the following legends:
THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
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UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS
REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE
COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF,
EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY
(WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY).
THE INTERESTS EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THE OPERATING AGREEMENT OF
THE COMPANY, AS AMENDED FROM TIME TO TIME. A COPY OF SUCH
AGREEMENT WILL BE PROVIDED TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST DELIVERED TO THE COMPANY.
All certificates evidencing Units hereafter issued to a Member for any reason or
purpose shall, when issued, bear the appropriate legend or legends, as the case
may be.
9. DISSOLUTION OF THE COMPANY AND DISTRIBUTIONS UPON DISSOLUTION
9.1 DISSOLUTION. The Company shall be dissolved upon the occurrence of
any of the following events, whether or not the event would cause a dissolution
under the Act:
(a) a Member Approval in favor of the dissolution of the Company; or
(b) the entry of a decree of judicial dissolution.
Except as specifically stated in this SECTION 9.1, no event that would cause a
dissolution under the Act shall cause a dissolution of the Company.
9.2 NO WITHDRAWAL. Except as expressly provided in this Agreement, no
Member shall have any right to withdraw or resign from the Company. Except as
specifically stated in SECTION 9.1, no event that would constitute withdrawal or
resignation of a Member under the Act shall constitute a withdrawal or
resignation under this Agreement or shall cause a dissolution of the Company.
9.3 ELECTION TO CONTINUE THE COMPANY. Upon an event of dissolution
described in SECTION 9.1, the Company shall be dissolved and wound-up and
liquidated pursuant to ARTICLE 9, unless the holders of at least a majority of
the outstanding Units within 90 days after such event, elect to continue the
Company. In the event the Members elect to continue the Company, the continuing
Company shall operate and shall carry on the business of the Company under this
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Agreement. The continuing Company shall succeed to all rights and assets of the
Company and shall by this Agreement (and without the need for any further act or
instrument) assume the Company's liabilities.
9.4 WINDING-UP AND LIQUIDATION OF THE COMPANY.
(a) Upon an event of dissolution described in SECTION 9.1, the
Managing Member shall (i) deliver to the Secretary of the State of Delaware for
filing a certificate of dissolution in accordance with the Act, and (ii)
diligently proceed to wind-up the affairs of the Company, liquidate its assets
and distribute the assets in accordance with this Agreement. During the time
prior to the liquidation, the Company shall be continued as a continuing limited
liability company bound by the terms of this Agreement, the continuing limited
company shall succeed to all Company assets and liabilities, the business of the
Company shall be continued, and the Board shall have the right to do all acts
authorized by law for the purpose of winding-up the affairs of the Company.
(b) In the event of liquidation of the Company, the Managing Member
shall take the following steps:
(i) first, use its best efforts to sell the business of the
Company as a going concern;
(ii) second, to the extent the business of the Company cannot be
sold in its entirety as a going concern, determine which Company properties
and assets should be distributed in kind, and dispose of all other Company
properties and assets at the best cash price obtainable therefor;
(iii) third, apply Company property to the payment of the debts
and liabilities of the Company, the expenses of liquidation and the
establishment of any reserves deemed necessary by the Managing Member;
(iv) fourth, repay any loans and advances (other than capital
contributions) by Members and all accrued interest thereon; and
(v) fifth, distribute any remaining Company assets to the
Members in accordance with their positive Capital Account balances as
determined pursuant to SECTION 4.1.
If any reserves are established in connection with the foregoing, the Managing
Member may pay over the amounts reserved to an escrow agent to be held by it for
the purposes of disbursing the reserves in payment of any contingencies which
may arise and, at the expiration of any period as the Managing Member considers
advisable, for distribution of the balance of the funds in the same manner and
with the same priorities as are provided in clause 9.4(b)(v). The Members shall
look solely to the assets of the Company for the return of their capital
contributions.
19
<PAGE>
9.5 TIME FOR WINDING-UP. A reasonable time, up to three years, shall be
allowed for the orderly liquidation of assets of the Company and the discharge
of liabilities to creditors so as to enable the Managing Member to minimize the
normal losses attendant upon a liquidation.
9.6 FINAL ACCOUNTING. Each of the Members shall be furnished with a
statement setting forth the assets and liabilities, if any, of the Company as of
the date of the complete liquidation which shall be audited and certified to by
the Company's independent public accountants. Upon the compliance by the
Managing Member with the distribution provisions of this Agreement, the Members
shall cease to be members and the Company shall cease to exist.
10. STANDARD OF CARE
10.1 The Managing Member and any of its directors, officers, stockholders,
employees or Affiliates, any Manager, and any officer or employee of the Company
(each such person, an "Indemnitee") in the performance of his duties, shall be
fully protected in relying in good faith on information, opinions, reports, or
statements, including financial statements, books of account and other financial
data, if prepared or presented by: (i) one or more officers or employees of the
Company; or (ii) legal counsel, public accountants, or other Persons which he
reasonably believes have professional or expert competence.
10.2 No Indemnitee shall be liable for damages to the Company or any
present or former Member with respect to claims relating to his or her conduct
for or on behalf of the Company, except that any of the foregoing Persons shall
be liable to the Company for damages to the extent that it is proved by clear
and convincing evidence (i) that his, her or its conduct was not taken (A) in
good faith, (B) in a manner reasonably believed to be in or not opposed to the
best interests of the Company, or (C) with the care that an ordinarily prudent
Person in a like position would use under similar circumstances; or (ii) with
respect to any criminal action, proceeding or investigation, he or it had no
reasonable cause to believe his or its conduct was unlawful.
10.3 INDEMNIFICATION.
(a) The Company shall 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 shall 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.
20
<PAGE>
(b) Indemnification under this Section 10.3 shall 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 this Section 10.3 shall continue as to an Indemnitee who
has ceased to serve in any capacity on behalf of the Company and shall 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
liability under the provisions of this Section 10.3.
10.4 COSTS AND EXPENSES. Subject to any mandatory requirements of law to
the contrary, any costs and expenses for which indemnification may be provided
hereunder may be paid by the Company in advance of the final disposition of any
action, suit or proceeding upon receipt of an undertaking by or on behalf of an
Indemnitee to repay such costs and expenses if it should ultimately be
determined that such person is not entitled to indemnification under this
Section 10.
11. AMENDMENT OF AGREEMENT
11.1 AMENDMENT BY MANAGING MEMBER. Except as otherwise specifically
provided in this Agreement, the Managing Member may adopt an amendment to this
Agreement to do any one or more of the following:
(a) to implement or effectuate the provisions of any part of this
Agreement or to continue the Company for the term provided herein under the laws
of the State of Delaware and of any state or jurisdiction in which it shall do
business;
(b) to take any action, on the advice of counsel to the Company, as
may be necessary or appropriate to satisfy then current requirements of the Code
with respect to partnerships or limited liability companies that have been
structured to be classified as partnerships under the Code or any applicable
laws or regulations; or
(c) to cure any ambiguity, defect or inconsistency.
21
<PAGE>
All Members shall be furnished with a copy of such amendment prior to its
adoption.
11.2 OTHER AMENDMENTS. Except as specifically provided in SECTION 11.1 or
otherwise in this Agreement:
(a) all amendments to this Agreement shall require Member Approval;
(b) Any amendment that would increase a Member's obligation to make
contributions to the capital of the Company or further limit a Member's ability
to hold or make a Transfer of his, her or its Units, shall be effective with
respect to a Member only if the Member does not act to disapprove the amendment
by returning, within 30 days after the request is made, an executed counterpart
of a proposed consent to the amendment, indicating his disapproval of such
action.
11.3 EXECUTION OF AMENDMENTS. Each Member shall execute all documents and
instruments necessary to evidence his or its approval of all actions, including,
without limitation, amendments to this Agreement, taken or authorized by the
Members as provided in this Agreement.
12. POWER OF ATTORNEY
12.1 GRANT OF POWER. Each Member hereby irrevocably makes, constitutes and
appoints the Managing Member, his, her or its true and lawful attorney in his,
her or its name, place and stead, with full power of substitution and
resubstitution, and with the power from time to time to substitute or
resubstitute one or more others as such attorney, to make, execute, swear to,
acknowledge, verify, deliver, file, record and publish any or all of the
following:
(a) All documents, certificates or other instruments (including,
without limitation, fictitious name certificates and trade name certificates)
which may be required to be filed by the Company under the laws of the State of
Delaware or of any other state or jurisdiction in which the Company shall
transact business or in which the Managing Member shall deem it advisable to
file.
(b) All documents, certificates or other instruments which may be
required or deemed advisable by the Managing Member to do all such things as
shall be necessary to continue the Company under the laws of the State of
Delaware and of any state or jurisdiction in which it shall do business;
(c) Amendments to this Agreement authorized or approved in accordance
with other provisions of this Agreement and all documents, certificates or other
instruments deemed necessary by the Managing Member;
(d) All documents, certificates or other instruments which may be
required to effectuate, or evidence all the Members' consent to, approval of,
and agreement with, any action taken or authorized pursuant to the terms of this
Agreement; and
22
<PAGE>
(e) All documents, consents and waivers required to retain
professional services, including accounting and legal counsel, for the Company
(including, without limitation, the waiver on behalf of the Company and each of
the Members of any conflict arising from such professionals' representation of
another client on matters in which the interests of the Company, any Member, or
any Affiliate of the Company or any Member may be adverse to such other client).
12.2 IRREVOCABLE NATURE. It is expressly intended by each Member that the
foregoing power of attorney is a special power of attorney coupled with an
interest in favor of each of those appointed as attorney-in-fact on his or its
behalf, and as such shall be irrevocable and shall survive such Member's death,
incompetence (including an adjudication of insanity) or, in the case of a Member
which is not a natural person, its merger, liquidation, dissolution or other
termination of existence.
12.3 TRANSFER OF INTERESTS. The foregoing power of attorney shall
survive the delivery of an instrument of transfer by any Member of the whole
or any portion of or interest in his Interest, except that where a transferee
of such Interest has been approved as a substituted Member and the transferor
shall thereupon cease being a Member, all in accordance with this Agreement,
then the foregoing power of attorney of the transferor Member shall survive
the delivery of such instrument of transfer for the sole purpose of enabling
the attorneys-in-fact for such transferor Member, or any of such
attorneys-in-fact, to execute, swear to, acknowledge and file any and all
instruments necessary to effectuate such Transfer and substitution or
succession.
13. MISCELLANEOUS
13.1 NOTICES. All notices to the Company shall be sent by personal
delivery, confirmed facsimile or recognized overnight courier, addressed to the
Company at the Company's principal place of business. All notices to a Member
shall be sent by personal delivery, confirmed facsimile or recognized overnight
courier addressed to such Member at the address as may be specified by the
Member from time to time in a notice to the Company. All notices shall be deemed
received upon receipt.
13.2 WAIVER. Each of the Members hereby irrevocably waives any and all
rights, duties, obligations and benefits with respect to any action for
partition of Company property or to compel any sale or appraisal thereof or any
deceased Member's interest therein. Further, all rights, duties, benefits and
obligations including inventory and appraisal of the Company assets or sale of a
deceased Member's interest therein, provision for which is made in the laws of
Delaware, or on account of the operation of any other rule or law of any other
jurisdiction to compel any sale or appraisal of Company assets or sale or
appraisal of a deceased Member's interest therein, are hereby waived and
dispensed with and the Interest of a deceased Member shall be subject to the
provisions of this Agreement.
13.3 NOTICE OF TAX EXAMINATIONS. Any Member receiving advice that the
Service intends to examine any income tax return of the Company shall promptly
notify the other Members.
23
<PAGE>
13.4 WHOLE AGREEMENT. This Agreement and any other agreements referenced
herein contain the entire understanding between the parties and supersede any
prior understanding and agreements between them respecting the within subject
matter. There are no agreements, arrangements or understandings, oral or
written, between and among the parties hereto relating to the subject matter of
this Agreement which are not set forth or expressly referred to herein.
13.5 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the internal laws of the State of Delaware without giving effect
to its rules concerning conflicts of laws.
13.6 BINDING NATURE. Except as otherwise provided in this Agreement, this
Agreement shall be binding upon and inure to the benefit of the Members and
their successors, personal representatives, heirs, devisees, guardians and
assigns.
13.7 INVALIDITY. In the event that any provision of this Agreement shall
be held to be invalid, the validity of the remaining provisions of the Agreement
shall not in any way be affected thereby.
13.8 COUNTERPARTS; FURTHER DOCUMENTS. This Agreement and any amendment may
be executed in multiple counterparts, each of which shall be deemed an original
and all of which shall constitute one agreement or amendment, as the case may
be, notwithstanding that all of the parties are not signatories to the original
or the same counterpart, or that signature pages from different counterparts are
combined, and the signature of any party to any counterpart shall be deemed to
be a signature to and may be appended to any other counterpart. At any time or
times upon the request of the Managing Member, the parties agree to sign, swear
to and/or acknowledge certificates or affidavits to certificates or statements
of fictitious name, trade name or the like (and any amendments or cancellations
thereof) required by the laws of or applicable to any jurisdiction in which the
Company does or proposes to do business, or deemed necessary by the Board; and
to cause the filing of any of the same for record wherever such filing shall be
required by law.
13.9 CONSTRUCTION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. All personal pronouns used in this Agreement, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. Unless otherwise specifically
stated, references to Sections, Subsections, Articles, or Appendices refer to
the Sections, Subsections, Articles, and Appendices of this Agreement.
24
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first above written.
EPIC MEMBERSHIP CORP.
By:
---------------------------------
Name:
Title:
------------------------------------
Thomas F. Flatley
<PAGE>
SCHEDULE 3.1
MEMBERS
<TABLE>
<CAPTION>
STATE OF
NAME RESIDENCE/ ADDRESS INITIAL
ORGANIZATION SHARE
<S> <C> <C> <C>
Epic Membership Corp. Delaware 1%
Thomas F. Flatley Pennsylvania 99%
</TABLE>
<PAGE>
EXHIBIT 3.3
EPIC RESORTS, LLC
BY-LAWS
<PAGE>
EPIC RESORTS, LLC
BY-LAWS
ARTICLE I
NOTICES
Section 1. GENERALLY. Whenever by law or under the provisions of the
Certificate of Formation, the Operating Agreement or these by-laws, notice is
required to be given to any manager or member, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such manager or member, at his address as it appears on the records of the
Company, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to managers may also be given by telegram or telephone.
Section 2. WAIVERS. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Formation, the Operating Agreement or
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to such notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
ARTICLE II
OFFICERS
Section 1. GENERALLY. The officers of the Company shall be elected by the
Managing Member and shall consist of a President, a Secretary and a Treasurer.
The Managing Member may also choose any or all of the following: one or more
Vice Presidents, a Controller, a General Counsel and one or more Assistant
Secretaries and Assistant Treasurers. Any number of offices may be held by the
same person.
Section 2. COMPENSATION. The compensation of all officers and agents of
the Company who are also managers of the Company shall be fixed by the Managing
Member. The Managing Member may delegate the power to fix the compensation of
other officers and agents of the Company to an officer of the Company.
Section 3. SUCCESSION. The officers of the Company shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Managing Member may be removed at any time by the Managing
Member. Any vacancy occurring in any office of the Company may be filled by the
Managing Member.
Section 4. AUTHORITY AND DUTIES. Each of the officers of the Company
shall have such authority and shall perform such duties as are customarily
incident to their respective offices, or as may be specified from time to time
by the Managing Member in a resolution which is not inconsistent with these
by-laws.
Section 5. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO OTHER
COMPANIES. The President shall have and is hereby given, full power and
authority, except as otherwise required by law or directed by the Managing
Member, (a) to execute, on behalf of the Company, all duly authorized contracts,
agreements, deeds, conveyances or other obligations of the Company,
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<PAGE>
applications, consents, proxies and other powers of attorney, and other
documents and instruments, and (b) to vote and otherwise act on behalf of the
Company, in person or by proxy, at any meeting of stockholders (or with respect
to any action of such stockholders) of any other company in which the Company
may hold securities and otherwise to exercise any and all rights and powers
which the Company may possess by reason of its ownership of securities of such
other company. In addition, the President may delegate to other officers,
employees and agents of the Company the power and authority to take any action
which the President is authorized to take under this Section 5, with such
limitations as the President may specify; such authority so delegated by the
President shall not be re-delegated by the person to whom such execution
authority has been delegated.
ARTICLE III
UNITS
Section 1. CERTIFICATES. Certificates representing Units of the Company
shall be in such form as shall be determined by the Managing Member, subject to
applicable legal requirements. Such certificates shall be numbered and their
issuance recorded in the books of the Company, and such certificate shall
exhibit the holder's name and the number of Units and shall be signed by, or in
the name of the Company by the President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Company. Any or all
of the signatures and the seal of the Company, if any, upon such certificates
may be facsimiles, engraved or printed. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Company with the same effect as if he were such officer at the date of issue.
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<PAGE>
Section 2. TRANSFER. Upon surrender to the Company or the transfer agent
of the Company of a certificate for Units duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Company to issue, or to cause its transfer agent to issue, a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen or destroyed upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen or destroyed. As a condition precedent to the issuance of a
new certificate or certificates the Secretary may require the owner of such
lost, stolen or destroyed certificate or certificates to give the Company a bond
in such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Company with respect
to the certificate alleged to have been lost, stolen or destroyed or the
issuance of the new certificate.
ARTICLE IV
AMENDMENTS
Section 1. AMENDMENTS. These by-laws may be altered, amended or repealed,
or new by-laws may be adopted, by the Managing Member or the holders of 66 2/3%
of the outstanding Units.
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<PAGE>
EPIC RESORTS, LLC
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - NOTICES
Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - OFFICERS
Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Compensation . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Succession . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Authority and Duties . . . . . . . . . . . . . . . . . . . 2
Section 5. Execution of Documents and Action with Respect
to Securities of Other Corporations. . . . . . . . . . . . 2
ARTICLE III - UNITS
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Lost, Stolen or Destroyed Certificates . . . . . . . . . . 4
ARTICLE IV - AMENDMENTS
Section 1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
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<PAGE>
Exhibit 3.4
CERTIFICATE OF INCORPORATION
OF
EPIC CAPITAL CORP.
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby certify as follows:
FIRST: The name of the corporation (the "Corporation") is EPIC
CAPITAL CORP.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is One Hundred (100) shares of Common Stock, par value of
$0.01 per share.
FIFTH: To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws presently or hereafter in
effect, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Corporation. Any
repeal or modification of this Article Fifth shall not adversely affect any
right or protection of a director of the Corporation existing immediately prior
to such repeal or modification.
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<PAGE>
SIXTH: In furtherance and not in limitation of the rights, powers,
privileges and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to make, alter,
amend or repeal the by-laws of the Corporation, without any action on the part
of the stockholders, but the stockholders may make additional by-laws and may
alter, amend or repeal any by-law whether adopted by them or otherwise. The
Corporation may in its by-laws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
SEVENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
this reservation.
EIGHTH: The name and mailing address of the incorporator is Thomas F.
Flatley, 1150 First Avenue, Suite 900, King of Prussia, Pennsylvania..
NINTH: Pursuant to Section 103(d) of the General Corporation Law of
the State of Delaware, this Certificate of Incorporation shall become effective
on the 26th day of June, 1998.
IN WITNESS WHEREOF, I the undersigned, being the incorporator
hereinabove named, do hereby execute this Certificate of Incorporation this 26th
day of June, 1998.
/s/ Thomas F. Flatley
--------------------------------
Thomas F. Flatley
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<PAGE>
Exhibit 3.5
EPIC CAPITAL CORP.
BY-LAWS
<PAGE>
EPIC CAPITAL CORP.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . .1
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .1
Section 4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . .2
Section 5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 6. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II - DIRECTORS
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2. Number and Term of Office. . . . . . . . . . . . . . . . . . . .3
Section 3. Vacancies and New Directorships. . . . . . . . . . . . . . . . .4
Section 4. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . .4
Section 5. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .4
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 7. Written Action . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 8. Participation in Meetings by
Conference Telephone . . . . . . . . . . . . . . . . . . . . .5
Section 9. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 11. Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE III - NOTICES
Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV - OFFICERS
Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 2. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 3. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4. Authority and Duties . . . . . . . . . . . . . . . . . . . . . .8
Section 5. Execution of Documents and Action with
Respect to Securities of Other
Corporations . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE V - STOCK
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 2. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . .9
ARTICLE VI - GENERAL PROVISIONS
Section 1. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3. Reliance upon Books, Reports
and Records . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII - AMENDMENTS
Section 1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE>
EPIC CAPITAL CORP.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, within or without the State of Delaware, as may
be designated by the Board of Directors, or by the Chairman of the Board, the
President or the Secretary in the absence of a designation by the Board of
Directors, and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders,
shall be held at such date and time as shall be designated from time to time
by the Board of Directors, at which meeting the stockholders shall elect by a
plurality vote the directors to succeed those whose terms expire and shall
transact such other business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by Certificate
of Incorporation, may be called by the Board of Directors or the President,
and shall be called by the President or the Secretary at the request in
writing of stockholders owning a majority in interest of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall be sent to the President and the Secretary and shall state the
purpose or purposes of the proposed meeting.
<PAGE>
Section 4. NOTICE OF MEETINGS. Written notice of every meeting of the
stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned
to another place, date or time, written notice need not be given of the
adjourned meeting if the place, date and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have
been transacted at the original meeting.
Section 5. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
Section 6. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the
Corporation on the record date for the meeting and such votes may be cast
either in
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<PAGE>
person or by written proxy. Every proxy must be duly executed and filed with
the Secretary of the Corporation. A stockholder may revoke any proxy which
is not irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or another duly executed proxy
bearing a later date with the Secretary of the Corporation. The vote upon
any question brought before a meeting of the stockholders may be by voice
vote, unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at
such meeting shall so determine. Every vote taken by written ballot shall be
counted by one or more inspectors of election appointed by the Board of
Directors. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock which has voting power present in person or
represented by proxy and which has actually voted shall decide any question
properly brought before such meeting, unless the question is one upon which
by express provision of law, the Certificate of Incorporation or these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
ARTICLE II
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of its Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
Section 2. NUMBER AND TERM OF OFFICE. The Board of Directors shall
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or
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<PAGE>
by the stockholders at the annual meeting or a special meeting. The
directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 3 of this Article, and each director elected shall
hold office until his successor is elected and qualified, except as required
by law. Any decrease in the authorized number of directors shall not be
effective until the expiration of the term of the directors then in office,
unless, at the time of such decrease, there shall be vacancies on the Board
which are being eliminated by such decrease.
Section 3. VACANCIES AND NEW DIRECTORSHIPS. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors which occur between annual meetings of the stockholders may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so elected shall
hold office until the next annual meeting of the stockholders and until their
successors are elected and qualified, except as required by law.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from
time to time be determined by the Board of Directors.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on one
day's written notice to each director by whom such notice is not waived,
given either personally or by mail or telegram, and shall be called by the
President or the Secretary.
Section 6. QUORUM. At all meetings of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of
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<PAGE>
Directors, the directors present thereat may adjourn the meeting from time to
time to another place, time or date, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 7. WRITTEN ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes or proceedings of the Board or Committee.
Section 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
such committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 9. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation
and each to have such lawfully delegable powers and duties as the Board may
confer. Each such committee shall serve at the pleasure of the Board of
Directors. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. Except as otherwise provided by law, any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Any committee or committees so designated
by the Board shall have such name or names as may be determined
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<PAGE>
from time to time by resolution adopted by the Board of Directors. Unless
otherwise prescribed by the Board of Directors, a majority of the members of
the committee shall constitute a quorum for the transaction of business, and
the act of a majority of the members present at a meeting at which there is a
quorum shall be the act of such committee. Each committee shall prescribe
its own rules for calling and holding meetings and its method of procedure,
subject to any rules prescribed by the Board of Directors, and shall keep a
written record of all actions taken by it.
Section 10. COMPENSATION. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, directors for
attendance at meetings of the Board of Directors or committees, or for other
services by directors to the Corporation, as the Board of Directors may
determine.
Section 11. RULES. The Board of Directors may adopt such special rules
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law
or these by-laws.
ARTICLE III
NOTICES
Section 1. GENERALLY. Whenever by law or under the provisions of the
Certificate of Incorporation or these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
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<PAGE>
Section 2. WAIVERS. Whenever any notice is required to be given by law
or under the provisions of the Certificate of Incorporation or these by-laws,
a waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to
be given, shall be deemed equivalent to such notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a President, a Secretary and a
Treasurer. The Board of Directors may also choose any or all of the
following: a Chairman of the Board of Directors, one or more Vice Presidents,
a Controller, a General Counsel and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices may be held by the same person.
Section 2. COMPENSATION. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed
by the Board of Directors. The Board of Directors may delegate the power to
fix the compensation of other officers and agents of the Corporation to an
officer of the Corporation.
Section 3. SUCCESSION. The officers of the Corporation shall hold
office until their successors are elected and qualified. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in
any office of the Corporation may be filled by the Board of Directors.
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<PAGE>
Section 4. AUTHORITY AND DUTIES. Each of the officers of the
Corporation shall have such authority and shall perform such duties as are
customarily incident to their respective offices, or as may be specified from
time to time by the Board of Directors in a resolution which is not
inconsistent with these by-laws.
Section 5. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO SECURITIES
OF OTHER CORPORATIONS. The President shall have and is hereby given, full
power and authority, except as otherwise required by law or directed by the
Board of Directors, (a) to execute, on behalf of the Corporation, all duly
authorized contracts, agreements, deeds, conveyances or other obligations of
the Corporation, applications, consents, proxies and other powers of
attorney, and other documents and instruments, and (b) to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
stockholders (or with respect to any action of such stockholders) of any
other corporation in which the Corporation may hold securities and otherwise
to exercise any and all rights and powers which the Corporation may possess
by reason of its ownership of securities of such other corporation. In
addition, the President may delegate to other officers, employees and agents
of the Corporation the power and authority to take any action which the
President is authorized to take under this Section 7, with such limitations
as the President may specify; such authority so delegated by the President
shall not be re-delegated by the person to whom such execution authority has
been delegated.
ARTICLE V
STOCK
Section 1. CERTIFICATES. Certificates representing shares of stock of
the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable
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<PAGE>
legal requirements. Such certificates shall be numbered and their issuance
recorded in the books of the Corporation, and such certificate shall exhibit
the holder's name and the number of shares and shall be signed by, or in the
name of the Corporation by the President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Any
or all of the signatures and the seal of the Corporation, if any, upon such
certificates may be facsimiles, engraved or printed.
Section 2. TRANSFER. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that
fact, satisfactory to the Secretary, by the person claiming the certificate
of stock to be lost, stolen or destroyed. As a condition precedent to the
issuance of a new certificate or certificates the Secretary may require the
owner of such lost, stolen or destroyed certificate or certificates to give
the Corporation a bond in such sum and with such surety or sureties as the
Secretary may direct as indemnity against any claims that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed or the issuance of the new certificate.
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<PAGE>
ARTICLE VI
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed from time to time by the Board of Directors.
Section 2. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal and use the same by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the records of the Corporation
and upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees
of the Board of Directors, or by any other person as to matters the director,
committee member or officer believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation.
Section 4. TIME PERIODS. In applying any provision of these by-laws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded and the day of the event shall be included.
Section 5. DIVIDENDS. The Board of Directors may from time to time
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by
law and the Certificate of Incorporation.
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<PAGE>
ARTICLE VII
AMENDMENTS
Section 1. AMENDMENTS. These by-laws may be altered, amended or
repealed, or new by-laws may be adopted, by the stockholders or by the Board
of Directors.
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<PAGE>
EXHIBIT 3.6
[FORM OF CERTIFICATE OF FORMATION OF EPIC RESORTS, LLC'S SUBSIDIARY LLCS]
CERTIFICATE OF FORMATION
OF
LIMITED LIABILITY COMPANY
FIRST: The name of the limited liability company is:
[name]
SECOND: The address of the Company's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of the Company's registered agent at
such address is The Corporation Trust Company.
THIRD: The sole member of [name of the Subsidiary LLC] is Epic Resorts, LLC.
IN WITNESS WHEREOF, the undersigned has executed, signed and acknowledged this
Certificate of Formation this 26th day of June, 1998.
EPIC RESORTS, LLC
By: /s/ Thomas F. Flatley
-------------------------------
Name: Thomas F. Flatley
Its: President and Sole Member
<PAGE>
EXHIBIT 3.7
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM OF OPERATING AGREEMENT
OF
EPIC RESORTS, LLC SUBSIDIARIES
Dated as of ______, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. FORMATION AND GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4. PRINCIPAL OFFICE; REGISTERED AGENT AND REGISTERED OFFICE. . . . . . . . . . . .1
4.1 Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4.2 Registered Agent and Registered Office . . . . . . . . . . . . . . . . . .2
5. FICTITIOUS BUSINESS NAME STATEMENT; OTHER CERTIFICATES. . . . . . . . . . . . .2
6. CONTRIBUTIONS AND MEMBERSHIP INTEREST . . . . . . . . . . . . . . . . . . . . .2
6.1 Initial Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
6.2 Additional Members . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
7. MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
7.1 Management by Member . . . . . . . . . . . . . . . . . . . . . . . . . . .2
7.2 Officers of the Company. . . . . . . . . . . . . . . . . . . . . . . . . .4
7.3 Duties of the Officers . . . . . . . . . . . . . . . . . . . . . . . . . .4
7.4 Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8. PROFIT AND LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
9. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
9.1 Limitation on Distributions. . . . . . . . . . . . . . . . . . . . . . . .6
9.2 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
10. COMPANY EXPENSES; RESERVES. . . . . . . . . . . . . . . . . . . . . . . . . . .6
10.1 Company Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
10.2 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
i
<PAGE>
11. DISSOLUTION AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . .6
11.1 Time for Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . .6
11.2 No Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
11.3 Disposition of Assets Upon Dissolution . . . . . . . . . . . . . . . . . .7
12. ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
12.1 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
12.2 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
12.3 Tax Returns and Elections. . . . . . . . . . . . . . . . . . . . . . . . .7
13. BANK ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
14. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
15. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
16. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
16.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
16.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
16.3 Additional Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.1 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.2 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.3 Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.4 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.5 Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.6 Legal Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.7 This Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17.8 Non-Exclusive Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 10
17.9 No Third Party Beneficiary Rights . . . . . . . . . . . . . . . . . . . 10
17.10 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
17.11 Language. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<PAGE>
OPERATING AGREEMENT
OF
EPIC RESORTS - WESTPARK RESORT, LLC
Dated as of July 7, 1998
This OPERATING AGREEMENT (the "Agreement") is made and entered into
effective as of the 7th day of July, 1998, by Epic Resorts, LLC (the "Member")
and Epic Resorts - Westpark Resort, LLC (the "Company").
1. FORMATION AND GENERAL
1.1 FORMATION. The Member has formed the Company as a limited liability
company pursuant to the Delaware Limited Liability Company Act (the "Act").
1.2 NAME. The name of the Company shall for all purposes be "Epic Resorts
- - Westpark Resort, LLC." The Member may change the name of the Company or adopt
such trade or fictitious names as it may determine is appropriate.
1.3 DEFINED TERMS. Reference is hereby made to SECTION 16 of this
Agreement for the definition of certain capitalized terms used herein.
2. TERM
The term of the Company commenced on the date of filing and recording of
the Certificate of Formation with the appropriate Delaware authorities, as
required by the Act, and shall continue until terminated as provided in
SECTION 11.
3. PURPOSE
The purpose and business of the Company shall be to engage in any lawful
act or activity for which limited liability companies may be organized under the
Act.
4. PRINCIPAL OFFICE; REGISTERED AGENT AND REGISTERED
OFFICE
4.1 PRINCIPAL OFFICE. The principal office and place of business of the
Company shall be located at 1150 First Avenue, Suite 900, King of Prussia,
Pennsylvania 19406. The Member may from time to time change such principal
office and place of business or may change or establish such additional offices
or places of business of the Company as it may deem necessary or appropriate.
<PAGE>
4.2 REGISTERED AGENT AND REGISTERED OFFICE. The name of the Company's
initial registered agent for service of process in Delaware shall be CT
Corporation and the address of the initial registered office and initial
registered agent shall be 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801.
5. FICTITIOUS BUSINESS NAME STATEMENT; OTHER CERTIFICATES
The Member shall, from time to time, register the Company as a foreign
limited liability company and file such fictitious or trade name statements or
certificates in such jurisdictions and offices as the Member considers necessary
or appropriate. The Company may do business under any fictitious business names
deemed desirable by the Member. The Member shall, from time to time, file or
cause to be filed such certificates of amendment, certificates of cancellation,
or other certificates as it reasonably deems necessary under the Act or under
the laws of any jurisdiction in which the Company is doing business to establish
and continue the Company as a limited liability company or to protect the
limited liability of the Member.
6. CONTRIBUTIONS AND MEMBERSHIP INTEREST
6.1 INITIAL CAPITAL. Upon the formation of the Company, the Member has
made such initial capital contribution to the Company as it deemed appropriate
in consideration for 100% of the membership interests in the Company.
6.2 ADDITIONAL MEMBERS. The Company shall be a single member limited
liability company unless and until additional members are admitted, in which
event this Agreement shall be appropriately amended.
7. MANAGEMENT
7.1 MANAGEMENT BY MEMBER. The management of the affairs of the Company
shall be vested in the Member. The Member shall be solely responsible for the
management and operation of the Company's business, and shall have full,
exclusive and complete discretion in the management and control of the affairs
of the Company and the Company's business for the purposes set forth in SECTION
3. The power and authority of the Member to make decisions with respect to the
business and affairs of the Company and to take such action for and on behalf of
the Company as it deems necessary or appropriate to enable the Company to carry
out its purposes as set forth herein, shall include without limitation, full and
complete power to, and the Member is expressly authorized on behalf of the
Company to:
(a) perform any and all acts necessary or appropriate to the improvement,
management and operation of the Business;
(b) commence, defend or settle any or all litigation, arbitration or other
proceedings regarding the Company, or any aspect thereof;
2
<PAGE>
(c) establish bank accounts in which shall be deposited Company funds and
from which payments shall be made;
(d) purchase contracts of liability, casualty, title, errors and omissions
and other insurance which the Member in its sole discretion deems necessary or
advisable for the protection of the assets and affairs of the Company or for any
purpose convenient or beneficial to the Company;
(e) take and hold all property of the Company (real, personal and mixed)
in the Company name, or in the name of a nominee, trustee or agent of the
Company;
(f) lease, sell, mortgage, pledge, assign, exchange, transfer or otherwise
dispose of all or any portion of the Company's assets;
(g) borrow money, whether on a secured or unsecured basis, or refinance
any loan to the Company;
(h) execute and deliver on behalf of and in the name of the Company, or in
the name of a nominee of the Company, deeds, deeds of trust, deeds to secure
debt, notes, leases, subleases, mortgages, bills of sale, financing statements,
security agreements, easements and any and all other instruments necessary or
incidental to the conduct of the Company's business and financing thereof;
(i) contract for and coordinate all accounting and clerical functions of
the Company and employ such accountants, lawyers, and other management or
service personnel as may from time to time be required to carry on the business
of the Company;
(j) collect all revenue accruing to the Company and to pay all
indebtedness and other obligations of the Company and costs of operation and
maintenance of the assets of the Company;
(k) pay all taxes, assessments, rents and other impositions applicable to
the assets of the Company and undertake when appropriate any action or
proceeding seeking to reduce such taxes, assessments, rents or other
impositions;
(l) prepare, or have prepared, and file all tax returns for the Company;
(m) perform any and all other obligations provided elsewhere in this
Agreement to be performed by the Member; and
(n) otherwise provide for the management of the Company on such terms as
the Member shall determine in the exercise of its reasonable discretion.
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7.2 OFFICERS OF THE COMPANY.
(a) INITIAL OFFICERS / DUTIES. The initial Officers of the Company
shall be as follows:
OFFICERS
Thomas F. Flatley - President
Scott J. Egelkamp - Secretary and Treasurer
The Company may have such additional Officers as are appointed, from time to
time, by the Member. Officers of the Company shall have such duties and
responsibilities as may be granted from time to time by the Board.
(b) TERMS OF SERVICE. Each Officer shall serve until the earlier of
his or her death, resignation or removal. An Officer may be removed at any time
by the Member. Any Officer may resign at any time by delivering his or her
written resignation to the Member.
7.3 DUTIES OF THE OFFICERS. In addition to obligations imposed by other
provisions of this Agreement, each Officer shall devote to the Company such time
as is reasonably necessary and its best efforts in carrying out the business of
the Company in order to accomplish its purposes. The Officers shall have the
authority, responsibilities and duties as are customary for officers holding
similar positions with respect to businesses conducted in corporate form and
such additional authority, responsibilities and duties as the Board may
delegate, from time to time, to the Officers. In addition, the Officers, on
behalf of the Company and at the expense of the Company, shall:
(a) execute, acknowledge and certify all documents and instruments
and take or cause to be taken all actions which may be necessary or appropriate
(i) for the continuation of the Company's valid existence as a limited liability
company under the laws of the State of Delaware and of each other jurisdiction
in which such existence is necessary to protect the limited liability of the
Member, (ii) to effectuate the provisions of this Agreement or (iii) to enable
the Company to conduct its business;
(b) to the extent reasonably deemed necessary or appropriate by the
Board, cause all persons dealing with the Company, the Board or any Officer,
agent or employee of the Company acting on behalf of the Company, to be aware of
the character of the Company as an Delaware limited liability company;
(c) conduct the affairs of the Company in compliance with the
applicable laws and in the best interests of the Company and of the Member;
(d) not permit the use of Company funds or assets for other than the
benefit of the Company and of the Member;
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(e) arrange for the preparation of all necessary informational
federal income tax forms on behalf of the Company and for the preparation and
filing of any and all state and local income and franchise tax returns required
to be filed by the Company;
(f) obtain and maintain on behalf of the Company such all-risk,
public liability, workmen's compensation, Officers' liability, fidelity, forgery
and other insurance, if any, as may be available on commercially reasonable
terms and as may be deemed necessary or appropriate by the Board;
(g) hold all Company property in the Company name or, in the case of
cash or cash equivalents, in one or more depository accounts as to which the
Company is a beneficial owner; and
(h) use reasonable efforts not to cause the Company to incur debts or
other liabilities obligations beyond the Company's ability to pay such
liabilities.
7.4 STANDARD OF CARE.
(a) The Member or any director, officer, partner, employee,
beneficiary, trustee or affiliate of the Member serving on behalf of the
Company, any Manager, and any Officer or employee of the Company in the
performance of his, her or its duties, shall be fully protected in relying in
good faith on information, opinions, reports, or statements, including financial
statements, books of account and other financial data, if prepared or presented
by: (i) one or more Officers or employees of the Company; or (ii) legal counsel,
public accountants, or other persons which he, she or it reasonably believes
have professional or expert competence.
(b) Neither the Member nor any director, officer, partner, employee,
beneficiary, trustee or affiliate of the Member serving on behalf of the
Company, nor any Manager thereof shall be liable for damages to the Company or
the Member with respect to claims relating to his, her or its conduct for or on
behalf of the Company, except that any of the foregoing persons shall be liable
to the Company for damages to the extent that it is proved by clear and
convincing evidence (i) that his, her or its conduct was not taken (A) in good
faith, (B) in a manner reasonably believed to be in or not opposed to the best
interests of the Company, or (C) with the care that an ordinarily prudent person
in a like position would use under similar circumstances; or (ii) with respect
to any criminal action, proceeding or investigation, he, she or it had no
reasonable cause to believe his or its conduct was unlawful.
8. PROFIT AND LOSS
All profits and losses of the Company shall be allocated to the Member and
treated as the profits and losses of the Member.
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9. DISTRIBUTIONS
9.1 LIMITATION ON DISTRIBUTIONS.
(a) The Company shall not make any distribution of cash, except to
the extent that the Company then has cash available in excess of the sum of
(i) amounts required to pay or make provision for all Company expenses, plus
(ii) all reserves that are considered necessary or appropriate by the Member.
To the extent that the Member reasonably foresees that the Company will receive
cash or other consideration to satisfy liabilities not yet due and payable, the
Company shall not be required to establish reserves or make other provision to
satisfy such liabilities prior to making distributions under this SECTION 9.
(b) Distributions of cash shall only be made to the extent cash is
available to the Company without requiring (i) the sale of Company assets or the
pledge of Company assets at a time or on terms that the Member believes are not
in the best interests of the Company or (ii) a reduction in reserves that the
Board believes are necessary or desirable for working capital or other Company
purposes.
(c) Anything in this Agreement to the contrary notwithstanding, the
Company shall not make any distribution of cash or other property to the Member
pursuant to any provision of this Agreement if such distribution would be in
violation of any loan or credit agreement to which the Company is a party or by
which it is bound.
9.2 DISTRIBUTIONS. Subject to SECTION 9.1, prior to the commencement of
liquidation and winding up, the Member may, in its sole discretion, make
distributions of cash to the Member.
10. COMPANY EXPENSES; RESERVES
10.1 COMPANY EXPENSES. The Company shall be responsible for paying all
costs and expenses of acquiring, holding, owning, financing, selling, improving,
maintaining and operating the business. In the event any such costs and
expenses are or have been paid by the Member on behalf of the Company, then the
Member shall be entitled to be reimbursed for such payment or expense as long as
such payment is reasonably necessary for Company business and is reasonable in
amount.
10.2 RESERVES. The Company shall endeavor to maintain cash reserves for
operating expenses, capital expenditures, repairs, replacements and
contingencies and related items in such amounts as the Member in its sole
discretion deems necessary or advisable.
11. DISSOLUTION AND TERMINATION
11.1 TIME FOR DISSOLUTION. The Company shall be dissolved and its business
wound up, upon the earliest to occur of:
(a) the Member's determination that the Company should be dissolved;
or
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(b) the sale of all or substantially all of the Company's assets.
11.2 NO RELEASE. It is understood and agreed that the dissolution of the
Company shall not release or relieve any party hereto of its obligations under
this Agreement.
11.3 DISPOSITION OF ASSETS UPON DISSOLUTION. Upon any dissolution of the
Company, the Member shall take full account of the Company assets and
liabilities, shall liquidate the assets as promptly as is consistent with
obtaining the fair value thereof and the proceeds from such liquidation shall be
distributed, or the assets distributed in kind if the Member so elects, to the
Member. Notwithstanding the foregoing, if the Member determines that an
immediate sale or disposition of part or all of the Company assets would cause
undue loss to the Member, the Member, in order to avoid such loss, may, after
having given notification to the Member, either defer liquidation of and
withhold from distribution for a period determined by it any assets of the
Company except those necessary to satisfy the Company's debts and obligations,
or distribute the assets to the Member in kind.
12. ACCOUNTING
12.1 FISCAL YEAR. The fiscal year of the Company shall be the calendar
year.
12.2 BOOKS AND RECORDS. The Officers shall keep, or cause to be kept, full
and accurate records of all transactions of the Company. All of the books of
account of the Company shall, at all times, be maintained in the principal
office of the Company, and shall be open during reasonable business hours for
the reasonable inspection and examination by the Member or its authorized
representatives, who shall have the right to make copies thereof.
12.3 TAX RETURNS AND ELECTIONS. The Officers shall take such steps, if
any, as may be necessary to cause the Company to be disregarded as a separate
entity for federal income tax purposes pursuant to Treasury Regulation
301.7701-3, or any successor regulation. If the Company is required to file
a federal income tax return, the Officers shall prepare, or cause to be
prepared, a federal income tax return for the Company; and, in connection
therewith, make any appropriate or necessary elections, including elections
with respect to the useful lives of the properties of the Company and the
rates of depreciation or cost recovery on such properties.
13. BANK ACCOUNTS
The officers may open and maintain one or more bank accounts in the name
of the Company in which shall be deposited all funds of the Company.
Withdrawals from such account or accounts shall be made only in accordance
with this Agreement upon the signature or signatures of the President and
Chief Financial Officer. Funds of the Company shall not be commingled with
funds of any other person or entity. Notwithstanding the foregoing, the
operating revenues of the Company, capital contributions, and the proceeds of
any loan obtained by the Company may be deposited in a central account in the
name of an entity affiliated with the
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Company so long as separate entries are made on the books and records of the
Company and on the books and records of such other entity reflecting that
deposits in the bank account of such entity with respect to amounts received
from the Company have been deposited therein for the account of the Company
and that withdrawals from such bank account have been made for the purpose of
disbursing funds to the Company or for the purpose of paying costs, expenses
or liabilities of the Company.
14. POWER OF ATTORNEY
The Member hereby irrevocably makes, constitutes and appoints Thomas F.
Flatley and Scott J. Egelkamp as its true and lawful attorney(s), in its name,
place and stead, to make, sign, execute, endorse, negotiate, consent to,
deliver, acknowledge, swear to, file and record with respect to the Company such
documents, applications or certificates required to qualify to do business in
any jurisdiction where such qualification is deemed reasonably necessary by the
Board of Managers.
15. NOTICES
Whenever any notice is required or permitted to be given under any
provision of this Agreement, such notice shall be in writing, signed by or on
behalf of the person giving the notice, and shall be given by (a) personal
delivery, (b) facsimile or other telecommunication method (with confirmation of
receipt), (c) overnight courier service, or (d) certified mail, postage prepaid,
return receipt requested, addressed to the person or persons to whom such notice
is to be given at the address set forth opposite such Person's signature to this
Agreement, or as changed by means of a written notice to the Company given in
the manner required by this Section 15. All notices shall be deemed given when
received (refusal of delivery or the failure to receive delivery for any other
reason which is within the control of the person to whom the notice or
communication is addressed shall constitute receipt).
16. DEFINED TERMS
16.1. DEFINED TERMS. As used in this Agreement, the following terms
have the following respective meanings, unless the context clearly requires
otherwise:
"ACT": As defined in SECTION 1.1 hereof.
"AFFILIATE": With regard to any person, any person which controls, is
controlled by or is under common control with such person. As used herein, the
term "CONTROL", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH" shall include
the ownership of ten percent (10%) or more of the beneficial interest in the
person referred to.
"AGREEMENT": This Operating Agreement as amended from time to time,
together with the exhibits attached hereto.
"BANKRUPT": A person or entity shall be deemed to be "Bankrupt"
when such person or entity files a petition in bankruptcy, or voluntarily
takes advantage of any bankruptcy or
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insolvency law, or is adjudicated a bankrupt, or when a petition or answer is
filed proposing the adjudication of such person or entity as a bankrupt and
such person or entity either consents to the filing thereof or such petition
or answer is not discharged or denied prior to the expiration of ninety (90)
days from the date of such filing.
"CODE": The Internal Revenue Code of 1986, as amended.
"COMPANY": The limited liability company created for the purpose and
upon the terms and conditions set forth in this Agreement.
"MEMBER": Epic Resorts, LLC and its successors and assigns
"TREASURY REGULATION": The temporary or final regulation(s)
promulgated pursuant to the Code by the U.S. Department of the Treasury, as
amended, and any successor regulation(s).
16.2. ACCOUNTING TERMS. Except as otherwise specifically provided
herein, all terms herein which relate to accounting matters shall be interpreted
in accordance with generally accepted accounting principles.
16.3. ADDITIONAL TERMS. Capitalized terms used in this Agreement and
not defined in SECTION 16.1 hereof shall (unless otherwise expressly provided
herein) have the meanings assigned to them in other portions of this Agreement.
17. MISCELLANEOUS
17.1 BINDING EFFECT. Except as herein otherwise provided to the contrary,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their successors and assigns.
17.2 AMENDMENTS. No amendment, modification or waiver of this Agreement,
or any part hereof, shall be valid or effective unless in writing and signed by
the Member.
17.3 APPLICABLE LAWS. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
17.4 CONSTRUCTION. The headings and titles of the Sections, Sub-sections
and Paragraphs herein have been inserted as a matter of convenience of reference
only and shall not control or affect the meaning or construction of any of the
terms or provisions herein.
17.5 GENDER. Whenever the context shall so require, all words herein in
any gender shall be deemed to include the masculine, feminine, or neuter gender,
and all singular words shall include the plural, and all plural words shall
include the singular.
17.6 LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof and this
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Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision there shall be added
automatically as part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
17.7 THIS AGREEMENT. The words "herein," "hereof," "hereunder," "hereby,"
"this Agreement" and other similar reference shall be construed to mean and
include this Agreement and all amendments hereof and supplements hereto unless
the context should clearly indicate or require otherwise.
17.8 NON-EXCLUSIVE REMEDIES. Except as otherwise provided herein, no
remedy herein conferred or reserved is intended to be exclusive of any other
available remedy or remedies, and each and every such remedy shall be cumulative
and shall be in addition to every such remedy given under this Agreement or now
or hereafter existing at law or in equity or by statute. It is expressly
agreed that the remedy at law for breach by any of the parties for its
obligations hereunder is inadequate in view of the complexities and
uncertainties in measuring the actual damages which would be sustained by reason
of either party's failure to comply fully with each of such obligations.
Accordingly, the obligations of each party hereunder are expressly made
enforceable by specific performance.
17.9 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is made solely and
specifically between and for the benefit of the parties hereto, and their
respective successors and assigns, subject to the express provisions hereof
relating to successors and assigns, and no other person, individual, corporation
or entity, whatsoever, shall have any rights, interests or claims hereunder or
be entitled to any benefits under or on account of this Agreement as a third
party beneficiary or otherwise.
17.10 EXHIBITS. All exhibits, attachments, annexed instruments and
addenda referred to herein shall be considered a part of this Agreement as fully
as if and with the same force and effect as if such exhibit, attachment, annex
or addendum had been included herein in full.
17.11 LANGUAGE. The language used in this Agreement shall be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EPIC RESORTS, LLC
By: Epic Membership Corp.
Managing Member
---------------------------------
By:
Its:
Address: 1150 First Avenue
Suite 900
King of Prussia, PA 19406
(610) 992-0100
[SUBSIDIARY LLC]
By: ------------------------------
Name:
Its:
Address: 1150 First Avenue
Suite 900
King of Prussia, PA 19406
(610) 992-0100
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EXHIBIT 3.8
LIMITED PARTNERSHIP AGREEMENT
OF BOARDWALK REGENCY, LTD.
This Limited Partnership Agreement of BOARDWALK REGENCY, LTD. (the
"Partnership"), is made as of March 6, 1996 by and among Resort Management,
Inc., a Delaware corporation with its principal office at 1150 First Avenue,
Suite 900, King of Prussia, Pennsylvania, 19406 (the "General Partner"), and the
individuals and entities identified on Schedule A who or which, together with
any additional limited partners or substitute limited partners as hereinafter
provided, are sometimes hereinafter referred to collectively as the "Limited
Partners" and individually as a "Limited Partner." (The General Partner and the
Limited Partners are sometimes collectively referred to as the "Partners" and
individually as a "Partner".)
RECITALS:
The Partnership has been formed for the purpose of purchasing the
hotel commonly known as the Boardwalk Hotel located at 400 North Atlantic
Avenue, Daytona Beach Florida ("Project"). Once the Project is acquired by the
Partnership, the Partnership will renovate the Project and sell timeshare
intervals in the Project which will allow the purchasers of such intervals to
occupy units in the Project for given periods of time.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to continue the
Partnership as follows:
ARTICLE I. DEFINITIONS
(a) The term "Accounting Period" shall mean the period beginning on
the day immediately succeeding the last day of the immediately preceding
Accounting Period (or in the case of the first Accounting Period, the date of
this Agreement), and ending on the last day of the Fiscal Year;
(b) The term "Affiliate" of a Partner shall have the same meaning as
now defined in Section 101 of the United States Bankruptcy Code and shall
include without limitation, all "insiders", as such term is now defined in
Section 101 of the United States Bankruptcy Code, and all Affiliates of the
Partnership and each of its Partners.
(c) The term "Agreement" shall mean this Limited Partnership
Agreement of Boardwalk Regency, Ltd., as from time to time amended.
(d) The term "Capital Account" shall mean the Opening Capital Account
or the Closing Capital Account.
(e) The term "Capital Contribution" with respect to any Partner shall
mean the Original Capital Contribution made by the Partner, less the aggregate
amounts of any
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distributions of capital to the Partner or withdrawals charged
against such Partner's Capital Contribution subsequent to the date of this
Agreement.
(f) The term "Capital Transaction" shall mean the sale, assignment,
condemnation or other disposition by the Partnership of the Project, excluding
the sale of timeshare interests.
(g) The term "Class A Limited Partners" shall mean the Limited
Partner which is identified in Schedule "A" attached hereto as the Class A
Limited Partner.
(h) The term "Class B Limited Partners" shall mean the Limited
Partners who are identified in Schedule "B" attached hereto as the Class B
Limited Partners.
(i) The term "Closing Capital Account" shall mean the account
established for each Partner on the books of the Partnership pursuant to Section
6.2 hereof.
(j) The term "Code" shall mean the Internal Revenue Code of 1986, as
from time to time amended.
(k) The term "Cumulative Preferred Return" shall mean twelve (12%)
percent, per annum, on the Outstanding Capital Contribution of the Class A
Limited Partner commencing on the date the Class A Limited Partner made its
Original Capital Contribution and continuing until the Outstanding Capital
Contribution of the Class A Limited Partner equals zero.
(l) The term "Distributions" shall mean any cash or other property
distributed to any of the Partners pursuant to Article VI or VII hereof as a
result of their interest in the Partnership.
(m) The term "Fiscal Year" shall mean the fiscal year of the
Partnership.
(n) The term "Limited Partnership Interests" shall have the meaning
provided in Section 2.8 hereof.
(o) The term "Minimum Gain" shall mean the minimum taxable gain that
would be recognized by a Partner of the Partnership, if the nonrecourse debt of
the debt of the Partnership (or its proportionate share of nonrecourse
indebtedness attributable to it by virtue of an investment in another
partnership) were foreclosed upon or the property securing such debt were
transferred to the respective creditors in satisfaction thereof.
(p) The term "Net Cash Flow" shall mean with respect to any
Accounting Period the sum of Net Cash Flow From Operations and Net Cash Flow
From Capital Transactions.
(q) The term "Net Cash Flow From Capital Transactions" shall mean the
excess of any cash receipts from Capital Transactions over the costs of securing
or obtaining the Capital Transaction or paying obligations owed by the
Partnership, including, but not limited to
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liabilities of the Partnership, brokerage, legal, accounting, printing, and
taxes incurred or imposed on the Partnership.
(r) The term "Net Cash Flow From Operations" shall mean with respect
to any Accounting Period, the excess of cash receipts (but excluding Capital
Contributions) over the sum of (i) cash disbursements, including debt service
(excluding disbursements funded from Operating Reserves) and (ii) Operating
Reserves created.
(s) The terms "Net Losses"and "Net Profits" shall mean the taxable
loss or taxable income of the Partnership as determined for Federal income tax
purposes, including all items of income, gain, loss, deduction or credit
required by the Code to be separately stated.
(t) The term "Opening Capital Account" shall mean the account
established for each Partner on the books of the Partnership pursuant to Section
6.1 hereof.
(u) The term "Operating Reserves" shall mean reserves for proper
Partnership purposes established from time to time by the General Partner from
operating revenues or the proceeds of a Capital Transaction.
(v) The term "Original Capital Contribution" shall mean with respect
to each Partner the fair market value, as listed on the books and records of the
Partnership, of the items contributed to the Partnership by the Partner on the
date the Partnership was formed.
(w) The term "Outstanding Capital Contribution of the Class A Limited
Partner" shall mean the Original Capital Contribution of the Class A Limited
Partner, less any Distributions received by the Class A Limited Partner in
excess of the Cumulative Preferred Return.
(x) The term "Partnership Percentage" shall have the meaning provided
in Section 2.8 hereof.
(y) The term "Property" shall have the meaning provided in
Section 3.1 hereof.
(z) The term "Project" shall mean the hotel commonly known as the
Boardwalk Hotel located at 400 North Atlantic Avenue, Daytona Beach Florida, the
renovation of the hotel, the creation of timeshare units in the hotel and the
sale of timeshare intervals in the hotel, and all things associated with or
necessary to achieve the above.
(aa) The term "Treasury Regulations" shall mean the regulations
promulgated from time to time by the United States Department of the Treasury.
ARTICLE II. GENERAL
2.1 FORMATION. The Partnership is hereby formed and is existing as a
limited partnership under the Limited Partnership Act of the State of Florida
(the "Act") for the limited
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purposes set forth herein, upon the terms and conditions set forth in this
Agreement. The General Partner shall file any and all certificates of
Limited Partnership required to be filed for the proper formation of the
Partnership. Except as otherwise specifically provided in this Agreement,
the rights and obligations of the Partners and the management and termination
of the Partnership shall be governed by the Act.
2.2 NAME. The name of the Partnership is Boardwalk Regency, Ltd. or
such other name as may from time to time be selected by the General Partner,
provided that prompt notice of any such other name selected by given to the
other Partners. The General Partner shall cause to be executed and filed on
behalf of the Partnership such assumed or fictitious name certificates as may be
required to be filed in connection with the business of the Partnership.
2.3 TERM. The term of the Partnership shall commence on the date of
this Agreement and shall continue until (a) December 31, 2065 or (b) the earlier
dissolution and termination of the Partnership pursuant to Article VII. The
term of the Partnership shall be confirmed by the filing of a certificate of
limited partnership as required by the Act.
2.4 PLACES OF BUSINESS. The Partnership shall maintain such offices
for the conduct of its business as the General Partner shall determine. The
address of the office of the Partnership is 400 North Atlantic Avenue, Daytona
Beach, Florida.
2.5 REGISTERED OFFICE AND AGENT. The address of the Partnership's
registered agent for service of process is CT Corporation System, 1200 South
Pine Island Road, Plantation, Florida 33324. The General Partner, in its
discretion, may from time to time, change such registered office and agent.
2.6 FISCAL YEAR. The fiscal Year of the Partnership shall be the
calendar year.
2.7 GENERAL PARTNER. The General Partner of the Partnership is
Resort Management, and any other person, firm or corporation that shall become
an additional or successor general partner pursuant to the terms of this
Agreement. The General Partner owns the partnership interest in the Partnership
so designated on Schedule A, attached hereto.
2.8 LIMITED PARTNERS. The Limited Partners as of the date of this
Agreement are designated on Schedule A hereto and own the limited partnership
interests in the Partnership so designated on Schedule A (hereinafter referred
to collectively as "Limited Partnership Interests" and/or the "Partnership
Percentage"). No Limited Partner shall be obligated to make any further Capital
Contribution.
2.9 LIMITS OF PARTNERSHIP. The relationship of the Partners shall be
limited to the carrying on of the business of the Partnership in accordance with
the terms of this Agreement. Such relationship shall be construed and deemed to
be a limited partnership for the sole and limited purpose of carrying on such
business. Except as otherwise provided for or contemplated in this Agreement,
nothing herein shall be construed to create a partnership among the Partners or
to authorize any Partner to act as general agent for any other Partner.
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2.10 INTEREST IN THE PARTNERSHIP. The interest of each Partner in the
Partnership shall be for all purposes personal property. Each of the Partners
irrevocably waives during the entire term of this Agreement any right that it
may have to maintain an action for partition with respect to its interest in any
assets of the Partnership.
ARTICLE III.
PARTNERSHIP PURPOSES
3.1 LIMITED PARTNERSHIP PURPOSE. The sole purpose of the Partnership
is to (i) acquire the hotel commonly known as the Boardwalk Hotel located at 400
North Atlantic Avenue, Daytona Beach, Florida, (ii) renovate the hotel,
(ii) operate the hotel, (iii) create timeshare units in the hotel, (iv) sell
timeshare intervals in the hotel, (v) form and act as the managing agent or the
homeowners association of the timeshare owners, (vi) obtain financing for the
renovation of the hotel and the sale of timeshare interests, and (vii) do all
things associated with, related to or necessary to achieve items (i) through
(vi), together with such other activities as may be necessary or advisable in
connection with the ownership, development and sale of the Project.
3.2 POWERS. The Partnership shall have all powers as are necessary
or appropriate to carry out the purposes of the Partnership pursuant to this
Agreement.
3.3 MAINTENANCE OF SEPARATE BUSINESS. The Partnership shall at all
times (a) maintain the Partnership's books, financial statements, accounting
records and other corporate documents and records separate from those of any
Affiliate or any other entity, (b) maintain the Partnership's books of account,
bank accounts and payroll separate from those of any Affiliate, (c) act solely
in its name and through its own authorized officers and agents; and in all
respects hold itself out as a legal entity separate and distinct from any other
entity, (d) separately manage the Partnership's liabilities from those of any
Affiliate and pay its own liabilities, including all administrative expenses and
compensation to employees, consultants or agents, and all operating expenses,
from its own separate assets, and (e) pay from the Partnership's assets all
obligations and indebtedness of any kind incurred by the Partnership. To the
extent the Partnership's office is located in the offices of an Affiliate, an
Affiliate supplies administrative support services to the Partnership or
employees of an Affiliate working on Partnership matters, the Partnership shall
pay and reimburse the Affiliate for the fair market value of the office space,
administrative support services, and/or personnel supplied by the Affiliate.
The Partnership shall abide by all partnership formalities, including the
maintenance of current records of Partnership affairs, and the Partnership shall
cause its financial statements to be prepared in accordance with generally
accepted accounting principles in a manner that indicates the separate existence
of the Partnership and its assets and liabilities. The Partnership shall not
(i) assume the liabilities of any Affiliate or any other entity, (ii) guarantee
the liabilities of any Affiliate or any other entity, and (iii) hold its credit
out as being available to satisfy the obligations of any Affiliate or other
entity, except the Partnership. The General Partner of the Partnership shall
make decisions with respect to the business and daily operations of Partnership
independent of and not dictated by any Affiliate.
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3.4 TITLE TO PARTNERSHIP ASSETS. Title to assets and properties of
the Partnership, whether real, personal or mixed, tangible or intangible, shall
be deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such assets
of the Partnership or any portion thereof other than in its capacity as a
Partner. Title to any or all of the assets of the Partnership shall be held in
the name of the Partnership. All of the assets of the Partnership shall be
recorded as the property of the Partnership on its books and records,
irrespective of the name in which legal title to assets of the Partnership is
held.
3.5 INVESTMENT REPRESENTATION. Each Partner represents and warrants
that it is acquiring its interest in the Partnership for its own account, for
investment purposes only and not with a view to the resale or other distribution
thereof, in whole or in part. No Partner shall transfer, sell, hypothecate or
otherwise dispose of all or any portion of its interest in the Partnership,
except with the prior written consent of the General Partner as provided in
Section 9.2.
Each Partner, by making investments in entities of a kind similar to
the Partnership, or by reason of such Partner's business and financial
experience or the business and financial experience of such Partner's Affiliates
or persons or entities retained by such Partner, is a sophisticated investor
with the capacity to evaluate the merits and risks of an investment in the
Partnership. Each Partner has examined all information deemed by such Partner
to be necessary or appropriate in evaluating the merits and risks of such
investment, and has not relied upon the oral representations of any other
Partner in making such investment.
ARTICLE IV. MANAGEMENT
4.1 AUTHORITY OF THE GENERAL PARTNER. The General Partner, in
accomplishing the purpose of the Partnership as set forth in Section 3.1 and
subject to the provisions of Section 4.2, shall have the right and power to
manage, control, operate and administer the business and operations of the
Partnership. Without limiting the generality of the foregoing, but subject,
nevertheless to the provisions of Section 4.2, the General Partner shall have
the following powers:
(a) to acquire and hold, by purchase, lease, license or otherwise,
real and personal property and interests therein, upon such terms and conditions
as the General Partner determines furthers the purpose of the Partnership as set
forth in Section 3.1 of this Agreement.
(b) to dispose of by sale, lease, license or otherwise, any or all of
the real and personal property of the Partnership and interests therein, upon
such terms and conditions as the General Partner determines to be in the best
interests of the Partnership;
(c) to make any alterations, improvements or repairs that are
necessary or desirable to maintain the assets and properties of the Partnership
in good operating condition, and, if and as required, to raze, rebuild or
replace (if destroyed by act of God, condemnation or otherwise), such assets and
properties;
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(d) to borrow funds and to secure the payment of obligations of the
Partnership by mortgage or other lien upon, and security interests in, any part
of the property of the Partnership and in connection therewith to execute such
promissory notes, loan, pledge, mortgage, deed of trust or security agreements
or other agreements, documents and instruments as may be required of the
Partnership;
(e) to execute, enter into, make and perform on behalf of the
Partnership all such contracts, agreements and other undertakings as may be
necessary or advisable or incident to the carrying out of the business of the
Partnership as set forth in Section 3.1, including, without, limitation
contracts, agreements and notes containing confession of judgment provisions;
(f) to establish Operating Reserves for anticipated liabilities;
(g) to have and maintain offices within or without the State of
Florida and with respect to the offices incur such expenses as may be necessary
or advisable in connection with the conduct of the business of the Partnership;
(h) to open, maintain and close checking, money market or other
interest or non-interest bearing accounts, with one or more banks or other
financial institutions, and to draw checks and other orders for the payment of
money;
(i) to cause the Partnership to make or revoke any election permitted
by the Code;
(j) to prepare or cause to be prepared and filed all Partnership tax
returns;
(k) to determine the appropriate accounting method or methods to be
used by the Partnership in maintaining its books and records;
(l) to execute, deliver, acknowledge and file documents in
furtherance of the business of the Partnership as set forth in Section 3.1;
(m) to pay, collect, compromise, arbitrate, litigate or otherwise
adjust, contest or settle any and all claims or demands of or against the
Partnership;
(n) to take such other actions as may be necessary or advisable in
connection with the foregoing, including, without limitation, the retention of
custodians, agents, independent contractors, attorneys and accountants, which
may be Affiliates of the General Partner, provided that the services of such
persons are necessary or advisable and the compensation therefor is reasonable;
(o) to facilitate compliance with the applicable Federal, state and
local laws, rules, regulations and ordinances, and to obtain at the expense and
in the name of the Partnership such licenses, permits and approvals as are
required in the business of the Partnership; and
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(p) to select, employ, pay, supervise and discharge any employees,
independent contractors, or consultants of the Partnership, including, without
limitation, Affiliates of Partners. Any Affiliate of a Partner employed by the
Partnership shall be paid nor more than the amount which would have been paid to
a person or entity which was not Affiliated with a Partner.
4.2 LIMITATIONS. Any provision of this Agreement to the contrary
notwithstanding, the General Partner shall not have authority to:
(a) alter the Partnership business as provided in Article III hereof;
(b) knowingly perform any act (other than an act required by this
Agreement or an act taken in good faith reliance upon an opinion of counsel)
that would subject the Limited Partners to liability as a General Partner of the
Partnership;
(c) admit a person or entity as a General Partner, except with the
approval of the holders of more than 50% of the issued and outstanding Limited
Partnership Interests, or as otherwise provided herein; or
(d) sell or transfer all or over 50% of its general partnership
interest.
4.3 GENERAL PARTNER RESPONSIBILITIES. The General Partner shall
devote such time to managing the business of the Partnership as it reasonably
determines in good faith to be necessary to conduct the business of the
Partnership. The General Partner shall, on behalf of the Partnership, keep or
cause to be kept full and complete books of account in which shall be entered
fully and accurately all transactions of the Partnership in accordance with
applicable laws. The General Partner shall make the books and records of the
Partnership available during reasonable business hours for inspection by the
Partners and their respective representatives at an office of the Partnership
designated by it.
4.4 EXPENSES. The Partnership shall bear and be charged with all
costs and expenses of the Partnership incurred by the Partnership or the
General Partner on behalf of the Partnership. Such costs and expenses shall
include, without limitation, (a) administrative expenses including but not
limited to costs of preparing tax returns and financial statements and all
costs reasonably incidental thereto, (b) costs associated with qualifying the
General Partner to do business as a foreign corporation, if such
qualification is deemed necessary, (c) fees and expenses of custodians,
counsel, independent public accountants and other persons and agents retained
by the Partnership, (d) all other costs incurred relating to conducting the
business of the Partnership, (e) out-of-pocket costs of meetings with, and
reports to, the Limited Partners, (f) any taxes, fees or other governmental
charges levied against the Partnership or its income or assets or in
connection with its business or operations, (g) the management fee payable to
the General Partner, as set forth in Section 4.8, and (f) all other costs and
expenses of the Partnership or the General Partner in connection with this
Agreement, such as costs of litigation or other matters that are the subject
of indemnification pursuant to Section 11.1, including the purchase of
insurance policies covering such matters, and the costs of winding up and
liquidating the Partnership.
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4.5 TAX AND OTHER FILINGS. The General Partner, at the expense of
the Partnership, shall prepare and file, or cause to be prepared and filed (a) a
Federal information tax return in compliance with the applicable provisions of
the Code, and any required state and local tax and information returns, for each
tax year of the Partnership and (b) any other filings and reports with respect
to the Partnership required to be made under the laws of the United States and
applicable state laws, in connection with the conduct of the business of the
Partnership. The Partners agree that the General Partner shall act as the tax
matters partner of the Partnership as provided in Section 6231(a)(7) of the Code
and authorize the General Partner to take any and all action necessary to
confirm such designation. The General Partner shall promptly notify each other
Partner of any administrative, judicial or other proceeding begun or action
taken by any taxing authority directly or indirectly involving the Partnership,
and shall provide to each other Partner a copy of any notice it receives in
respect of any such proceeding or action no later than 10 days after the receipt
of such notice. The General Partner shall take all action required under the
Code and any regulations thereunder to identify each other Partner to the United
States Internal Revenue Service as a "Notice Partner" under Section 6231 of the
Code with respect to the Partnership or any partnership in which the Partnership
is a partner.
4.6 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document reasonably believed in good faith by the General Partner to be
genuine and to have been signed or presented by the proper party or parties.
(b) The General Partner may employ and consult with attorneys,
accountants, appraisers and other advisors selected by the General Partner in
good faith including, without limitation, persons or entities which are or may
be limited partners of the Partnership, Affiliates of, or otherwise associated
or affiliated with, the General Partner, and any opinion of any such person or
entities as to matters that the General Partner reasonably believes to be within
such person's professional or expert competence shall be full and complete
authorization and protection with respect to any action taken or suffered or
omitted by the General Partner hereunder in good faith and in reliance upon such
opinion.
(c) The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through a duly appointed
attorney-in-fact. Each such attorney-in-fact shall, to the extent provided
by the General Partner in a duly executed power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted
or required to be done by the General Partner hereunder.
4.7 LIMITED PARTNERS' ACTIONS AND COOPERATION.
(a) The Limited Partners shall take no part in the conduct or control
of the Partnership business and shall have no right or authority to act for or
to bind the Partnership. The exercise of any of the rights and powers of the
Limited Partners pursuant to the terms of this
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Agreement shall not be deemed taking part in the day-to-day affairs of the
Partnership or the exercise of control over Partnership affairs.
(b) The Limited Partners shall furnish the General Partner with such
information as it may from time to time reasonably request, and shall otherwise
cooperate with the General Partner, to enable the General Partner and the
Partnership to comply with applicable laws (including, without limitation, the
applicable Federal and state tax and securities laws) in the conduct of the
business of the Partnership.
(c) The Limited Partners, solely by reason of their being Limited
Partners of the Partnership, shall not be bound by or be personally liable for
the liabilities and obligations of the Partnership and their liability to
persons, firms or corporations other than the Partners of the Partnership shall
be limited to the fullest extent permitted by the Act.
4.8 MANAGEMENT FEE OF THE GENERAL PARTNER. The General Partner shall
receive a fee for acting as the General Partner of the Partnership. The fee to
be paid by the Partnership to the General Partner shall equal two percent (2%)
of the sales price paid by purchasers for the timeshare interests sold by the
Partnership ("General Partner's Fee"). The General Partner's Fee shall be paid
out of the available funds of the Partnership, when the Partnership has
available funds, as determined by the General Partner.
ARTICLE V. CAPITAL CONTRIBUTIONS
5.1 REQUIRED CAPITAL CONTRIBUTIONS. Each Partner admitted to the
Partnership on the date hereof has paid his Original Capital Contribution to the
Partnership.
5.2 LIMITATION ON LIABILITY. The Limited Partners shall not be
liable for any of the debts of the Partnership, except to the extent of their
respective Capital Contributions. No Limited Partner will be obligated to repay
to the Partnership, any Partner, or any creditor of the Partnership, all or any
portion of any negative balance in such Limited Partner's Capital Account.
Notwithstanding the foregoing, a Partner receiving a distribution in accordance
with this Agreement in partial or full return of his Capital Contribution shall
be liable to the Partnership to the extent provided in the Act.
5.3 METHOD OF CHARGING CAPITAL ACCOUNTS. Whenever any amount is
withdrawn from a Partner's "Capital Account" as herein provided, the amount so
withdrawn shall be charged first against Net Profits previously allocated to
such Capital Account, to the extent of such Net Profits, before any portion of
such withdrawal is charged against such Partner's Capital Contribution.
5.4 MISCELLANEOUS. A Partner shall not be entitled to withdraw any
part of its Capital Contribution or to receive any distribution from the
Partnership, except as specifically provided in this Agreement. No Partner
shall be obligated to make any loans to the Partnership, but if any such loans
shall be made, they shall not be considered contributions to the capital of the
Partnership. To the extent that any advance of a Partner is treated as a loan
subject to Section
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7872 of the Code, any deduction attributable to the operation of such Section
shall be allocated to the Partner making such loan.
5.5 NO INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid
on Capital Contributions, the Cumulative Return is a preference on Distributions
and is not interest.
ARTICLE VI. ALLOCATIONS, CAPITAL ACCOUNTS,
DISTRIBUTIONS AND ADJUSTMENTS
6.1 OPENING CAPITAL ACCOUNTS. An Opening Capital Account shall be
established for each Partner on the books of the Partnership, as of the date on
which such Partner made its Original Capital Contribution, in an amount equal to
such Original Capital Contribution, in an amount equal to such Original Capital
Contribution. The Opening Capital Account of the Partner for each Accounting
Period subsequent to the initial Accounting Period shall be an amount equal to
the Closing Capital Account of such Partner, determined in accordance with
Section 6.2, for the immediately preceding Accounting Period.
6.2 CLOSING CAPITAL ACCOUNTS. There shall be established for each
Partner on the books of the Partnership, as of the last day of each Accounting
Period, a Closing Capital Account for such Accounting Period determined by
adjusting the Opening Capital Account of such Partner for such Accounting Period
for (a) additional Capital Contributions made by such Partner during such
Accounting Period; (b) allocations pursuant to Section 6.3; and (c) allocations
pursuant to Section 6.4 in respect of such Accounting Period. The foregoing
provisions of this Section 6.2 regarding the maintenance of Capital Accounts
shall be construed so as to comply with the provisions of the Treasury
Regulations promulgated under Section 704 of the Code. The General Partner is
hereby authorized to modify these provisions to the minimum extent necessary to
comply with such Treasury Regulations.
6.3 ALLOCATION OF NET PROFITS AND NET LOSSES.
(a) Net Profits and Net Losses of the Partnership and all items of
income exempt from Federal income tax shall be allocated to the Closing Capital
Accounts of the Partners to the extent of and in proportion to Distributions of
Net Cash Flow made to them pursuant to Section 6.4 hereof.
(b) Notwithstanding the provisions of subsection (a) of this Section
6.3:
(i) Except as otherwise permitted by Treasury Regulations
relating to non-recourse deductions, no allocation of deduction or loss shall be
made to any Partner to the extent that such allocation would create or increase
a deficit with respect to such Partner's Capital Account, if any other Partner
has a positive balance in his Capital Account. In such event, any such deduction
or loss shall be allocated to eliminate the positive balances contained in the
Partners' Capital Accounts in the ratio of such positive balances. If no Partner
has a positive balance in its Capital Account, additional deductions or losses
shall first be allocated to those Partners that hold debt of the Partnership in
the ratio, and to the extent, of the outstanding principal balance of such
holdings. To the extent deductions or losses are allocated to any
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Partners under this Section, income or gain shall first be allocated to such
Partners in the same ratios as, and to the extent of, such deductions or
losses.
(ii) If the allocation of deduction or loss as provided herein
would cause the deficit balance of a Partner's Capital Account to exceed such
Partner's share of the Minimum Gain, there shall be allocated to such Partner
only that amount of deduction or loss as shall not cause such balance to exceed
that Partner's share of the Minimum Gain.
(iii) If there is a net decrease in the Minimum Gain during
any Fiscal Year, the Partners shall be specifically allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to the portion of such Partner's share of the net
decrease in the Minimum Gain. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be
allocated to the Partners under this subsection. This paragraph is intended
to comply with the minimum gain chargeback requirement of the Treasury
Regulations promulgated under Code Section 704(b) and shall be interpreted
consistently with the requirements of Code Section 704 (b).
(iv) In accordance with Code Section 704(c) and the Treasury
Regulations issued under Code Section 704(c), income, gain, loss and
deduction with respect to the property of the Partnership shall, solely for
tax purposes, be allocated among the Partners so as to take into account any
variation between the adjusted basis of such property for federal income tax
purposes and its fair market value, determined in accordance with Treasury
Regulations Section 1.704-1(b) (2)(iv). In the event the value of any
Partnership property is adjusted pursuant to a revaluation permitted in
Treasury Regulations Section 1.704-1(b)(iv)(f), subsequent allocation of
income, gain, loss and deduction with respect to such property shall take
account of any variation between the adjusted basis of such assets for
federal income tax purposes and its value in the same manner as under Code
Section 704(c) and the Regulations thereunder. Any elections or other
decisions relating to such allocations shall be made by the General Partner
in any manner that reasonably reflects the purpose and intention of this
Agreement. Allocations in accordance with this provision are solely for
purposes of federal, state and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or
share of Distributions pursuant to any provision of this Agreement.
(v) If any Partner unexpectedly receives any adjustment,
allocation or distribution described in Treasury Regulations sections
1.704-1(b)2)(ii)(d) (4), 1.704-1(b)(2)(ii)(d)(5), 1.704-1(b)(2)(d)(6), a pro
rata portion of each item of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate any
deficit in its Capital Account created by such adjustment, allocation or
distribution as soon as practicable. This subsection (iv) is intended to
constitute a "qualified income offset" within the meaning of Treasury
Regulation section 1.704-1(b)(2)(ii)(d)(3).
(vi) If Code Section 483 or 1274 is determined to be
applicable to the Capital Contribution of any Partner, or if any loan from a
Partner to the Partnership is subject to Code Section 7872, any income or
deduction of the Partnership attributable to interest on such Capital
Contribution or loan (whether stated or unstated) shall be specially
allocated to such Partner.
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(c) The General Partner is authorized to make any adjustments in the
allocation of income, gain, loss, deduction or credit of the Partnership to the
minimum extent necessary to comply with Section 704 of the Code, including any
adjustments to any items thereof required as a result of (i) any amendments to
Section 704 of the Code (or any successor statutory provision) or changes in
Treasury Regulations, or (ii) the adjustment of any items by the Internal
Revenue Service. A new allocation made in good faith by the General Partner
pursuant to this Section 7.3(c) shall be deemed to be made under the fiduciary
obligation of the General Partner to the Partnership and the Partners, and no
such allocation shall give rise to any claim or cause of action by any Partner.
6.4 DISTRIBUTIONS OF NET CASH FLOW. Distributions of Net Cash Flow
shall be made when the General Partner determines that there is Net Cash Flow
available for Distribution. Distributions of Net Cash Flow, when made, shall be
made in the following order:
(a) Distributions of Net Cash Flow shall be made 1% to the General
Partner, 40% to the Class A Limited Partner and 59% to the Class B Limited
Partners (pro rata in accordance with the Partnership Interests of the Class B
Limited Partners), until the Class A Limited Partner receives Distributions
equal to the (i) Cumulative Preferred Return, plus (ii) the Original Capital
Contribution of the Class A Limited Partner.
(b) Once the Class A Limited Partner receives Distributions equal to
the (i) Cumulative Preferred Return, plus (ii) the Original Capital Contribution
of the Class A Limited Partner, Distributions of Net Cash Flow shall be made to
each Partner pro rata in proportion to their respective Partnership Percentages.
6.5 LOANS BY CLASS B LIMITED PARTNERS. At the General Partner's
discretion, instead of paying the Class B Limited Partners a Distribution
payable to the Class B Limited Partners under the provisions of Section 6.4
above, the General Partner may withhold payment of the Distribution and treat
the Distribution not paid as a loan by the Class B Limited Partners to the
Partnership ("Class B Partners Loan"). The General Partner at its discretion
will determine when the Partnership will pay the principal owed on any Class B
Partners Loan.
6.6 SECTION 754 ELECTION. The General Partner shall cause the
Partnership to make in a timely manner the election pursuant to Section 754 of
the Code for a net increase in the basis of the Partnership property.
6.7 PAYMENTS ON ACCOUNT OF PARTNERS' STATUS. The Partnership shall
be entitled to make payments required to discharge any obligation of the
Partnership or to make or withhold payments to any governmental authority with
respect to any Federal, state or local tax liability of any Partner arising out
of such Partner's interest in the Partnership. If the Partnership pays to any
Federal, state or local government authority, any amount of tax, interest, or
other expenditure or payment which is attributable to the particular status of
any Partner, including, without limitation, the status of such Partner as a
nonresident alien, foreign corporation or other foreign entity, the General
Partner shall treat such tax, interest or other-payment as a distribution to
such Partner and to the extent that no distributions are simultaneously made to
the other Partners of the Partnership, the amount of each such payment made with
respect to such Partner,
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plus interest on each such amount from the date of each such payment until
such amount is repaid to the Partnership at an interest rate equal to 10%.
Such a distribution shall reduce the amount of any distribution otherwise
payable by the Partnership to such Partner. Such Partner shall be entitled to
receive any refund of any such tax, interest or other amounts theretofore
received by the Partnership, on account of amounts charged to such Partner;
provided, however, that the amount due such Partner shall be reduced by any
expenses of the Partnership incurred in connection with the payment or refund
of such taxes, interest or other amounts and the Partnership shall have no
duty or obligation to seek to obtain or collect any such refund or expend any
amount to reduce the amount of any withholding, interest or other amount
otherwise payable to any governmental authority.
6.8 DETERMINATION OF CERTAIN MATTERS. All matters concerning (a)
the allocation of Net Profits and Net Losses among the Partners, including, but
not limited to, any adjustments necessary to comply with Section 704 of the Code
arising by reason of (i) any amendments to said provision or any successor
statutory provision concerning the same subject matter as said provision, (ii)
the adjustment of any of the foregoing items by the Internal Revenue Service, or
(iii) the admission of a new Partner, an additional Capital Contribution or the
distribution of property to a Partner, and (b) the election of any accounting
procedures not specifically and expressly provided for by the terms of this
Agreement, shall be determined by the General Partner in good faith.
ARTICLE VII
DISSOLUTION OF THE PARTNERSHIP; WINDING UP AND LIQUIDATION
7.1 DISSOLUTION EVENTS. The happening of any one of the following
events shall cause an immediate dissolution of the Partnership:
(a) the expiration of the term of the Partnership pursuant to Section
2.3 of this Agreement;
(b) the sale of all or substantially of the assets of the Partnership
for consideration consisting entirely of cash;
(c) the determination of the General Partner and Limited Partners
holding more than fifty (50%) percent of the Partnership Interest held by all
Class A Limited Partners;
(d) the occurrence of any event requiring such dissolution pursuant
to Section 8.3 of this Agreement or pursuant to the Act.
Any dissolution of the Partnership shall be effective on the date the event
giving rise to the dissolution occurs, but the Partnership shall not terminate
until all its affairs have been wound up and its assets distributed as provided
in this Article VII.
No Partner shall have the right, and the Partners agree not, except as
provided in this Section 7, to dissolve, terminate, liquidate, or to petition a
court for the dissolution, termination
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or liquidation of the Partnership, without the prior written consent of all
general partner(s) and more than 50% of the issued and outstanding Class
Limited Partnership Interests.
7.2 WINDING UP AND LIQUIDATION. Upon the dissolution of the
Partnership for any reason, the General Partner shall commence and direct the
winding up of the affairs of the Partnership and the distribution of all of its
assets. In winding up the affairs of the Partnership, the General Partner may
take any and all action as it may determine (including, without limitation, any
arrangements to be made with creditors, whether and to what extent and under
what terms the assets of the Partnership are to be sold or distributed in kind
to the Partners, and the amount of or necessity of establishing cash reserves to
cover contingent liabilities).
7.3 ACCOUNTING ON DISSOLUTION. Upon dissolution of the Partnership,
a proper accounting shall be made of the Partnership's assets, liabilities and
operations from the date of the last previous Accounting Period to the date of
dissolution. Income, gain, loss, deductions and credits realized subsequent to
the date of dissolution shall be allocated in accordance with Article VI. As to
each asset other than cash, gain or loss shall be allocated and proper
adjustments made to the Capital Accounts of the Partners as if such asset had
been sold for its then value, as determined pursuant to Section 7.5.
7.4 APPLICATION OF PARTNERSHIP ASSETS. In winding up the affairs of
the Partnership, the assets of the Partnership, in cash or in kind, shall be
applied in the following order of priority:
(a) In payment of all liabilities of the Partnership to creditors
other than the Partners, and, thereafter, in payment of all liabilities of the
Partnership to Partners including, in each case, those incurred in liquidation.
If any liability is contingent or uncertain in amount, a reserve shall be
established in such amount as the General Partner deems reasonably necessary.
Upon the satisfaction or other discharge of such contingency, the amount of the
reserve not required, if any, shall be distributed in accordance with the
remainder of this Section 7.6;
(b) To the Partners as set forth in Section 6.4; and
(c) Upon any distribution in liquidation of the Partnership,
following the distribution of assets as provided in Section 6.4 of this
Agreement, if any of the Partners has a negative Capital Account, and the
Partnership has indebtedness or other liabilities with respect to which such
Partner is personally liable ("Recourse Debt"), then the Partner or Partners
having such a negative Capital Account shall within 90 days following the
liquidation of the Partnership make a cash Capital Contribution to the
Partnership to the extent of and in proportion to the amounts, if any, by which
the respective Partners' Capital Accounts are less than zero, provided that (i)
the aggregate of such Capital Contributions shall in no event exceed the amount
of Recourse Debt, (ii) no Partner shall be required to contribute more than his
proportionate share of the amount of any Recourse Debt as to which any of the
Partners is personally liable, and (iii) no Partner shall be required to make
Capital Contributions with respect to any Recourse Debt as to which such Partner
is not personally liable. Such Capital Contributions shall be applied by the
Partnership to the payment of the Partnership's Recourse Debt.
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7.5 VALUATION OF ASSETS AND RELATED MATTERS.
(a) Any non-cash assets of the Partnership shall be valued for
purposes of accounting upon dissolution by the General Partner in good faith,
which valuation shall be binding upon the Partners; and
(b) The distribution to any Partners of the value of their interests
in the Partnership pursuant to this Section 7.5 is subject to the provision by
the General Partner for all Partnership liabilities in accordance with the Act,
and for reserves for contingencies. The unused portion of any reserve shall be
distributed, with interest at the rate actually earned thereon pursuant to the
investment thereof by the General Partner, after the General Partner shall have
determined that the need therefor shall have ceased.
ARTICLE VIII
DISPOSITIONS OF INTERESTS OF PARTNERS;
WITHDRAWALS; DEATH, INCOMPETENCY, BANKRUPTCY,
DISABILITY OR DISSOLUTION OF PARTNERS
8.1 RESTRICTIONS ON TRANSFERS. No Limited Partner may sell, assign,
transfer, pledge or otherwise encumber or dispose of, in whole or in part, its
Limited Partnership Interests without the prior written consent of the General
Partner as provided in Section 8.2, and any attempt to do so without such
consent shall be null and void.
8.2 SUBSTITUTION AND ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS.
Subject to the exceptions contained in Section B.2(c), no Limited Partner shall
sell, transfer, assign, convey, pledge, mortgage, encumber, hypothecate, or
otherwise dispose of all or any of its Limited Partnership Interests without the
prior written consent of the General Partner, and without, in addition,
compliance with the following conditions:
(a) (i) the transferor or transferee shall undertake to pay all
expenses incurred by the Partnership in connection therewith; (ii) the
Partnership shall receive from the person to whom such transfer, assignment,
conveyance, sale or other disposition is made (and in the case of clause (C)
from the transferring Limited Partner to the extent specified by the General
Partner) (A) such documents, instruments and certificates as may be requested by
the General Partner, pursuant to which the transferee shall become bound by this
Agreement, (B) a certificate to the effect that the representations and
information required to be furnished pursuant to this Agreement are (except as
otherwise disclosed in writing to the General Partner) true and correct with
respect to such person and (C) such other documents, opinions, instruments and
certificates as the General Partner shall request; and (iii) the transferring
Limited Partner shall, prior to making any such sale, transfer, assignment,
conveyance, pledge, mortgage, encumbrance, hypothecation or other disposition,
deliver to the Partnership the opinion of counsel described in Section 8.2(b).
(b) The opinion of counsel referred to in Section 8.2(a) shall be in
form and substance reasonably satisfactory to the General Partner, shall be of
counsel reasonably
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<PAGE>
satisfactory to the General Partner and shall be substantially to the effect
(unless specified otherwise by the General Partner) that the transfer,
assignment, conveyance, sale or other disposition contemplated by the opinion
(i) will not violate any registration provisions of the Securities Act, or
applicable state securities laws; (ii) will not require that the Partnership
register as an investment company under the Investment Company Act of 1940;
(iii) for Federal income tax purposes will not cause the termination or
dissolution of the Partnership and will not cause it to be classified as
other than a Partnership; and (iv) will not violate the laws of any state or
the rules and regulations of any governmental authority applicable to such
transfers.
(c) Subject to compliance with Sections 8.2(a) and (b), but without
the necessity of the prior written consent of the General Partner, a Limited
Partner who is a natural person shall have the right to substitute another
person for himself as a Limited Partner upon the death or incapacity of such
Limited Partner and any partnership or corporate Limited Partner shall have the
right to substitute for itself as a Limited Partner any wholly-owned subsidiary,
any Affiliate of such Limited Partner and any successor entity as a result of
the sale of all or substantially all of the assets thereof or as a result of the
merger, consolidation or dissolution thereof. No attempted assignment or
substitution shall be recognized or be given effect to by the Partnership unless
effected in accordance with and permitted by this Agreement.
(d) Any transferee of all or any part of a Limited Partnership
Interest pursuant to the terms of this Article VIII shall be admitted to the
Partnership as a substitute Limited Partner. In such event, such substitute
Limited Partner shall, to the extent of such transfer, succeed to the Capital
Account, rights and obligations hereunder of the Limited Partner making such
transfer.
(e) Admission of a new Limited Partner shall not be a cause for
dissolution of the Partnership.
8.3 RESIGNATION, DEATH, INCOMPETENCY, BANKRUPTCY, DISABILITY OR
DISSOLUTION OF THE GENERAL PARTNER.
(a) The occurrence of any of the following events shall be hereafter
referred to as a "Terminating Event": (i) the General Partner voluntarily
electing to resign, (ii) the General Partner being adjudicated a bankrupt or
insolvent, (iii) the General Partner being dissolved (and, in the case of a
General Partner that is a Partnership, the General Partner commencing winding
up), (iv) the General Partner being liquidated (or, in the case of a General
Partner that is an individual, the death, disability or adjudication of
incompetence), (v) the General Partner enters into an assignment for the benefit
of creditors, files or has filed a petition for relief under any bankruptcy or
insolvency law of any jurisdiction, (and, in the case of a petition filed by a
person or entity other than the General Partner), such petition shall remain
undismissed after 90 days, and/or (vi) the General Partner has a receiver
appointed to administer its interest in the Partnership, or such interest is
seized by a creditor, and such receiver or seizure is not be discharged within
60 days. If a Terminating Event occurs, the General Partner to whom the
Terminating Event applies (the "Terminating General Partner") or its or his
legal representative shall promptly notify the Limited Partners of the
Terminating Event. Upon the occurrence of a Terminating Event the Partnership
shall not dissolve and shall be continued provided that, within
17
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90 days after the Terminating Event, a majority in interest of the Class A
Limited Partners shall agree in writing to the continuation of the
Partnership and to the appointment, effective as of the date of the
Terminating Event, of a new general partner as successor ("Successor"), to
such Terminating General Partner. If a Successor is appointed within said
90-day period, the business of the Partnership shall be continued as a
limited partnership subject to and upon the terms and conditions set forth in
this Agreement, and, if required, any documents necessary to reflect the
continued existence of the Partnership as a limited partnership shall be
executed by the Partners. If a Successor is appointed and in connection with
the admission to the Partnership of such Successor the Limited Partners
determine that it is necessary to transfer to the Successor, with or without
a contribution to the capital of the Partnership, an interest in profits,
losses and distributions pursuant to Article VI hereof ("Successor's Share"),
the Successor's Share, but not in excess of a 1% interest in the Partnership,
shall be transferred to the Successor upon his admission to the Partnership
upon such terms as Limited Partners holding 75% of the issued and outstanding
Limited Partnership Interests shall approve (including, without limitation, a
pro rata dilution of the interests of the Partners).
(b) A Terminating General Partner shall cease to be a General
Partner, and it or he (or its or his estate or legal representatives, successors
or assigns) shall become a special Limited Partner to the extent of its or his
interest in the Partnership. Such special Limited Partner shall have the right
to share in Net Profits, Net Losses, allocations and distributions on the same
basis as the other Limited Partners from and after the date of the Terminating
Event. A Terminating General Partner (or its or his estate, legal
representatives, successors or assigns, as the case may be) shall remain liable
for all liabilities and obligations of the Partnership incurred in connection
with, or arising out of, Partnership operations during the time it or he was
General Partner, but shall otherwise be free from liability in respect of
obligations and liabilities incurred in connection with or arising out of
Partnership operations from and after the date of the Terminating Event.
8.4 DEATH, INCOMPETENCY, BANKRUPTCY, DISABILITY OR DISSOLUTION OF A
LIMITED PARTNER. The death, adjudication of incompetency, bankruptcy,
disability or dissolution of a Limited Partner shall not dissolve or terminate
the Partnership.
ARTICLE IX
NOTICES
Whenever any notice or other communication is required or permitted to
be given under any provision of this Agreement, such notice or other
communication shall be given in writing, and shall be deemed to have been given
when delivered by personal delivery or by responsible overnight delivery service
or five days after the date mailed by certified mail, postage prepaid, return
receipt requested, in each case addressed to the person or persons to whom such
notice or other communication is to be given at the notice address specified for
such person or persons and set forth on Schedule A to this Agreement.
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ARTICLE X
POWER OF ATTORNEY
Each of the Limited Partners hereby irrevocably makes, constitutes and
appoints the General Partner as its true and lawful attorney, to make, sign,
execute, acknowledge, swear to and file with respect to the Partnership:
(a) such documents as may be required by law or pursuant to the
provisions of this Agreement;
(b) all filings or other reports with respect to the Partnership
required to be made under applicable laws in connection with the conduct of the
business of the Partnership;
(c) all amendments to this Agreement required in connection with the
provisions of Article VI hereof; and
(d) all documents and instruments that may be deemed necessary or
desirable to effect the winding up and termination of the Partnership.
The foregoing appointments are coupled with an interest.
ARTICLE XI
MISCELLANEOUS
11.1 EXCULPATION; INDEMNIFICATION.
(a) None of the General Partner, its Affiliates, and their respective
officers, directors, partners, representatives, employees or agents
(collectively, the "General Partner Parties") shall be liable, in damages or
otherwise, to the Partnership or to any of the Partners for any act or omission
performed or omitted by them pursuant to the authority granted by this
Agreement, except if such act or omission results from gross negligence or
willful misconduct. The Partnership shall indemnify, defend and hold harmless
the General Partner Parties from and against any and all claims, losses,
liabilities, actions, damages and expenses of any nature whatsoever, including
reasonable attorneys' fees, arising out of or in connection with any action
taken or omitted by them pursuant to the authority granted by this Agreement,
except where attributable to the gross negligence, willful misconduct or bad
faith of the General Partner Parties, or any of them. The General Partner
Parties shall be entitled to rely on the advice of counsel, public accountants
or other independent experts experienced in the matter of issue, and any act or
omission of the General Partners Parties pursuant to such advice shall in no
event subject the General Partner Parties to liability to the Partnership or any
Partner. Expenses incurred by the General Partner Parties in defending against
any of the aforementioned claims or liabilities shall be paid, by the
Partnership, in advance of the final disposition, provided that the General
Partner Parties shall promptly deliver to the Partnership a writing (i) setting
forth their good faith belief that they have met the standard of conduct
necessary for indemnification under
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the Act, and (ii) undertaking to repay any such amounts, without interest, if
ultimately it shall be determined that they, or any of them, are not entitled
to be indemnified as provided herein.
(b) The Partnership may purchase insurance, to the extent available
at reasonable cost, covering the liabilities described in this Section 11.1.
(c) The agreements contained in this Section 11.1 shall survive the
withdrawal of a Partner or the termination or dissolution of the Partnership.
(d) Any indemnification to which the General Partner Parties shall be
entitled pursuant to this Section 11.1 shall be made solely from the assets of
the Partnership as from time to time available for this purpose. In no event
shall the Limited Partners be required to make loans for this purpose.
(e) The indemnification of the General Partner by the Partnership
shall be fully subordinate to any and all obligations imposed by a mortgage and
such indemnification shall not constitute a claim against the Partnership in the
event that the cash flow of the Partnership is insufficient to pay the
obligations under a mortgage.
11.2 OTHER VENTURES. The Partners and their respective Affiliates may
engage individually or with others in other investments or business ventures of
any kind, including those that may be similar to or in competition with the
business of the Partnership and including providing services or otherwise
dealing with companies in which the Partnership invests or to which the
Partnership provides services. Without limiting the foregoing, any such person
may organize, sponsor, invest in or otherwise enter into contracts with limited
partnerships or other entities with the same or similar operational objectives
as the Partnership, and may make investments and engage in other business
ventures which may be similar to or in competition with the investments or
business of the Partnership. Any such person may make any such investment
without making available the investment opportunity to the Partnership and
without reporting the investment to the other Partner. Any such person may make
an investment in, or a loan to, any company. No Partner will make any use of or
disclose to any person any confidential or proprietary information or documents
of any kind obtained by reason of its status as a Partner except in connection
with activities related to its capacity as a Partner.
11.3 REPORTS.
(a) Within 75 days after the end of each calendar year, the General
Partner will send to each Partner such tax information as is necessary for the
preparation by such Partner of its Federal income tax return, and required state
income and other tax returns with regard to jurisdictions in which the
Partnership is formed or qualified.
(b) Within 90 days after the end of each fiscal year, the General
Partner will send to each Partner the partnership tax return which includes a
balance sheet and statement of income.
(c) The cost of the reports shall be borne by the Partnership.
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11.4 BOOKS AND RECORDS.
(a) The General Partner shall keep or cause to be kept complete and
appropriate books of account and financial records in which there shall be
entered all such transactions and other matters relative to the Partnership's
business as are usually entered into books of account and financial records
maintained by persons engaged in businesses of like character.
(b) The books of account and financial records of the Partnership
shall be maintained at the office of the General Partner, and all such books and
records shall be available for inspection and copying by each Partner or its
authorized representative after ten days advance notice to the General Partner,
at the expense of such Limited Partner and during ordinary business hours.
11.5 CONFIDENTIAL INFORMATION. In connection with the organization of
the Partnership and its ongoing business, the Partners will receive or have
access to confidential proprietary information concerning the Partnership,
including without limitation, product, financial, sales, marketing and customer
information, trade secrets and the like (the "Confidential Information"), which
is proprietary in nature and non-public. No Partner, nor any Affiliate of any
Partner, shall disclose or cause to be disclosed any Confidential Information to
any person, firm or corporation, nor use any Confidential Information for its
own purposes or its own account, except in connection with its investment in the
Partnership or the enforcement of any of its rights under this Agreement.
11.6 BINDING EFFECT. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, and their legal representatives, successors and permitted
assigns.
11.7 AMENDMENTS. This Agreement may be amended, or modified and a
provision of this Agreement may be waived, if such amendment, modification,
waiver, is agreed to in writing by Limited Partners holding more than 75% of the
issued and outstanding Limited Partnership Interests; PROVIDED, HOWEVER, that,
without the approval of the Limited Partners, the General Partner may amend this
Agreement: (a) to change the name and/or principal place of business of the
Partnership; (b) to reflect the admission or substitution of the Limited
Partners; and (c) to amend the provisions of Articles VI and VII hereof to be
consistent with the economic terms of the existing Articles VI and VII, if in
the opinion of counsel to the Partnership, such amendment is necessary (i) to
cause allocations and distributions to have substantial economic effect in
accordance with Section 704 of the code and other applicable statutory provision
and the rules and regulations thereunder, as from time to time in effect, or
(ii) to reflect changes in the Code and any other applicable statutory provision
and the rules and regulations thereunder, as from time to time in effect. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other condition or subsequent breach, whether of like or different
nature.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
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<PAGE>
11.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute but one and the same instrument which may be sufficiently
evidenced by one counterpart.
11.10 SECTION HEADINGS. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit or extend
the scope or intent of this Agreement or any provisions hereof.
11.11 SEVERABILITY. Each provision of this Agreement is intended
to be severable. Any provision or part of this Agreement which is invalid or
unenforceable in any situation in any jurisdiction shall, as to such situation
and such jurisdiction, be ineffective only to the extent of such invalidity and
shall not affect the enforceability of the remaining provisions hereof or
validity or enforceability of any such provision in any other situation or in
any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making such determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of such provision, or to delete specific words or phrases or to
replace any invalid or unenforceable term or provision with a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified, subject to any party's right to appeal such
judgment.
11.12 WAIVER. No provision hereof shall be deemed to have been
waived unless such waiver is contained in a written notice given to the party
claiming such waiver has occurred, and no such waiver shall be deemed to be a
waiver of any other or further obligation or liability of the party or parties
in whose favor the waiver was given.
11.13 COOPERATION. The parties hereto will execute such other and
further instruments and documents as are or may become reasonably necessary or
convenient to effectuate and carry out the Partnership created by this Agreement
and its business.
11.14 DISPUTE RESOLUTION. In the event of any dispute arising out
of the terms and conditions of this Agreement, the parties hereto consent and
submit to the jurisdiction of the Federal and state courts in the State of
Florida.
11.15 EQUITABLE AND INJUNCTIVE RELIEF. The Partners acknowledge
that (a) the provisions of Article VIII hereof are intended to preserve the
unique relationship between the Partners; and (b) the provisions of Section 11.5
are intended to preserve the value and goodwill of the Partnership's business;
and that, in the event of a breach or a threatened breach by either of its
obligations under Article VIII or Section 11.5, the other will not have an
adequate remedy at law. Accordingly, in the event of any such breach or
threatened breach by a Partner, the other Partner shall be entitled to such
equitable and injunctive relief as may be available to restrain such Partner and
any person, firm or corporation participating in such breach or threatened
breach from the violation of the provisions thereof. Nothing herein shall be
construed as prohibiting a Partner from pursuing any other remedies available at
law or in equity for such breach or threatened breach, including the recovery of
damages.
22
<PAGE>
11.16 CONFLICT WITH FLORIDA LIMITED PARTNERSHIP ACT. In the event
of a conflict between this Agreement and the Act, it is the intention of the
parties that this Agreement shall prevail to the fullest extent permitted by
law.
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IN WITNESS WHEREOF, the parties hereto have subscribed and sworn
to this Agreement of limited partnership on the day and year first above
written.
GENERAL PARTNER:
Resort Management, Inc.
By: /s/ T.F. Flatley
-----------------------------------
Thomas F. Flatley, President
CLASS A LIMITED PARTNER:
/s/ Elsie M. Lewis
By: /s/ Donald F. Lewis Sr.
-----------------------------------
Donald F. Lewis Sr. and Elsie M. Lewis
CLASS B LIMITED PARTNER:
Resort Investments, Inc.
By: /s/ T.F. Flatley
-----------------------------------
Thomas F. Flatley, President
Regency Resorts, Inc.
By: /s/ C. Lynch
-----------------------------------
Charles Lynch, President
24
<PAGE>
SCHEDULE A
GENERAL PARTNER
NAMES AND ADDRESS INTEREST
Resort Management, Inc. 1%
1150 First Ave., Suite 900
King of Prussia, PA 19406
CLASS A LIMITED PARTNERS
NAME AND ADDRESS INTEREST
Donald F. Lewis, Sr. & Elsie M. Lewis 14%
CLASS B LIMITED PARTNERS
NAME AND ADDRESS INTEREST
Resort Investments, Inc. 55%
1150 First Avenue, Suite 900
King of Prussia, PA 19406
Regency Resorts, Inc. 10%
<PAGE>
EXHIBIT 3.9
CERTIFICATE OF INCORPORATION
OF
EPIC WARRANT CO.
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby certify as follows:
FIRST: The name of the corporation (the "Corporation") is EPIC
WARRANT CO.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is one hundred (100) shares of Common Stock, par value of
$0.01 per share.
FIFTH: To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws presently or hereafter in
effect, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Corporation. Any
repeal or modification of this Article Fifth shall not adversely affect any
right or protection of a director of the Corporation existing immediately prior
to such repeal or modification.
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<PAGE>
SIXTH: In furtherance and not in limitation of the rights, powers,
privileges and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to make, alter,
amend or repeal the by-laws of the Corporation, without any action on the part
of the stockholders, but the stockholders may make additional by-laws and may
alter, amend or repeal any by-law whether adopted by them or otherwise. The
Corporation may in its by-laws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
SEVENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
this reservation.
EIGHTH: The name and mailing address of the incorporator is Thomas F.
Flatley, 1150 First Avenue, Suite 900, King of Prussia, Pennsylvania..
NINTH: Pursuant to Section 103(d) of the General Corporation Law of
the State of Delaware, this Certificate of Incorporation shall become effective
on the 26th day of June, 1998.
IN WITNESS WHEREOF, I the undersigned, being the incorporator
hereinabove named, do hereby execute this Certificate of Incorporation this 26th
day of June, 1998.
/s/ Thomas F. Flatley
--------------------------------
Thomas F. Flatley
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<PAGE>
EPIC WARRANT CO.
BY-LAWS
<PAGE>
EPIC WARRANT CO.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I - MEETINGS OF STOCKHOLDERS ----
<S> <C> <C> <C>
Section 1. Time and Place of Meetings.............................. 1
Section 2. Annual Meeting.......................................... 1
Section 3. Special Meetings........................................ 1
Section 4. Notice of Meetings...................................... 2
Section 5. Quorum.................................................. 2
Section 6. Voting.................................................. 2
ARTICLE II - DIRECTORS
Section 1. Powers.................................................. 3
Section 2. Number and Term of Office............................... 3
Section 3. Vacancies and New Directorships......................... 4
Section 4. Regular Meetings........................................ 4
Section 5. Special Meetings........................................ 4
Section 6. Quorum.................................................. 4
Section 7. Written Action.......................................... 5
Section 8. Participation in Meetings by Conference Telephone....... 5
Section 9. Committees.............................................. 5
Section 10. Compensation............................................ 6
Section 11. Rules................................................... 6
ARTICLE III - NOTICES
Section 1. Generally............................................... 6
Section 2. Waivers................................................. 7
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<PAGE>
TABLE OF CONTENTS
(continued)
ARTICLE IV - OFFICERS
Section 1. Generally............................................... 7
Section 2. Compensation............................................ 7
Section 3. Succession.............................................. 7
Section 4. Authority and Duties.................................... 8
Section 5. Execution of Documents and Action with Respect to
Securities of Other Corporations.................... 8
ARTICLE V - STOCK
Section 1. Certificates............................................ 8
Section 2. Transfer................................................ 9
Section 3. Lost, Stolen or Destroyed Certificates.................. 9
ARTICLE VI - GENERAL PROVISIONS
Section 1. Fiscal Year............................................ 10
Section 2. Corporate Seal......................................... 10
Section 3. Reliance upon Books, Reports and Records............... 10
Section 4. Time Periods........................................... 10
Section 5. Dividends.............................................. 10
ARTICLE VII - AMENDMENTS
Section 1. Amendments............................................. 11
</TABLE>
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<PAGE>
EPIC WARRANT CO.
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as may be designated by
the Board of Directors, or by the Chairman of the Board, the President or the
Secretary in the absence of a designation by the Board of Directors, and stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders, shall
be held at such date and time as shall be designated from time to time by the
Board of Directors, at which meeting the stockholders shall elect by a plurality
vote the directors to succeed those whose terms expire and shall transact such
other business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by Certificate of
Incorporation, may be called by the Board of Directors or the President, and
shall be called by the President or the Secretary at the request in writing of
stockholders owning a majority in interest of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall be
sent to the President and the Secretary and shall state the purpose or purposes
of the proposed meeting.
<PAGE>
Section 4. NOTICE OF MEETINGS. Written notice of every meeting of the
stockholders, stating the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned
to another place, date or time, written notice need not be given of the
adjourned meeting if the place, date and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have
been transacted at the original meeting.
Section 5. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
Section 6. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the
Corporation on the record date for the meeting and such votes may be cast
either in
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<PAGE>
person or by written proxy. Every proxy must be duly executed and filed with
the Secretary of the Corporation. A stockholder may revoke any proxy which
is not irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or another duly executed proxy
bearing a later date with the Secretary of the Corporation. The vote upon
any question brought before a meeting of the stockholders may be by voice
vote, unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at
such meeting shall so determine. Every vote taken by written ballot shall be
counted by one or more inspectors of election appointed by the Board of
Directors. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock which has voting power present in person or
represented by proxy and which has actually voted shall decide any question
properly brought before such meeting, unless the question is one upon which
by express provision of law, the Certificate of Incorporation or these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
ARTICLE II
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of its Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
Section 2. NUMBER AND TERM OF OFFICE. The Board of Directors shall
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or
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<PAGE>
by the stockholders at the annual meeting or a special meeting. The
directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 3 of this Article, and each director elected shall
hold office until his successor is elected and qualified, except as required
by law. Any decrease in the authorized number of directors shall not be
effective until the expiration of the term of the directors then in office,
unless, at the time of such decrease, there shall be vacancies on the Board
which are being eliminated by such decrease.
Section 3. VACANCIES AND NEW DIRECTORSHIPS. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors which occur between annual meetings of the stockholders may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so elected shall
hold office until the next annual meeting of the stockholders and until their
successors are elected and qualified, except as required by law.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from
time to time be determined by the Board of Directors.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on one
day's written notice to each director by whom such notice is not waived,
given either personally or by mail or telegram, and shall be called by the
President or the Secretary.
Section 6. QUORUM. At all meetings of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of
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<PAGE>
Directors, the directors present thereat may adjourn the meeting from time to
time to another place, time or date, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 7. WRITTEN ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes or proceedings of the Board or Committee.
Section 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
such committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 9. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation
and each to have such lawfully delegable powers and duties as the Board may
confer. Each such committee shall serve at the pleasure of the Board of
Directors. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. Except as otherwise provided by law, any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Any committee or committees so designated
by the Board shall have such name or names as may be determined
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<PAGE>
from time to time by resolution adopted by the Board of Directors. Unless
otherwise prescribed by the Board of Directors, a majority of the members of
the committee shall constitute a quorum for the transaction of business, and
the act of a majority of the members present at a meeting at which there is a
quorum shall be the act of such committee. Each committee shall prescribe
its own rules for calling and holding meetings and its method of procedure,
subject to any rules prescribed by the Board of Directors, and shall keep a
written record of all actions taken by it.
Section 10. COMPENSATION. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, directors for
attendance at meetings of the Board of Directors or committees, or for other
services by directors to the Corporation, as the Board of Directors may
determine.
Section 11. RULES. The Board of Directors may adopt such special rules
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law
or these by-laws.
ARTICLE III
NOTICES
Section 1. GENERALLY. Whenever by law or under the provisions of the
Certificate of Incorporation or these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
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<PAGE>
Section 2. WAIVERS. Whenever any notice is required to be given by law
or under the provisions of the Certificate of Incorporation or these by-laws,
a waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to
be given, shall be deemed equivalent to such notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a President, a Secretary and a
Treasurer. The Board of Directors may also choose any or all of the
following: a Chairman of the Board of Directors, one or more Vice Presidents,
a Controller, a General Counsel and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices may be held by the same person.
Section 2. COMPENSATION. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed
by the Board of Directors. The Board of Directors may delegate the power to
fix the compensation of other officers and agents of the Corporation to an
officer of the Corporation.
Section 3. SUCCESSION. The officers of the Corporation shall hold
office until their successors are elected and qualified. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in
any office of the Corporation may be filled by the Board of Directors.
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<PAGE>
Section 4. AUTHORITY AND DUTIES. Each of the officers of the
Corporation shall have such authority and shall perform such duties as are
customarily incident to their respective offices, or as may be specified from
time to time by the Board of Directors in a resolution which is not
inconsistent with these by-laws.
Section 5. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO SECURITIES
OF OTHER CORPORATIONS. The President shall have and is hereby given, full
power and authority, except as otherwise required by law or directed by the
Board of Directors, (a) to execute, on behalf of the Corporation, all duly
authorized contracts, agreements, deeds, conveyances or other obligations of
the Corporation, applications, consents, proxies and other powers of
attorney, and other documents and instruments, and (b) to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
stockholders (or with respect to any action of such stockholders) of any
other corporation in which the Corporation may hold securities and otherwise
to exercise any and all rights and powers which the Corporation may possess
by reason of its ownership of securities of such other corporation. In
addition, the President may delegate to other officers, employees and agents
of the Corporation the power and authority to take any action which the
President is authorized to take under this Section 7, with such limitations
as the President may specify; such authority so delegated by the President
shall not be re-delegated by the person to whom such execution authority has
been delegated.
ARTICLE V
STOCK
Section 1. CERTIFICATES. Certificates representing shares of stock of
the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable
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<PAGE>
legal requirements. Such certificates shall be numbered and their issuance
recorded in the books of the Corporation, and such certificate shall exhibit
the holder's name and the number of shares and shall be signed by, or in the
name of the Corporation by the President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Corporation. Any
or all of the signatures and the seal of the Corporation, if any, upon such
certificates may be facsimiles, engraved or printed.
Section 2. TRANSFER. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that
fact, satisfactory to the Secretary, by the person claiming the certificate
of stock to be lost, stolen or destroyed. As a condition precedent to the
issuance of a new certificate or certificates the Secretary may require the
owner of such lost, stolen or destroyed certificate or certificates to give
the Corporation a bond in such sum and with such surety or sureties as the
Secretary may direct as indemnity against any claims that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed or the issuance of the new certificate.
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<PAGE>
ARTICLE VI
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed from time to time by the Board of Directors.
Section 2. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal and use the same by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the records of the Corporation
and upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees
of the Board of Directors, or by any other person as to matters the director,
committee member or officer believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation.
Section 4. TIME PERIODS. In applying any provision of these by-laws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded and the day of the event shall be included.
Section 5. DIVIDENDS. The Board of Directors may from time to time
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by
law and the Certificate of Incorporation.
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<PAGE>
ARTICLE VII
AMENDMENTS
Section 1. AMENDMENTS. These by-laws may be altered, amended or
repealed, or new by-laws may be adopted, by the stockholders or by the Board
of Directors.
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<PAGE>
Exhibit 5.1
August 13, 1998
Epic Resorts, LLC
1150 First Avenue
Suite 900
King of Prussia, PA 19406
Re: 13% Senior Secured Notes due 2005, Series B
---------------------------------------------
Gentlemen:
We are acting as special counsel for Epic Resorts, LLC, a Delaware
limited liability company ("Epic") and Epic Capital Corp., a Delaware
corporation ("Capital Corp., and together with Epic, the "Issuers"), in
connection with the issuance of $130,000,000 aggregate principal amount of
the Issuers' 13% Senior Secured Notes Due 2005, Series B (the "Notes"),
pursuant to an Indenture, dated as of July 8, 1998 (the "Indenture"), between
the Issuers, the Subsidiary Guarantors signatory thereto and United States
Trust Company, as Trustee (the "Trustee"), and an Exchange and Registration
Rights Agreement, dated as of July 8, 1998, between the Issuers, the
Subsidiary Guarantors signatory thereto and NatWest Capital Markets Limited
(the "Registration Rights Agreement").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon, we are of
the opinion that:
1. The Exchange Notes have been duly authorized, and when duly
executed by authorized officers of the Issuers and the Subsidiary Guarantors,
authenticated by the Trustee, and issued in accordance with the Indenture and
the Registration Rights Agreement, will be binding obligations of the Issuers
and the Subsidiary Guarantors, entitled to the benefits of the Indenture.
2. Each Subsidiary Guarantee has been duly authorized, executed and
delivered by authorized officers of each Subsidiary Guarantor, and
constitutes a valid and binding obligation of the applicable Subsidiary
Guarantor in accordance with its terms.
The opinions expressed herein are expressly limited to the federal laws
of the United States of America, the laws of the State of New York and the
General Corporation Law of the State of
<PAGE>
Delaware, as currently in effect, and we express no opinion as to the effect
of, or the enforceability under, the laws of any other jurisdiction, domestic
or foreign.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement on Form S-4 filed by the Issuers to effect
registration of the Notes under the Securities Act of 1933 and to the
reference to us under the caption "Legal Matters" in the Prospectus
constituting a part of such Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<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 "Certain United States Federal Tax Considerations" contained in the
Registration Statement describes the principal 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.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 22, 1998, between EPIC RESORTS, INC., a Delaware
corporation (the "COMPANY"), and Thomas F. Flatley ("EXECUTIVE").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ Executive, and Executive accepts
continued employment with the Company, upon the terms and conditions set forth
in this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 2 hereof (the "EMPLOYMENT PERIOD").
2. TERM. Subject to the terms and conditions hereinafter set forth,
Executive shall be employed for a term commencing on the date hereof and
expiring three (3) years after the date hereof unless such employment is earlier
terminated as provided in Section 5 herein (the "TERM"). If this Agreement is
not terminated prior to the expiration of the employment period, the Term of the
Agreement shall continue on a month-to-month basis after the expiration of the
three-year Term, until either party to this Agreement notifies the other party
in writing that this Agreement has been terminated. After the initial
three-year Term, either party may terminate this Agreement for any or no reason
upon written notice to the other party.
3. DUTIES. During the Term, Executive shall devote his best efforts and
substantially all of his business time and services to the Company. Executive
shall perform such duties and services as the Chief Executive Officer (CEO)
shall request.
4. COMPENSATION AND BENEFITS.
(a) SALARY. The Company agrees to pay Executive a salary during the
Employment Period, in semi-monthly installments. Executive's initial salary
shall be Two Hundred Eighty Thousand Dollars ($280,000) per anum. Executive's
Salary may be increased by the CEO from time to time.
(b) BONUS(ES). The CEO may, in its sole discretion, award a bonus to
Executive for any calendar year during the Employment Period.
(c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for
all reasonable expenses incurred by him in the course of performing his duties
under this Agreement that are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(d) OTHER BENEFITS. Executive shall be entitled, if and to the
extent eligible, to participate in any group life, hospitalization or Disability
insurance plan, health program,
<PAGE>
pension plan, similar benefit plan or other so-called "fringe benefits" of
the Company, that may be no less favorable to Executive than the terms
offered to other Employees of the Company during the Term.
5. TERMINATION. Executive's employment hereunder may be terminated
during the Term as described below.
5.1 RESIGNATION, DEATH OR DISABILITY. In the event of the
resignation, of Executive during the Term, Executive's employment hereunder
shall be terminated and the Company shall pay to Executive, all accrued and
unpaid Salary and Benefits through the date of such termination. Except as set
forth above in this Section 5.1, and except for any salary and other benefits
accrued, vested and unpaid as of the date of his resignation, the Company shall
not be under any further obligation to the Executive after the date of the
Executive's resignation, pursuant to this Agreement. In the event of the death
or Disability (as defined below) of Executive during the Term, the Company shall
continue to pay Executive's executors, legal representatives or administrators,
the base salary outlined in Paragraph 4.a, for a period of one (1) year. A
"Disability" shall be deemed to occur if Executive is unable to perform his
duties and responsibilities hereunder to the full extent required by this
Agreement by reasons of illness, injury or incapacity for a period of more than
forty-five (45) consecutive days or more than ninety (90) days in the aggregate,
during any one-year period during the Term.
5.2 TERMINATION FOR CAUSE.
(a) The Company may terminate Executive's employment hereunder
at any time for "Cause" upon written notice to Executive. For purposes of this
Agreement, "Cause" shall mean the occurrence of any of the following: (i)
alcohol abuse or use of controlled substances during employment hours, (ii)
except where non-performance is caused by a resignation, Disability or death,
Executive's refusal or inability to competently perform his obligations under
this Agreement, as determined by the CEO, (iii) any type of harassment, violence
or threat thereof, of other employees of the Company or toward third paries of a
kind that may tend to result in liability being incurred by the Company toward
such employee or third party, (iv) any type of disloyalty to the Company or any
of its affiliates or subsidiaries, (v) gross negligence or willful misconduct
with respect to the Company or any of its affiliates or subsidiaries, including
without limitation fraud, embezzlement, theft or proven dishonesty in the course
of his employment, or (vi) a conviction of a felony or a misdemeanor involving
moral turpitude or the entering of a plea of guilty or NOLO CONTENDERE to a
felony.
(b) If the Company exercises the right to terminate Executive's
employment with Company for Cause, the Company's obligations to Executive shall
be limited solely to the payment of accrued and unpaid Salary and Benefits
through the date of such termination.
(c) The Company shall have such rights and remedies as may be
available to it for any breach by the Executive of this Agreement or otherwise.
2
<PAGE>
5.3 TERMINATION WITHOUT CAUSE.
(a) At any time, the Company may terminate Executive's
employment hereunder for a reason not constituting Cause by giving written
notice to Executive one hundred and twenty (120) days prior to such termination.
(b) If Executive is terminated without Cause, the Executive
shall be entitled to payment of, (i) all accrued and unpaid Salary and Benefits
through the date of such termination, and (ii) a lump sum amount equal to two
(2) years of his salary.
5.4 SPECIAL TERMINATION OF EMPLOYMENT. If the Company merges,
consolidates or consummates any other business combination in which the Company
is not the surviving entity, and this Agreement is terminated by the Company
thereafter for any reason except for Cause (a "SPECIAL TERMINATION OF
EMPLOYMENT"), the Company shall pay to Executive a lump sum amount upon
termination equal to five (5) years Salary.
6. CONFIDENTIAL INFORMATION. Executive agrees that, for a period of two
(2) years following the expiration or termination of Executive's employment with
the Company pursuant to this Agreement, Executive shall keep secret and retain
in strictest confidence, and shall not use for Executive's benefit or the
benefit of others, directly or indirectly, any proprietary, confidential or
secret matters relating to the Company or any other entity which may hereafter
become an affiliate thereof, including, without limitation, financial
information, trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
all as may be learned, acquired or developed by Executive while employed by the
Company. In the event that Executive or any of his representatives becomes
legally compelled to disclose any of the proprietary, confidential or secret
information of the Company, Executive will provide the Company with prompt
written notice so that the Company may seek a protective order or other
appropriate remedy.
7. NON-COMPETE, NON-SOLICITATION.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement, he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or affiliates
or any predecessor thereof prior to the date of this Agreement he has become
familiar, with trade secrets and customer lists or any other confidential
information concerning the Company and its subsidiaries and affiliates and
predecessors thereof and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) Executive agrees, (i) that during the Employment Period he shall
not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage in or be engaged in, the timeshare business or any other
business then actively being conducted by the Company or any of its
3
<PAGE>
subsidiaries or affiliates, and (ii) that for six (6) months after the
Employment Period he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as
an officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise engage in the activities of the
timeshare business.
(c) Executive further agrees that during the Employment Period and
for two (2) years thereafter he shall not in any manner, directly or indirectly,
induce or attempt to induce any employee of the Company or any of its
subsidiaries or affiliates to quit or abandon his employ.
(d) Nothing in this paragraph 7 shall prohibit Executive from being:
(i) a stockholder in a mutual fund or a diversified investment company or, (ii)
a passive owner of not more than 2% of the outstanding stock of any class of a
corporation that is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
8. ENFORCEMENT. Because Executive's services are unique and because
Executive has access to Confidential Information and work product, the parties
hereto agree that the Company would be damaged irreparably in the event any of
the provisions of paragraph 7 hereof were not performed in accordance with their
specific terms or were otherwise breached and that money damages would be an
inadequate remedy for any such non-performance or breach. Therefore, the
Company or its successors or assigns shall be entitled, in addition to other
rights and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any such provisions and to enforce
such provisions specifically (without posting a bond or other security).
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and Executive and their respective successors,
executors, administrators, heirs and/or permitted assigns; PROVIDED, HOWEVER,
that neither Executive nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party, except that, without such consent, the
Company may assign this Agreement to any successor to all or substantially all
of its assets and business by means of liquidation, dissolution, merger,
consolidation, transfer or assets, or otherwise.
10. NOTICE. Any notice or communication required or permitted under this
Agreement shall be made in writing and, (i) sent by overnight courier, (ii)
mailed by certified or registered mail, return receipt requested or, (iii) sent
by telecopier, addressed to the address of
4
<PAGE>
the parties set forth on page 1 hereof or to such other address as either
party may from time to time duly specify by notice given to the other party
in the manner specified above.
11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the
understanding of the parties hereto relating to the subject matter hereof, and
merges and supersedes all prior and contemporaneous discussions, agreements and
understandings of every nature between the parties hereto relating to the
employment of Executive with the Company. This Agreement may not be changed or
modified, except by an agreement in writing signed by each of the parties
hereto.
12. WAIVER. Any waiver by either party of any breach of any term or
condition in this Agreement shall not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, in law or in equity.
13. GOVERNING LAW. Notwithstanding any contrary choice of laws
principles, this Agreement shall be governed by and construed in accordance with
the substantive laws of the State of Pennsylvania, applicable to contracts
executed and performed within the State of Pennsylvania.
14. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
By /s/T.F. Flatley
------------------------------------------
Chairman and CEO, Epic Resorts, Inc.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of May 20, 1998, between EPIC RESORTS, INC., a Delaware
corporation (the "COMPANY"), and Scott J. Egelkamp ("EXECUTIVE").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ Executive, and Executive accepts
continued employment with the Company, upon the terms and conditions set forth
in this Agreement for the period beginning on the date hereof and ending as
provided in paragraph 2 hereof (the "EMPLOYMENT PERIOD").
2. TERM. Subject to the terms and conditions hereinafter set forth,
Executive shall be employed for a term commencing on the date hereof and
expiring three (3) years after the date hereof unless such employment is
earlier terminated as provided in Section 5 herein (the "TERM"). If this
Agreement is not terminated prior to the expiration of the employment period,
the Term of the Agreement shall continue on a month-to-month basis after the
expiration of the three-year Term, until either party to this Agreement
notifies the other party in writing that this Agreement has been terminated.
After the initial three-year Term, either party may terminate this Agreement
for any or no reason upon written notice to the other party.
3. DUTIES. During the Term, Executive shall devote his best efforts and
substantially all of his business time and services to the Company. Executive
shall perform such duties and services as the Chief Executive Officer (CEO)
shall request.
4. COMPENSATION AND BENEFITS.
(a) SALARY. The Company agrees to pay Executive a salary during the
Employment Period, in semi-monthly installments. Executive's initial salary
shall be $125,000 per anum. Executive's Salary may be increased by the CEO from
time to time.
(b) BONUS(ES). The CEO may, in its sole discretion, award a bonus to
Executive for any calendar year during the Employment Period.
(c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for
all reasonable expenses incurred by him in the course of performing his duties
under this Agreement that are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(d) OTHER BENEFITS. Executive shall be entitled, if and to the
extent eligible, to participate in any group life, hospitalization or
Disability insurance plan, health program, pension plan, similar benefit plan
or other so-called "fringe benefits" of the Company, that may
<PAGE>
be no less favorable to Executive than the terms offered to other Employees
of the Company during the Term.
5. TERMINATION. Executive's employment hereunder may be terminated
during the Term as described below.
5.1 RESIGNATION, DEATH OR DISABILITY. In the event of the
resignation, death or Disability (as defined below) of Executive during the
Term, Executive's employment hereunder shall be terminated and the Company shall
pay to Executive or Executive's executors, legal representatives or
administrators, all accrued and unpaid Salary and Benefits through the date of
such termination. Except as set forth above in this Section 5.1, and except for
any salary and other benefits accrued, vested and unpaid as of the date of his
resignation, death or Disability, the Company shall not be under any further
obligation to the Executive or his heirs or personal representatives after the
date of the Executive's resignation, death, or Disability pursuant to this
Agreement. A "Disability" shall be deemed to occur if Executive is unable to
perform his duties and responsibilities hereunder to the full extent required by
this Agreement by reasons of illness, injury or incapacity for a period of more
than forty-five (45) consecutive days or more than ninety (90) days in the
aggregate, during any one-year period during the Term.
5.2 TERMINATION FOR CAUSE.
(a) The Company may terminate Executive's employment hereunder
at any time for "Cause" upon written notice to Executive. For purposes of this
Agreement, "Cause" shall mean the occurrence of any of the following: (i)
alcohol abuse or use of controlled substances during employment hours, (ii)
except where non-performance is caused by a resignation, Disability or death,
Executive's refusal or inability to competently perform his obligations under
this Agreement, as determined by the CEO, (iii) any type of harassment, violence
or threat thereof, of other employees of the Company or toward third paries of a
kind that may tend to result in liability being incurred by the Company toward
such employee or third party, (iv) any type of disloyalty to the Company or any
of its affiliates or subsidiaries, (v) gross negligence or willful misconduct
with respect to the Company or any of its affiliates or subsidiaries, including
without limitation fraud, embezzlement, theft or proven dishonesty in the course
of his employment, or (vi) a conviction of a felony or a misdemeanor involving
moral turpitude or the entering of a plea of guilty or NOLO CONTENDERE to a
felony.
(b) If the Company exercises the right to terminate Executive's
employment with Company for Cause, the Company's obligations to Executive shall
be limited solely to the payment of accrued and unpaid Salary and Benefits
through the date of such termination.
(c) The Company shall have such rights and remedies as may be
available to it for any breach by the Executive of this Agreement or otherwise.
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5.2 TERMINATION WITHOUT CAUSE.
(a) At any time, the Company may terminate Executive's
employment hereunder for a reason not constituting Cause by giving written
notice to Executive one hundred and twenty (120) days prior to such termination.
(b) If Executive is terminated without Cause, the Executive
shall be entitled to payment of, (i) all accrued and unpaid Salary and Benefits
through the date of such termination, and (ii) a lump sum amount equal to one
(1) year of his salary.
5.4 SPECIAL TERMINATION OF EMPLOYMENT. If the Company merges,
consolidates or consummates any other business combination in which the Company
is not the surviving entity, and this Agreement is terminated by the Company
thereafter for any reason except for Cause (a "SPECIAL TERMINATION OF
EMPLOYMENT"), the Company shall pay to Executive a lump sum amount upon
termination equal to two (2) years Salary.
6. CONFIDENTIAL INFORMATION. Executive agrees that, for a period of two
(2) years following the expiration or termination of Executive's employment with
the Company pursuant to this Agreement, Executive shall keep secret and retain
in strictest confidence, and shall not use for Executive's benefit or the
benefit of others, directly or indirectly, any proprietary, confidential or
secret matters relating to the Company or any other entity which may hereafter
become an affiliate thereof, including, without limitation, financial
information, trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
all as may be learned, acquired or developed by Executive while employed by the
Company. In the event that Executive or any of his representatives becomes
legally compelled to disclose any of the proprietary, confidential or secret
information of the Company, Executive will provide the Company with prompt
written notice so that the Company may seek a protective order or other
appropriate remedy.
7. NON-COMPETE, NON-SOLICITATION.
(a) Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement, he will become familiar, and during the
course of his employment by the Company or any of its subsidiaries or affiliates
or any predecessor thereof prior to the date of this Agreement he has become
familiar, with trade secrets and customer lists or any other confidential
information concerning the Company and its subsidiaries and affiliates and
predecessors thereof and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) Executive agrees, (i) that during the Employment Period he shall
not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage in or be engaged in, the timeshare
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business or any other business then actively being conducted by the Company
or any of its subsidiaries or affiliates, and (ii) that for six (6) months
after the Employment Period he shall not in any manner, directly or
indirectly, through any person, firm or corporation, alone or as a member of
a partnership or as an officer, director, stockholder, investor or employee
of or in any other corporation or enterprise or otherwise engage in the
activities of the timeshare business.
(c) Executive further agrees that during the Employment Period and
for two (2) years thereafter he shall not in any manner, directly or indirectly,
induce or attempt to induce any employee of the Company or any of its
subsidiaries or affiliates to quit or abandon his employ.
(d) Nothing in this paragraph 7 shall prohibit Executive from being:
(i) a stockholder in a mutual fund or a diversified investment company or, (ii)
a passive owner of not more than 2%of the outstanding stock of any class of a
corporation that is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court holds
that the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
8. ENFORCEMENT. Because Executive's services are unique and because
Executive has access to Confidential Information and work product, the parties
hereto agree that the Company would be damaged irreparably in the event any of
the provisions of paragraph 7 hereof were not performed in accordance with their
specific terms or were otherwise breached and that money damages would be an
inadequate remedy for any such non-performance or breach. Therefore, the
Company or its successors or assigns shall be entitled, in addition to other
rights and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any such provisions and to enforce
such provisions specifically (without posting a bond or other security).
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and Executive and their respective successors,
executors, administrators, heirs and/or permitted assigns; PROVIDED, HOWEVER,
that neither Executive nor the Company may make any assignments of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other party, except that, without such consent, the
Company may assign this Agreement to any successor to all or substantially all
of its assets and business by means of liquidation, dissolution, merger,
consolidation, transfer or assets, or otherwise.
10. NOTICE. Any notice or communication required or permitted under this
Agreement shall be made in writing and, (i) sent by overnight courier, (ii)
mailed by certified or
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registered mail, return receipt requested or, (iii) sent by telecopier,
addressed to the address of the parties set forth on page 1 hereof or to such
other address as either party may from time to time duly specify by notice
given to the other party in the manner specified above.
11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the
understanding of the parties hereto relating to the subject matter hereof, and
merges and supersedes all prior and contemporaneous discussions, agreements and
understandings of every nature between the parties hereto relating to the
employment of Executive with the Company. This Agreement may not be changed or
modified, except by an agreement in writing signed by each of the parties
hereto.
12. WAIVER. Any waiver by either party of any breach of any term or
condition in this Agreement shall not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, in law or in equity.
13. GOVERNING LAW. Notwithstanding any contrary choice of laws
principles, this Agreement shall be governed by and construed in accordance with
the substantive laws of the State of Pennsylvania, applicable to contracts
executed and performed within the State of Pennsylvania.
14. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
By /s/T.F. Flatley
------------------------------------
Chairman and CEO, Epic Resorts, Inc.
/s/Scott J. Egelkamp
------------------------------------
Executive
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Exhibit 10.3
ESCROW AND DISBURSEMENT AGREEMENT
This ESCROW AND DISBURSEMENT AGREEMENT (this "Agreement"), dated as of
July 8, 1998, among United States Trust Company of New York, as trustee under
the Indenture, as defined below (in such capacity, the "Trustee"), United States
Trust Company of New York, as escrow agent (in such capacity, the "Escrow
Agent"), Epic Resorts, LLC, a Delaware limited liability company (the
"Company"), and Epic Capital Corp. ("Capital Corp." and, together with the
Company, the "Note Issuers").
RECITALS
A. Pursuant to the Indenture, dated as of July 8, 1998 (the
"Indenture"), among the Note Issuers, the Subsidiary Guarantors party thereto
and the Trustee, the Note Issuers are issuing $130,000,000 aggregate principal
amount of their 13% Senior Secured Notes due 2005 (the "Notes").
B. As security for their obligations under the Notes and the
Indenture, the Note Issuers hereby grant to the Trustee, for the benefit of the
Trustee and the holders of the Notes, a security interest in and lien upon,
subject to and pending disbursement pursuant to this Agreement, the Collateral
(as defined herein).
C. The parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Escrow Account (as defined herein) and released from the
security interest and lien described above.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS. In addition to any other defined terms used
herein, the following terms shall constitute defined terms for purposes of this
Agreement and shall have the meanings set forth below:
APPLIED means that disbursed funds have been applied (i) to the
payment of interest on the Notes, (ii) to the payment of principal of and
premium, if any, on the Notes, upon a repurchase or redemption thereof in
accordance with Section 3.07, Section 3.08 or Section 4.14 of the Indenture, or
(iii) to any combination of the foregoing.
AVAILABLE FUNDS means (A) the sum of (i) the Initial Escrow Amount and
(ii) interest earned or dividends paid on the funds and investments in the
Escrow Account (including holdings of Cash Equivalents), less (B) the aggregate
disbursements previously made pursuant to this Agreement.
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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) demand deposits
(including without limitation, interest bearing deposit accounts), 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-1
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 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
COLLATERAL shall have the meaning given in Section 6(a) hereof.
CONTROL has the meaning given in Section 8-106 of the UCC.
ESCROW ACCOUNT shall mean a securities account as defined in Section
8-501 of the UCC established pursuant to Section 2 hereof.
ESCROW ACCOUNT STATEMENT shall have the meaning given in Section 2(g)
hereof.
INITIAL ESCROW AMOUNT shall mean $16,900,000 of the net proceeds from
offering of the Notes.
INTEREST PAYMENT DATE means December 15, 1998.
ISSUE DATE means July 8, 1998.
MOODY'S means Moody's Investors Service, Inc. or its successors.
OFFICER'S CERTIFICATE means a certificate signed by the President and
by the Chief Financial Officer of the Company.
PAYMENT NOTICE AND DISBURSEMENT REQUEST means a notice sent by the
Trustee to the Escrow Agent notifying the Escrow Agent of the Interest Payment
Date or other payment date in respect of the Notes and requesting a disbursement
of funds from the Escrow Account, in substantially the form of Exhibit A hereto.
Each Payment Notice and Disbursement Request shall be signed by an authorized
signatory of the Trustee designated in a certificate of the Trustee setting
forth specimen signatures of authorized signatories delivered to the Escrow
Agent.
SECURITIES ENTITLEMENTS has the meaning given it in Section 8-102 of
the UCC.
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S&P means Standard and Poor's Ratings Services or its successors.
UCC means the Uniform Commercial Code in effect in the State of New
York on the date hereof.
2. ESCROW ACCOUNT; ESCROW AGENT.
(a) APPOINTMENT OF ESCROW AGENT. The Note Issuers and the Trustee
hereby appoint the Escrow Agent, and the Escrow Agent hereby accepts
appointment, as escrow agent, under the terms and conditions of this Agreement.
(b) ESTABLISHMENT OF ESCROW ACCOUNT. Concurrently with the execution
and delivery hereof, the Escrow Agent shall establish the Escrow Account in the
name of UNITED STATES TRUST COMPANY OF NEW YORK, IN ITS CAPACITY AS ESCROW AGENT
FOR THE BENEFIT OF THE TRUSTEE AND THE HOLDERS OF THE 13% SENIOR SECURED NOTES
DUE 2005 ISSUED BY EPIC RESORTS, LLC AND EPIC CAPITAL CORP. Subject to Section
3, Section 5 and the other terms and conditions of this Agreement, all funds
accepted by the Escrow Agent pursuant to this Agreement shall be held for the
Trustee for the benefit of the Trustee and the holders of the Notes. The Note
Issuers and the Trustee direct, and the Escrow Agent agrees that, all such funds
and Cash Equivalents shall be held in the Escrow Account until disbursed in
accordance with the terms hereof. The Escrow Account, and the funds and Cash
Equivalents held therein, shall be under the Control of the Trustee for the
benefit of the Trustee and the holders of the Notes. Concurrently with the
execution and delivery hereof, the Note Issuers shall deliver, or shall
authorize the Initial Purchaser (as defined in the Indenture) to deliver, the
Initial Escrow Amount to the Escrow Agent for deposit into the Escrow Account.
(c) MAINTENANCE OF MINIMUM BALANCE IN ESCROW ACCOUNT. At all times
subsequent to the Interest Payment Date, and until the date of maturity,
redemption or defeasance of the Notes, the Note Issuers shall maintain in the
Escrow Account funds sufficient to make the next required interest payment on
the Notes (the "Minimum Balance"). The Minimum Balance shall be $8,450,000
unless the Note Issuers certify in an Officer's Certificate that such next
interest payment is a lesser amount. Failure to maintain the Minimum Balance,
which failure shall continue for 60 days following written notice of such
failure by the Trustee, shall constitute an Event of Default under the
Indenture.
(d) ESCROW AGENT COMPENSATION. The Note Issuers shall pay to the
Escrow Agent such compensation for services to be performed by it under this
Agreement as the Note Issuers and the Escrow Agent may agree in writing from
time to time. In the event that the Note Issuers shall fail to pay to the
Escrow Agent such compensation, and such failure shall continue for 30 days
after notice thereof, the Escrow Agent shall be entitled to disburse from the
Escrow Account at such time all such amounts due to the Escrow Agent (including
the reasonable expenses described in the next succeeding paragraph).
The Note Issuers shall reimburse the Escrow Agent upon request for all
reasonable expenses, disbursements, and advances incurred or made by the Escrow
Agent in
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implementing any of the provisions of this Agreement, including compensation
and the reasonable expenses and disbursements of its counsel, except any such
expense, disbursement, or advance as may arise from its gross negligence or
willful misconduct.
(e) INVESTMENT OF FUNDS IN ESCROW ACCOUNT. Funds deposited in the
Escrow Account shall be invested and reinvested upon the following terms and
conditions:
(i) PERMITTED INVESTMENTS. Funds deposited or held in the
Escrow Account shall be initially invested by the Escrow Agent in cash
items (including, without limitation, interest bearing deposit accounts)
and Cash Equivalents in accordance with the Note Issuers' written
instructions to the Escrow Agent. Thereafter, the Escrow Agent shall
invest all funds (including proceeds of any such investments at maturity
and interest earned and dividends paid on any such investments) in the
Escrow Account in Cash Equivalents designated by the Note Issuers in
writing from time to time; provided, however, that the Note Issuers shall
only designate investment of funds in Cash Equivalents maturing in an
amount sufficient to, and/or generating interest income sufficient to, when
added to the balance of funds held in the Escrow Account; PROVIDED,
FURTHER, HOWEVER, that any such written instruction shall specify the
particular investment to be made, shall state that such investment is
authorized to be made hereby, shall contain the certification referred to
in Section 2(e)(ii), if required, and shall be executed by an Officer of
each Note Issuer. The Escrow Agent shall not be liable for losses on any
investments made by it pursuant to and in compliance with this Section. In
the absence of qualifying instructions form the Note Issuers that meet the
requirements of this Section 2(e), the Escrow Agent shall have no
obligation to invest funds held in the Escrow Account.
(ii) SECURITY INTEREST IN INVESTMENTS. No investment of
funds in the Escrow Account shall be made unless the Note Issuers have
certified to the Escrow Agent and the Trustee that, upon such investment,
the Trustee will have a first priority perfected security interest in the
applicable investment. A certificate as to a class of investments need not
be issued with respect to individual investments in securities in that
class if the certificate applicable to the class remains accurate with
respect to such individual investments, which continued accuracy the Escrow
Agent may conclusively assume. On the date hereof, and within ten days of
each anniversary of the Issue Date thereafter until the date upon which the
balance of the Available Funds shall have been reduced to zero and the
termination of this Agreement, each of the Trustee and the Escrow Agent
shall receive an Opinion of Counsel (as such term is defined in the
Indenture) to the Note Issuers, dated the date hereof or thereof, as the
case may be, to the effect that the Escrow Agreement creates a valid and
enforceable security interest in the Collateral in favor of the Trustee for
the benefit of the holders of the Notes and such opinion shall meet the
requirements of Section 314(b) of the Trust Indenture Act of 1939, as
amended (the TIA).
(iii) INTEREST AND DIVIDENDS. All interest earned and
dividends paid on funds invested in Cash Equivalents shall be deposited in
the Escrow Account as additional Collateral in favor of the Trustee for the
benefit of the holders of the Notes (subject to Section 3 and Section 5)
and, if not required to be disbursed in accordance
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with the terms hereof, shall be reinvested in accordance with the terms
hereof at the Note Issuers' written instruction.
(iv) LIMITATION ON ESCROW AGENT'S RESPONSIBILITIES. The
Escrow Agent's sole responsibilities under this Section 2 shall be (a) to
follow the Note Issuers' written instructions given in accordance with
Section 2(d)(i) hereof, (B) to invest and reinvest funds pursuant to this
Section 2(d) and (C) to use reasonable efforts to reduce to cash such Cash
Equivalents as may be required to fund any disbursement in accordance with
Section 3 hereof. Except as provided in Section 6, the Escrow Agent shall
have no other responsibilities with respect to performing or maintaining
the perfection of the Trustee's security interest in the Collateral and
shall not be required to file any instrument, document or notice in any
public office at any time or times. In connection with clause (C) above
and subject to the following sentence, the Escrow Agent shall not be
required to reduce to cash any Cash Equivalents to fund any disbursement or
payment in accordance with Section 3 in the absence of written instructions
signed by an Officer of each Note Issuer specifying the particular
investment to liquidate. If no such written instructions are received, the
Escrow Agent may liquidate those Cash Equivalents having the lowest
interest rate per annum or if none such exist, those having the nearest
maturity.
(f) SUBSTITUTION OF ESCROW AGENT. The Escrow Agent may resign by
giving not less than 30 days prior written notice to the Note Issuers and the
Trustee. Such resignation shall take effect upon the later to occur of (i)
delivery of all funds and Cash Equivalents maintained by the Escrow Agent
hereunder and copies of all books, records, plans and other documents in the
Escrow Agent's possession relating to such funds or Cash Equivalents or this
(which approvals shall not be unreasonably withheld or delayed) and (ii) the
date the Note Issuers, the Trustee and such successor escrow agent enter into
this Agreement or any written successor agreement; and the Escrow Agent shall
thereupon be discharged of all obligations under this Agreement and shall have
no further duties, obligations or responsibilities in connection herewith. If a
successor escrow agent has not been appointed or has not accepted such
appointment within 30 days after notice of resignation is given to the Note
Issuers, the Escrow Agent may apply to a court of competent jurisdiction for the
appointment of a successor escrow agent.
(g) ESCROW ACCOUNT STATEMENT. Each month, the Escrow Agent shall
deliver to the Note Issuers and the Trustee a statement signed by the Escrow
Agent in a form reasonably satisfactory to the Note Issuers and the Trustee
setting forth with reasonable particularity the balance of funds then in the
Escrow Account and the manner in which such funds are invested (an "Escrow
Account Statement"). The parties hereto irrevocably instruct the Escrow Agent
that on the first date upon which the balance in the Escrow Account (including
the holdings of all Cash Equivalents) is reduced to zero, the Escrow Agent shall
deliver to the Note Issuers and to the Trustee a notice that the balance in the
Escrow Account has been reduced to zero.
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3. DISBURSEMENTS.
(a) PAYMENT NOTICE AND DISBURSEMENT REQUEST DISBURSEMENTS. The
Trustee shall, not less than five (5) Business Days (as defined in the
Indenture) prior to the Interest Payment Date or to a date of redemption or
purchase pursuant to Section 3.07, Section 3.08 or Section 4.14 of the Indenture
in respect of the Notes, submit to the Escrow Agent a completed Payment Notice
and Disbursement Request substantially in the form of Exhibit A hereto.
The Escrow Agent's disbursement pursuant to any Payment Notice and
Disbursement Request shall be subject to the satisfaction of the applicable
conditions set forth in Section 3(b) hereof. Provided such Payment Notice and
Disbursement Request is not rejected by it, the Escrow Agent as soon as
reasonably practicable on the Interest Payment Date shall disburse the funds
requested in such Payment Notice and Disbursement Request by wire or book-entry
transfer of immediately available funds to the account of the Trustee for the
benefit of the Trustee and the holders of the Notes. The Escrow Agent shall
notify the Trustee as soon as reasonably possible (but not later than two (2)
Business Days from the date of receipt of the Payment Notice and Disbursement
Request) if any Payment Notice and Disbursement Request is rejected and the
reasons therefor. In the event such rejection is based upon nonsatisfaction of
the condition in Section 3(b)(A) below, the Trustee shall thereupon resubmit the
Payment Notice and Disbursement Request with appropriate changes.
(b) CONDITIONS PRECEDENT TO DISBURSEMENT. The Escrow Agent's payment
of any disbursement shall be made only if: (A) the Trustee shall have submitted,
in accordance with the provisions of Section 3(a) herein, a completed Payment
Notice and Disbursement Request to the Escrow Agent substantially in the form of
Exhibit A with blanks appropriate filled in and (B) the Escrow Agent shall not
have received any notice from the Trustee that as a result of an Event of
Default (as defined in the Indenture) the indebtedness represented by the Notes
has been accelerated and has become due and payable (in which event the Escrow
Agent shall apply all Available Funds as required by Section 6(c)(iii) hereof).
(c) DISTRIBUTION OF AMOUNTS IN EXCESS OF MINIMUM BALANCE. Subsequent
to the Interest Payment Date, and so long as no Event of Default (as defined in
the Indenture) has occurred and is continuing, the Escrow Agent shall upon
receipt of an Officer's Certificate of the type referenced in Section 2(c) and
the written request of the Company, disburse funds in the Escrow Account in
excess of the Minimum Balance to or on the order of the Company.
4. ESCROW AGENT; LIMITATION OF THE ESCROW AGENT'S LIABILITY;
RESPONSIBILITIES OF THE ESCROW AGENT. The Escrow Agent's responsibility and
liability under this Agreement shall be limited as follows: (i) the Escrow
Agent does not represent, warrant or guaranty to the holders of the Notes or the
Trustee from time to time as a consequence of performance or non-performance by
the Escrow Agent hereunder, except for any gross negligence or willful
misconduct of the Escrow Agent; (iii) the Note Issuers shall remain solely
responsible for all aspects of the Note Issuers' business and conduct; and (iv)
the Escrow Agent is not obligated to supervise, inspect, or inform the Note
Issuers or any third party of any matter referred to above.
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No implied covenants or obligations shall be inferred from this
Agreement against the Escrow Agent, nor shall the Escrow Agent be bound by
provisions of any agreement beyond the specific terms hereof. Specifically and
without limiting the foregoing, the Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the directions of the Note Issuers and the
terms hereof, of any funds or Cash Equivalents held by it hereunder, including
without limitation, any liability for any delay not resulting from gross
negligence or willful misconduct in such investment, reinvestment or
liquidation, or for any loss of principal or income incident to any such delay.
The Escrow Agent shall be entitled to rely upon any judicial order or
judgment, upon any written opinion of counsel or upon any certification,
instruction, notice, or other writing delivered to it by the Note Issuers or the
Trustee in compliance with the provisions of this Agreement without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of service thereof. The Escrow Agent may
act in reliance upon any instrument comporting with the provisions of this
Agreement or signature believed by it to be genuine and may assume that any
person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so.
At any time the Escrow Agent may request in writing an instruction in
writing from the Note Issuers, and may at its own option include in such request
the course of action it proposes to take and the date on which it proposes to
act, regarding any matter arising in connection with its duties and obligations
hereunder; PROVIDED, HOWEVER, that the Escrow Agent shall state in such request
that it believes in good faith that such proposed course of action is consistent
with another identified provision of this Agreement. The Escrow Agent shall not
be liable to the Note Issuers for acting without the Note Issuers' consent in
accordance with such a proposal on or after the date specified therein if (i)
the specified date is at least two (2) Business Days after the Note Issuers
receive the Escrow Agent's request for instructions and its proposed course of
action, and (ii) prior to so acting, the Escrow Agent has not received the
written instructions requested from the Note Issuers.
The Escrow Agent may act pursuant to the written advice of counsel
chosen by it with respect to any matter relating to this Agreement and (subject
to clause (ii) of the first paragraph of this Section) shall not be liable for
any action taken or omitted in accordance with such advice.
The Escrow Agent shall not be called upon to advise any person as to
selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this Agreement with
respect to any funds or property deposited hereunder, the Escrow Agent shall be
entitled to refuse to comply with any and all claims, demands or instructions
with respect to such property or funds, and the Escrow Agent shall not be or
become liable for its failure or refusal to comply with conflicting claims,
demands or instructions. The Escrow Agent shall be entitled to refuse to act
until either any conflicting or adverse claims or demands shall have been
finally determined by a
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court of competent jurisdiction or settled by agreement between the
conflicting claimants as evidence in a writing, satisfactory to the Escrow
Agent, or the Escrow Agent shall have received security or an indemnity
satisfactory to the escrow Agent sufficient to save the Escrow Agent harmless
from and against any and all loss, liability or expense which the Escrow
Agent may incur by reason of its acting. The Escrow Agent may in addition
elect in its sole option to commence an interpleader action or seek other
Judicial relief or orders as the Escrow Agent may deem necessary.
No provision of this Agreement shall require the Escrow Agent to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder.
5. INDEMNITY. The Note Issuers shall, jointly and severally,
indemnify, hold harmless and defend the Escrow Agent and its directors,
officers, agents, employees and controlling persons, from and against any and
all claims, actions, obligations, liabilities and expenses, including reasonable
defense costs, reasonable investigative fees and costs, and reasonable legal
fees arising from the Escrow Agent's performance or non-performance, or in
connection with its acceptance or appointment as Escrow Agent, under this
agreement, except to the extent that such liability, expense or claim is
directly attributable to the gross negligence or willful misconduct of any of
the foregoing persons. In connection with any claim, action, obligation,
liability or expense for which indemnification is sought by the Escrow Agent
hereunder, the Escrow Agent shall be entitled to recover its costs from the Note
Issuers and from funds available in the Escrow Account as provided in Section
2(d). The provisions of this Section shall survive any termination,
satisfaction or discharge of this Agreement as well as the resignation or
removal of the Escrow Agent.
6. GRANT OF SECURITY INTEREST: INSTRUCTIONS TO ESCROW AGENT. (a)
The Note Issuers hereby irrevocably grant a first priority security interest in
and lien on, and pledges, assigns and sets over to the Trustee for the benefit
of the Trustee and the holders of the Notes, all of the Note Issuers' right,
title and interest in the Escrow Account and all property now or hereafter
placed or deposited in, or delivered to the Escrow Agent for placement or
deposit in, the Escrow Account, including without limitation, all funds held and
Cash Equivalents held therein, all Securities Entitlements arising with respect
thereto, as well as all rights of the Note Issuers under this Agreement, and all
proceeds of any and all of the foregoing collateral (collectively, the
"Collateral"), in order to secure all obligations and indebtedness of the Note
Issuers under the Notes and any other obligation, now or hereafter arising, of
every kind and nature, owed by the Note Issuers under the Indenture to the
holders of the Notes or to the Trustee. The Note Issuers shall take all actions
necessary on its part to insure the continuance of a first priority security
interest in the Collateral in favor of the Trustee for the benefit of the
Trustee and holders of the Notes in order to secure all such obligations and
indebtedness.
(b) The Note Issuers irrevocably instruct the Escrow Agent to comply
with any and all instructions, directions or entitlement orders originated by
the Trustee regarding the disposition of the Escrow Account, all Cash
Equivalents now or hereafter deposited therein, and all Securities Entitlements
arising with respect thereto, without further consent by the Note Issuers,
PROVIDED that the Escrow Agent may comply with directions of the Note Issuers on
investment of cash and Cash Equivalents as provided in Section 2(d). The Escrow
Agent and the
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Note Issuers agree to treat any and all cash, securities and other property
held in or credited to the Escrow Account from time to time as financial
assets under Article 8 of the UCC. The Note Issuers hereby direct the Escrow
Agent, and the Escrow Agent hereby agrees, to permit the Trustee to exercise
the rights that comprise the financial assets (as defined in Article 8 of the
UCC) credited to the Escrow Account from time to time. The Note Issuers and
the Escrow Agent agree that no person other than the Trustee has Control of
the Escrow Account, the Cash Equivalents now or hereafter deposited therein
and the Securities Entitlements arising with respect thereto, and further
covenant and agree not to grant Control over any such Collateral to any other
person until this Agreement is terminated. The Escrow Agent hereby
acknowledges and agrees that it will hereafter follow the instructions of the
Trustee with regard to the Escrow Account and the Cash Equivalents now or
hereafter deposited therein; it being acknowledged that notwithstanding the
grant of Control to the Trustee, the Note Issuers may direct the Escrow Agent
to make investments in accordance with Section 2(d) hereof.
(c) The Note Issuers and the Trustee hereby irrevocably instruct the
Escrow Agent to, and the Escrow Agent will, (i)(A) maintain sole dominion and
control over funds in the Escrow Account for the benefit of the Trustee to the
extent specifically required herein, (B) maintain, or cause its agent within the
State of New York to maintain, possession of all certificated Cash Equivalents
purchased hereunder that are physically possessed by the Escrow Agent in order
for the Trustee to enjoy a continuous perfected first priority securing interest
therein under the law of the State of New York (the Note Issuers hereby agreeing
that in the event any certificated Cash Equivalents are in the possession of the
Note Issuers or a third party, the Note Issuers shall use their best efforts to
deliver all such certificates to the Escrow Agent), (C)(i) maintain the
Collateral free and clear of all liens, security interests, safekeeping or other
charges, demands and claims against the Escrow Agent of any nature now or
hereafter existing in favor of anyone other than the Trustee or holders of the
Notes; (ii) promptly notify the Trustee if the Escrow Agent receives written
notice that any person other than the Trustee or holders of the Notes has a lien
or security interest upon any portion of the Collateral (other than any claim
which Escrow Agent may have against the Escrow Account for unpaid fees and
expenses) and (iii) in addition to disbursing amounts held in escrow pursuant to
any Payment Notice and Disbursement Requests given to it by the Trustee pursuant
to Section 3, upon receipt of written notice from the Trustee of the
acceleration of the maturity of the Notes or the failure by the Note Issuers to
pay principal on the Notes, and direction from the Trustee to disburse all
Available Funds to the Trustee, as promptly as practicable, after following the
procedures set forth in Section 3, disburse all funds held in the Escrow Account
to the Trustee and transfer title to all Cash Equivalents held by the Escrow
Agent hereunder to the Trustee. The lien and security interest provided for by
this Section 6 shall automatically terminate and cease as to, and shall not
extend or apply to, and the Trustee shall have no security interest in, any
funds disbursed by the Escrow Agent to the Note Issuers pursuant to this
Agreement to the extent not inconsistent with the terms hereof. The Escrow
Agent shall act solely as the Trustee's agent in connection with the duties
under this Section 6, notwithstanding any other provision contained int his
Agreement, without any right to receive compensation from the Trustee and
without any authority to obligate the Trustee or to compromise or pledge its
security interest hereunder.
(d) Any money and Cash Equivalents collected by the Trustee pursuant
to Section 6(c)(iii) shall be applied as provided in the Indenture.
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(e) Upon demand, the Note Issuers will execute and deliver to the
Trustee such instruments and documents as the Trustee may reasonably deem
necessary or advisable to confirm or perfect the rights of the Trustee under
this Agreement and the Trustee's interest in the Collateral. The Trustee will
take all necessary action to preserve and protect the security interest created
hereby as a lien and encumbrance upon the Collateral.
(f) The Note Issuers hereby appoint the Trustee as its
attorney-in-fact with full power of substitution to do any act which the Note
Issuers are obligated herein to do, and the Trustee may exercise such rights
as the Note Issuers might exercise with respect to the Collateral and to take
any action int he Note Issuers' name to protect the Trustee's security
hereunder.
7. TERMINATION. This Agreement shall terminate automatically ten
(10) days following disbursements of all funds remaining in the Escrow Account
(including Cash Equivalents), unless sooner terminated by agreement of the
parties hereto (in accordance with the terms hereof and not in violation of the
Indenture); PROVIDED, HOWEVER, that the obligations of the Note Issuers under
Section 5 (and any existing claims thereunder) shall survive termination of this
Agreement or the resignation of the Escrow Agent; and PROVIDED FURTHER, that
until such tenth day, the Note Issuers will cause this Agreement or any
permitted successor agreement) to remain in effect and will cause there to be an
escrow agent (including any permitted successor thereto) acting hereunder (or
under any such permitted successor agreement). In addition to the rights
provided under Section 6(c)(iii) hereof, upon an Event of Default and for so
long as such Event of Default continues, the Trustee may exercise in respect of
the Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party under
the UCC or other applicable law, and the Trustee may also upon obtaining
possession of the Collateral as set forth herein, without notice to the Note
Issuers except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker's board
or at any of the Trustee's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Trustee may deem commercially
reasonable. The Note Issuers acknowledge and agree that any such private sale
may result in prices and other terms less favorable to the seller than if such
were a public sale. The Note Issuers agree that, to the extent notice of sale
shall be required by law, at least ten (10) days notice to the Note Issuers of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Trustee shall not
be obligated to make any sale regardless of notice of sale having been given.
The Trustee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
8. MISCELLANEOUS.
(a) WAIVER. Any party hereto may specifically waive any reach of
this Agreement by any other party, but no such waiver shall be deemed to have
been given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
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(b) INVALIDITY. If for any reason whatsoever any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) ASSIGNMENT. This Agreement is personal to the parties hereto,
and the rights and duties of any party hereunder shall not be assignable except
with the prior written consent of the other parties. Notwithstanding the
foregoing, this Agreement shall inure to and be binding upon the parties and
their successors and permitted assigns.
(d) BENEFIT. The parties hereto and their successors and permitted
assigns, but no others, shall be bound hereby and entitled to the benefits
hereof; PROVIDED, HOWEVER, that the holders of the Notes and their permitted
assigns shall be entitled to the benefits hereof and to enforce this Agreement.
(e) TIME. Time is of the essence of each provision of this
Agreement.
(f) ENTIRE AGREEMENT: AMENDMENTS. This Agreement and the Indenture
contain the entire agreement among the parties with respect to the subject
matter hereof and supersede any and all prior agreements, understandings and
commitments, whether oral or written. This Agreement may be amended only in
accordance with Article 9 of the Indenture and further by a writing signed by a
duly authorized representative of each party hereto.
(g) NOTICES. All notices and other communications required or
permitted to be given or made under this Agreement shall be in writing and
shall be deemed to have been duly given and received, regardless of when and
whether received, either: (a) on the day of hand delivery; (b) three (3)
Business Days following the day sent, when sent by United States certified
mail, postage and certification fee prepaid, return receipt requested,
addressed as follows; (c) when transmitted by telecopy with verbal
confirmation of receipt by the telecopy operator; or (d) one Business Day
following the day timely delivered to a next-day air courier:
To Escrow Agent:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Department
Telecopy: 212/852-1626/27/32
Telephone: 212/852-1673
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To the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Department
Telecopy: 212/852-1626/27/32
Telephone: 212/852-1673
To the Note Issuers:
Epic Resorts, LLC
Epic Capital Corp.
1150 First Avenue
Suite 900
King of Prussia, Pennsylvania 19406
Attention: Thomas F. Flatley
Telecopy: 610/992-1590
Telephone: 610/992-4719
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) CAPTIONS. Captions in this Agreement are for convenience only
and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) CHOICE OF LAW. The existence, validity, construction, operation
and effect of any and all terms and provisions of this Agreement shall be
determined in accordance with and governed by the laws of the State of New York.
The parties to this Agreement hereby agree that jurisdiction over such parties
and over the subject matter of any action or proceeding arising under this
Agreement may be exercised by a competent Court of the State of New York, or by
a United States Court, sitting in New York City. The Note Issuers hereby submit
to the personal jurisdiction of such courts, hereby waive personal service of
process upon it and consent that any such service of process may be made by
certified or registered mail, return receipt requested, directed to the Note
Issuers at their address last specified for notices hereunder, and service so
made shall be deemed completed five (5) days after the same shall have been so
mailed, and hereby waive the right to a trial by jury in any action or
proceeding with the Escrow Agent. All actions and proceedings brought by the
Note Issuers against the Escrow Agent relating to or arising from, directly or
indirectly, this Agreement shall be litigated only in courts within the State of
New York.
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(k) The Note Issuers hereby represent and warrant that this Agreement
has been duly authorized, executed and delivered on its behalf and constitutes
the legal, valid and binding obligation of the Note Issuers. The execution,
delivery and performance of this Agreement by the Note Issuers does not violate
any applicable law or regulation to which the Note Issuers are subject and does
not require the consent of any governmental or other regulatory body to which
the Note Issuers are subject, except for such consents and approvals as have
been obtained and are in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Escrow and Disbursement Agreement as of the date first above written.
UNITED STATES TRUST COMPANY OF NEW YORK,
as Escrow Agent
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
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
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: /s/ [ILLEGIBLE]
-----------------------------------
Name:
Title:
13
<PAGE>
EXHIBIT A
FORM OF PAYMENT, NOTICE AND DISBURSEMENT REQUEST
(Letterhead of the Trustee)
[Date]
United States Trust Company of New
114 West 47th Street
New York, New York 10036-1532
Attn: James D. Nesci
Re: Disbursement Request No.
(indicate whether revised)
Ladies and Gentlemen:
We refer to the Escrow and Disbursement Agreement, dated as of July 8,
1998 as amended and supplemented to the date hereof (the "Escrow Agreement"),
among you (the "Escrow Agent"), the undersigned as Trustee, Epic Resorts, LLC, a
Delaware limited liability company (the "Company") and Epic Capital Corp.
("Capital Corp." and, together with the Note Issuers, the "Company").
Capitalized terms used herein shall have the meaning given in the Escrow
Agreement.
This letter constitute a Payment Notice and Disbursement Request under
the Escrow Agreement.
[Choose one of the following, as applicable.]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $_______ is due and payable on _______________, 19___, and
requests a disbursement of funds contained in the Escrow Account in such amount
to the Trustee.]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $_______ is due and payable on _______________, 19___, which
amount exceeds the amount of remaining Available Funds in the Escrow Account.
Accordingly, you are hereby requested to disburse all remaining funds contained
in the Escrow Account to the Trustee such that the balance in the Escrow Account
is reduced to zero.]
[The undersigned hereby notifies you that a payment of $_______ is due
and payable on _______________, 19___, in connection with a repurchase or
redemption of Notes, plus accrued interest, if any, pursuant to the provisions
of [Section 3.07] [Section 3.08] [Section 4.14] of the Indenture and requests a
disbursement of funds contained in the Escrow account in such amount. [The
undersigned hereby notifies you that a payment of $______ is due and payable on
____________, 19___ in connection with a repurchase or redemption of Notes, plus
accrued Interest, if any, pursuant to the provisions of [Section 3.07] [Section
4.14] of the Indenture, which amount exceeds the amount of remaining Available
Funds in the Escrow
<PAGE>
account. Accordingly, you are hereby requested to disburse to the Trustee
all remaining funds contained in the Escrow Account such that the balance in
the Escrow account is reduced to zero.]
[The undersigned hereby notifies you that Notes equaling $______ in
aggregate principal amount have been retired or defeased and authorizes you to
release $_______ of funds in the Escrow Account to the Note Issuers (to an
account designated by the Note Issuers in writing), which amount represents the
interest payments on such Retired Notes.]
In connection with the requested disbursement, the undersigned hereby
notifies you that:
1. The Notes have not, as a result of an Event of Default (as
defined in the Indenture), been accelerated and become due and payable.
2. All prior disbursements from the Escrow Account have been
Applied.
3. [Add wire instructions.]
The Escrow Agent is entitled to rely on the foregoing in disbursing
funds relating to this Payment Notice and Disbursement Request.
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
------------------------------------
Name:
Title:
2
<PAGE>
Exhibit 10.4
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 8, 1998, made by the grantors
listed on the signature pages hereof (each individually a "Grantor" and
collectively the "Grantors"), in favor of United States Trust Company of New
York ("U.S. Trust"), in its capacity as depositary with respect to the Cash
Collateral Account (as defined) (in such capacity, the "Depositary") and in its
capacity as trustee (in such capacity, the "Trustee") under the Indenture (as
defined), as collateral agent (in such capacity, the "Collateral Agent") for the
ratable benefit of the Holders (the "Noteholders") of the 13% Senior Secured
Notes due 2005 (the "Notes") issued by Epic Resorts, LLC, a Delaware limited
liability company (the "Company"), and Epic Capital Corp., a Delaware
corporation ("Capital Corp." and, together with the Company, the "Note Issuers")
under the Indenture dated as of July 8, 1998 (the "Indenture"), among the Note
Issuers, the Subsidiary Guarantors named therein and the Trustee.
WITNESSETH:
WHEREAS, the Note Issuers, Epic Warrant Co., the Subsidiary Guarantors
party thereto and NatWest Capital Markets Limited (the "Initial Purchaser") have
entered into a Purchase Agreement dated June 30, 1998 (the "Purchase
Agreement"), pursuant to which, among other things, the Initial Purchaser has
agreed to purchase the Notes from the Note Issuers; and
WHEREAS, it is a condition precedent to the obligations of the Initial
Purchaser to purchase the Notes under the Purchase Agreement, that the Grantors
shall have executed and delivered this Security Agreement to the Depositary and
the Collateral Agent;
NOW, THEREFORE, in consideration of the premises and to induce the
Initial Purchase to enter into the Purchase Agreement and to purchase the Notes,
the Grantors hereby agree with the Depositary and the Collateral Agent, as
follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms which are
defined in the Indenture and used herein are so used as so defined, and the
meanings assigned to terms defined herein or in the Indenture shall be equally
applicable to both the singular and plural forms of such terms; the following
terms which are defined in the Uniform Commercial Code in effect in the State of
New York on the date hereof are used herein as so defined: Accounts, Chattel
Paper, Documents, Equipment, Farm Products, General Intangibles, Instruments,
Inventory and Proceeds; and the following terms shall have the following
meanings:
"Cash Collateral Account" shall mean a cash collateral account,
maintained with the Depositary and under the sole dominion and control of the
Collateral Agent, into which the cash proceeds of all sales of Vacation
Ownership Interests and of the sale of Accounts (including those in connection
with the New Receivables Facility), as well as the cash proceeds of any Accounts
to the extent not otherwise sold or pledged in connection with customary
receivables financing arrangements, shall be deposited.
<PAGE>
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.
"Obligations" shall mean the unpaid principal amount of, or any
premium applicable to, and interest on the Notes (including, without limitation,
interest accruing after the maturity of the Notes and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceedings, relating to any Grantor, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
and all other obligations and liabilities of any Grantor to the Holders or the
Collateral Agent, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Notes, the Indenture or this Security Agreement
(in each such case as the same may be amended, supplemented or modified from
time to time) and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, premium, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel) or otherwise.
"Security Agreement" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"Termination Date" means the date upon which the Grantors under this
Security Agreement, and the Note Issuers under the Indenture have fulfilled all
obligations under the Notes and the aforementioned agreements.
2. GRANT OF SECURITY INTEREST. As collateral security for the
prompt and complete payment and performance when due (whether at the Stated
Maturity, by acceleration or otherwise) of the Obligations, each Grantor hereby
grants to the Collateral Agent a security interest for the benefit of the
Holders and the Collateral Agent in all of the following property now owned or
at any time hereafter acquired by such Grantor or in which such Grantor now has
or at any time in the future may acquire any right, title or interest: (i) the
Cash Collateral Account and all monies, securities and instruments deposited or
required to be deposited in such Cash Collateral Account and (ii) all Proceeds
and products of and security entitlements in each and all of the foregoing
(collectively, the "Collateral").
3. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents
and warrants that:
(a) TITLE; NO OTHER LIENS. Except for the Lien granted to the
Collateral Agent pursuant to this Security Agreement, such Grantor owns each
item of the Collateral free and clear of any and all Liens or claims of others
except as permitted by the Indenture. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except as permitted by
the Indenture and
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<PAGE>
such as may have been filed in favor of the Collateral Agent, pursuant to
this Security Agreement.
(b) PERFECTED FIRST PRIORITY LIENS. The Liens granted pursuant to
this Security Agreement will constitute upon the completion of all necessary
filings or notices in proper public offices or the taking of any necessary
possessions or similar acts, perfected Liens on all Collateral, which are,
except as permitted by the Indenture, prior to all other Liens on such
Collateral created by such Grantor and in existence on the date hereof and which
are enforceable as such against all creditors of such Grantor.
(c) CHIEF EXECUTIVE OFFICE. Each Grantor's chief executive office
and chief place of business is located at 1150 First Avenue, Suite 900, King of
Prussia, Pennsylvania 19406.
(d) FARM PRODUCTS. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
4. COVENANTS. Each Grantor covenants and agrees with the Collateral
Agent, from and after the date of this Security Agreement until the Obligations
are paid in full:
(a) ESTABLISHMENT AND MAINTENANCE OF CASH COLLATERAL ACCOUNTS. Each
Grantor shall deposit into the Cash Collateral Account (i) the cash proceeds of
all sales of Vacation Ownership Interests and of the sale of Accounts (including
those in connection with the New Receivables Facility) and (ii) the cash
proceeds of all Accounts to the extent not otherwise sold or pledged in
connection with the customary receivables financing arrangements.
(b) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL PAPER.
At any time and from time to time, upon the written request of the Collateral
Agent, and at the sole expense of each Grantor, each Grantor will promptly and
duly execute and deliver such further instruments and documents and take such
further action as may be required by applicable law or as the Collateral Agent
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any such jurisdiction
with respect to the Liens created hereby. Each Grantor also hereby authorizes
the Collateral Agent to file any such financing or continuation statement
without the signature of such Grantor to the extent permitted by applicable law.
A carbon, photographic or other reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any jurisdiction. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent, to be held as Collateral pursuant
to this Security Agreement.
(c) INDEMNIFICATION. Each Grantor, jointly and severally agrees to
pay, and to save the Collateral Agent harmless from, any and all liabilities,
costs and expenses (including, without limitation, legal fees and expenses) (i)
with respect to, or resulting from, any delay in
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<PAGE>
paying, any and all excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral, (ii) with
respect to, or resulting from, any delay in complying with any requirement of
law applicable to any of the Collateral or (iii) in connection with any of
the transactions contemplated by this Security Agreement. In any suit,
proceeding or action brought by the Collateral Agent under any Account or
Contract for any sum owing thereunder, or to enforce any provisions of any
Account or Contract, each Grantor will save, indemnify and keep the
Collateral Agent harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by such Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability
at any time owing to or in favor of such account debtor or obligor or its
successors from such Grantor.
(d) MAINTENANCE OF RECORDS. Each Grantor will keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral.
For the Collateral Agent's further security, the Collateral Agent shall have a
security interest in all of each Grantor's books and records pertaining to the
Collateral, and each Grantor shall turn over any such books and records for
inspection at the office of such Grantor to the Collateral Agent or to is
representatives during normal business hours at the request of the Collateral
Agent.
(e) LIMITATION ON LIENS ON COLLATERAL. Each Grantor (x) will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than the Liens created hereby and other than as permitted
pursuant to the Indenture, and (y) will defend the right, title and interest of
the Collateral Agent in and to any of the Collateral against the claims and
demands of all Persons whomsoever.
(f) LIMITATIONS ON DISPOSITIONS OF COLLATERAL. No Grantor will sell,
transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so, except for as permitted by the Indenture.
(g) FURTHER IDENTIFICATION OF COLLATERAL. Each Grantor will furnish
to the Collateral Agent from time to time, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Collateral Agent may reasonably request, all in
reasonable detail.
(h) NOTICES. Each Grantor will advise the Collateral Agent promptly,
in reasonable detail of, (i) any Lien (other than Liens created hereby or
permitted under the Indenture) on, or claim asserted against, any of the
Collateral, and (ii) the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the Liens created hereunder.
(i) CHANGES IN LOCATIONS, NAME, ETC. No Grantor will (i) change the
location of its chief executive office/chief place of business from that
specified in Section 3(c) or (ii) change its name, identity or corporate
structure, to such an extent that any financing statement filed by any Grantor
in connection with this Security Agreement would become misleading,
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unless it shall have given the Collateral Agent at least 30 days' prior
written notice thereof and shall have filed all amendments to financing
statements necessary to maintain the Liens created hereby as required by
Section 4(b) above.
5. CASH COLLATERAL ACCOUNT DISBURSEMENTS.
(a) The Cash Collateral Account shall at all times be under the full
and exclusive dominion and control of the Collateral Agent. Unless and until
the Collateral Agent has knowledge that an Event of Default shall have occurred
and be continuing (as contemplated by Section 7.03 of the Indenture), the
Collateral Agent is hereby authorized, upon receipt of direction of the Company
pursuant to Section 5(b) below, to direct the Depositary to transfer any and all
cash deposited in the Cash Collateral Account to an account specified by, and in
the name of, the Company. The Collateral Agent may release such Collateral from
the Lien of this Security Agreement solely upon the receipt of written direction
of the Company pursuant to Section 5(b) below, notwithstanding the requirements
of Section 11.03 of the Indenture.
(b) Unless and until an Event of Default shall have occurred and be
continuing, the Company is hereby authorized to direct the Collateral Agent to
direct transfers of funds on deposit in the Cash Collateral Account made
pursuant to Section 5(a). Such directions shall be in writing, signed by the
President or Chief Financial Officer of the Company, and shall certify that no
Default or Event of Default has occurred and is continuing under the Indenture.
(c) If, to the knowledge of the Collateral Agent (as contemplated by
Section 7.03 of the Indenture), an Event of Default has occurred and is
continuing, no disbursements shall be made from the Cash Collateral Account
unless and until such Event of Default is cured or waived pursuant to the
Indenture.
6. COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Each Grantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time (in the Collateral Agent's
discretion) for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Collateral Agent the power and right,
on behalf of such Grantor, without notice to or assent by such Grantor, except
any notice required by law referred to in Section 9 hereof, to do the following:
(i) at any time when any Event of Default shall have occurred and is
continuing, in the name of such Grantor or its own name, or otherwise, to take
possession of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys or with respect to any of the
Collateral and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the Collateral
Agent
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for the purpose of collecting any and all such moneys with respect to any of
the Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(ii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due thereunder
directly to the Collateral Agent or as the Collateral Agent shall direct; (B) to
ask for or demand, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of
or arising out of any Collateral; (C) to sign and indorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral; (F) to settle, compromise or adjust
any suit, action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Collateral Agent may deem
appropriate; (G) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner thereof for
all purposes, and to do, at the Collateral Agent's option and such Grantor's
expense, at any time, or from time to time, all acts and things which the
Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent's Liens thereon to effect the intent of this
Security Agreement, all fully and effectively as the Grantor might do.
Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Obligations are paid in full.
(b) OTHER POWERS. Each Grantor hereby authorizes the Collateral
Agent, at any time and from time to time, to execute, in connection with the
sale provided for in Section 9 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) NO DUTY ON COLLATERAL AGENT'S PART. The powers conferred on the
Collateral Agent hereunder are solely to protect the Collateral Agent's
interests in the Collateral and shall not impose any duty upon the Collateral
Agent to exercise any such powers. The Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to such Grantor for any act or failure to act hereunder,
except for their own gross negligence or willful misconduct.
7. PERFORMANCE BY COLLATERAL AGENT OF EACH GRANTOR'S OBLIGATIONS.
If any Grantor fails to perform or comply with any of its agreements contained
herein and the Collateral
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Agent, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the expenses of the Collateral Agent incurred in connection with
such performance or compliance, together with interest thereon at a rate per
annum specified in Section 4.01(b) of the Indenture, shall be payable by such
Grantor to the Collateral Agent on demand and shall constitute Obligations
secured hereby.
8. PROCEEDS. It is agreed that if an Event of Default shall occur
and be continuing (a) all Proceeds received by each Grantor consisting of cash,
checks and other instruments in respect of sales of Vacation Ownership
Interests, sales of Accounts and the cash proceeds of any Accounts to the extent
not otherwise sold or pledged in connection with customary receivables financing
arrangements shall be held by such Grantor in trust for the Collateral Agent,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Grantor, be turned over to the Collateral Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Collateral Agent,
if required), and (b) any and all such Proceeds received by the Collateral Agent
(whether from such Grantor or otherwise) may, in the sole discretion of the
Collateral Agent, be held by the Collateral Agent as collateral security for,
and/or then or at any time thereafter may be supplied by the Collateral Agent
against, the Obligations (whether matured or unmatured), such application to be
in such order as the Collateral Agent shall elect. Any balance of such Proceeds
remaining after the Obligations shall have been paid in full shall be paid over
to such Grantor or to whomsoever may be lawfully entitled to receive the same.
9. REMEDIES. If an Event of Default shall occur and be continuing,
the Collateral Agent may exercise, in addition to all other rights and remedies
granted to it in this Security Agreement, in the Indenture and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent, without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon any Grantor or
any other Person (all and each of which demands, defenses, advertisements and
notices are, to the extent permitted by applicable law, hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more portions at public or private sale or sales, at any exchange, broker's
board or office of the Collateral Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in such Grantor, which right or equity is hereby waived, to
the extent permitted by applicable law, or released. Each Grantor further
agrees, at the Collateral Agent's request, to assemble the Collateral and make
it available to the Collateral Agent at places which the Collateral Agent shall
reasonably select, whether at such Grantor's premises or elsewhere. The
Collateral Agent shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way
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relating to the Collateral or the rights of the Collateral Agent hereunder,
including, without limitation, reasonable attorneys' fees and disbursements,
to the payment in whole or in part of the Obligations, as required by Section
6.10 of the Indenture, and only after such application and after the payment
by the Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(l)(c) of the Code, need the
Collateral Agent account for the surplus, if any to such Grantor. To the
extent permitted by applicable law, such Grantor waives all claims, damages
and demands it may acquire against the Collateral Agent arising out of the
exercise by the Collateral Agent of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition. Each Grantor shall remain liable for
any deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Collateral Agent to collect
such deficiency.
10. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. Neither the
Collateral Agent, nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or
otherwise. For all purposes of this Security Agreement, in the performance of
its duties or obligations hereunder, the Collateral Agent shall be entitled to
the benefits of the Trustee set forth in Sections 7.01(e), (f)(ii), (f)(iii),
(h) and (i) and Section 7.02 of the Indenture.
11. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest until the Obligations are indefeasibly paid in full.
12. SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. PARAGRAPH HEADINGS. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. NO WAIVER; CUMULATIVE REMEDIES. The Collateral Agent shall not
by any act (except by a written instrument pursuant to Section 15 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Collateral Agent, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of
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any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Collateral Agent would otherwise have on any future occasion. The rights or
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
15. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the
terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Grantor and the Collateral Agent, PROVIDED that any provision of this
Security Agreement may be waived by the Collateral Agent in a written letter or
agreement executed by the Collateral Agent or by facsimile transmission from the
Collateral Agent. This Security Agreement shall be binding upon the successors
and assigns of each Grantor and shall inure to the benefit of the Collateral
Agent, the Holders and their respective successors and assigns.
16. TERMINATION OF SECURITY INTEREST; RELEASE OF COLLATERAL. (a)
Upon the repayment in full of all Obligations, the security interest granted in
the Collateral pursuant to this Security Agreement shall terminate and all
rights to the Collateral shall revert to the Grantors.
(b) Upon such termination of the security interest granted in the
Collateral pursuant to this Security Agreement or release of Collateral pursuant
to this Section, the Collateral Agent will, at the expense of each Grantor,
execute and deliver to each Grantor such documents as such Grantor shall
reasonably request to evidence the termination of such security interest and
deliver to such Grantor all Collateral so released then in its possession.
17. NOTICES. All notices or other communications provided for
hereunder shall be in writing and sent by first class mail or nationwide
overnight delivery service, (i) if to a Grantor, addressed to it at 1150 First
Avenue, Suite 900, King of Prussia, Pennsylvania 19406, or at such other address
as such Grantor shall have specified to the Collateral Agent, and (ii) if to the
Collateral Agent, addressed to it at 114 West 47th Street, New York, New York
10036-1532.
18. INTEGRATION. This Security Agreement and the Indenture represent
the agreement of each Grantor and the Collateral Agent with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Collateral Agent relative to subject matter hereof not
expressly set forth or referred to herein and in the Indenture.
19. GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF EACH GRANTOR UNDER THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
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IN WITNESS WHEREOF, each Grantor has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
GRANTORS: 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 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
EPIC RESORT - WESTPARK RESORT, LLC
By: /s/ T.F. Flatley
---------------------------------------
Name: Thomas F. Flatley
Title: President
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EPIC RESORTS - SCOTTSDALE LINKS RESORTS, 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
DAYTONA BEACH REGENCY, LTD.
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By: /s/ T.F. Flatley
---------------------------------------
Name: Thomas F. Flatley
Title: President
Accepted and Agreed:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Collateral Agent
By: /s/ [ILLEGIBLE]
----------------------------
Name:
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK, as Depositary
By: /s/ [ILLEGIBLE]
----------------------------
Name:
Title:
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When recorded, mail to.
Barbara J. Goodman, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
This document is intended
to be recorded in
Beaufort County, South Carolina
THIS MORTGAGE CONSTITUTES A FIXTURE FINANCING STATEMENT FILING
PURSUANT TO SECTION 36-9-402 OF THE SOUTH CAROLINA CODE OF LAWS.
MORTGAGE AND SECURITY AGREEMENT
This Mortgage and SECURITY AGREEMENT (as amended, modified or
supplemented from time to time, this "Security Instrument") is granted as of
July 8, 1998, by Epic Resorts - Hilton Head, LLC., a Delaware limited
liability company, as mortgagor (hereinafter, together with its successors
and assigns, called the "Obligor"), whose address is 1150 First Avenue, Suite
900, King of Prussia, PA 19406 to United States Trust Company of New York, a
New York banking corporation, acting as trustee (herein together with its
successors and assigns in such capacity, the "Mortgagee" for the Holders (as
defined below) pursuant to the Trust Indenture (as defined below), whose
address is 114 West 47th Street, New York, New York 10036-1532.
PRELIMINARY STATEMENTS
(1) This Security Instrument is made pursuant to the Trust Indenture,
dated as of the date hereof (herein, as amended or otherwise modified from
time to time, the "Trust Indenture"), among Epic Resorts, Inc., a Delaware
corporation (herein, together with its successors and assigns, the
"Company"), Obligor and the other Subsidiary Guarantors as identified
therein, and the Mortgagee acting as trustee for the Holders (defined below),
providing, among other things for a loan to the Company of $130,000,000, with
such loan being evidenced by the Company's 13% Senior "Secured Notes due 2005
in the aggregate principal amount of $130,000,000 (the "Notes", such term to
include all notes and other securities issued in substitution or exchange
therefor or in replacement thereof).
(2) Obligor has guaranteed to the holders of the Notes (the "Holders")
the payment when due of the Notes pursuant to a guaranty (the "Subsidiary
Guaranty").
(3) It is a condition precedent to the making of the loan to the
Company that the Obligor shall have executed and delivered to or for the
benefit of the Mortgagee this Security Instrument.
<PAGE>
(4) The Obligor desires to execute this Security Instrument to satisfy
the conditions described in the preceding paragraph and to secure the
performance of its covenants and agreements contained in the Trust Indenture,
herein and in any agreement or instrument made by it with respect to any
indebtedness or obligations secured hereby and to secure the payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due), but not necessarily
in the order set forth, of the following indebtedness, liabilities and
obligations, now existing or hereafter arising, ratably (including any
modifications or replacements thereof):
(a) the aggregate principal amount of $130,000,000, with interest
thereon, as evidenced by the Notes, maturing on or prior to June 15, 2005;
(b) all sums advanced by or on behalf of the Mortgagee pursuant to any
term or provision of this Security Instrument or any other agreement or
instrument relating to or securing any of the foregoing;
(c) all advances or disbursements of the Mortgagee with respect to the
Property (defined below) for the payment of taxes, levies, assessments,
insurance, insurance premiums or costs incurred in the protection of taxes,
levies, assessments, insurance, insurance premiums or costs incurred in
the protection of the Property; and
(d) all other liabilities, obligations and indebtedness of the Obligor
incurred under, arising out of or in connection with the Subsidiary Guaranty,
the Trust Indenture and this Security Instrument.
(all of such indebtedness, liabilities and obligations being collectively
referred to hereinafter as the "Indebtedness").
(5) This Security Instrument creates a lien on the fee simple interest
of the Obligor in the Property and shall automatically become a lien on any
and all condominium units or time share interests in the Property, upon the
creation of such condominium units or time share interests in the Property.
(6) The creation of condominium units and/or time share interests in
the Property shall be permitted only upon satisfaction of the following
conditions:
(i) No Event of Default (as hereinafter defined) shall have occurred or
be continuing under this Security Instrument;
(ii) Obligor shall have received and approved all documents necessary
for the creation of the condominium units and/or time share interests,
including, without limitation, the master deed and/or declaration of the time
share regime;
(iii) Obligor shall have received all approvals and consents, and made
all filings, required in conjunction with the establishment of the
condominium units and/or time shares; and
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(iv) King & Vernon, P.A. shall have agreed to endorse the Lender's title
insurance policy insuring this Security Instrument, to provide affirmative
insurance to the effect that the Property consists of condominiums units
and/or time share interests validly created and that the lien of this
Security Instrument shall constitute a valid first lien upon the time share
interests.
(7) Provided that no Event of Default has then occurred and is
continuing under this Security Instrument, the Mortgagee shall, at the
expenses of Obligor, promptly release the lien hereof on each condominium
unit and/or time share interest following a sale of such condominium unit
and/or time share interest to a person unaffiliated with Obligor, and the
Mortgagee shall not have a lien on the proceeds of any such sale.
GRANTING CLAUSES
NOW, THEREFORE, In consideration of the sum of $1.00, and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, received to the Obligor's full satisfaction, and in
consideration of the loan made or to be made hereafter to or for the benefit
of the Company, the Obligor does give, grant, bargain, sell, warrant, alien,
demise, release, convey, assign, transfer, mortgage, hypothecate, deposit,
pledge, set over and grant a security interest in and confirms to Mortgagee,
its successors and assigns, the real property situated in the State of South
Carolina, described in Exhibit A attached hereto and made a part hereof by
reference;
(1) TOGETHER WITH all condominium units or apartments in any horizontal
property regime now or hereafter created and/or all time share interests
under any vacation time sharing plan now and/or hereafter created in, on, or
at the real property described in Exhibit A attached hereto; and
(2) TOGETHER WITH all rights and easements now and/or hereafter created
which are appurtenant to the real property described in Exhibit A, including
but not limited to those rights and easements more fully identified thereon,
if any; and
(3) TOGETHER WITH all and singular right, title and interest, including
any after-acquired title or reversion, in and to all other ways, easements,
streets, alleys, passages, water, water courses, riparian rights, rights,
liberties and privileges thereof, if any, and in any way appertaining to the
real property described in Exhibit A; and
(4) TOGETHER WITH all rents, royalties, revenues, incomes, issues and
profits accruing and to accrue from the real property described in Exhibit A;
and
(5) TOGETHER WITH all buildings and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction, reconstruction, alteration and repairs of such
improvements now or hereafter erected thereon, all of which materials shall
be deemed to be included within the property subject to this Security
Instrument immediately upon the delivery thereof to the property described in
Exhibit A; all fixtures and articles of personal property now or hereafter
owned by the Obligor and attached to, or located on, and used in the
operation or management of the property described in Exhibit A;
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<PAGE>
and all renewals or replacements thereof, proceeds therefrom, or articles in
substitution therefor, whether or not the same are or shall be attached to
such building or buildings in any manner; it being mutually agreed that all
the aforesaid property owned by the Obligor and placed by it on the property
described in Exhibit A shall, so far as permitted by law, be deemed to be
fixtures and a part of the realty and security for the Indebtedness secured
by this Security Instrument; and
(6) TOGETHER WITH all leases, written or oral, and all agreements for
use or occupancy of all or any portion of the property described in Exhibit
A, together with any and all extensions and renewals thereof and any and all
further leases, subleases, lettings or agreements (including subleases
thereof and tenancies following attornment) upon or covering use or occupancy
of all or any part of the property described in Exhibit A (all such leases,
agreements, subleases and tenancies sometimes collectively referred to herein
as the "Leases" and sometimes individually as a "Lease"); and
(7) TOGETHER WITH all of the rents, income, receipts, revenues, issues
and profits now due or which may become due or to which Obligor may now or
hereafter (including during the period of redemption, if any, following
foreclosure of this Security Instrument become entitled or may demand or
claim arising or issuing from or out of the Leases or from or out of the
property described in Exhibit A or any part thereof; and
(8) TOGETHER WITH all deposits made with or other security given to
utility companies by Obligor with respect to the property described in
Exhibit A, and all proceeds of all insurance now or hereafter carried by, or
payable to, Obligor with respect to the property described in Exhibit A, or
otherwise now or hereafter payable with respect to any loss or damage of the
property described in Exhibit A, and all claims or demands with respect
thereto; and
(9) TOGETHER WITH all right, title and interest of the Obligor in and
to any operating, use, or management agreement pertaining to the property
described in Exhibit A and all cash payments to be made to or for the account
of Obligor pursuant thereto and any other proceeds thereof; and
(10) TOGETHER WITH all right, title and interest of the Obligor in and
to any leases for equipment now or hereafter located at or used in connection
with the property described in Exhibit A, including without limitation all
leases for office equipment, maintenance and operating equipment,
recreational equipment and fixtures, telephone equipment, furniture and
furnishings; and
(11) TOGETHER, WITH all permits, licenses and franchises, and all
contract rights and other intangibles now or hereafter owned by the Obligor
and relating to the ownership, construction, use, operation, occupancy or
development of the property described in Exhibit A, including, without
limitation, any plans, specifications and drawings pertaining to the
development thereof, and contracts with architects and contractors; and
(12) TOGETHER WITH all awards and other compensation heretofore
or hereafter to be made to the present and all subsequent owners of the
property subject to this Security Instrument for any taking by eminent
domain, either permanent or temporary, of all or
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<PAGE>
any part of the property described in Exhibit A or any easement or
appurtenance thereof, including severance and consequential damage and change
in grade of streets, which such awards and compensation are hereby assigned
to the Mortgagee; the Obligor hereby appoints the Mortgagee its
Attorney-in-Fact, with an interest, and authorizes, directs and empowers such
Attorney, at the option of such Attorney, on behalf of the Obligor and its
successors or assigns to collect and receive the proceeds thereof, to give
proper receipts and acquittances therefor (but not to adjust or compromise
the claim) and, after deducting reasonable expenses of collection, to apply
the net proceeds without penalty or premium as a credit upon any portion, as
selected by the Mortgagee, of the Indebtedness secured hereby,
notwithstanding the fact that the amount owing hereon may not then be due
and payable or that such Indebtedness is otherwise adequately secured.
All of the property conveyed or intended to be conveyed to Trustee in
the granting clauses (1) through (12) above, is described in this Security
Instrument as the "Property."
TO HAVE AND TO HOLD the Property with the appurtenances thereunto
belonging unto the Mortgagee and its successors and assigns, in fee simple,
forever, for the purposes and uses herein set forth, until such time as all
of the Indebtedness and obligations secured hereby shall have been paid in
full.
The Obligor covenants with the Mortgagee, its successors and assigns,
that at and until the ensealing of these presents: (i) the Obligor is well
seized of and has a good and indefeasible estate in fee simple in the
Property, and has good right to bargain, sell and convey, and create a
security interest in, the Property in manner and form as above written; (ii)
the Obligor will warrant and defend the Property with the appurtenances
thereunto belonging to the Mortgagee, its successors and assigns, forever
against all lawful claims, and demands whatsoever subject only to such
exceptions to title permitted by the terms of the Trust Indenture; (iii) the
Property and the intended use thereof by the Obligor comply to the best of
the Obligor's knowledge with all applicable restrictive covenants, zoning
ordinances and building codes and flood disaster laws, and, to the extent
that noncompliance therewith would materially adversely affect the value or
marketability of the Property, all applicable occupational, health and
environmental and other applicable laws, rules and regulations of any other
governmental authority whatsoever; and (iv) the Obligor will execute,
acknowledge and deliver all necessary assurances to the Mortgagee of the
title to the Property as provided above.
This Security Instrument is granted as security for the payment of the
Indebtedness. In accordance with the provisions of the Notes, the whole of
the principal sum thereof then unpaid may be declared and become due and
payable upon demand or upon the occurrence of an Event of Default hereunder
or under the Trust Indenture or the Notes. This Security Instrument is given
for the purpose of creating a lien on the Property and expressly is to secure
the Indebtedness. This Mortgage covers fixtures as collateral and the
security interest therein, designed to constitute a fixture filing, and shall
be duly filed in the real estate records.
UPON THE TERMS AND SUBJECT To THE CONDITIONS that are hereinafter
set forth; PROVIDED, HOWEVER, that if the Company pays or causes to be paid
to the Holders all sums secured hereby in the manner provided in the Notes
and the Trust Indenture,
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and the Obligor fully pays and performs its obligations under the Subsidiary
Guaranty, the Trust Indenture, and in this Security Instrument and does keep
and perform every obligation term, covenant, condition and warranty contained
in the Subsidiary Guaranty, the Trust Indenture and in this Security
Instrument, then and in such case the estate, right, title and interest of
Mortgagee in and to the Property shall cease, and upon proof being given to
the satisfaction of the Mortgagee that the Indebtedness has been paid or
satisfied in accordance with its terms, and upon payment of all fees, costs,
charges and liabilities chargeable to or incurred by Mortgagee or otherwise
provided for in this Security Instrument, then this and the estate hereby
granted and conveyed shall be released and reasonable charges should be paid
therefore by Obligor to the extent described in Section 29-3-325 of the South
Carolina Code of Laws.
The Obligor, intending to bind its successors and assigns, hereby
covenants and agrees as follows:
1. The Obligor will duly keep and perform all covenants, agreements,
conditions and stipulations binding on the Obligor under the Subsidiary
Guaranty or the Trust Indenture. The Obligor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Indebtedness and this Security Instrument and any requirement that the
Mortgagee or other holder of the Indebtedness secured hereby protect, secure,
perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against any other person, or
any collateral, or pursue any other remedy in the power of the Mortgagee or
other holder of any of the Indebtedness secured thereby.
2. To facilitate payment and performance of the Indebtedness, the
Obligor hereby absolutely transfers and assigns to Mortgagee all right, title
and interest of the Obligor in and to the Leases.
3. (a) No later than ten days prior to the date when any installment
of taxes and assessments is due, without penalty, interest or delinquency,
the Obligor shall subject to the Mortgagee evidence of the due and punctual
payment of such taxes, assessments, reassessments and other governmental
charges. The Obligor will also pay all taxes and assessments or charges which
may be levied on the Indebtedness secured hereby or the interest therein
excepting the federal income tax imposed under the laws of the United States
and excepting state franchise and state income taxes. Any assessment which is
payable in installments at the application of the Obligor shall,
nevertheless, for the purposes of this section, be deemed due and payable by
the Obligor in its entirety on the day the first installment becomes due and
payable or a lien, unless the written approval of the Mortgagee is obtained
for such installment payments of assessments.
(b) Notwithstanding the provision of Section 3 above, the Obligor shall
have the right to contest in good faith any of such taxes and assessments
upon posting with the Mortgagee sufficient security, reasonably satisfactory
to the Mortgagee, for the payment thereof, with interest, costs and
penalties, under written agreement conditioning payment of such contested
taxes and assessments upon the resolution of such contest, or prior thereto
if the continuance of such contest shall put the Property or any part thereof
in jeopardy of tax sale or forfeiture.
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4. If at any time the United States or the State or Commonwealth in
which the Real Property is located or any of their subdivisions having
jurisdiction shall levy, assess or charge any tax (including, without
limitation, documentary stamp or intangible tax), assessment or imposition
upon this Security Instrument, the Notes, or the Indebtedness secured hereby
or the interest of the Mortgagee in the Property or upon the Mortgagee by
reason of or as holder of any of the foregoing, then the Indebtedness and
accrued interest thereon shall be and become due and payable at the election
of the Mortgagee; provided, however, that such election and the right to
elect shall be unavailing if the Obligor lawfully may pay for such stamps or
such tax, including interest and penalties thereon, to or for the benefit of
the Mortgagee and the other holders of the Indebtedness, and the Obligor
elects to pay and does, in fact, pay when payable, for all such stamps or
such tax, as the case may be, including interest and penalties thereon, prior
to any such election by the Mortgagee. The Obligor further agrees to deliver
to the Mortgagee, at any time, upon demand, evidence of citizenship and such
other evidence as may be required by any government agency having
jurisdiction in order to determine whether the obligation secured hereby is
subject to or exempt from any such tax or any other governmental filing or
reporting requirement.
5. The Obligor shall keep the Property free and clear from all
mechanics liens and statutory liens of every kind other than taxes and
permitted assessments which may be a lien but not yet due and payable and the
Obligor will not voluntarily create or permit to be created or filed against
their respective interests in the Property, or suffer to exist, any mortgage
lien or other lien or liens inferior or superior to the lien of this Security
Instrument (other than the lien or liens for real estate taxes and
assessments not yet due and payable) or if filed, the Obligor will have the
same discharged of record either by payment, the bonding thereof or other
lawful means within 30 days after notice of filing and further that the
Obligor will keep and maintain the same free from all claims of all persons
supplying labor, materials or services which will enter into or otherwise
contribute to the construction of any and all improvements to the Property,
notwithstanding by whom such labor or materials may have been contracted;
provided, however, that the Obligor shall have the right to contest in good
faith any such mechanics' lien or statutory lien upon posting with the
Mortgagee sufficient security, satisfactory to the Mortgagee, for the payment
thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics' lien or statutory lien upon
the resolution of such contest, or prior thereto if the continuance of such
contest or litigation shall put the Property or any part thereof in jeopardy
of foreclosure sale or forfeiture for such lien.
6. The Obligor agrees that the Obligor shall not (i) sell, encumber
(including, without limitation, by means of subordinate mortgage or lien upon
the Property or any part thereof or interest therein), assign, lease or
dispose of the Property or any part thereof or interest therein, except in
accordance with, and to the extent permitted by, the terms and provisions of
the Trust Indenture, or (ii) enter into any contract or agreement to do
anything prohibited by clause (i) of this Section 6 expressly including,
without limitation, any land contract, lease/purchase, lease/option or option
agreement without, in each such case, first obtaining the written consent of
the Mortgagee; except, however, that the Obligor shall have the right,
without such consent, to sell individual lots included in the Property on and
subject to the terms and conditions of the Trust Indenture.
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7. The Obliger hereby acknowledges that the Indebtedness was incurred
in good faith for full value received.
8. The Obligor warrants and represents that:
(a) The Obligor is not now in default under any instruments or
obligations relating to the Property and no party has asserted any claim of
default against the Obligor relating to the Property.
(b) The execution and performance of this Security Instrument and the
consummation of the transactions hereby contemplated will not result in any
breach of, or constitute a default under, any mortgage, lease, bank loan,
credit agreement, trust indenture or other instrument to which the Obligor is
a party or by which it or any of its property (including, without limitation,
the Property) may be bound or affected, nor do any such instruments impose or
contemplate any obligations which are or may be inconsistent with any other
obligations imposed on the Obligor under any other instrument heretofore or
hereafter delivered by the Obligor.
(c) As of the date hereof, there are no actions, suits or proceedings
(including, without limitation, any condemnation or bankruptcy proceedings)
pending or threatened against or affecting the Obligor or the Property, or
which may adversely affect the validity or enforceability of this Security
Instrument, at law or in equity, or before or by any governmental authority,
except as disclosed in writing to the Lenders prior to the date of execution
and delivery hereof as contemplated by the terms and provisions of the Trust
Indenture, and the Obligor is not in default with respect to any writ,
injunction, decree or demand of any court or any governmental authority
affecting the Property.
(d) The Property is not used principally or primarily for farming or
agricultural purposes.
9. (a) The Obligor will maintain flood insurance, if required,
pursuant to a designation of the area in which the Property is located as
flood prone or a flood risk area, as defined by the Flood Disaster Protection
Act of 1973, as amended, as well as comply with any additional requirements
of the National Flood Insurance Program as set forth in such Act.
(b) The Obligor shall maintain for the mutual benefit of the Mortgagee
and the Obligor general public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about the
Property and on, in or about the adjoining streets and passageways, such
insurance to afford protection to the limits of not less than those then
customarily carried with respect to real property similar in general
location, use and occupancy to the Property, but in no event less than a
single limit amount of $5,000,000. All of such insurance shall be primary and
non-contributing with any insurance which may be carried by the Mortgagee.
(c) In the event such coverage is provided as part of a blanket policy,
then in such event the amount of the coverage specifically applicable to the
Property shall be stated on the face of the policy. All insurance policies,
to the extent of its interest, are to be for the benefit
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of and first payable in case of loss to the Mortgagee as first mortgagee
without contribution and the Obligor shall deliver to the Mortgagee a copy of
any renewal or replacement policies and original certificates thereof to the
Mortgagee at such place or to such other party as the Mortgagee may, from
time to time, designate in writing, before the date of such expiration or
termination of any existing policy.
(d) All insurance policies required by this Section 9 shall contain an
express provision or endorsement which states the substance of the following
in a manner acceptable to the Mortgagee: "The policy of insurance shall not
be canceled, permitted to lapse by reason of non-renewal, altered, changed,
amended or modified, nor shall any coverage therein be reduced, deleted,
amended, modified, changed or canceled by either the party named as the
insured, or the Obligor issuing this policy, without at least 30 days' prior
written notice having been given to Mortgagee."
10. (a) The term "Hazardous Materials," as used in this Security
Instrument, shall mean any (i) hazardous wastes and/or toxic chemicals,
materials, substances or wastes as defined by the Environmental Laws set
forth in Subsection 10(b); (ii) any "oil", as defined by the Clean Water
Act (as defined in Subsection 10(b) below), as amended from time to time,
and regulations promulgated thereunder (including crude oil or any fraction
thereof), (iii) any substance, the presence of which is prohibited,
regulated or controlled by any other applicable federal or state or local
laws, regulations, statutes or ordinances now in force or hereafter enacted
relating to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use, generation,
storage, transportation, treatment, release, emission, discharge, disposal,
abatement, cleanup, removal, remediation or handling; (iv) any asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBs") in the
form of electrical equipment, fluorescent light fixtures with ballasts,
cooling oils or any other form, urea formaldehyde, atmospheric radon at
levels over four picocuries per cubic liter; (v) any solid, liquid,
gaseous or thermal irritant or contaminant, such as smoke, vapor, soot,
fumes, alkalis, acids, chemicals, pesticides, herbicides, sewage,
industrial sludge or other similar wastes; (vi) industrial, nuclear or
medical by-products; and (vii) underground storage tanks (whether filled or
unfilled).
(b) The term "Environmental Laws," as used in this Section 10, shall
mean all present and future laws, statutes, ordinances, rules, regulations,
orders and determinations of any governmental authority, pertaining to
health, protection of the environment, natural resources, conservation,
wildlife, waste management, regulation of activities involving Hazardous
Materials, and pollution, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("Superfund" or
"CERCLA"), 42 U.S.C. Section 9601, ET SEQ., the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section 9601(20)(D), the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901, ET
SEQ., the Federal Water Pollution Control Act, as amended by the Clean Water
Act (the "Clean Water Act"), 33 U.S.C. Section 1251, ET SEQ., the Clean Air
Act ("CAA"), 42 U.S.C. Section 7401, ET SEQ., and the Toxic Substances
Control Act, 15 U.S.C. Section 2601, ET SEQ., as amended from time to time.
(c) The Obligor shall, and the Obligor shall cause all employees,
agents, contractors and tenants of the Obligor and any other persons present
on or occupying the Real
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Property to, keep and maintain the Property, including the soil and ground
water thereof, in compliance with, and not cause or permit the Property,
including the soil and ground water thereof, to be in violation of any
Environmental Laws. Neither the Obligor nor any employees, agents,
contractors or tenants of the Obligor or any other persons occupying or
present on the Property shall use, generate, manufacture, store or dispose
on, under or about the Property or transport to or from the Property any
Hazardous Materials.
(d) The Obligor immediately shall advise Mortgagee in writing of: (i)
any notices from any governmental or quasi-governmental agency or authority
of violation or potential violation of any Environmental Law received by the
Obligor; (ii) any and all enforcement, cleanup, removal or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
Environmental Law; (iii) all claims made or threatened by any third party
against the Obligor or the Property relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (i) (ii) and (iii) above are hereinafter
referred to as "Hazardous Materials Claims"); and (iv) discovery by the
Obligor of any occurrence or condition on any real property adjoining or in
the vicinity of the Property that could cause the Property to become
contaminated by or with Hazardous Materials. Mortgagee shall have the right
but not the obligation to join and participate in, as a party if it so
elects, any legal proceedings or actions initiated in connection with any
Hazardous Materials Claims and to have its reasonable attorneys' and
consultants' fees in connection therewith paid by the Obligor upon demand.
(e) The Obligor shall be solely responsible for, and shall indemnify,
defend, and hold harmless Mortgagee, its directors, officers, employees,
agents, successors and assigns from and against, any loss, damage, cost,
expense or liability or whatever kind or nature, known or unknown, contingent
or otherwise, directly or indirectly arising out of or attributable to the
use, generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or after the date of this Security Instrument) of
Hazardous Materials on, in, under or about the Property (whether by the
Obligor, a predecessor in title, any tenant, or any employees, agents,
contractor or subcontractors of any of the foregoing or any third persons at
any time occupying or present on the Property), including, without
limitation: (i) personal injury; (ii) death; (iii) damage to property; (iv)
all consequential damages; (v) the cost of any required or necessary repair,
cleanup or detoxification of the Property, including the soil and ground
water thereof, and the preparation and implementation of any closure,
remedial or other required plans; (vi) damage to any natural resources; and
(vii) all reasonable costs and expenses incurred by Mortgagee in connection
with the foregoing clauses (i) through (vi), including but not limited to
reasonable attorneys' and consultants' fees provided, however, that nothing
contained in this Section shall be deemed to preclude the Obligor from
seeking indemnification from or otherwise proceeding against, any third party
including, without limitation any tenant or predecessor in title to the
Property. The covenants, agreements and indemnities set forth in this Section
shall be binding upon the Obligor and its successors and assigns, and shall
survive each of repayment of the Indebtedness, foreclosure of the Property,
and the Obligor granting a deed in lieu of foreclosure of the Property. Any
costs or expenses incurred by Mortgagee for which the Obligor is responsible
or for which the Obligor has indemnified Mortgagee shall be paid to Mortgagee
on demand, With interest at the default rate specified in the Notes from the
date incurred by Mortgagee until paid in full, and shall be secured hereby.
Without Mortgagee's prior written
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<PAGE>
consent, the Obligor shall not enter into any settlement, consent decree or
other compromise in respect of any Hazardous Materials Claims.
(f) In the event Mortgagee reasonably determines that an investigation
of the Property for the presence of Hazardous Materials (an "Environmental
Audit") is necessary in order to maintain the value of the Mortgagee's
security in the Property, the Obligor shall retain, upon Mortgagee's request,
or Mortgagee may retain directly, at the sole cost and expense of the
Obligor, a licensed geologist, industrial hygienist or an environmental
consultant (referred to hereinafter as the "Consultant") acceptable to
Mortgagee to conduct the Environmental Audit. Mortgagee's determination to
require an Environmental Audit shall be deemed reasonable at any time there
is Default under the Trust Indenture or hereunder or in the event that
Mortgagee has received notice of the likely existence of Hazardous Materials
upon or in the Property. The Environmental Audit shall be performed in a
manner reasonably calculated to discover the presence of Hazardous Materials
contamination taking into consideration the known uses of the Property and
property in the vicinity of the Property and any factors unique to the
Property. If the Obligor shall fall to pay for or obtain an Environmental
Audit as provided for herein, Mortgagee may, but shall not be obligated to,
obtain the Environmental Audit, and the Obligor immediately and without
demand shall repay all costs and expenses incurred by Mortgagee in connection
therewith, with interest at the default rate specified in the Notes from the
date of such payments or advances until paid in full, and such sums so
advanced or expended, with interest as aforesaid, shall be secured hereby.
(g) The Obligor shall cooperate with the Consultant and allow entry and
access to all portions of the Property for the purpose of Consultant's
investigation. The Obligor shall comply, at its sole cost and expense, with
all recommendations contained in the Environmental Audit reasonably required
to bring the Property into compliance with all Environmental Laws and any
recommendation for additional testing and studies to detect the quantity and
types of Hazardous Materials present, if Mortgagee requires the
implementation of the same.
11. In the event the Obligor shall fail to comply with any or all of
its covenants, agreements, conditions and stipulations herein set forth, then
the Mortgagee shall after notice to the Obligor be and hereby is authorized
and empowered at its option, but without legal obligation to do so, to pay or
perform the same without waiver of any other remedy. In addition, the
Mortgagee is authorized and empowered at its option, but without legal
obligation to do so, to enter, or have its agents enter, the Property
whenever necessary for the purpose of inspecting the Property and curing any
default hereunder. The Obligor agrees that the Mortgagee shall thereupon have
a claim against the Obligor for all sums paid by the Mortgagee for such
defaults so cured, together with a lien upon the Property for the sum so paid
plus interest at the default rate specified in the Notes.
12. The Obligor shall not commit waste upon the Property or suffer
waste to be committed thereon. The Obligor will keep the Property in good
order and repair and in compliance in all material respects with any law,
regulation, ordinance or contract affecting the Property. The Obligor shall
observe and comply with all conditions and requirements necessary to preserve
and extend any and all material rights, licenses, permits (including but not
limited to zoning variances, special exceptions and non-conforming uses),
privileges, franchises and
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concessions which are applicable to the Property or which have been granted
to or contracted for by the Obligor in connection with any existing or
presently contemplated use of the Property and shall obtain and keep in full
force and effect all necessary governmental and municipal approvals as may be
necessary from time to time to comply in all material respects with all
mining, environmental and other requirements and with any and all conditions
attached to the insurance relating to the Property and the condition thereof.
13. To the extent permitted by applicable law, the Obligor will give
the Mortgagee immediate notice of the actual or threatened commencement of
any proceedings under eminent domain affecting all or any part of the
Property or any easement therein or appurtenances thereof, including
severance and consequential damage and change in grade of streets, and will
deliver to the Mortgagee copies of any and all papers served in connection
with any such proceedings. Except as provided in subsection (a) below, the
Obligor agrees that all awards heretofore or hereafter made by any public or
quasi-public authority to the present and all subsequent owners of the
Property by virtue of an exercise of the right of eminent domain by such
authority, including any award for taking of title, possession or right of
access of a public way, or for any change of grade or streets affecting the
Property, are hereby assigned to the Mortgagee and the Mortgagee at its
option is hereby authorized, directed and empowered to collect and receive
the proceeds of any such awards from the authorities making the same and to
give proper receipts therefor. After deducting from such proceeds any
expenses incurred by the Mortgagee in the collection or handling thereof, the
Mortgagee shall apply the net proceeds as to the Indebtedness in such order
as determined by the Mortgagee.
The Obligor hereby covenants and agrees to and with the Mortgagee, upon
the request of the Mortgagee to make, execute and deliver any and all
assignments and other instruments sufficient for the purpose of assigning all
such awards to the Mortgagee, free and clear and discharged of any and all
encumbrances of any kind or nature whatsoever except as above stated.
14. In the event an action shall be instituted to foreclose this
Security Instrument, or prior to foreclosure but after default, to the extent
permitted by applicable law, the Mortgagee shall be entitled to the
appointment of a receiver of the rents, issues and profits of the Property as
a matter of right, with power to collect the rents, issues and profits of the
Property due and becoming due during the period of default and/or the
pendency of such foreclosure suit to and including the date of confirmation
of the sale under such foreclosure and during the redemption period, if any,
after such confirmation, such rents, issues and profits being hereby
expressly assigned and pledged as security for the payment of the
Indebtedness secured by this Security Instrument without regard to the value
of the Property or the solvency of any person or persons liable for the
payment of the Indebtedness and regardless of whether the Mortgagee has an
adequate remedy at law. The Obligor for itself and for any subsequent owner
hereby waives any and all defenses to the application for a receiver as above
provided and hereby specifically consents to such appointment, but nothing
herein contained is to be construed to deprive the holder of this Security
Instrument of any right or remedy or privilege it may now have under the law
to have a receiver appointed. The provision for the appointment of a receiver
and the assignment of such rents, issues and profits is made an express
condition upon which the Loans hereby secured are made. In such event, the
court shall at once on application of the Mortgagee
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<PAGE>
or its attorney in such action, appoint a receiver to take immediate
possession of, manage and control the Property, for the benefit of the holder
or holders of the Indebtedness and of any other parties in interest, with
power to collect the rents, issues and profits of the Property during the
pendency of such action, and to apply the same toward the payment of the
several obligations herein mentioned and described, notwithstanding that the
same or any part thereof is occupied by the Obligor or any other person. The
rights and remedies herein provided for shall be deemed to be cumulative and
in addition to and not in limitation of those provided by law and if there be
no receiver so appointed, the Mortgagee itself may proceed to collect the
rents, issues and profits from the Property. From any such rents, issues, and
profits collected by the receiver or by the Mortgagee prior to a foreclosure
sale, there shall be deducted the cost of collection thereof and the expenses
of operation of the Property, including but not limited to real estate
commissions, receiver's fee and the reasonable fees of its attorney, if any,
and the Mortgagee's attorney's fees, if permitted by law, and court costs,
the remainder to be applied against the Indebtedness. In the event the rents,
issues and profits are not adequate to pay all tax and other expenses of
operation, the Mortgagee may, but is not obligated to, advance to any
receiver the amounts necessary to operate, maintain and repair, if necessary,
the Property and any such amounts so advanced, together with interest thereon
at the default rate specified in the Notes from and after the date of
advancement, shall be secured by this Security Instrument and have the same
priority of collection as the principal of the Indebtedness secured hereby.
15. No sale of the Property, no forbearance on the part of the
Mortgagee, no extension of the time for the payment of the Indebtedness and
no change in the terms of the payment thereof consented to by the Mortgagee
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Obligor hereunder or the original
liability of the Borrower or any other obligor under any of the Indebtedness,
either in whole or in part. No waiver by the Mortgagee of any breach of any
covenant of the Obligor herein contained shall be construed as a waiver of
any subsequent breach of the same or any other covenant herein contained. The
failure of the Mortgagee to exercise the option for acceleration of maturity
and/or foreclosure (including sale under power of sale hereunder) following
any default as aforesaid or to exercise any other option granted to the
Mortgagee hereunder in any one or more instances, or the acceptance by the
Mortgagee of partial payments hereunder shall not constitute a waiver of any
such default, nor extend or affect the grace period, if any, but such option
shall remain continuously in force with respect to any unremedied or uncured
default. Acceleration of maturity once claimed hereunder by the Mortgagee
may, at the option of the Mortgagee, be rescinded by written acknowledgment
to that effect by the Mortgagee, but the tender and acceptance of partial
payments alone shall not in any way affect or rescind such acceleration of
maturity, or extend or affect the grace period, if any. The Mortgagee may
pursue any of its rights without first exhausting its rights hereunder and
all rights, powers and remedies conferred upon the Mortgagee herein are in
addition to each and every right which the Mortgagee may have hereunder at
law or equity and may be enforced concurrently therewith.
16. If any action or proceeding be commenced, to which action or
proceeding the Mortgagee is made a party by reason of the execution of this
Security Instrument or the Indebtedness, or in which it becomes necessary to
defend or uphold the lien of this Security Instrument, or the priority
thereof or possession of the Property, or otherwise to perfect the security
hereunder, or in any suit, action, legal proceeding or dispute of any kind in
which the Mortgagee is made a party or appears as party plaintiff or
defendant, affecting the interest created
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herein, or the Property, including, but not limited to, bankruptcy, probate
and administration proceedings, foreclosure of this Security Instrument or
any condemnation action involving the Property, all sums paid by the
Mortgagee for the expense of any litigation to prosecute and defend the
rights and liens created hereby shall be paid by the Obligor, to the extent
permitted by applicable law, together with interest from the date of payment
at the Default Rate. Any such sum and the interest thereon shall be
immediately due and payable upon demand and be secured hereby, having the
benefit of the lien hereby created, as a part hereof and its priority.
17. Each remedy or right of the Mortgagee shall not be exclusive of but
shall be in addition to every other remedy or right now or hereafter existing
at law or in equity. No delay in the exercise or omission to exercise any
remedy or right accruing on any default shall impair any such remedy or right
or be construed to be a waiver of any such default or acquiescence therein,
nor shall it affect any subsequent default of the same or a different nature.
Every such remedy or right may be exercised concurrently or independently and
when and as often as may be deemed expedient by the Mortgagee.
18. Upon an Event of Default, to the extent permitted by any applicable
law of South Carolina Mortgagee may personally, or by its agents or
attorneys, and without becoming a mortgagee-in-possession, may enter into and
upon all or any part of the Real Property, and each and every part hereof,
and may exclude the Obligor, its agents, and servants wholly therefrom, and
having and holding the same, may use, operate, manage and control the
Security or any part thereof and conduct the business thereof, either
personally or by its superintendents, managers, agents, servants, attorneys
or receivers; and upon such entry, Mortgagee, at the expense of the Obligor,
may, at Mortgagee's sole option, insure the same; and likewise, from time to
time, at the expense of the Obligor, Mortgagee may make all necessary or
proper repairs, renewals and replacements and such useful alterations,
additions, betterments and improvements thereto and thereon as to Mortgagee
may seem advisable; and in every such case Mortgagee shall have the right to
manage and operate the Security and to carry on the business thereof and
exercise all rights and powers of the Obligor with respect thereto either in
the name of the Obligor or otherwise as it shall deem best; and after
deducting the expenses of conducting the business thereof and of all
maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements necessary to operate the Improvements or their
intended purposes and amounts necessary to pay for taxes, assessments,
insurance and prior or other proper charges upon the Security or any part
hereof, as well as reasonable compensation for the services of Mortgagee and
Trustee, and for all attorneys, consultants, agents, clerks, servants and
other parties employed by Mortgagee or Trustee, Mortgagee shall apply the
moneys arising as aforesaid to the Liabilities in such manner and at such
times as Mortgagee shall determine in its sole discretion, when and as the
same shall become payable and/or to the payment of any other sums required to
be paid by the Obligor under this Security Instrument.
19. (a) Upon an Event of Default, to the extent permitted by any
applicable law of South Carolina, Mortgagee may, with or without entry,
personally or by its agents or attorneys, insofar as applicable:
(i) Request the Mortgagee to sell the Property or any part thereof
pursuant to the procedures provided by law at one or more sales as an entity
or in parcels, and at such
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<PAGE>
time and place upon such terms and after such notice thereof as may be
required or permitted by law; and/or
(ii) Institute an action of judicial foreclosure on this Security
Instrument or institute other proceedings according to law for the
foreclosure hereof, and may prosecute the same to judgment, execution and
sale for the collection of the Entire Indebtedness, and all interest with
respect thereto, together with all taxes and insurance premiums advanced by
Mortgagee and other sums payable by the Obligor hereunder, and all fees,
costs and expenses of such proceedings, including reasonable attorneys' fees
and expenses; and/or
(iii) Take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific
performance of any covenant, condition or agreement in the Loan Documents
or in and of the execution of any power herein granted, or for any
foreclosure hereunder, or for the enforcement of any other appropriate
legal or equitable remedy or otherwise as Mortgagee shall elect.
(b) To the extent permitted by law of South Carolina, the Mortgagee may
postpone from time to time any sale by them to be made under or by virtue of
this Security Instrument by postponement at the time and place appointed for
such sale or for such postponed sale or sales; and, except as otherwise
provided by any applicable provision of law, the Mortgagee, without further
notice or publication, may make such sale at the time and place to which the
same shall be so postponed.
(c) Upon the completion of any sale or sales made by the Mortgagee
under or by virtue of this Security Instrument, Mortgagee shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, conveying, assigning and
transferring all estate, right, title and interest in and to the property and
rights sold. The Mortgagee shall make all the necessary conveyances,
assignments, transfers and deliveries of any part of the Property and rights
so sold and for that purpose the Mortgagee may execute all necessary
instruments of conveyance, assignment and transfer. Any such sale or sales
made under or by virtue of this Section 19, whether made under the power of
sale herein granted or under or by virtue of judicial proceeding or of a
judgment or decree of foreclosure and sale, shall operate to divest all the
estate, right, title, interest, claim and demand whatsoever, whether at law
or in equity, of the Obligor in and to the properties, interests and rights
so sold, and shall be a perpetual bar both at law and in equity against the
Obligor and against any and all persons claiming or who may claim the same,
or any part thereof from, through or under the Obligor.
(d) Upon any sale, whether under the power of sale hereby given or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, except as required by law, it shall not be necessary for the Mortgagee
or any public officer acting under execution or order of court to have
present or constructive possession of any of the Property.
(e) The recitals contained in any conveyance made by the Mortgagee to
any purchaser at any sale made pursuant hereto or under applicable law shall
be conclusive evidence of the matters therein stated, and all prerequisites
to such sale shall be presumed to have been satisfied and performed.
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<PAGE>
(f) The receipt by Mortgagee of the purchase money paid at any such
sale, or the receipt by any other person authorized to receive the same,
shall be sufficient discharge therefor to any purchaser of the property or
any part thereof, sold as aforesaid, and no such purchaser, or his
representatives, grantees or assigns, 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 be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(g) In case the liens or the Property interests hereunder shall be
foreclosed by Mortgagee's sale or by other judicial or non-judicial action,
the purchaser at any such sale shall receive, as an incident to his
ownership, the right to immediate possession of the property or any part
thereof, subsequent to foreclosure, the Obligor or the Obligor's successors
(except tenants who have entered into subordination, non-disturbance and
attornment agreements with Mortgagee) shall be considered as tenants at
sufferance of the purchaser at foreclosure sale, and anyone occupying the
property after demand made for possession thereof shall be guilty of forcible
detainer and shall be subject to eviction and removal, forcible or otherwise,
with or without process of law, and all damages by reason thereof are hereby
expressly waived to the extent permitted by law.
(h) Should any Event of Default occur hereunder, any expenses incurred
by Mortgagee in prosecuting, resolving, or settling the claim of Mortgagee
shall become an additional "liability" of the Obliger and part of the
Indebtedness secured hereby.
(i) In the event a foreclosure hereunder shall be commenced by
Mortgagee, to the extent permitted by any applicable law of South Carolina,
Mortgagee may at any time before the sale abandon the suit, and may then
institute suit for the acceleration of the Note and for the foreclosure of
the liens and the Property interest hereof. If Mortgagee should institute a
suit for the acceleration of the Note and for a foreclosure of the liens and
the Property interest hereof, it may at any time before the entry of a final
judgment in said suit dismiss the same and proceed to sell the Property, or
any part thereof, in accordance with the provisions of this Security
Instrument.
(j) The purchase money proceeds or avails of any sale made under or by
virtue of this Security Instrument, together with any other sums which then
may be held by Mortgagee under this Security Instrument, whether under the
provisions of this Section 19 or otherwise, shall be applied in accordance
with the laws of South Carolina, and to the extent not inconsistent, as
follows.
(A) first, to the payment or reimbursement of the Mortgagee for all
costs and expenses of such suit or suits or other enforcement activities
of the Mortgagee, including, but not limited to, the costs of advertising,
sale and conveyance, including attorneys', solicitors' and stenographers'
fees, if permitted by law, outlays for documentary evidence and the cost
of such abstract, examination of title and title report;
(B) second, to the extent proceeds remain after the application
pursuant to preceding clause (A), to reimburse the Mortgagee for all moneys
advanced by the
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<PAGE>
Mortgagee, if any, for any purpose authorized in this Security Instrument
with interest at the default rate specified in the Notes;
(C) third, to the extent proceeds remain after the application
pursuant to preceding clause (B), an amount equal to the outstanding
Indebtedness owed to the Holders shall be paid to the Mortgagee for the
benefit of the Holders; and
(D) fourth, to the extent remaining after the application pursuant to
the proceeding clauses (A), (B) and (C), to the Obligor or to whomever may
be lawfully entitled to receive such payment.
(k) The Obligor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs
and reasonable attorneys' fees, incurred by Mortgagee in enforcing payment
and performance of the Indebtedness or in exercising the rights and remedies
of Mortgagee hereunder. All such costs and expenses shall be secured by this
Security Instrument and by all other lien and security documents securing the
Indebtedness. In the event of any court proceedings, court costs and
attorneys' fees shall be set by the court and not by jury and shall be
included in any judgment obtained by Mortgagee.
(l) In any action by Mortgagee to recover a deficiency judgment for any
balance due under the Note upon the foreclosure of this Security Instrument
or in any action to recover the Indebtedness or Indebtedness secured hereby,
and as a material inducement to making the loan evidenced by the Note, the
Obligor acknowledges and agrees that the successful bid amount made at any
judicial or non-judicial foreclosure sale, if any, shall be conclusively
deemed to constitute the fair market value of the Property, that such bid
amount shall be binding against the Obligor in any proceeding seeking to
determine or contest the fair market value of the Property. The Obligor
hereby waives and relinquishes any right to have the fair market value of the
Property determined by a judge or jury in any action seeking a deficiency
judgment or any action on the Indebtedness secured hereby, including, without
limitation a hearing to determine fair market value.
(m) Upon any sale made under or by virtue of this Section 19, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon
the indebtedness of Obligor secured by this Security Instrument the gross
sales price.
20. The Mortgagee, in making any payment herein and hereby authorized
in the place and stead of the Obligor (a) relating to taxes, assessments,
water rates, sewer rentals and other governmental or municipal charges,
fines, impositions or liens asserted against the Property, may do so
according to any bill, statement or estimate procured from the appropriate
public authority without inquiry into the validity thereof; or (b) relating
to any adverse title, lien, statement of lien, encumbrance, claim or charge,
shall be the sole judge of the validity of same; or (c) otherwise relating to
any purpose herein and hereby authorized, but not enumerated in this section,
may do so whenever, in its good faith judgment and discretion, such payment
shall seem
17
<PAGE>
necessary or desirable to protect the full security intended to be created by
this Security Instrument. In connection with any such payment, the Mortgagee,
at its option, may and is hereby authorized to obtain a continuation report
of title prepared by a title insurance Obligor, the cost and expenses of
which shall be repayable by the Obligor upon demand and shall be secured
hereby.
21. The Obligor agrees, without affecting the liability of any person
for payment of the Indebtedness or affecting the lien of this Security
Instrument upon the Property or any part thereof (other than persons or
property explicitly released as a result of the exercise by the Mortgagee of
its rights and privileges hereunder), that the Mortgagee, without notice, and
without regard to the consideration, if any, paid therefor, and
notwithstanding the existence at that time of any inferior liens thereon, may
release as to itself and this Security Instrument any part of the security
described herein or any person liable for any indebtedness secured hereby,
without in any way affecting the priority of the lien of this Security
Instrument to the full extent of the Indebtedness remaining unpaid hereunder
upon any part of the security not expressly released and may agree with any
party obligated on the Indebtedness or having any interest in the security
described herein to extend the time for payment of any part or all of the
Indebtedness secured hereby. Such agreement shall not, in any way, release or
impair the lien hereof, but shall extend the lien hereof as against the title
of all parties having any interest in such security which interest is subject
to such lien. In the event the Mortgagee: (a) releases, as aforesaid, any
part of the security described herein or any person liable for any
indebtedness secured hereby, (g) grants an extension of time for any payments
of the debt secured hereby, (c) takes other or additional security for the
payment thereof, or (d) waives or fails to exercise any right granted herein,
in the Notes or in any related agreement, no such act or omission shall
release the Obligor, subsequent purchasers of all or any part of the
Property, any maker or surety of the Notes or any party to this Security
Instrument or any related agreement under any covenant therein, or preclude
the Mortgagee from exercising any right, power or privilege herein granted or
intended to be granted in the event of any other default then made or any
subsequent default.
22. If at any time the United States of America shall require internal
revenue stamps to be affixed to any of the Notes or any other Indebtedness,
the Obligor will pay (or cause the Borrower, if the Obligor is not the
Borrower) for the same with any interest or penalties imposed in connection
herewith.
23. To the extent services are required of the Mortgagee's counsel
after the date hereof, which are normally incident to the closing, amendment,
alteration, and enforcement of this Security Instrument, and all provisions
herein contained, the Obligor shall, to the extent permitted by law, pay the
reasonable fees therefor, promptly upon the rendering of such a bill and
delivery thereof to the Obligor.
24. The Obligor agrees at all times to cause this Security Instrument,
and each amendment or modification hereof or supplement hereto, and all
assignments of leases, to be recorded, registered and filed, and kept
recorded, registered and filed, in such manner and in such places as
appropriate, and shall comply with all applicable statutes and regulations in
order to establish, preserve and protect the security and priority of this
Security Instrument, and such assignments and the rights of the Mortgagee
thereunder. The Obligor shall pay, or cause to be
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<PAGE>
paid, all taxes, fees and other charges incurred in connection with such
recording, registration, filing and compliance.
25. The Obligor acknowledges that it has received from the Mortgagee
without charge a true and correct copy of this Security Instrument.
26. The Mortgagee and its successors and assigns shall be entitled to
all of the benefits of the indemnification provisions of the Trust Indenture.
27. To the extent permitted by law with respect to the Indebtedness
secured hereby or any renewals or extensions thereof, the Obligor waives and
renounces any and all homestead and exemption rights, as well as the benefit
of all valuation and appraisement privileges, and also moratoriums under or by
virtue of the constitution and laws of the jurisdiction in which the Property
is located or any other state or of the United States, now existing or
hereafter enacted.
28. All the covenants hereof shall run with the land. Nothing herein
contained nor any transaction related hereto shall be construed or shall so
operate, either presently or prospectively, to require the Obligor to pay
interest at a rate greater than is now lawful in such case to contract for,
but shall require payment of interest only to the extent of such lawful rate.
29. The Obligor shall execute, acknowledge and deliver any and all such
further acts, conveyances, documents, mortgages and assurances as the
Mortgagee may reasonably require for accomplishing the purpose hereof
forthwith upon the request of the Mortgagee, whether in writing or otherwise.
The Obligor, within ten days upon request by mail, shall furnish a written
statement duly acknowledged of the amount due upon this Security Instrument
and the Indebtedness (both unpaid principal and accrued interest) and whether
any offset or defenses exist against the Indebtedness, and any other
information which might reasonably be requested in connection with the sale
of the Indebtedness, or any portion thereof or interest therein, to any third
party, or an audit of the Mortgagee, and which may be relied on for such
purposes.
30. Wherever notices may appropriately be given under this Security
Instrument, such notices shall be in writing and shall always be treated as
having adequately been given if:
(n) when intended for the Obligor, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing address,
as set out herein or to such other address or to such other person, as the
Obligor may from time to time, designate in writing; or
(o) when intended for the Mortgagee, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing address
of the Mortgagee as set out herein or to such other address or to such
other person as the Mortgagee may from time to time designate in writing.
19
<PAGE>
31. Any of the following occurrences or acts shall constitute an
event of default under this Security Instrument ("Event of Default"): (a)
the Company fails to pay any of the Notes or any installment thereof or
interest thereon when due or when declared due, subject to any applicable
grace period provided therein; (b) an Event of Default under and as
defined in the Trust Indenture shall have occurred; (c) the Obligor
(regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings, at law, in equity or before
any administrative tribunal, which have or might have the effect of
preventing the Obligor from complying with the terms of this Security
Instrument), shall fail to observe or perform any of the Obligor's
covenants, agreements or obligations under this Security Instrument and,
other than defaults in the observance or performance of its obligations
under Section __ hereof, such failure shall continue for 30 days after
notice; (d) a default shall occur and continue to exist after the
expiration of any applicable grace period under any other document,
agreement or instrument between the Company or any Subsidiary Guarantor
and the Mortgagee or any Holders, with respect to any of the Indebtedness;
(e) any representation contained herein or in the Trust Indenture or the
Notes or made (or deemed made) by the Company or any Subsidiary Guarantor
to the Mortgagee or any of the Holders in connection with any of the
Indebtedness shall prove to be untrue in any material respect on the date
as of which made or deemed made; (f) the Company or any Subsidiary
Guaranty shall file a voluntary petition in bankruptcy or be adjudicated a
bankrupt or insolvent, or the Company or any Subsidiary Guarantor shall
file any petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief for itself under any present or future federal, state or
other statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors or protection for creditors, or the seeking, or
the consenting by the Company or any Subsidiary Guarantor to or
acquiescing in the appointment of any trustee, receiver, conservator or
liquidator of the Company or any Subsidiary Guarantor, as the case may be,
or of all or any substantial part of the Property or any or all of the
rents, issues or profits thereof, or the making of any general assignment
for the benefit of creditors, or the admission in writing of its inability
to pay its debts generally as they become due, or the entry by a court of
competent jurisdiction of any order, judgment or decree, which is not
dismissed within 60 days thereafter, approving a petition filed against
the Company or any Subsidiary Guarantor seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future Federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors or protection for creditors, or the appointment, which
appointment is not dismissed within 60 days thereafter, of any trustee,
receiver, conservator or liquidator of the Company or any such Subsidiary,
as the case may be, or of all or any substantial part of the Property or
of all of the rents, issues and profits thereof without the consent or
acquiescence of the Mortgagee.
32. Upon any Event of Default or any default by the Obligor as
provided herein or in any other instrument evidencing or securing any of
the Indebtedness then, in any of said events, at the option of the
Mortgagee (or, as may be provided in any instrument pursuant to which any
such Indebtedness is created, at the option of any holder of any such
Indebtedness), the whole or any applicable portion of the Indebtedness
secured hereby shall become immediately due and payable, although the
period specified for the payment thereof may not have expired, anything
hereinbefore or in the Notes contained to the contrary notwithstanding.
20
<PAGE>
33. The obligations of the Obligor under this Security Instrument
shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation:
(A) any renewal, extension, amendment or modification of, or addition
or supplement to or deletion from any document pertaining to the
Indebtedness, or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof;
(B) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Security Instrument except as expressly provided in such renewal,
extension, amendment, modification, addition, supplement, assignment or
transfer;
(C) any furnishing of any additional security to the Mortgagee or its
assignee or any acceptance thereof or any release of any security by the
Mortgagee or its assignee;
(D) any limitation on any party's liability or obligations under any such
instrument or agreement or any invalidity or unenforceability, in whole or
in part, of any such instrument or agreement or any term thereof; or
(E) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to the Company
or any Subsidiary Guarantor, or any action taken with respect to this
Security Instrument by any trustee or receiver, or by any court, whether
or not the Obligor shall have notice or knowledge of any of the foregoing.
34. Any provision of this Security Instrument which is prohibited or
unenforceable in any Jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
35. THIS SECURITY INSTRUMENT AND THE RIGHTS AND OBLIGATIONS OF THE
OBLIGOR AND THE MORTGAGEE HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF SOUTH CAROLINA.
36. When the Indebtedness has been paid in full, this Security
Instrument shall terminate, and the Mortgagee, at the request and expense of
the Obligor, will execute and deliver to the Obligor a proper instrument or
instruments acknowledging the satisfaction and termination of this Security
Instrument.
37. None of the terms and conditions of this Security Instrument may be
changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Obligor and the Mortgagee.
21
<PAGE>
38. The Obligor and the Mortgagee each hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Security Instrument or the transactions
contemplated hereby.
39. IT IS SPECIFICALLY AGREED that time is of the essence with respect
to this Security Instrument and that the waiver of the rights or options, or
obligations secured hereby, shall not at any time thereafter be held to be
abandonment of such rights. Notice of the exercise of any right or option
granted to the Mortgagee herein, or in the Indebtedness secured hereby, is
not required to be given.
22
<PAGE>
EXHIBIT "A"
I. UNSOLD FLOATING TIMESHARE INTERESTS AND COMMITTED FLOATING TENTH SHARES
All those certain unit weeks constituting floating Timesharing Interests
and those certain unit weeks contained within Committed Floating Tenth
Shares (as said terms are defined in the Ninth Amendment to Master Deed
for Planters Quarters Horizontal Property Regime recorded in the
below-referenced public records in Book 794 at Page 2388) listed on the
attached Schedule 1, each consisting of a floating vacation timesharing
interest in an apartment unit on said premises as shown on plans and
specifications listed in the Master Deed for the Planters Quarters
Horizontal Property Regime recorded in the RMC Office for Beaufort
County, South Carolina in Deed Book 534 at Page 1446 as amended by ten
amendments thereto, the most recent of which is the Tenth Amendment
thereto dated May 9, 1997 and recorded in the aforesaid public records
in Book 943 at Page 346 (as amended, the "Master Deed").
TOGETHER WITH ALL those portions of the following described premises (if
any) that have not been converted to floating Timeshare Interests and/or
Multiple Ownership Interests pursuant to the above-referenced Master
Deed:
Those certain parcels of land located within the Port Royal Plantation
and Surrounds Planned Unit Development, Town of Hilton Head Island,
Beaufort County, South Carolina, together with all improvements thereon,
which are shown and depicted as "Phase 1A, Phase 1, 1.963 Acres", "Phase
1A, Phase 2, 0.73 Acre", "Phase 1B, 0.857 Acre", "Phase 1B, 0.578 Acre",
"Phase 1C, 0.258 Acre", "Phase 1C, 0.481 Acre", and "Recreation Area,
0.91 Acre" on that certain plat entitled "AN AS-BUILT SURVEY OF PLANTERS
QUARTERS ALL PHASES, A SECTION OF PORT ROYAL PLANTATION, HILTON HEAD
ISLAND, BEAUFORT COUNTY, SOUTH CAROLINA, PREPARED FOR: EPIC
RESORTS-HILTON HEAD, LLC, EPIC RESORTS, INC., NATWEST MARKETS LTD. &
UNITED STATES TRUST COMPANY OF NEW YORK" dated March 18, 1996 and last
revised June 12, 1998, and prepared by Harold R. Johnson, SC RLS No.
2077, which plat has been duly recorded in the RMC Office for Beaufort
County, South Carolina in Plat Book _____ at Page _____.
II. Undeveloped portions of Planters Quarters
ALSO, all those certain parcels of land located within the Port Royal
Plantation and Surrounds Planned Unit Development, Town of Hilton Head
Island, Beaufort County, South Carolina,
<PAGE>
together containing 10.368 acres, more or less, which are shown and
depicted as "Future Phases, 9.959 Acres" and "Future Phase, 0.409 Acre"
on that certain plat entitled "AN AS-BUILT SURVEY OF PLANTERS QUARTERS
ALL PHASES, A SECTION OF PORT ROYAL PLANTATION, HILTON HEAD ISLAND,
BEAUFORT COUNTY, SOUTH CAROLINA, PREPARED FOR: EPIC RESORTS-HILTON HEAD,
LLC, EPIC RESORTS, INC., NATWEST MARKETS LTD. & UNITED STATES TRUST
COMPANY OF NEW YORK" dated March 18, 1996 and last revised June 12,
1998, and prepared by Harold R. Johnson, SC RLS No. 2077, which plat has
been duly recorded in the RMC Office for Beaufort County, South Carolina
in Plat Book _____ at Page _____.
<PAGE>
This being the same property conveyed to Epic Resorts-Hilton Head, LLC, by
Planters Preserve, LLC by deed dated __________________ and recorded in Deed
Book __________, Page _________, Records of Beaufort County, and by
__________, by deed recorded ____________, in Deed Book _________, Page
_____, Records of ____________ County, TMS No. _____________.
<PAGE>
The laws of South Carolina provide that in any real estate foreclosure
proceeding a defendant against whom a personal judgment may be taken or asked
may within thirty days after the sale of the mortgaged property apply to the
court for an order of appraisal. The statutory appraisal value as approved by
the court would be substituted for the high bid and may decrease the amount
of any deficiency owing in connection with the transaction. THE UNDERSIGNED
HEREBY WAIVES AND RELINQUISHES THE STATUTORY APPRAISAL RIGHTS WHICH MEANS THE
HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL BE APPLIED TO THE DEBT
REGARDLESS OF ANY APPRAISED VALUE OF THE PROPERTY.
IN WITNESS WHEREOF, the Obligor has caused this Security Instrument to
be executed and delivered as of the date first set forth above.
EPIC REPORTS-HILTON HEAD, LLC,
a Delaware limited liability company
By: /s/ Thomas F. Flatley
WITNESSES: ------------------------------------
Name: Thomas F. Flatley
/s/ Helen A. Brady Title: President
- ------------------------------
Name: Helen A. Brady
/s/ Scott J. Egelkamp
- ------------------------------
Name: Scott J. Egelkamp
<PAGE>
STATE OF PENNSYLVANIA )
) PROBATE
COUNTY OF MONTGOMERY )
PERSONALLY appeared before me the undersigned witness who made oath that
he/she saw the within named Mortgagor, Thomas F. Flatley, by its proper
office, sign, seal and as its corporate act and deed deliver the within
written instrument and that he/she with the other witness subscribed above
witnessed the execution thereof.
SWORN to and subscribed before me
this 6 day of July __, 1998.
/s/ Frances B. Keilt (L.S.)
- ----------------------
Notary Public
My Commission Expires: Notarial Seal
Frances B. Keilt, Notary Public
Montgomery County
My Commission Expires April 16, 2001
Member, Pennsylvania Association of Notaries
<PAGE>
When recorded, mail to:
Barbara J. Goodman, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
This document is intended
to be recorded in
Clark County, Nevada
DEED OF TRUST
This Deed of Trust (as amended, modified or supplemented from time to
time, this "Security Instrument") is granted as of July 8, 1998, by Epic
Resorts - Westpark Resort, LLC, a Delaware limited liability company, as
trustor (hereinafter, together with its successors and assigns, called the
"Obligor"), whose address is 1150 First Avenue, Suite 900, King of Prussia,
PA 19406 to United Title of Nevada having an address at 3980 Howard Hughes
Parkway #100, Las Vegas, Nevada 89109, as trustee ("Trustee"), for the
benefit of United States Trust Company of New York, a New York banking
corporation, acting as trustee (herein together with its successors and
assigns in such capacity, the "Notes Trustee" for the Holders (as defined
below) pursuant to the Trust Indenture (as defined below), whose address is
114 West 47th Street, New York, New York 10036-1532.
PRELIMINARY STATEMENTS
(1) This Security Instrument is made pursuant to the Trust Indenture,
dated as of the date hereof (herein, as amended or otherwise modified from
time to time, the "Trust Indenture"), among Epic Resorts, Inc., a Delaware
corporation (herein, together with its successors and assigns, the
"Company"), Obligor and the other Subsidiary Guarantors as identified
therein, and the Notes Trustee acting as trustee for the Holders (defined
below), providing, among other things for a loan to the Company of
$130,000,000, with such loan being evidenced by the Company's 13% Senior
Secured Notes due 2005 in the aggregate principal amount of $130,000,000 (the
"Notes", such term to include all notes and other securities issued in
substitution or exchange therefor or in replacement thereof).
(2) Obligor has guaranteed to the holders of the Notes (the "Holders")
the payment when due of the Notes pursuant to a guaranty (the "Subsidiary
Guaranty").
(3) It is a condition precedent to the making of the loan to the
Company that the Obligor shall have executed and delivered to or for the
benefit of the Notes Trustee this Security Instrument.
(4) The Obligor desires to execute this Security Instrument to satisfy
the conditions described in the preceding paragraph and to secure the
performance of its covenants and agreements contained in the Trust Indenture,
herein and in any agreement or instrument made by it with respect to any
indebtedness or obligations secured hereby and to secure the payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations
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(including obligations which, but for the automatic stay under Section 362(a)
of the Bankruptcy Code, would become due), but not necessarily in the order
set forth, of the following indebtedness, liabilities and obligations, now
existing or hereafter arising, ratably (including any modifications or
replacements thereof):
(a) the aggregate principal amount of $130,000,000, with interest
thereon, as evidenced by the Notes, maturing on or prior to June 15, 2005;
(b) all sums advanced by or on behalf of the Notes Trustee
pursuant to any term or provision of this Security Instrument or any
other agreement or instrument relating to or securing any of the
foregoing;
(c) all advances or disbursements of the Notes Trustee with
respect to the Property (defined below) for the payment of taxes,
levies, assessments, insurance, insurance premiums or costs incurred
in the protection of taxes, levies, assessments, insurance, insurance
premiums or costs incurred in the protection of the Property; and
(d) all other liabilities, obligations and indebtedness of the
Obligor incurred under, arising out of or in connection with the
Subsidiary Guaranty, the Trust Indenture and this Security Interest.
(all of such indebtedness, liabilities and obligations being
collectively referred to hereinafter as the "Indebtedness").
(5) This Security Instrument creates a lien on the fee simple interest
of the Obligor in the Property and shall automatically become a lien on any
and all time share interests in the Property, upon the creation of such time
share interests in the Property.
(6) The creation of time share interests in the Property shall be
permitted only upon satisfaction of the following conditions:
(i) No Event of Default (as hereinafter defined) shall have occurred or
be continuing under this Security Instrument;
(ii) Obligor shall have received and obtained approval from all
applicable federal, state and local government entities and Notes Trustee of
all documents necessary for the creation, marketing, sales, offers to sell
and operation of the time share interests, including, without limitation, the
declaration of the time share regime;
(iii) Obligor shall provide Notes Trustee acceptable evidence that it has
received from all applicable federal, state and local government entities all
approvals and consents, and made all filings, required in conjunction with
the establishment, marketing, sales, offers to sell and operation of the time
shares; and
(iv) United Title of Nevada shall have agreed to endorse the Notes
Trustee's title insurance policy insuring this Security Instrument, to
provide affirmative insurance to the effect
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that the Property consists of time share interests validly created and that
the lien of this Security Instrument shall constitute a valid first lien upon
the time share interests;
(v) The timeshare use and occupancy will not violate any private
covenant or restriction or any zoning, use or similar law, ordinance or
regulation affecting the use or occupancy of the Property; and
(vi) Obligor, immediately upon request by Notes Trustee at Obligor's
sole expense shall or shall cause to be made, executed and delivered to Notes
Trustee, in form and substance acceptable to Notes Trustee all documents that
Notes Trustee is advised are and/or deems necessary or appropriate to
evidence, document and/or secure the timeshare interests in the Property.
(7) Provided that no Event of Default has then occurred and is
continuing under this Security Instrument, the Notes Trustee shall, at the
expenses of Obligor, promptly release the lien hereof on each time share
interest following a sale of such time share interest to a person
unaffiliated with Obligor, and the Notes Trustee shall not have a lien on the
proceeds of any such sale.
GRANTING CLAUSES
NOW, THEREFORE, in consideration of the sum of $1.00, and other good
and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, received to the Obligor's full satisfaction, and in
consideration of the loan made or to be made hereafter to or for the benefit
of the Company, the Obligor does grant, bargain, sell, assign, and transfer
to Trustee, in trust with power of sale, for the benefit of the Notes Trustee
and its successors and assigns, the real property situated in the State of
Nevada, described in Exhibit A attached hereto and made a part hereof by
reference;
(1) TOGETHER WITH all time share interests now and/or hereafter
created at the real property described in Exhibit A attached hereto; and
(2) TOGETHER WITH all rights and easements now and/or hereafter
created which are appurtenant to the real property described in Exhibit A,
including but not limited to those rights and easements more fully identified
thereon, if any; and
(3) TOGETHER WITH all and singular right, title and interest,
including any after-acquired title or reversion, in and to all other ways,
easements, streets, alleys, passages, water, water courses, riparian rights,
rights, liberties and privileges thereof, if any, and in any way appertaining
thereto; and
(4) TOGETHER WITH all rents, royalties, revenues, incomes, issues and
profits accruing and to accrue therefrom; and
(5) TOGETHER WITH all buildings and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction,
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reconstruction, alteration and repairs of such improvements now or hereafter
erected thereon, all of which materials shall be deemed to be included within
the property subject to this Security Instrument immediately upon the
delivery thereof to the Property; all fixtures and articles of personal
property now or hereafter owned by the Obligor and attached to, or located
on, and used in the operation or management of the Property; and all renewals
or replacements thereof, proceeds therefrom, or articles in substitution
therefor, whether or not the same are or shall be attached to such building
or buildings in any manner; it being mutually agreed that all the aforesaid
property owned by the Obligor and placed by it on the Property shall, so far
as permitted by law, be deemed to be fixtures and a part of the realty and
security for the Indebtedness secured by this Security Instrument; and
(6) TOGETHER WITH all leases, written or oral, and all agreements for
use or occupancy of all or any portion of the Property, together with any and
all extensions and renewals thereof and any and all further leases,
subleases, lettings or agreements (including subleases thereof and tenancies
following attornment) upon or covering use or occupancy of all or any part of
the Property (all such leases, agreements, subleases and tenancies sometimes
collectively referred to herein as the "Leases" and sometimes individually as
a "Lease"); and
(7) TOGETHER WITH all of the rents, income, receipts, revenues,
issues and profits now due or which may become due or to which Obligor may
now or hereafter become entitled or may demand or claim arising or issuing
from or out of the Leases or from or out of the Property or any part thereof;
and
(8) TOGETHER WITH all deposits made with or other security given to
utility companies by Obligor with respect to the Property, and all proceeds
of all insurance now or hereafter carried by, or payable to, Obligor with
respect to the Property, or otherwise now or hereafter payable with respect
to any loss or damage of the Property, and all claims or demands with respect
thereto; and
(9) TOGETHER WITH all right, title and interest of the Obligor in and
to any operating, use, or management agreement pertaining to the Property and
all cash payments to be made to or for the account of Obligor pursuant thereto
and any other proceeds thereof; and
(10) TOGETHER WITH all right, title and interest of the Obligor in and
to any leases for equipment now or hereafter located at or used in connection
with the Property, including without limitation all leases for office
equipment, maintenance and operating equipment, recreational equipment and
fixtures, telephone equipment, furniture and furnishings; and
(11) TOGETHER WITH all permits, licenses and franchises, and all
contract rights and other intangibles now or hereafter owned by the Obligor
and relating to the ownership, construction, use, operation, occupancy or
development of the Property, including, without limitation, any plans,
specifications and drawings pertaining to the development thereof, and
contracts with architects and contractors; and
(12) TOGETHER WITH all awards and other compensation heretofore or
hereafter to be made to the present and all subsequent owners of the property
subject to this
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Security Instrument for any taking by eminent domain, either permanent or
temporary, of all or any part of the Property or any easement or appurtenance
thereof, including severance and consequential damage and change in grade of
streets, which such awards and compensation are hereby assigned to the Notes
Trustee; the Obligor hereby appoints the Notes Trustee its Attorney-in-Fact,
with an interest, and authorizes, directs and empowers such Attorney, at the
option of such Attorney, on behalf of the Obligor and its successors or
assigns to collect and receive the proceeds thereof, to give proper receipts
and acquittances therefor (but not to adjust or compromise the claim) and,
after deducting reasonable expenses of collection, to apply the net proceeds
without penalty or premium as a credit upon any portion, as selected by the
Notes Trustee, of the Indebtedness secured hereby, notwithstanding the fact
that the amount owing hereon may not then be due and payable or that such
Indebtedness is otherwise adequately secured.
All of the property conveyed or intended to be conveyed to Trustee in
the granting clauses (1) through (12) above, is described in this Security
Instrument as the "Property."
TO HAVE AND TO HOLD the Property with the appurtenances thereunto
belonging unto the Trustee and its successors and assigns, forever, for the
benefit of the Notes Trustee for the purposes and uses herein set forth,
until such time as all of the Indebtedness and obligations secured hereby
shall have been paid in full.
The Obligor covenants with the Trustee, its successors and assigns,
that at and until the ensealing of these presents: (i) the Obligor is well
seized of and has a good and indefeasible estate in fee simple in the
Property, and has good right to bargain, sell and convey, and create a
security interest in, the Property in manner and form as above written; (ii)
the Obligor will warrant and defend the Property with the appurtenances
thereunto belonging to the Trustee, its successors and assigns, forever
against all lawful claims, and demands whatsoever subject only to such
exceptions to title permitted by the terms of the Trust Indenture; (iii) the
Property and the intended use thereof by the Obligor comply to the best of
the Obligor's knowledge with all applicable restrictive covenants, zoning
ordinances and building codes and flood disaster laws, and, to the extent
that noncompliance therewith would materially adversely affect the value or
marketability of the Property, all applicable occupational, health and
environmental and other applicable laws, rules and regulations of any other
governmental authority whatsoever; and (iv) the Obligor will execute,
acknowledge and deliver all necessary assurances to the Trustee of the title
to the Property as provided above.
This Security Instrument is granted as security for the payment of
the Indebtedness. In accordance with the provisions of the Notes, the whole
of the principal sum thereof then unpaid may be declared and become due and
payable upon demand or upon the occurrence of an Event of Default hereunder
or under the Trust Indenture or the Notes. This Security Instrument is given
for the purpose of creating a lien on the Property and expressly is to secure
the Indebtedness.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS that are hereinafter
set forth; PROVIDED, HOWEVER, that if the Company pays or causes to be paid
to the Holders all sums secured hereby in the manner provided in the Notes
and the Trust Indenture,
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and the Obligor fully pays and performs its obligations under the Subsidiary
Guaranty, the Trust Indenture, and in this Security Instrument and does keep
and perform every obligation, term, covenant, condition and warranty
contained in the Subsidiary Guaranty, the Trust Indenture and in this
Security Instrument, then and in such case the estate, right, title and
interest of Trustee in and to the Property shall cease, and upon proof being
given to the satisfaction of the Notes Trustee that the Indebtedness has been
paid or satisfied in accordance with its terms, and upon payment of all fees,
costs, charges and liabilities chargeable to or incurred by Trustee or
otherwise provided for in this Security Instrument, then this and the estate
hereby granted and conveyed shall be reconveyed, without warranty, at the
sole expense of Obligor. The recitals in such reconveyance of any matters of
fact shall be conclusive proof of the truth thereof. The grantee in such
reconveyance may be described in general terms as "the person or persons
legally entitled thereto".
The Obligor, intending to bind its successors and assigns, hereby
covenants and agrees as follows:
1. The Obligor will duly keep and perform all covenants, agreements,
conditions and stipulations binding on the Obligor under the Subsidiary
Guaranty or the Trust Indenture. The Obligor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Indebtedness and this Security Instrument and any requirement that the
Notes Trustee or other holder of the Indebtedness secured hereby protect,
secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against any other
person, or any collateral, or pursue any other remedy in the power of the
Notes Trustee or other holder of any of the Indebtedness secured thereby.
2. To facilitate payment and performance of the Indebtedness, the
Obligor hereby absolutely transfers and assigns to Notes Trustee all right,
title and interest of the Obligor in and to the Leases.
3. (a) No later than ten days prior to the date when any installment
of taxes and assessments is due, without penalty, interest or delinquency,
the Obligor shall subject to the Notes Trustee evidence of the due and
punctual payment of such taxes, assessments, reassessments and other
governmental charges. The Obligor will also pay all taxes and assessments or
charges which may be levied on the Indebtedness secured hereby or the
interest therein excepting the federal income tax imposed under the laws of
the United States and excepting state franchise and state income taxes. Any
assessment which is payable in installments at the application of the Obligor
shall, nevertheless, for the purposes of this section, be deemed due and
payable by the Obligor in its entirety on the day the first installment
becomes due and payable or a lien, unless the written approval of the Notes
Trustee is obtained for such installment payments of assessments.
(b) Notwithstanding the provision of Section 3 above, the Obligor
shall have the right to contest in good faith any of such taxes and
assessments upon posting with the Notes Trustee sufficient security,
reasonably satisfactory to the Notes Trustee, for the payment thereof, with
interest, costs and penalties, under written agreement conditioning payment
of such contested taxes and assessments upon the the resolution of such
contest, or prior thereto if the
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continuance of such contest shall put the Property or any part thereof in
jeopardy of tax sale or forfeiture.
4. If at any time the United States or the State or Commonwealth in
which the Property is located or any of their subdivisions having
jurisdiction shall levy, assess or charge any tax (including, without
limitation, documentary stamp or intangible tax), assessment or imposition
upon this Security Instrument, the Notes, or the Indebtedness secured hereby
or the interest of the Notes Trustee in the Property or upon the Notes
Trustee by reason of or as holder of any of the foregoing, then the
Indebtedness and accrued interest thereon shall be and become due and payable
at the election of the Notes Trustee; provided, however, that such election
and the right to elect shall be unavailing if the Obligor lawfully may pay
for such stamps or such tax, including interest and penalties thereon, to or
for the benefit of the Notes Trustee and the other holders of the
Indebtedness, and the Obligor elects to pay and does, in fact, pay when
payable, for all such stamps or such tax, as the case may be, including
interest and penalties thereon, prior to any such election by the Notes
Trustee. The Obligor further agrees to deliver to the Notes Trustee, at any
time, upon demand, evidence of citizenship and such other evidence as may be
required by any government agency having jurisdiction in order to determine
whether the obligation secured hereby is subject to or exempt from any such
tax or any other governmental filing or reporting requirement.
5. The Obligor shall keep the Property free and clear from all
mechanics liens and statutory liens of every kind other than taxes and
permitted assessments which may be a lien but not yet due and payable and the
Obligor will not voluntarily create or permit to be created or filed against
its interests in the Property, or suffer to exist, any mortgage lien or other
lien or liens inferior or superior to the lien of this Security Instrument
(other than the lien or liens for real estate taxes and assessments not yet
due and payable) or if filed, the Obligor will have the same discharged of
record either by payment, the bonding thereof or other lawful means within 30
days after notice of filing and further, that the Obligor will keep and
maintain the same free from all claims of all persons supplying labor,
materials or services which will enter into or otherwise contribute to the
construction of any and all improvements to the Property, notwithstanding by
whom such labor or materials may have been contracted; provided, however,
that the Obligor shall have the right to contest in good faith any such
mechanics' lien or statutory lien upon posting with the Notes Trustee
sufficient security, satisfactory to the Notes Trustee, for the payment
thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics' lien or statutory lien upon
the resolution of such contest, or prior thereto if the continuance of such
contest or litigation shall put the Property or any part thereof in jeopardy
of foreclosure sale or forfeiture for such lien.
6. The Obligor agrees that the Obligor shall not (i) sell, encumber
(including, without limitation, by means of subordinate mortgage or lien upon
the Property or any part thereof or interest therein), assign, lease or
dispose of the Property or any part thereof or interest therein, except in
accordance with, and to the extent permitted by, the terms and provisions of
the Trust Indenture, or (ii) enter into any contract or agreement to do
anything prohibited by clause (i) of this Section 6 expressly including,
without limitation, any land contract, lease/purchase, lease/option or option
agreement without, in each such case, first obtaining the written consent of
the Notes Trustee; except, however, that the Obligor shall have the right,
without such consent,
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to sell timeshare units included in the Property on and subject to the terms
and conditions of the Trust Indenture.
7. The Obligor hereby acknowledges that the Indebtedness was
incurred in good faith for full value received.
8. The Obligor warrants and represents that:
(a) The Obligor is not now in default under any instruments or
obligations relating to the Property and no party has asserted any claim
of default against the Obligor relating to the Property.
(b) The execution and performance of this Security Instrument and the
consummation of the transactions hereby contemplated will not result in
any breach of, or constitute a default under, any mortgage, lease, bank
loan, credit agreement, trust indenture or other instrument to which the
Obligor is a party or by which it or any of its property (including,
without limitation, the Property) may be bound or affected, nor do any
such instruments impose or contemplate any obligations which are or may be
inconsistent with any other obligations imposed on the Obligor under any
other instrument heretofore or hereafter delivered by the Obligor.
(c) As of the date hereof, there are no actions, suits or proceedings
(including, without limitation, any condemnation or bankruptcy
proceedings) pending or threatened against or affecting the Obligor or the
Property, or which may adversely affect the validity or enforceability of
this Security Instrument, at law or in equity, or before or by any
governmental authority, except as disclosed in writing to the Notes
Trustee prior to the date of execution and delivery hereof as contemplated
by the terms and provisions of the Trust Indenture, and the Obligor is not
in default with respect to any writ, injunction, decree or demand of any
court or any governmental authority affecting the Property.
(d) The Property is not used principally or primarily for farming or
agricultural purposes.
9. (a) The Obligor will maintain flood insurance, if required,
pursuant to a designation of the area in which the Property is located as
flood prone or a flood risk area, as defined by the Flood Disaster Protection
Act of 1973, as amended, as well as comply with any additional requirements
of the National Flood Insurance Program as set forth in such Act.
(b) The Obligor shall maintain for the mutual benefit of the Notes
Trustee and the Obligor general public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about the
Property and on, in or about the adjoining streets and passageways, such
insurance to afford protection to the limits of not less than those then
customarily carried with respect to real property similar in general
location, use and occupancy to the Property, but in no event less than a
single limit amount of $5,000,000. All of such insurance shall be primary and
non-contributing with any insurance which may be carried by the Notes Trustee.
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(c) In the event such coverage is provided as part of a blanket
policy, then in such event the amount of the coverage specifically applicable
to the Property shall be stated on the face of the policy. All insurance
policies, to the extent of its interest, are to be for the benefit of and
first payable in case of loss to the Notes Trustee as first mortgagee without
contribution and the Obligor shall deliver to the Notes Trustee a copy of any
renewal or replacement policies and original certificates thereof to the
Notes Trustee at such place or to such other party as the Notes Trustee may,
from time to time, designate in writing, before the date of such expiration
or termination of any existing policy.
(d) All insurance policies required by this Section 9 shall contain
an express provision or endorsement which states the substance of the
following in a manner acceptable to the Notes Trustee: "The policy of
insurance shall not be cancelled, permitted to lapse by reason of
non-renewal, altered, changed, amended or modified, nor shall any coverage
therein be reduced, deleted, amended, modified, changed or cancelled by
either the party named as the insured, or the insurance Obligor issuing this
policy, without at least 30 days' prior written notice having been given to
SunTrust, Central Florida, National Association, as Notes Trustee."
10. (a) The term "Hazardous Materials," as used in this Security
Instrument, shall mean any (i) hazardous wastes and/or toxic chemicals,
materials, substances or wastes as defined by the Environmental Laws set
forth in Subsection 10(b); (ii) any "oil", as defined by the Clean Water Act
(as defined in Subsection 10(b) below), as amended from time to time, and
regulations promulgated thereunder (including crude oil or any fraction
thereof); (iii) any substance, the presence of which is prohibited, regulated
or controlled by any other applicable federal or state or local laws,
regulations, statutes or ordinances now in force or hereafter enacted
relating to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use, generation, storage,
transportation, treatment, release, emission, discharge, disposal, abatement,
cleanup, removal, remediation or handling; (iv) any asbestos or asbestos
containing materials, polychlorinated biphenyls ("PCBs") in the form of
electrical equipment, fluorescent light fixtures with ballasts, cooling oils
or any other form, urea formaldehyde, atmospheric radon at levels over four
picocuries per cubic liter; (v) any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis, acids,
chemicals, pesticides, herbicides, sewage, industrial sludge or other similar
wastes; (vi) industrial, nuclear or medical by-products; and (vii)
underground storage tanks (whether filled or unfilled).
(b) The term "Environmental Laws," as used in this Section 10, shall
mean all present and future laws, statutes, ordinances, rules, regulations,
orders and determinations of any governmental authority, pertaining to
health, protection of the environment, natural resources, conservation,
wildlife, waste management, regulation of activities involving Hazardous
Materials, and pollution, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("Superfund" or
"CERCLA"), 42 U.S.C. Section 9601, ET SEQ., the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section 9601(20)(D), the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901, ET
SEQ., the Federal Water Pollution Control Act, as amended by the Clean Water
Act (the "Clean Water Act"), 33 U.S.C. Section 1251, ET SEQ., the Clean Air
Act ("CAA"), 42 U.S.C. Section 7401, ET SEQ., and the Toxic Substances
Control Act, 15 U.S.C. Section 2601, ET SEQ., Nevada Revised
Statutes ("NRS") chapters
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444, 445, 459, and 590, NRS Sections 618.750-618.850, inclusive, and NRS
Section 477.045 as amended from time to time.
(c) The Obligor shall, and the Obligor shall cause all employees,
agents, contractors and tenants of the Obligor and any other persons present
on or occupying the Real Property to, keep and maintain the Property,
including the soil and ground water thereof, in compliance with, and not
cause or permit the Property, including the soil and ground water thereof, to
be in violation of any Environmental Laws. Neither the Obligor nor any
employees, agents, contractors or tenants of the Obligor or any other persons
occupying or present on the Property shall use, generate, manufacture, store
or dispose on, under or about the Property or transport to or from the
Property any Hazardous Materials.
(d) The Obligor immediately shall advise Notes Trustee in writing of:
(i) any notices from any governmental or quasi-governmental agency or
authority of violation or potential violation of any Environmental Law
received by the Obligor; (ii) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or threatened
pursuant to any Environmental Law; (iii) all claims made or threatened by any
third party against the Obligor or the Property relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials (the matters set forth in clauses (i) (ii) and (iii)
above are hereinafter referred to as "Hazardous Materials Claims"); and (iv)
discovery by the Obligor of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property to
become contaminated by or with Hazardous Materials. Notes Trustee shall have
the right but not the obligation to join and participate in, as a party if it
so elects, any legal proceedings or actions initiated in connection with any
Hazardous Materials Claims and to have its reasonable attorneys' and
consultants' fees in connection therewith paid by the Obligor upon demand.
(e) The Obligor shall be solely responsible for, and shall indemnify,
defend, and hold harmless Notes Trustee, its directors, officers, employees,
agents, successors and assigns from and against, any loss, damage, cost,
expense or liability or whatever kind or nature, known or unknown, contingent
or otherwise, directly or indirectly arising out of or attributable to the
use, generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or after the date of this Security Instrument) of
Hazardous Materials on, in, under or about the Property (whether by the
Obligor, a predecessor in title, any tenant, or any employees, agents,
contractor or subcontractors of any of the foregoing or any third persons at
any time occupying or present on the Property), including, without
limitation: (i) personal injury; (ii) death; (iii) damage to property; (iv)
all consequential damages; (v) the cost of any required or necessary repair,
cleanup or detoxification of the Property, including the soil and ground
water thereof, and the preparation and implementation of any closure,
remedial or other required plans; (vi) damage to any natural resources; and
(vii) all reasonable costs and expenses incurred by Notes Trustee in
connection with the foregoing clauses (i) through (vi), including but not
limited to reasonable attorneys' and consultants' fees; provided, however,
that nothing contained in this Section shall be deemed to preclude the
Obligor from seeking indemnification from or otherwise proceeding against,
any third party including, without limitation, any tenant or predecessor in
title to the Property. The covenants, agreements and indemnities set forth in
this Section shall be binding upon the Obligor and its successors and assigns,
and shall survive each of repayment of
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the Indebtedness, foreclosure of the Property, and the Obligor granting a
deed in lieu of foreclosure of the Property. Any costs or expenses incurred
by Notes Trustee for which the Obligor is responsible or for which the
Obligor has indemnified Notes Trustee shall be paid to Notes Trustee on
demand, with interest at the default rate specified in the Notes from the
date incurred by Notes Trustee until paid in full, and shall be secured
hereby. Without Notes Trustee's prior written consent, the Obligor shall not
enter into any settlement, consent decree or other compromise in respect of
any Hazardous Materials Claims.
(f) In the event Notes Trustee reasonably determines that an
investigation of the Property for the presence of Hazardous Materials (an
"Environmental Audit") is necessary in order to maintain the value of the
Notes Trustee's security in the Property, the Obligor shall retain, upon
Notes Trustee's request, or Notes Trustee may retain directly, at the sole
cost and expense of the Obligor, a licensed geologist, industrial hygienist
or an environmental consultant (referred to hereinafter as the "Consultant")
acceptable to Notes Trustee to conduct the Environmental Audit. Notes
Trustee's determination to require an Environmental Audit shall be deemed
reasonable at any time there is Default under the Trust Indenture or
hereunder or in the event that Notes Trustee has received notice of the
likely existence of Hazardous Materials upon or in the Property. The
Environmental Audit shall be performed in a manner reasonably calculated to
discover the presence of Hazardous Materials contamination taking into
consideration the known uses of the Property and property in the vicinity of
the Property and any factors unique to the Property. If the Obligor shall
fail to pay for or obtain an Environmental Audit as provided for herein,
Notes Trustee may, but shall not be obligated to, obtain the Environmental
Audit, and the Obligor immediately and without demand shall repay all costs
and expenses incurred by Notes Trustee in connection therewith, with interest
at the default rate specified in the Notes from the date of such payments or
advances until paid in full, and such sums so advanced or expended, with
interest as aforesaid, shall be secured hereby.
(g) The Obligor shall cooperate with the Consultant and allow entry
and access to all portions of the Property for the purpose of Consultant's
investigation. The Obligor shall comply, at its sole cost and expense, with
all recommendations contained in the Environmental Audit reasonably required
to bring the Property into compliance with all Environmental Laws and any
recommendation for additional testing and studies to detect the quantity and
types of Hazardous Materials present, if Notes Trustee requires the
implementation of the same.
11. Notes Trustee shall have, and is hereby granted by the Obligor
with a warranty of further assurances, the irrevocable power to appoint a
substitute trustee or trustees hereunder and to remove any or all trustees
hereunder from time to time without notice, unless required by applicable
law, and without specifying any reason therefor, by filing for record a deed
of appointment in the office in which this Security Instrument is recorded.
Such power of removal and appointment may be exercised as often and whenever
Notes Trustee deems it advisable, and the exercise of such power, no matter
how often, shall not result in an exhaustion of such power. Upon the
recordation of each such deed of appointment or removal, each trustee so
appointed shall become fully vested with identically the same title and
estate in and to the Property and with all the identical rights, powers,
trusts and duties of his predecessor or predecessors in the Property, as if
originally named as a Trustee hereunder. Whenever in this Security Instrument
reference is made to Trustee, such reference shall be construed to mean the
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trustee or trustees for the time being, whether the original or any successor
trustee. All title, estate, rights, powers, trusts and duties hereunder
given, appertaining to or devolving upon Trustee shall be in each Trustee if
there is more than one then serving hereunder, so that any action hereunder
or purporting to be hereunder of either one of the original or any successor
trustees shall for all purposes be considered to be, and shall be as
effective as, the action of all trustees. The substitution of one trustee
shall be sufficient even if in replacement of more than one trustee.
12. In the event the Obligor shall fail to comply with any or all
of its covenants, agreements, conditions and stipulations herein set forth,
then the Notes Trustee shall after notice to the Obligor be and hereby is
authorized and empowered at its option, but without legal obligation to do
so, to pay or perform the same without waiver of any other remedy. In
addition, the Notes Trustee is authorized and empowered at its option, but
without legal obligation to do so, to enter, or have its agents enter, the
Property whenever necessary for the purpose of inspecting the Property and
curing any default hereunder. The Obligor agrees that the Notes Trustee shall
thereupon have a claim against the Obligor for all sums paid by the Notes
Trustee for such defaults so cured, together with a lien upon the Property
for the sum so paid plus interest at the default rate specified in the Notes.
13. The Obligor shall not commit waste upon the Property or suffer
waste to be committed thereon. The Obligor will keep the Property in good
order and repair and in compliance in all material respects with any law,
regulation, ordinance or contract affecting the Property. The Obligor shall
observe and comply with all conditions and requirements necessary to preserve
and extend any and all material rights, licenses, permits (including but not
limited to zoning variances, special exceptions and non-conforming uses),
privileges, franchises and concessions which are applicable to the Property
or which have been granted to or contracted for by the Obligor in connection
with any existing or presently contemplated use of the Property and shall
obtain and keep in full force and effect all necessary governmental and
municipal approvals as may be necessary from time to time to comply in all
material respects with all mining, environmental and other requirements and
with any and all conditions attached to the insurance relating to the
Property and the condition thereof.
14. The Obligor will give the Notes Trustee immediate notice of the
actual or threatened commencement of any proceedings under eminent domain
affecting all or any part of the Property or any easement therein or
appurtenances thereof, including severance and consequential damage and
change in grade of streets, and will deliver to the Notes Trustee copies of
any and all papers served in connection with any such proceedings. Except as
provided in subsection (a) below, the Obligor agrees that all awards
heretofore or hereafter made by any public or quasi-public authority to the
present and all subsequent owners of the Property by virtue of an exercise of
the right of eminent domain by such authority, including any award for taking
of title, possession or right of access of a public way, or for any change of
grade or streets affecting the Property, are hereby assigned to the Notes
Trustee and the Notes Trustee at its option is hereby authorized, directed
and empowered to collect and receive the proceeds of any such awards from the
authorities making the same and to give proper receipts therefor. After
deducting from such proceeds any expenses incurred by the Notes Trustee in
the collection or
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handling thereof, the Notes Trustee shall apply the net proceeds as to the
Indebtedness in such order as determined by the Notes Trustee.
The Obligor hereby covenants and agrees to and with the Notes
Trustee, upon the request of the Notes Trustee to make, execute and deliver
any and all assignments and other instruments sufficient for the purpose of
assigning all such awards to the Notes Trustee, free and clear and discharged
of any and all encumbrances of any kind or nature whatsoever except as above
stated.
15. In the event an action shall be instituted to foreclose this
Security Instrument, or prior to foreclosure but after default, the Notes
Trustee shall be entitled to the appointment of a receiver of the rents,
issues and profits of the Property as a matter of right, with power to
collect the rents, issues and profits of the Property due and becoming due
during the period of default and/or the pendency of such foreclosure suit to
and including the date of confirmation of the sale under such foreclosure
after such confirmation, such rents, issues and profits being hereby
expressly assigned and pledged as security for the payment of the
Indebtedness secured by this Security Instrument without regard to the value
of the Property or the solvency of any person or persons liable for the
payment of the Indebtedness and regardless of whether the Notes Trustee has
an adequate remedy at law. The Obligor for itself and for any subsequent
owner hereby waives any and all defenses to the application for a receiver as
above provided and hereby specifically consents to such appointment, but
nothing herein contained is to be construed to deprive the holder of this
Security Instrument of any right or remedy or privilege it may now have under
the law to have a receiver appointed. The provision for the appointment of a
receiver and the assignment of such rents, issues and profits is made an
express condition upon which the Loans hereby secured are made. In such
event, the court shall at once on application of the Notes Trustee or its
attorney in such action, appoint a receiver to take immediate possession of,
manage and control the Property, for the benefit of the holder or holders of
the Indebtedness and of any other parties in interest, with power to collect
the rents, issues and profits of the Property during the pendency of such
action, and to apply the same toward the payment of the several obligations
herein mentioned and described, notwithstanding that the same or any part
thereof is occupied by the Obligor or any other person. The rights and
remedies herein provided for shall be deemed to be cumulative and in addition
to and not in limitation of those provided by law and if there be no receiver
so appointed, the Notes Trustee itself may proceed to collect the rents,
issues and profits from the Property. From any such rents, issues, and
profits collected by the receiver or by the Notes Trustee prior to a
foreclosure sale, there shall be deducted the cost of collection thereof and
the expenses of operation of the Property, including but not limited to real
estate commissions, receiver's fee and the reasonable fees of its attorney,
if any, and the Notes Trustee's attorney's fees, if permitted by law, and
court costs, the remainder to be applied against the Indebtedness. In the
event the rents, issues and profits are not adequate to pay all tax and other
expenses of operation, the Notes Trustee may, but is not obligated to,
advance to any receiver the amounts necessary to operate, maintain and
repair, if necessary, the Property and any such amounts so advanced, together
with interest thereon at the default rate specified in the Notes from and
after the date of advancement, shall be secured by this Security Instrument
and have the same priority of collection as the principal of the Indebtedness
secured hereby.
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<PAGE>
16. No sale of the Property, no forbearance on the part of the Notes
Trustee, no extension of the time for the payment of the Indebtedness and no
change in the terms of the payment thereof consented to by the Notes Trustee
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Obligor hereunder or the original
liability of the Borrower or any other obligor under any of the Indebtedness,
either in whole or in part. No waiver by the Notes Trustee of any breach of
any covenant of the Obligor herein contained shall be construed as a waiver
of any subsequent breach of the same or any other covenant herein contained.
The failure of the Notes Trustee to exercise the option for acceleration of
maturity and/or foreclosure (including sale under power of sale hereunder)
following any default as aforesaid or to exercise any other option granted to
the Notes Trustee hereunder in any one or more instances, or the acceptance
by the Notes Trustee of partial payments hereunder shall not constitute a
waiver of any such default, nor extend or affect the grace period, if any,
but such option shall remain continuously in force with respect to any
unremedied or uncured default. Acceleration of maturity once claimed
hereunder by the Notes Trustee may, at the option of the Notes Trustee, be
rescinded by written acknowledgment to that effect by the Notes Trustee, but
the tender and acceptance of partial payments alone shall not in any way
affect or rescind such acceleration of maturity, or extend or affect the
grace period, if any. The Notes Trustee may pursue any of its rights without
first exhausting its rights hereunder and all rights, powers and remedies
conferred upon the Notes Trustee herein are in addition to each and every
right which the Notes Trustee may have hereunder at law or equity and may be
enforced concurrently therewith.
17. If any action or proceeding be commenced, to which action or
proceeding the Notes Trustee is made a party by reason of the execution of
this Security Instrument or the Indebtedness, or in which it becomes
necessary to defend or uphold the lien of this Security Instrument, or the
priority thereof or possession of the Property, or otherwise to perfect the
security hereunder, or in any suit, action, legal proceeding or dispute of
any kind in which the Notes Trustee is made a party or appears as party
plaintiff or defendant, affecting the interest created herein, or the
Property, including, but not limited to, bankruptcy, probate and
administration proceedings, foreclosure of this Security Instrument or any
condemnation action involving the Property, all sums paid by the Notes
Trustee for the expense of any litigation to prosecute and defend the rights
and liens created hereby shall be paid by the Obligor, to the extent
permitted by applicable law, together with interest from the date of payment
at the Default Rate. Any such sum and the interest thereon shall be
immediately due and payable upon demand and be secured hereby, having the
benefit of the lien hereby created, as a part hereof and its priority.
18. Each remedy or right of the Notes Trustee shall not be exclusive
of but shall be in addition to every other remedy or right now or hereafter
existing at law or in equity. No delay in the exercise or omission to
exercise any remedy or right accruing on any default shall impair any such
remedy or right or be construed to be a waiver of any such default or
acquiescence therein, nor shall it affect any subsequent default of the same
or a different nature. Every such remedy or right may be exercised
concurrently or independently and when and as often as may be deemed
expedient by the Notes Trustee.
19. Upon an Event of Default, to the extent permitted by any
applicable law of Nevada, Notes Trustee personally, or by the Trustee, or by
their respective agents or attorneys, and without becoming a
mortgagee-in-possession, may enter into and upon all or any part of the
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Property, and each and every part hereof, and may exclude the Obligor, its
agents, and servants wholly therefrom, and having and holding the same, may
use, operate, manage and control the Security or any part thereof and conduct
the business thereof, either personally or by its superintendents, managers,
agents, servants, attorneys or receivers; and upon such entry, Notes Trustee,
at the expense of the Obligor, may, at Notes Trustee's sole option, insure
the same; and likewise, from time to time, at the expense of the Obligor,
Notes Trustee may make all necessary or proper repairs, renewals and
replacements and such useful alterations, additions, betterments and
improvements thereto and thereon as to Notes Trustee may seem advisable; and
in every such case Notes Trustee shall have the right to manage and operate
the Property and to carry on the business thereof and exercise all rights and
powers of the Obligor with respect thereto either in the name of the Obligor
or otherwise as it shall deem best; and after deducting the expenses of
conducting the business thereof and of all maintenance, repairs, renewals,
replacements, alterations, additions, betterments and improvements necessary
to operate the improvements or their intended purposes and amounts necessary
to pay for taxes, assessments, insurance and prior or other proper charges
upon the Property or any part hereof, as well as reasonable compensation for
the services of Notes Trustee and Trustee, and for all attorneys,
consultants, agents, clerks, servants and other parties employed by Notes
Trustee or Trustee, Notes Trustee shall apply the moneys arising as aforesaid
to the Liabilities in such manner and at such times as Notes Trustee shall
determine in its sole discretion, when and as the same shall become payable
and/or to the payment of any other sums required to be paid by the Obligor
under this Security Instrument.
20. (a) Upon an Event of Default, to the extent permitted by any
applicable law of Nevada, Notes Trustee may, with or without entry,
personally or by its agents or attorneys, insofar as applicable:
(i) Request the Trustee to sell the Property or any part thereof
pursuant to the procedures provided by law at one or more sales as an
entity or in parcels, and at such time and place upon such terms and
after such notice thereof as may be required or permitted by law; and/or
(ii) Institute an action of judicial foreclosure on this Security
Instrument or institute other proceedings according to law for the
foreclosure hereof, and may prosecute the same to judgment, execution and
sale for the collection of the Indebtedness, and all interest with respect
thereto, together with all taxes and insurance premiums advanced by Notes
Trustee and other sums payable by the Obligor hereunder, and all fees,
costs and expenses of such proceedings, including reasonable attorneys'
fees and expenses; and/or
(iii) Take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific
performance of any covenant, condition or agreement in the Loan
Documents or in and of the execution of any power herein granted,
or for any foreclosure hereunder, or for the enforcement of any
other appropriate legal or equitable remedy or otherwise as Notes
Trustee shall elect.
(b) To the extent permitted by law of Nevada, the Trustee may
postpone from time to time any sale by them to be made under or by virtue of
this Security Instrument by postponement at the time and place appointed for
such sale or for such postponed sale or sales;
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<PAGE>
and, except as otherwise provided by any applicable provision of law, the
Trustee, without further notice or publication, may make such sale at the
time and place to which the same shall be so postponed.
(c) Upon the completion of any sale or sales made by the Trustee
under or by virtue of this Security Instrument, Trustee shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, conveying, assigning and
transferring, without warranty, all estate, right, title and interest in and
to the property and rights sold. The Trustee shall make all the necessary
conveyances, assignments, transfers and deliveries of any part of the
Property and rights so sold and for that purpose the Trustee may execute all
necessary instruments of conveyance, assignment and transfer. Any such sale
or sales made under or by virtue of this Section 19, whether made under the
power of sale herein granted or under or by virtue of judicial proceeding or
of a judgment or decree of foreclosure and sale, shall operate to divest all
the estate, right, title, interest, claim and demand whatsoever, whether at
law or in equity, of the Obligor in and to the properties, interests and
rights so sold, and shall be a perpetual bar both at law and in equity
against the Obligor and against any and all persons claiming or who may claim
the same, or any part thereof from, through or under the Obligor.
(d) Upon any sale, whether under the power of sale hereby given or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, except as required by law, it shall not be necessary for the Trustee or
any public officer acting under execution or order of court to have present
or constructive possession of any of the Property.
(e) The recitals contained in any conveyance made by the Trustee to
any purchaser at any sale made pursuant hereto or under applicable law shall
be conclusive evidence of the matters therein stated, and all prerequisites
to such sale shall be presumed to have been satisfied and performed.
(f) The receipt by Trustee of the purchase money paid at any such
sale, or the receipt by any other person authorized to receive the same,
shall be sufficient discharge therefor to any purchaser of the property or
any part thereof, sold as aforesaid, and no such purchaser, or his
representatives, grantees or assigns, 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 be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(g) In case the liens or the Property interests hereunder shall be
foreclosed by Trustee's sale or by other judicial or non-judicial action, the
purchaser at any such sale shall receive, as an incident to his ownership,
the right to immediate possession of the Property or any part thereof,
subsequent to foreclosure, the Obligor or the Obligor's successors (except
tenants who have entered into subordination, non-disturbance and attornment
agreements with Notes Trustee) shall be considered as tenants at sufferance
of the purchaser at foreclosure sale, and anyone occupying the Property after
demand made for possession thereof shall be guilty of forcible detainer and
shall be subject to eviction and removal, forcible or otherwise, with or
without process of law, and all damages by reason thereof are hereby
expressly waived to the extent permitted by law.
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<PAGE>
(h) Should any Event of Default occur hereunder, any expenses
incurred by Notes Trustee in prosecuting, resolving, or settling the claim of
Notes Trustee shall become an additional "liability" of the Obligor and part
of the Indebtedness secured hereby.
(i) The purchase money proceeds or avails of any sale made under or
by virtue of this Security Instrument, together with any other sums which
then may be held by notes Trustee under this Security Instrument, whether
under the provisions of this Section 19 or otherwise, shall be applied in
accordance with the laws of Nevada, and to the extent not inconsistent, as
follows.
(A) first, to the payment or reimbursement of the Notes Trustee for
all costs and expenses of such suit or suits or other enforcement activities
of the Notes Trustee, including, but not limited to, the costs of
advertising, sale and conveyance, including attorneys', solicitors' and
stenographers' fees, if permitted by law, outlays for documentary evidence
and the cost of such abstract, examination of title and title report;
(B) second, to the extent proceeds remain after the application
pursuant to preceding clause (A), to reimburse the Notes Trustee for all
moneys advanced by the Notes Trustee, if any, for any purpose authorized in
this Security Instrument with interest at the default rate specified in the
Notes;
(C) third, to the extent proceeds remain after the application
pursuant to preceding clause (B), an amount equal to the outstanding
Indebtedness owed to the Holders shall be paid to the Notes Trustee for the
benefit of the Holders; and
(D) fourth, to the extent remaining after the application pursuant to
the proceeding clauses (A), (B) and (C), to the Obligor or to whomever may be
lawfully entitled to receive such payment.
(j) The Obligor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs
and reasonable attorneys' fees, incurred by Notes Trustee in enforcing
payment and performance of the Indebtedness or in exercising the rights and
remedies of Notes Trustee hereunder. All such costs and expenses shall be
secured by this Security Instrument and by all other lien and security
documents securing the Indebtedness. In the event of any court proceedings,
court costs and attorneys' fees shall be set by the court and not by jury and
shall be included in any judgment obtained by Notes Trustee.
(k) In any action by Notes Trustee to recover a deficiency judgment
for any balance due under the Notes upon the foreclosure of this Security
Instrument or in any action to recover the Indebtedness or Indebtedness
secured hereby, and as a material inducement to making the loan evidenced by
the Notes, the Obligor acknowledges and agrees that the successful bid amount
made at any judicial or non-judicial foreclosure sale, if any, shall be
conclusively deemed to constitute the fair market value of the Property, that
such bid amount shall be binding against the Obligor in any proceeding
seeking to determine or contest the fair market value of the Property. The
Obligor hereby waives and relinquishes any right to have the fair market
value of the Property determined by a judge or jury in any action seeking a
deficiency judgment or any
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<PAGE>
action on the Indebtedness secured hereby, including, without limitation, a
hearing to determine fair market value.
(l) Upon any sale made under or by virtue of this Section 19, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Lender may
bid for and acquire the Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon
the Indebtedness of Borrower secured by this Security Instrument the gross
sales price.
21. The Notes Trustee, in making any payment herein and hereby
authorized in the place and stead of the Obligor (a) relating to taxes,
assessments, water rates, sewer rentals and other governmental or municipal
charges, fines, impositions or liens asserted against the Property, may do so
according to any bill, statement or estimate procured from the appropriate
public authority without inquiry into the validity thereof; or (b) relating
to any adverse title, lien, statement of lien, encumbrance, claim or charge,
shall be the sole judge of the validity of same; or (c) otherwise relating to
any purpose herein and hereby authorized, but not enumerated in this section,
may do so whenever, in its good faith judgment and discretion, such payment
shall seem necessary or desirable to protect the full security intended to be
created by this Security Instrument. In connection with any such payment, the
Notes Trustee, at its option, may and is hereby authorized to obtain a
continuation report of title prepared by a title insurance company, the cost
and expenses of which shall be repayable by the Obligor upon demand and shall
be secured hereby.
22. The Obligor agrees, without affecting the liability of any person
for payment of the Indebtedness or affecting the lien of this Security
Instrument upon the Property or any part thereof (other than persons or
property explicitly released as a result of the exercise by the Notes Trustee
of its rights and privileges hereunder), that the Notes Trustee, without
notice, and without regard to the consideration, if any, paid therefor, and
notwithstanding the existence at that time of any inferior liens thereon, may
release as to itself and this Security Instrument any part of the security
described herein or any person liable for any indebtedness secured hereby,
without in any way affecting the priority of the lien of this Security
Instrument to the full extent of the Indebtedness remaining unpaid hereunder
upon any part of the security not expressly released and may agree with any
party obligated on the Indebtedness or having any interest in the security
described herein to extend the time for payment of any part or all of the
Indebtedness secured hereby. Such agreement shall not, in any way, release or
impair the lien hereof, but shall extend the lien hereof as against the title
of all parties having any interest in such security which interest is subject
to such lien. In the event the Notes Trustee: (a) releases, as aforesaid, any
part of the security described herein or any person liable for any
indebtedness secured hereby, (g) grants an extension of time for any payments
of the debt secured hereby, (c) takes other or additional security for the
payment thereof, or (d) waives or fails to exercise any right granted herein,
in the Notes or in any related agreement, no such act or omission shall
release the Obligor, subsequent purchasers of all or any part of the
Property, any maker or surety of the Notes or any party to this Security
Instrument or any related agreement under any covenant therein, or preclude
the Notes Trustee from exercising any right, power or privilege herein
granted or intended to be granted in the event of any other default then made
or any subsequent default.
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23. If at any time the United States of America shall require
internal revenue stamps to be affixed to any of the Notes or any other
Indebtedness, the Obligor will pay (or cause the Borrower, if the Obligor is
not the Borrower) for the same with any interest or penalties imposed in
connection herewith.
24. To the extent services are required of the Notes Trustee's
counsel after the date hereof, which are normally incident to the closing,
amendment, alteration, and enforcement of this Security Instrument, and all
provisions herein contained, the Obligor shall, to the extent permitted by
law, pay the reasonable fees therefor, promptly upon the rendering of such a
bill and delivery thereof to the Obligor.
25. The Obligor agrees at all times to cause this Security
Instrument, and each amendment or modification hereof or supplement hereto,
and all assignments of leases, to be recorded, registered and filed, and kept
recorded, registered and filed, in such manner and in such places as
appropriate, and shall comply with all applicable statutes and regulations in
order to establish, preserve and protect the security and priority of this
Security Instrument, and such assignments and the rights of the Notes Trustee
thereunder. The Obligor shall pay, or cause to be paid, all taxes, fees and
other charges incurred in connection with such recording, registration,
filing and compliance.
26. The Obligor acknowledges that it has received from the Notes
Trustee without charge a true and correct copy of this Security Instrument.
27. The Notes Trustee and its successors and assigns shall be
entitled to all of the benefits of the indemnification provisions of the Trust
Indenture.
28. To the extent permitted by law with respect to the Indebtedness
secured hereby or any renewals or extensions thereof, the Obligor waives and
renounces any and all homestead and exemption rights, as well as the benefit
of all valuation and appraisement privileges, and also moratoriums under or
by virtue of the constitution and laws of the jurisdiction in which the
Property is located or any other state or of the United States, now existing
or hereafter enacted.
29. All the covenants hereof shall run with the land. Nothing herein
contained nor any transaction related hereto shall be construed or shall so
operate, either presently or prospectively, to require the Obligor to pay
interest at a rate greater than is now lawful in such case to contract for,
but shall require payment of interest only to the extent of such lawful rate.
30. The Obligor shall execute, acknowledge and deliver any and
all such further acts, conveyances, documents, mortgages and assurances as
the Notes Trustee may reasonably require for accomplishing the purpose
hereof forthwith upon the request of the Notes Trustee, whether in writing
or otherwise. The Obligor, within ten days upon request by mail, shall
furnish a written statement duly acknowledged of the amount due upon this
Security Instrument and the Indebtedness (both unpaid principal and accrued
interest) and whether any offset or defenses exist against the
Indebtedness, and any other information which might reasonably be requested
in connection with the sale of the Indebtedness, or any portion thereof or
interest
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therein, to any third party, or an audit of the Notes Trustee, and which may
be relied on for such purposes.
31. Wherever notices may appropriately be given under this Security
Instrument, such notices shall be in writing and shall always be treated as
having adequately been given if:
(a) when intended for the Obligor, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing address, as
set out herein or to such other address or to such other person, as the
Obligor may from time to time, designate in writing; or
(b) when intended for the Notes Trustee, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing address of
the Notes Trustee as set out herein or to such other address or to such other
person as the Notes Trustee may from time to time designate in writing.
32. Any of the following occurrences or acts shall constitute an
event of default under this Security Instrument ("Event of Default"): (a) the
Company fails to pay any of the Notes or any installment thereof or interest
thereon when due or when declared due, subject to any applicable grace period
provided therein; (b) an Event of Default under and as defined in the Trust
Indenture shall have occurred; (c) the Obligor (regardless of the pendency of
any bankruptcy, reorganization, receivership, insolvency or other
proceedings, at law, in equity or before any administrative tribunal, which
have or might have the effect of preventing the Obligor from complying with
the terms of this Security Instrument), shall fail to observe or perform any
of the Obligor's covenants, agreements or obligations under this Security
Instrument and, other than defaults in the observance or performance of its
obligations under Section __ hereof, such failure shall continue for 30 days
after notice; (d) a default shall occur and continue to exist after the
expiration of any applicable grace period under any other document, agreement
or instrument between the Company or any Subsidiary Guarantor and the Notes
Trustee or any Holders, with respect to any of the Indebtedness; (e) any
representation contained herein or in the Trust Indenture or the Notes or
made (or deemed made) by the Company or any Subsidiary Guarantor to the Notes
Trustee or any of the Holders in connection with any of the Indebtedness
shall prove to be untrue in any material respect on the date as of which made
or deemed made; (f) the Company or any Subsidiary Guaranty shall file a
voluntary petition in bankruptcy or be adjudicated a bankrupt or insolvent,
or the Company or any Subsidiary Guarantor shall file any petition or answer
seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other statute, law or regulation relating
to bankruptcy, insolvency or other relief for debtors or protection for
creditors, or the seeking, or the consenting by the Company or any Subsidiary
Guarantor to or acquiescing in the appointment of any trustee, receiver,
conservator or liquidator of the Company or any Subsidiary Guarantor, as the
case may be, or of all or any substantial part of the Property or any or all of
the rents, issues or profits thereof, or the making of any general assignment
for the benefit of creditors, or the admission in writing of its inability to
pay its debts generally as they become due, or the entry by a court of competent
jurisdiction of any order, judgment or decree, which is not dismissed within 60
days thereafter, approving a
-20-
<PAGE>
petition filed against the Company or any Subsidiary Guarantor seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future Federal, state or
other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors or protection for creditors, or the appointment, which
appointment is not dismissed within 60 days thereafter, of any trustee,
receiver, conservator or liquidator of the Company or any such Subsidiary, as
the case may be, or of all or any substantial part of the Property or of all
of the rents, issues and profits thereof without the consent or acquiescence
of the Notes Trustee.
33. Upon any Event of Default or any default by the Obligor as
provided herein or in any other instrument evidencing or securing any of the
Indebtedness then, in any of said events, at the option of the Notes Trustee
(or, as may be provided in any instrument pursuant to which any such
Indebtedness is created, at the option of any holder of any such
Indebtedness), the whole or any applicable portion of the Indebtedness
secured hereby shall become immediately due and payable, although the period
specified for the payment thereof may not have expired, anything hereinbefore
or in the Notes contained to the contrary notwithstanding.
34. The obligations of the Obligor under this Security Instrument
shall be absolute and unconditional and shall remain in full force and effect
without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence
whatsoever, including, without limitation:
(A) any renewal, extension, amendment or modification of, or addition
or supplement to or deletion from any document pertaining to the
Indebtedness, or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof;
(B) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Security Instrument except as expressly provided in such renewal, extension,
amendment, modification, addition, supplement, assignment or transfer;
(C) any furnishing of any additional security to the Notes Trustee or
its assignee or any acceptance thereof or any release of any security by the
Notes Trustee or its assignee;
(D) any limitation on any party's liability or obligations under any
such instrument or agreement or any invalidity or unenforceability, in whole
or in part, of any such instrument or agreement or any term thereof; or
(E) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to the
Company or any Subsidiary Guarantor, or any action taken with respect to this
Security Instrument by any trustee or receiver, or by any court, whether or
not the Obligor shall have notice or knowledge of any of the foregoing.
-21-
<PAGE>
35. Any provision of this Security Instrument which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
36. THIS SECURITY INSTRUMENT AND THE RIGHTS AND OBLIGATIONS OF THE
OBLIGOR AND THE NOTES TRUSTEE HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF NEVADA.
37. When the Indebtedness has been paid in full, this Security
Instrument shall terminate, and the Notes Trustee, at the request and expense
of the Obligor, will execute and deliver to the Obligor a proper instrument
or instruments acknowledging the satisfaction and termination of this
Security Instrument.
38. None of the terms and conditions of this Security Instrument may
be changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Obligor and the Notes Trustee.
39. The Obligor and the Notes Trustee each hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Security Instrument or the transactions
contemplated hereby.
40. IT IS SPECIFICALLY AGREED that time is of the essence with
respect to this Security Instrument and that the waiver of the rights or
options, or obligations secured hereby, shall not at any time thereafter be
held to be abandonment of such rights. Notice of the exercise of any right or
option granted to the Notes Trustee herein, or in the Indebtedness secured
hereby, is not required to be given.
41. Where not inconsistent with the above, the following covenants,
Nos. 1; 2 (full replacement value); 3; 4 (default rate specified in the
Notes); 5; 6; 7 (a reasonable percentage); 8 and 9 of Nevada Revised Statute
Section 107.030 are hereby adopted and made a part of this Security
Instrument.
-22-
<PAGE>
Exhibit A
PARCEL I.
- ---------
The North Half (N 1/2) of the Northeast Quarter (NE 1/4) of the Southeast
Quarter (SE 1/4) of the Northeast Quarter (NE 1/4) of Section 25, Township
21 South, Range 60 East, M.D.B. & M., in the County of Clark, State of
Nevada, described as follows:
EXCEPTING THEREFROM that portion of said land as conveyed to the County of
Clark by those certain Grant, Bargain, Sale Deeds recorded May 16, 1991 in
Book 910516, as Document No. 01004 of Official Records, and January 13,
1997 in Book 970113, as Document No. 00958, of Official Records; and
ALSO EXCEPTING THEREFROM, the following described land:
That portion of the North Half (N 1/2) of the Southeast Quarter (SE 1/4) of
the Northeast Quarter (NE 1/4) of Section 25, Township 21 South, Range 60
East, Mount Diablo Meridian, in the County of Clark, State of Nevada, being
more particularly described as follows:
COMMENCING at the Northeast Corner (NE Cor) of the Southeast Quarter (SE
1/4) of the Northeast Quarter (NE 1/4) of said Section 25, also being the
centerline intersection of Decatur Boulevard (60 feet wide from centerline)
and Reno Avenue (30 feet wide from centerline):
Thence along the East line of the Northeast Quarter (NE 1/4) of said Section
25 and the centerline of said Decatur Boulevard, South 00 DEG. 15'04" East,
60.89 feet;
Thence leaving said East line and centerline, South 89 DEG. 44'56" West,
60.00 feet to the Westerly right of way of said Decatur Boulevard and the
POINT OF BEGINNING;
Thence along said Westerly right of way, South 00 DEG. 15'04" East, 148.32
feet;
Thence leaving said Westerly right of way, South 89 DEG. 44'56" West, 165.00
feet;
Thence North 00 DEG. 15'04" West 163.88 feet to the Southerly right of way of
said Reno Avenue;
Thence along said Southerly right of way, North 85 DEG. 52'01" East, 138.63
feet to the beginning of a curve concave to the Southwest having a radius
of 25.00 feet;
Thence Southeasterly along said curve, 40.96 feet through a central angle
of 93 DEG. 52'55" to the said Westerly right of way of Decatur Boulevard
and the POINT OF BEGINNING FOR THE END OF THIS DESCRIPTION.
PARCEL II:
- ----------
The Southwest Quarter (SW 1/4) of the Northeast Quarter (NE 1/4) of the
Southeast Quarter (SE 1/4) of the Northeast Quarter (NE 1/4) of Section 25,
Township 21 South, Range 60 East, M.D.B. & M., Clark County, Nevada.
EXCEPTING THEREFROM that portion of said land as conveyed to the County of
Clark by that certain Grant, Bargain, Sale Deed recorded February 10, 1997
in Book 970210, as Document No. 00774 of Official Records.
PARCEL III:
- -----------
The Southeast Quarter (SE 1/4) of the Northeast Quarter (NE 1/4) of the
Southeast Quarter (SE 1/4) of the Northeast Quarter (NE 1/4) of Section 25,
Township 21 South, Range 60 East, M.D.B. & M., Clark County, Nevada.,
described as follows:
<PAGE>
EXCEPTING THEREFROM the interest in and to the East Fifty (50) feet thereof
as disclosed by Resolution of Acquisition of Right-of-Way, recorded
December 22, 1972, as Document No. 247817 of Official Records, Clark
County, Nevada.
FURTHER EXCEPTING THEREFROM that portion of said land as conveyed to the
County of Clark by that certain Grant, Bargain, Sale Deed recorded February
10, 1997 in Book 970210, as Document No. 00773 of Official Records.
<PAGE>
IN WITNESS WHEREOF, the Obligor has caused this Security Instrument
to be executed and delivered as of the date first set forth above.
EPIC RESORTS - WESTPARK RESORT, LLC,
a Delaware limited liability company,
By /s/ T. F. Flatley
-------------------------------------
Name: Thomas F. Flatley
Title: President
ATTEST:
/s/ Helen A. Brady
- -----------------------
Name: Helen A. Brady
Title: Executive Assistant
<PAGE>
STATE OF PENNSYLVANIA
COUNTY OF MONTGOMERY
This instrument was acknowledged before me on July 6, 1998 by
Thomas F. Flatley as PRESIDENT of EPIC RESORTS-WESTPARK RESORT,
LLC., a Delaware limited liability company.
/s/ Frances B. Keilt
-------------------------------------
NOTARY PUBLIC
My commission expires:
Notarial Seal
Frances S. Keilt, Notary Public
Narberth Boro, Montgomery County
My Commission Expires April 16, 2001
Member, Pennsylvania Association of Notaries
<PAGE>
When recorded, mail to:
Barbara J. Goodman, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
LEASEHOLD DEED OF TRUST,
ASSIGNMENT OF LEASES AND RENTS
SECURITY AGREEMENT AND FIXTURE FILING
THIS LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (as amended, modified or supplemented from time
to time, this "Deed of Trust") is granted as of July __, 1998, by Epic
Resorts - Palm Springs Marquis Villas, LLC, a Delaware limited liability
company, as trustor (hereinafter, together with its successors and assigns,
called the "Obligor"), whose mailing address is 1150 First Avenue, Suite 900,
King of Prussia, PA 19406 to Barbara J. Goodman, Esq., having an address at
c/o White & Case 1155 Avenue of the Americas, New York, New York, 10036, as
trustee ("Trustee"), for the benefit of United States Trust Company of New
York, a New York banking corporation, acting as trustee (herein together with
its successors and assigns in such capacity, the "Notes Trustee" for the
Holders (as defined below) pursuant to the Trust Indenture (as defined
below), whose mailing address is 114 West 47th Street, New York, New York
10036-1532. Capitalized terms not defined herein shall have the meanings as
ascribed to them in the Trust Indenture (as defined below).
PRELIMINARY STATEMENTS
(1) This Deed of Trust is made pursuant to the Trust Indenture, dated
as of the date hereof (herein, as amended or otherwise modified from time to
time, the "Trust Indenture"), among Epic Resorts, Inc., a Delaware
corporation (herein, together with its successors and assigns, the "Company"),
the Obligor and other Subsidiary Guarantors as identified therein, and the
Notes Trustee acting as trustee for the Holders (defined below), providing,
among other things for a loan to the Company of $130,000,000, with such loan
being evidenced by the Company's 13% Senior Secured Notes due 2005 in the
aggregate principal amount of $130,000,000 (the "Notes", such term to include
all notes and other securities issued in substitution or exchange therefor or
in replacement thereof).
(2) The Obligor has guaranteed to the holders of the Notes (the
"Holders") the payment when due of the Notes pursuant to a guaranty (the
"Subsidiary Guarantee").
(3) It is a condition precedent to the making of the loan to the
Company that the Obligor shall have executed and delivered to or for the
benefit of the Notes Trustee this Deed of Trust.
(4) The Obligor desires to execute this Deed of Trust to satisfy the
conditions described in the preceding paragraph and to secure the performance
of its covenants and agreements contained in the Trust Indenture, herein and
in any agreement or instrument made by it with respect to any indebtedness or
obligations secured hereby and to secure the payment when due (whether at the
stated maturity, by accelerating or otherwise) of all obligations (including
<PAGE>
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due), but not necessarily in the order set
forth, of the following indebtedness, liabilities and obligations, now
existing or hereafter arising, ratably (including any modifications or
replacements thereof):
(a) the aggregate principal amount of $130,000,000, with interest
thereon, as evidenced by the Notes, maturing on or prior to June 15,
2005;
(b) all sums advanced by or on behalf of the Notes Trustee
pursuant to any term or provision of this Deed of Trust or any other
agreement or instrument relating to or securing any of the foregoing;
(c) all advances or disbursements of the Notes Trustee with
respect to the Property (as hereinafter defined) for the payment of
taxes, levies, assessments, insurance, insurance premiums or costs
incurred in the protection of taxes, levies, assessments, insurance,
insurance premiums or costs incurred in the protection of the Property;
and
(d) all other liabilities, obligations and indebtedness of the
Obligor incurred under, arising out of or in connection with the
Subsidiary Guarantee, the Trust Indenture and this Deed of Trust.
(all of such indebtedness, liabilities and obligations being collectively
referred to hereinafter as the "Indebtedness").
(5) This Deed of Trust creates a lien on the leasehold estate of the
Obligor in the Property and shall automatically become a lien on any and all
Vacation Ownership Interests in the Property, upon the creation of such
Vacation Ownership Interests in the Property.
(6) The creation of Vacation Ownership Interests in the Property shall
be permitted only upon satisfaction of the following conditions:
(i) No Event of Default (as hereinafter defined) shall have occurred
or be continuing under this Deed of Trust;
(ii) The Obligor shall have received and approved all documents
necessary for the creation of the Vacation Ownership Interests, including,
without limitation, the declaration creating the Vacation Ownership Interests;
(iii) The Obligor shall have received all approvals and consents, and
made all filings, required in conjunction with the establishment of the
Vacation Ownership interests; and
(iv) First American Title shall have agreed to endorse the Lender's
title insurance policy insuring this Deed of Trust, to provide affirmative
insurance to the effect that the Property consists of Vacation Ownership
Interests validly created and that the lien of this Deed of Trust shall
constitute a valid first lien upon the Vacation Ownership Interests.
<PAGE>
(7) Provided that no Event of Default has then occurred and is
continuing under this Deed of Trust, the Notes Trustee shall, at the expenses
of the Obligor, promptly reconvey the lien hereof on each Vacation Ownership
Interest following a sale of such Vacation Ownership Interest to a person
unaffiliated with the Obligor, and the Notes Trustee shall not have a lien on
the proceeds of any such sale.
GRANTING CLAUSES
NOW, THEREFORE, in consideration of the sum of $1.00, and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, received to the Obligor's full satisfaction, and in
consideration of the loan made or to be made hereafter to or for the benefit
of the Company, THE OBLIGOR DOES HEREBY UNCONDITIONALLY AND IRREVOCABLY GIVE,
GRANT, BARGAIN, SELL, WARRANT, ALIEN, DEMISE, RELEASE, CONVEY, ASSIGN,
TRANSFER, MORTGAGE, HYPOTHECATE, DEPOSIT, PLEDGE, SET OVER AND GRANT A
SECURITY INTEREST IN AND CONFIRMS TO THE TRUSTEE, IN TRUST WITH POWER OF SALE
AND RIGHT OF ENTRY, FOR THE BENEFIT AND SECURITY OF THE NOTES TRUSTEE AND ITS
SUCCESSORS AND ASSIGNS, all of its present and future, right, title and
interest in and to that certain leasehold estate (the "Leasehold") created
pursuant to that certain Business Lease No. PSL-253 (the "Business Lease")
dated November 23, 1979 between Steven Allen Rice Allottee, as lessor, and
Western Ventures, Inc. ("WVI"), as lessee, as amended by Amendment No. 1 to
Lease No. PSL-253 dated July 21, 1983, as amended by Agreement No. 2 Lease
No. PSL-253, as amended by Supplemental Agreement No. 3 Lease No. PSL-253
dated August 27, 1985, as assigned by an assignment dated May 18, 1988
pursuant to which all of WVI's interest in said lease was assigned to Palm
Springs Marquis, Inc. ("PSM"), as amended by Amendment No. 4 Lease No.
PSL-253 dated April 4, 1997 and as assigned by an assignment dated [ ]
pursuant to which all of PSM's interest in said lease was assigned to the
Obligor (such Business Lease as amended and assigned together with any
amendments, modifications, extensions, renewals or substitutions therefor is
referred to herein as the "Ground Lease"), and affecting all or the portions
of that certain real property situated in the State of California, described
as Exhibit A attached hereto and made a part hereof by reference;
(1) TOGETHER WITH all Vacation Ownership Interests now and/or hereafter
created at the property described in Exhibit A attached hereto; and
(2) TOGETHER WITH all rights and easements now and/or hereafter created
which are appurtenant to the Property described in Exhibit A, including but
not limited to those rights and easements more fully identified thereon, if
any; and
(3) TOGETHER WITH all and singular right, title and interest, including
any after-acquired title or reversion, in and to all other ways, easements,
streets, alleys, passages, water, water courses, riparian rights, rights,
liberties and privileges thereof, if any, and in any way appertaining
thereto; and
<PAGE>
(4) TOGETHER WITH all rents, royalties, revenues, incomes, issues and
profits accruing and to accrue therefrom; and
(5) TOGETHER WITH all buildings and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction, reconstruction, alteration and repairs of such
improvements now or hereafter erected thereon, all of which materials shall
be deemed to be included within the property subject to this Deed of Trust
immediately upon the delivery thereof to the property described in Exhibit A
(all such buildings and improvements, collectively referred to herein as the
"Improvements"); all fixtures and articles of personal property now or
hereafter owned by the Obligor and attached to, or located on, and used in
the operation or management of the property described in Exhibit A; and all
renewals or replacements thereof, proceeds therefrom, or articles in
substitution therefor, whether or not the same are or shall be attached to
such building or buildings in any manner, it being mutually agreed that all
the aforesaid property owned by the Obligor and placed by it on the property
described in Exhibit A shall, so far as permitted by law, be deemed to be
fixtures and a part of the realty and security for the Indebtedness secured
by this Deed of Trust; and
(6) TOGETHER WITH all leases, written or oral, and all agreements for
use or occupancy of all or any portion of the property described in Exhibit
A, together with any and all extensions and renewals thereof and any and all
further leases, subleases, lettings or agreements (including subleases
thereof and tenancies following attornment) upon or covering use or occupancy
of all or any part of the property described in Exhibit A (all such leases,
agreements, subleases and tenancies sometimes collectively referred to herein
as the "Leases" and sometimes individually as a "Lease"); and
(7) TOGETHER WITH all of the rents, income, receipts, revenues, issues
and profits now due or which may become due or to which the Obligor may now
or hereafter (including during the period of redemption, if any, following
foreclosure of this Deed of Trust become entitled or may demand or claim
arising or issuing from or out of the Leases or from or out of the property
described in Exhibit A or any part thereof; and
(8) TOGETHER WITH all deposits made with or other security given to
utility companies by the Obligor with respect to the property described in
Exhibit A, and all proceeds of all insurance now or hereafter carried by, or
payable to, the Obligor with respect to the property described in Exhibit A,
or otherwise now or hereafter payable with respect to any loss or damage of
the property described in Exhibit A, and all claims or demands with respect
thereto; and
(9) TOGETHER WITH all right, title and interest of the Obligor in and
to any operating, use, or management agreement pertaining to the property
described in Exhibit A and all cash payments to be made to or for the account
of the Obligor pursuant thereto and any other proceeds thereof; and
(10) TOGETHER WITH all right, title and interest of the Obligor in and
to any leases for equipment now or hereafter located at or used in connection
with the property described in Exhibit A, including without limitation all
leases for office equipment, maintenance
<PAGE>
and operation equipment, recreational equipment and fixtures, telephone
equipment, furniture and furnishings; and
(11) TOGETHER WITH all permits, licenses and franchises, and all
contract rights and other intangibles now or hereafter owned by the Obligor
and relating to the ownership, construction, use, operation, occupancy or
development of the property described in Exhibit A, including, without
limitation, any plans, specifications and drawings pertaining to the
development thereof, and contracts with architects and contractors; and
(12) TOGETHER WITH all awards and other compensation heretofore or
hereafter to be made to the present and all subsequent owners of the property
subject to this Deed of Trust for any taking by eminent domain, either
permanent or temporary, of all or any part of the property described in
Exhibit A or any easement or appurtenance thereof, including severance and
consequential damage and change in grade of streets, which such awards and
compensation are hereby assigned to the Notes Trustee; the Obligor hereby
appoints the Notes Trustee its Attorney-in-Fact, with an interest, and
authorizes, directs and empowers such Attorney, at the option of such
Attorney, on behalf of the Obligor and its successors or assigns to collect
and receive the proceeds thereof, to give proper receipts and acquittances
therefor (but not to adjust or compromise the claim) and, after deducting
reasonable expenses of collection, to apply the net proceeds without penalty
or premium as a credit upon any portion, as selected by the Notes Trustee, of
the Indebtedness secured hereby, notwithstanding the fact that the amount
owing hereon may not then be due and payable or that such Indebtedness is
otherwise adequately secured; and
(13) TOGETHER WITH all present and future options of any kind, rights of
first refusal, privileges and other benefits of the Obligor under the Ground
Lease.
All of the property covered or intended to be conveyed to Trustee for
the benefit of the Notes Trustee in the granting clauses (1) through (13)
above, is described in this Deed of Trust as the "Property."
TO HAVE AND TO HOLD the Property with the appurtenances thereunto
belonging unto the Trustee and its successors and assigns, in fee simple,
forever, for the benefit of the Notes Trustee for the purposes and uses
herein set forth, until such time as all of the Indebtedness and obligations
secured hereby shall have been paid in full.
The Obligor covenants with the Trustee, its successors and assigns, that
at and until the ensealing of these presents: (i) the Obligor is well seized
of and has a good and valid leasehold estate in and to the Leasehold, free
and clear of any Liens and encumbrances (except for Permitted Liens under the
Trust Indenture); (ii) the Obligor will warrant and defend the Property with
the appurtenances thereunto belonging to the Trustee, its successors and
assigns, forever against all lawful claims, and demands whatsoever subject
only to Permitted Liens under the Trust Indenture; (iii) the Property and the
intended use thereof by the Obligor comply to the best of the Obligor's
knowledge with all applicable restrictive covenants, zoning ordinances and
building codes and flood disaster laws, and, to the extent that noncompliance
therewith would materially adversely affect the value or marketability of the
Property, all applicable occupational, health and
<PAGE>
environmental and other applicable laws, rules and regulations of any other
governmental authority whatsoever, and (iv) the Obligor will execute,
acknowledge and deliver all necessary assurances to the Trustee of the title
to the Property as provided above.
This Deed of Trust is granted as security for the payment of the
Indebtedness. In accordance with the provisions of the Notes, the whole of
the principal sum thereof then unpaid may be declared and become due and
payable upon demand or upon the occurrence of an Event of Default hereunder
or under the Trust Indenture or the Notes. This Deed of Trust is given for
the purpose of creating a lien of the Property and expressly is to secure the
Indebtedness.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS that are hereinafter set
forth; PROVIDED, HOWEVER, that if the Company pays or causes to be paid to
the Holders all sums secured hereby in the manner provided in the Notes and
the Trust Indenture, and the Obligor fully pays and performs its obligations
under the Subsidiary Guarantee, the Trust Indenture, and in this Deed of
Trust and does keep and perform every obligation, term, covenant, condition
and warranty contained in the Subsidiary Guarantee, the Trust Indenture and
in this Deed of Trust, then and in such case the estate, right, title and
interest of Trustee in and to the Property shall cease, and upon proof being
given to the satisfaction of the Notes Trustee that the Indebtedness has been
paid or satisfied in accordance with its terms, and upon payment of all fees,
costs, charges and Indebtedness chargeable to or incurred by Trustee or
otherwise provided for in this Deed of Trust, then this and the estate hereby
granted and conveyed shall be reconveyed at the sole expense of the Obligor.
The Obligor, intending to bind its successors and assigns, hereby
covenants and agrees as follows:
1. The Obligor will duly keep and perform all covenants, agreements,
conditions and stipulations binding on the Obligor under the Subsidiary
Guarantee or the Trust Indenture. The Obligor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Indebtedness and this Deed of Trust and any requirement that the Notes
Trustee or other holder of the Indebtedness secured hereby protect, secure,
perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against any other person, or
any collateral, or pursue any other remedy in the power of the Notes Trustee
or other holder of any of the Indebtedness secured thereby.
2. To facilitate payment and performance of the Indebtedness, the
Obligor hereby absolutely transfers and assigns to the Notes Trustee all
right, title and interest of the Obligor in and to the Leases.
3. (a) No later then ten days prior to the date when any installment
of taxes and assessments is due, without penalty, interest or delinquency,
the Obligor shall subject to the Notes Trustee evidence of the due and
punctual payment of such taxes, assessments, reassessments and other
governmental charges. The Obligor will also pay all taxes and assessments or
charges which may be levied on the Indebtedness secured hereby or the
interest therein excepting the federal income tax imposed under the laws of
the United States and excepting state franchise and state income taxes. Any
assessment which is payable in installments
<PAGE>
at the application of the Obligor shall, nevertheless, for the purposes of
this section, be deemed due and payable by the Obligor in its entirety on the
day the first installment becomes due and payable or a lien, unless the
written approval of the Notes Trustee is obtained for such installment
payments of assessments.
(b) Notwithstanding the provision of Section 3(a) above, the Obligor
shall have the right to contest in good faith any of such taxes and
assessments upon posting with the Notes Trustee sufficient security,
reasonably satisfactory of the Notes Trustee, for the payment thereof, with
interest, costs and penalties, under written agreement conditioning payment
of such contested taxes and assessments upon the resolution of such contest,
or prior thereto if the continuance of such contest shall put the Property or
any part thereof in jeopardy of tax sale or forfeiture.
4. If at any time the United States or the State of Commonwealth in
which the Property is located or any of their subdivisions having
jurisdiction shall levy, assess or charge any tax (including, without
limitation, documentary stamp or intangible tax), assessment or imposition
upon this Security Instrument, the Notes, or the Indebtedness secured hereby
or the interest of the Notes Trustee in the Property or upon the Notes
Trustee by reason of or as holder of any of the foregoing, then the
Indebtedness and accrued interest thereon shall be and become due and payable
at the election of the Notes Trustee; provided, however, that such election
and the right to elect shall be unavailing if the Obligor lawfully may pay
for such stamps or such tax, including interest and penalties thereon, to or
for the benefit of the Notes Trustee and the other holders of the
Indebtedness, and the Obligor elects to pay and does, in fact, pay when
payable, for all such stamps or such tax, as the case may be, including
interest and penalties thereon, prior to any such election by the Notes
Trustee. The Obligor further agrees to deliver to the Notes Trustee, at any
time, upon demand, evidence of citizenship and such other evidence as may be
required by any government agency having jurisdiction in order to determine
whether the obligation secured hereby is subject to or exempt from any such
tax or any other governmental filing or reporting requirement.
5. The Obligor shall keep the Property free and clear from all
mechanics liens and statutory liens of every kind other than taxes and
permitted assessments which may be a lien but not yet due and payable and
the Obligor will not voluntarily create or permit to be created or filed
against their respective interests in the Property, or suffer to exist, any
mortgage lien or other lien or liens inferior or superior to the lien of this
Security Instrument (other than the lien or liens for real estate taxes and
assessments not yet due and payable) or if filed, the Obligor will have the
same discharged of record either by payment, the bonding thereof or other
lawful means within 30 days after notice of filing and further, that that
Obligor will keep and maintain the same free from all claims of all persons
supplying labor, materials or services which will enter into or otherwise
contribute to the construction of any and all improvements to the Property,
notwithstanding by whom such labor or materials may have been contracted;
provided, however, that the Obligor shall have the right to contest in good
faith any such mechanics' lien or statutory lien upon posting with the Notes
Trustee sufficient security, satisfactory to the Notes Trustee, for the
payment thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics' lien or statutory lien upon
the resolution of such contest, or prior
<PAGE>
thereto if the continuance of such contest or litigation shall put the
Property or any part thereof in jeopardy of foreclosure sale or forfeiture
for such lien.
6. The Obligor agrees that the Obligor shall not (i) sell, encumber
(including, without limitation, by means of subordinate mortgage or lien upon
the Property of any part thereof or interest therein), assign, lease or
dispose of the Property or any part thereof or interest therein, except in
accordance with, and to the extent permitted by, the terms and provisions of
the Trust Indenture, or (ii) enter into any contract or agreement to do
anything prohibited by clause (i) of this Section 6 expressly including,
without limitation, any land contract, lease/purchase, lease/option or option
agreement without, in each such case, first obtaining the written consent of
the Notes Trustee; except, however, that the Obligor shall have the right,
without such consent, to sell individual time share units included in the
Property on and subject to the terms and conditions of the Trust Indenture.
7. The Obligor hereby acknowledges that the Indebtedness was
incurred in good faith for full value received.
8. The Obligor warrants and represents that:
(a) The Obligor is not now in default under any instruments or
obligations relating to the Property and no party has asserted any claim
of default against the Obligor relating to the Property.
(b) The execution and performance of this Security Instrument and
the consummation of the transactions hereby contemplated will not result
in any breach of, or constitute a default under, any mortgage, lease, bank
loan, credit agreement, trust indenture or other instrument to which the
Obligor is a party or by which it or any of its property (including,
without limitation, the Property) may be bound or affected, nor do any
such instruments impose or contemplate any obligations which are or may
be inconsistent with any other obligations imposed on the Obligor under
any other instrument heretofore or hereafter delivered by the Obligor.
(c) As of the date hereof, there are no actions, suits or proceedings
(including, without limitation, any condemnation or bankruptcy
proceedings) pending or threatened against or affecting the Obligor or the
Property, or which may adversely affect the validity or enforceability of
this Security Instrument, at law or in equity, or before or by any
governmental authority, except as disclosed in writing to the Lenders
prior to the date of execution and delivery hereof as contemplated by the
terms and provisions of the Trust Indenture, and the Obligor so not in
default with respect to any writ, injunction, decree or demand of any
court or any governmental authority affecting the Property.
(d) The Property is not used principally or primarily for farming
or agricultural purposes.
9. (a) The Obligor will maintain flood insurance, if required,
pursuant to a designation of the area in which the Property is located as
flood prone or a flood risk area, as
<PAGE>
defined by the Flood Disaster Protection Act of 1973, as amended, as well as
comply with any additional requirements of the National Flood Insurance
Program as set forth in such Act.
(b) The Obligor shall maintain for the mutual benefit of the Notes
Trustee and the Obligor general public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about the
Property and on, in or about the adjoining streets and passageways, such
insurance to afford protection to the limits of not less than those then
customarily carried with respect to Property similar in general location, use
and occupancy to the Property, but in no event less than a single limit
amount of $5,000,000. All of such insurance shall be primary and
non-contributing with any insurance which may be carried by the Notes Trustee.
(c) In the event such coverage is provided as part of a blanket
policy, then in such event the amount of the coverage specifically applicable
to the Property shall be stated on the face of the policy. All insurance
policies, to the extent of its interest, are to be for the benefit of and
first payable in case of loss to the Notes Trustee as first mortgagee without
contribution and the Obligor shall deliver to the Notes Trustee a copy of any
renewal or replacement policies and original certificates thereof to the
Notes Trustee at such place or to such other party as the Notes Trustee may,
from time to time, designate in writing, before the date of such expiration
or termination of any existing policy.
(d) All insurance policies required by this Section 9 shall contain
an express provision or endorsement which states the substance of the
following in a manner acceptable to the Notes Trustee: "The policy of
insurance shall not be canceled, permitted to lapse by reason of non-renewal,
altered, changed, amended or modified, nor shall any coverage therein be
reduced, deleted, amended, modified, changed or canceled by either the party
named as the insured, or the insurance Obligor issuing this policy, without
at least 30 days' prior written notice having been given to United States
Trust Company of New York as the Notes Trustee."
10. (a) The term "Hazardous Materials," as used in this Security
Instrument, shall mean any (i) hazardous wastes and/or toxic chemicals,
materials, substances or wastes as defined by the Environmental Laws set
forth in Subsection 10(b); (ii) any "oil", as defined by the Clean Water Act
(as defined in Subsection 10(b) below), as amended from time to time, and
regulations promulgated thereunder (including crude oil or any fraction
thereof); (iii) any substance, the presence of which is prohibited, regulated
or controlled by any other applicable federal or state or local laws,
regulations, statutes or ordinances now in force or hereafter enacted
relating to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use, generation, storage,
transportation, treatment, release, emission, discharge, disposal, abatement,
cleanup, removal, remediation or handling; (iv) any asbestos or asbestos
containing materials, polychlorinated biphenyls ("PCBs") in the form of
electrical equipment, fluorescent light fixtures with ballasts, cooling oils
or any other form, urea formaldehyde, atmospheric radon at levels over four
picocuries per cubic liter; (v) any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis, acids,
chemicals, pesticides, herbicides, sewage, industrial sludge or other similar
wastes; (vi) industrial, nuclear or medical by-products; and (vii)
underground storage tanks (whether filled or unfilled).
<PAGE>
(b) The term "Environmental Laws," as used in this Section 10, shall
mean all present and future laws, statutes, ordinances, rules, regulations,
orders and determinations of any governmental authority, pertaining to
health, protection of the environment, natural resources, conservation,
wildlife, waste management, regulation of activities involving Hazardous
Materials, and pollution, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("Superfund" or
"CERCLA"), 42 U.S.C. Section 9601, ET SEQ., the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section 9601(20)(D), the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901,
ET SEQ., the Federal Water Pollution Control Act, as amended by the Clean
Water Act (the "Clean Water Act"), 33 U.S.C. Section 1251, ET SEQ., the Clean
Air Act ("CAA"), 42 U.S.C. Section 7401, ET SEQ., and the Toxic Substances
Control Act, 15 U.S.C. Section 2601, ET SEQ., as amended from time to time.
(c) The Obligor shall, and the Obligor shall cause all employees,
agents, contractors and tenants of the Obligor and any other persons present
on or occupying the Property to, keep and maintain the Property, including
the soil and ground water thereof, in compliance with, and not cause or
permit the Property, including the soil and ground water thereof, to be in
violation of any Environmental Laws. Neither the Obligor nor any employees,
agents, contractors or tenants of the Obligor or any other persons occupying
or present on the Property shall use, generate, manufacture, store or dispose
on, under or about the Property or transport or from the Property any
Hazardous Materials.
(d) The Obligor immediately shall advise the Notes Trustee in writing
of: (i) any notices from any governmental or quasi-governmental agency or
authority of violation or potential violation of any Environmental Law
received by the Obligor; (ii) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or threatened
pursuant to any Environmental Law; (iii) all claims made or threatened by any
third party against the Obligor or the Property relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials (the matters set forth in clauses (i) (ii) and (iii) above
are hereinafter referred to as "Hazardous Materials Claims"); and (iv)
discovery by the Obligor of any occurrence or condition on any Property
adjoining or in the vicinity of the Property that could cause the Property to
become contaminated by or with Hazardous Materials. The Notes Trustee shall
have the right but not the obligation to join and participate in, as a party
if it so elects, any legal proceedings or actions initiated in connection
with any Hazardous Materials Claims and to have its reasonable attorneys' and
consultants' fees in connection therewith paid by the Obligor upon demand.
(e) The Obligor shall be solely responsible for, and shall indemnify,
defend, and hold harmless the Notes Trustee, its directors, officers,
employees, agents, successors and assigns from and against, any loss, damage,
cost, expense or liability or whatever kind or nature, known or unknown,
contingent or otherwise, directly or indirectly arising out of or
attributable to the use, generation, storage, release, threatened release,
discharge, disposal or presence (whether prior to or after the date of this
Security Instrument) of Hazardous Materials on, in, under or about the
Property (whether by the Obligor, a predecessor in title, any tenant, or any
employees, agents, contractor or subcontractors of any of the foregoing or
any third persons at any time occupying or present on the Property),
including, without limitation: (i) personal injury; (ii) death; (iii) damage
to property; (iv) all consequential damages; (v) the cost of any required or
<PAGE>
necessary repair, cleanup or detoxification of the Property, including the
soil and ground water thereof, and the preparation and implementation of any
closure, remedial or other required plans; (vi) damage to any natural
resources; and (vii) all reasonable costs and expenses incurred by the Notes
Trustee in connection with the foregoing clauses (i) through (vi), including
but not limited to reasonable attorneys' and consultants' fees; provided,
however, that nothing contained in this Section shall be deemed to preclude
the Obligor from seeking indemnification from or otherwise proceeding
against, any third party including, without limitation, any tenant or
predecessor in title to the Property. The covenants, agreements and
indemnities set forth in this Section shall be binding upon the Obligor and
its successors and assigns, and shall survive each of repayment of the
Indebtedness, foreclosure of the Property, and the Obligor granting a deed in
lieu of foreclosure of the Property. Any costs or expenses incurred by the
Notes Trustee for which the Obligor is responsible or for which the Obligor
has indemnified the Notes Trustee shall be paid to the Notes Trustee on
demand, with interest at the default rate specified in the Notes from the
date incurred by the Notes Trustee until paid in full, and shall be secured
hereby. Without the Notes Trustee's prior written consent, the Obligor shall
not enter into any settlement, consent decree or other compromise in respect
of any Hazardous Materials Claims.
(f) In the event the Notes Trustee reasonably determines that an
investigation of the Property for the presence of Hazardous Materials (an
"Environmental Audit") is necessary in order to maintain the value of the
Notes Trustee's security in the Property, the Obligor shall retain, upon the
Notes Trustee's request, or the Notes Trustee may retain directly, at the
sole cost and expense of the Obligor, a licensed geologist, industrial
hygienist or an environmental consultant (referred to hereinafter as the
"Consultant") acceptable to the Notes Trustee to conduct the Environmental
Audit. The Notes Trustee's determination to require an Environmental Audit
shall be deemed reasonable at any time there is Default under the Trust
Indenture or hereunder or in the event that the Notes Trustee has received
notice of the likely existence of Hazardous Materials upon or in the
Property. The Environmental Audit shall be performed in a manner reasonably
calculated to discover the presence of Hazardous Materials contamination
taking into consideration the known uses of the Property and property in the
vicinity of the Property and any factors unique to the Property. If the
Obligor shall fail to pay for or obtain an Environmental Audit as provided
for herein, the Notes Trustee may, but shall not be obligated to, obtain the
Environmental Audit, and the Obligor immediately and without demand shall
repay all costs and expenses incurred by the Notes Trustee in connection
therewith, with interest at the default rate specified in the Notes from the
date of such payments or advances until paid in full, and such sums so
advanced or expended, with interest as aforesaid, shall be secured hereby.
(g) The Obligor shall cooperate with the Consultant and allow entry and
access to all portions of the Property for the purpose of Consultant's
investigation. The Obligor shall comply, at its sole cost and expense, with
all recommendations contained in the Environmental Audit reasonably required
to bring the Property into compliance with all Environmental Laws and any
recommendation for additional testing and studies to detect the quantity and
types of Hazardous Materials present, if the Notes Trustee requires the
implementation of the same.
11. The Notes Trustee shall have, and is hereby granted by the Obligor
with a warranty of further assurances, the irrevocable power to appoint a
substitute trustee or trustees
<PAGE>
hereunder and to remove any or all trustees hereunder from time to time
without notice, unless required by applicable law, and without specifying any
reason therefor, by filing for record a deed of appointment in the office in
which this Security Instrument is recorded. Such power of removal and
appointment may be exercised as often and whenever the Notes Trustee deems it
advisable, and the exercise of such power, no matter how often, shall not
result in an exhaustion of such power. Upon the recordation of each such
deed of appointment or removal, each trustee so appointed shall become fully
vested with identically the same title and estate in and to the Property and
with all the identical rights, powers, trusts and duties of his predecessor
or predecessors in the Property, as if originally named as a Trustee
hereunder. Whenever in this Security Instrument reference is made to
"Trustee", such reference shall be construed to mean the trustee or trustees
for the time being, whether the original or any successor trustee. All title,
estate, rights, powers, trusts and duties hereunder given, appertaining to or
devolving upon Trustee shall be in each Trustee if there is more than one
then serving hereunder, so that any action hereunder or purporting to be
hereunder of either one of the original or any successor trustees shall for
all purposes be considered to be, and shall be as effective as, the action of
all trustees. The substitution of one trustee shall be sufficient even if in
replacement of more than one trustee.
12. In the event the Obligor shall fail to comply with any or all of
its covenants, agreements, conditions and stipulations herein set forth, then
the Notes Trustee [or the Trustee (at the direction of the Notes Trustee)]
shall after notice to the Obligor be and hereby is authorized and empowered
at its option, but without legal obligation to do so, to pay or perform the
same without waiver of any other remedy. In addition, the Notes Trustee
[or the Trustee (at the direction of the Notes Trustee)] is authorized and
empowered at its option, but without legal obligation to do so, to enter, or
have its agents enter, the Property whenever necessary for the purpose of
inspecting the Property and curing any default hereunder. The Obligor agrees
that the Notes Trustee [or the Trustee (at the direction of the Notes Trustee)]
shall thereupon have a claim against the Obligor for all sums paid by the
Notes Trustee [or the Trustee (at the direction of the Notes Trustee)] for
such defaults so cured, together with a lien upon the Property for the sum so
paid plus interest at the default rate specified in the Notes.
13. The Obligor shall not commit waste upon the Property or suffer
waste to be committed thereon. The Obligor will keep the Property in good
order and repair and in compliance in all material respects with any law,
regulation, ordinance or contract affecting the Property. The Obligor shall
observe and comply with all conditions and requirements necessary to preserve
and extend any and all material rights, licenses, permits (including but not
limited to zoning variances, special exceptions and non-conforming uses),
privileges, franchises and concessions which are applicable to the Property
or which have been granted to or contracted for by the Obligor in connection
with any existing or presently contemplated use of the Property and shall
obtain and keep in full force and effect all necessary governmental and
municipal approvals as may be necessary from time to time to comply in all
material respects with all mining, environmental and other requirements and
with any and all conditions attached to the insurance relating to the
Property and the condition thereof.
14. The Obligor will give the Notes Trustee immediate notice of the
actual or threatened commencement of any proceedings under eminent domain
affecting all or any part of
<PAGE>
the Property or any easement therein or appurtenances thereof, including
severance and consequential damage and change in grade of streets, and will
deliver to the Notes Trustee copies of any and all papers served in
connection with any such proceedings. Except as provided in subsection (a)
below, the Obligor agrees that all awards heretofore or hereafter made by any
public or quasi-public authority to the present and all subsequent owners of
the Property by virtue of an exercise of the right of eminent domain by such
authority, including any award for taking of title, possession or right of
access of a public way, or for any change of grade or streets affecting the
Property, are hereby assigned to the Notes Trustee and the Notes Trustee at
its option is hereby authorized, directed and empowered to collect and
receive the proceeds of any such awards from the authorities making the same
and to give proper receipts therefor. After deducting from such proceeds any
expenses incurred by the Notes Trustee in the collection or handling thereof,
the Notes Trustee shall apply the net proceeds as to the Indebtedness in such
order as determined by the Notes Trustee.
The Obligor hereby covenants and agrees to and with the Notes Trustee,
upon the request of the Notes Trustee to make, execute and deliver any and
all assignments and other instruments sufficient for the purpose of assigning
all such awards to the Notes Trustee, free and clear and discharged of any
and all encumbrances of any kind or nature whatsoever except as above stated.
15. In the event an action shall be instituted to foreclose this
Security Instrument, or prior to foreclosure but after default, the Notes
Trustee shall be entitled to the appointment of a receiver of the rents,
issues and profits of the Property as a matter of right, with power to
collect the rents, issues and profits of the Property due and becoming due
during the period of default and/or the pendency of such foreclosure suit to
and including the date of confirmation of the sale under such foreclosure
and during the redemption period, if any, after such confirmation, such
rents, issues and profits being hereby expressly assigned and pledged as
security for the payment of the Indebtedness secured by this Security
Instrument without regard to the value of the Property or the solvency of any
person or persons liable for the payment of the Indebtedness and regardless
of whether the Notes Trustee has an adequate remedy at law. The Obligor for
itself and for any subsequent owner hereby waives any and all defenses to the
application for a receiver as above provided and hereby specifically consents
to such appointment, but nothing herein contained is to be construed to
deprive the holder of this Security Instrument of any right or remedy or
privilege it may now have under the law to have a receiver appointed. The
provision for the appointment of a receiver and the assignment of such rents,
issues and profits is made an express condition upon which the Loans hereby
secured are made. In such event, the court shall at once on application of
the Notes Trustee or its attorney in such action, appoint a receiver to take
immediate possession of, manage and control the Property, for the benefit of
the holder or holders of the Indebtedness and of any other parties in
interest, with power to collect the rents, issues and profits of the Property
during the pendency of such action, and to apply the same toward the payment
of the several obligations herein mentioned and described, notwithstanding
that the same or any part thereof is occupied by the Obligor or any other
person. The rights and remedies herein provided for shall be deemed to be
cumulative and in addition to and not in limitation of those provided by law
and if there be no receiver so appointed, the Notes Trustee itself may
proceed to collect the rents, issues and profits from the Property. From any
such rents, issues, and profits collected by the receiver or by the Notes
<PAGE>
Trustee prior to a foreclosure sale, there shall be deducted the cost of
collection thereof and the expenses of operation of the Property, including
but not limited to real estate commissions, receiver's fee and the reasonable
fees of its attorney, if any, and the Notes Trustee's attorney's fees, if
permitted by law, and court costs, the remainder to be applied against the
Indebtedness. In the event the rents, issues and profits are not adequate to
pay all tax and other expenses of operation, the Notes Trustee may, but is
not obligated to, advance to any receiver the amounts necessary to operate,
maintain and repair, if necessary, the Property and any such amounts so
advanced, together with interest thereon at the default rate specified in the
Notes from and after the date of advancement, shall be secured by this
Security Instrument and have the same priority of collection as the principal
of the Indebtedness secured hereby.
16. No sale of the Property, no forbearance on the part of the Notes
Trustee, no extension of the time for the payment of the Indebtedness and no
change in the terms of the payment thereof consented to by the Notes Trustee
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Obligor hereunder or the original
liability of the Company or any other obligor under any of the Indebtedness,
either in whole or in part. No waiver by the Notes Trustee of any breach of
any covenant of the Obligor herein contained shall be construed as a waiver
of any subsequent breach of the same or any other covenant herein contained.
The failure of the Notes Trustee to exercise the option for acceleration of
maturity and/or foreclosure (including sale under power of sale hereunder)
following any default as aforesaid or to exercise any other option granted to
the Notes Trustee hereunder in any one or more instances, or the acceptance
by the Notes Trustee of partial payments hereunder shall not constitute a
waiver of any such default, nor extend or affect the grace period, if any,
but such option shall remain continuously in force with respect to any
unremedied or uncured default. Acceleration of maturity once claimed
hereunder by the Notes Trustee may, at the option of the Notes Trustee, be
rescinded by written acknowledgment to that effect by the Notes Trustee, but
the tender and acceptance of partial payments alone shall not in any way
affect or rescind such acceleration of maturity, or extend or affect the
grace period, if any. The Notes Trustee may pursue any of its rights without
first exhausting its rights hereunder and all rights, powers and remedies
conferred upon the Notes Trustee herein are in addition to each and every
right which the Notes Trustee may have hereunder at law or equity and may be
enforced concurrently therewith.
17. If any action or proceeding be commenced, to which action or
proceeding the Notes Trustee is made a party by reason of the execution of
this Security Instrument or the Indebtedness, or in which it becomes
necessary to defend or uphold the lien of this Security Instrument, or the
priority thereof or possession of the Property, or otherwise to perfect the
security hereunder, or in any suit, action, legal proceeding or dispute of
any kind in which the Notes Trustee is made a party or appears as party
plaintiff or defendant, affecting the interest created herein, or the
Property, including, but not limited to, bankruptcy, probate and
administration proceedings, foreclosure of this Security Instrument or any
condemnation action involving the Property, all sums paid by the Notes
Trustee for the expense of any litigation to prosecute and defend the rights
and liens created hereby shall be paid by the Obligor, to the extent
permitted by applicable law, together with interest from the date of payment
at the default rate as specified in the Notes. Any such sum and the interest
thereon shall be immediately due and payable upon demand and be secured
hereby, having the benefit of the lien hereby created, as a part hereof and
its priority.
<PAGE>
18. Each remedy or right of the Notes Trustee shall not be exclusive of
but shall be in addition to every other remedy or right now or hereafter
existing at law or in equity. No delay in the exercise or omission to
exercise any remedy or right accruing on any default shall impair any such
remedy or right or be construed to be a waiver of any such default or
acquiescence therein, nor shall it affect any subsequent default of the same
or a different nature. Every such remedy or right may be exercised
concurrently or independently and when and as often as may be deemed
expedient by the Notes Trustee.
19. Upon an Event of Default (as defined in Section 32), to the extent
permitted by any applicable law of California, the Notes Trustee personally,
or by the Trustee, or by their respective agents or attorneys, and without
becoming a mortgagee-in-possession, may enter into and upon all or any part
of the Property, and each and every part hereof, and may exclude the Obligor,
its agents, and servants wholly therefrom, and having and holding the same,
may use, operate, manage and control the Property or any part thereof and
conduct the business thereof, either personally or by its superintendents,
managers, agents, servants, attorneys or receivers; and upon such entry,
the Notes Trustee, at the expense of the Obligor, may, at the Notes Trustee's
sole option, insure the same; and likewise, from time to time, at the expense
of the Obligor, the Notes Trustee may make all necessary or proper repairs,
renewals and replacements and such useful alterations, additions, betterments
and improvements thereto and thereon as to the Notes Trustee may seem
advisable, and in every such case the Notes Trustee shall have the right to
manage and operate the Property and to carry on the business thereof and
exercise all rights and powers of the Obligor with respect thereto either in
the name of the Obligor or otherwise as it shall deem best; and after
deducting the expenses of conducting the business thereof and of all
maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements necessary to operate the Improvements or their
intended purposes and amounts necessary to pay for taxes, assessments,
insurance and prior or other proper charges upon the Property or any part
hereof, as well as reasonable compensation for the services of the Notes
Trustee and Trustee, and for all attorneys, consultants, agents, clerks,
servants and other parties employed by the Notes Trustee or Trustee, the
Notes Trustee shall apply the moneys arising as aforesaid to the Indebtedness
in such manner and at such times as the Notes Trustee shall determine in its
sole discretion, when and as the same shall become payable and/or to the
payment of any other sums required to be paid by the Obligor under this
Security Instrument.
20. (a) Upon an Event of Default (as defined in Section 32), to the
extent permitted by any applicable law of California, the Notes Trustee may,
with or without entry, personally or by its agents or attorneys, insofar as
applicable:
(i) Request the Trustee to sell the Property or any part thereof
pursuant to the procedures provided by law at one or more sales as an entity
or in parcels, and at such time and place upon such terms and after such
notice thereof as may be required or permitted by law; and/or
(ii) Institute an action of judicial foreclosure on this Security
Instrument or institute other proceedings according to law for the
foreclosure hereof, and may prosecute the same to judgment, execution and
sale for the collection of the Indebtedness, and all interest with respect
thereto, together with all taxes and insurance premiums advanced by
<PAGE>
the Notes Trustee and other sums payable by the Obligor hereunder, and
all fees, costs and expenses of such proceedings, including reasonable
attorneys' fees and expenses; and/or
(iii) Take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific performance
of any covenant, condition or agreement in the Loan Documents or in and of
the execution of any power herein granted, or for any foreclosure
hereunder, or for the enforcement of any other appropriate legal or
equitable remedy or otherwise as the Notes Trustee shall elect.
(b) To the extent permitted by law of California, the Trustee may
postpone from time to time any sale by them to be made under or by virtue of
this Security Instrument by postponement at the time and place appointed for
such sale or for such postponed sale or sales; and, except as otherwise
provided by any applicable provision of law, the Trustee, without further
notice or publication, may make such sale at the time and place to which the
same shall be so postponed.
(c) Upon the completion of any sale or sales made by the Trustee under
or by virtue of this Security Instrument, Trustee shall execute and deliver
to the accepted purchaser or purchasers a good and sufficient instrument, or
good and sufficient instruments, conveying, assigning and transferring all
estate, right, title and interest in and to the property and rights sold. The
Trustee shall make all the necessary conveyances, assignments, transfers and
deliveries of any part of the Property and rights so sold and for that
purpose the Trustee may execute all necessary instruments of conveyance,
assignment and transfer. Any such sale or sales made under or by virtue of
this Section 20, whether made under the power of sale herein granted or under
or by virtue of judicial proceeding or of a judgment or decree of foreclosure
and sale, shall operate to divest all the estate, right, title, interest,
claim and demand whatsoever, whether at law or in equity, of the Obligor in
and to the properties, interests and rights so sold, and shall be a
perpetual bar both at law and in equity against the Obligor and against any
and all persons claiming or who may claim the same, or any part thereof from,
through or under the Obligor.
(d) Upon any sale, whether under the power of sale hereby given or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, except as required by law, it shall not be necessary for the Trustee or
any public officer acting under execution or order of court to have present
or constructive possession of any of the Property.
(e) The recitals contained in any conveyance made by the Trustee to any
purchaser at any sale made pursuant hereto or under applicable law shall be
conclusive evidence of the matters therein stated, and all prerequisites to
such sale shall be presumed to have been satisfied and performed.
(f) The receipt by Trustee of the purchase money paid at any such sale,
or the receipt by any other person authorized to receive the same, shall be
sufficient discharge therefor to any purchaser of the property or any part
thereof, sold as aforesaid, and no such purchaser, or his representatives,
grantees or assigns, after paying such purchase money and receiving such
<PAGE>
receipt, shall be bound to see to the application of such purchase money, or
any part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(g) In case the liens or the Property interests hereunder shall be
foreclosed by Trustee's sale or by other judicial or non-judicial action, the
purchaser at any such sale shall receive, as an incident to his ownership,
the right to immediate possession of the property or any part thereof,
subsequent to foreclosure, the Obligor or the Obligor's successors (except
tenants who have entered into subordination, non-disturbance and attornment
agreements with the Notes Trustee) shall be considered as tenants at
sufferance of the purchaser at foreclosure sale, and anyone occupying the
property after demand made for possession thereof shall be guilty of forcible
detainer and shall be subject to eviction and removal, forcible or otherwise,
with or without process of law, and all damages by reason thereof are hereby
expressly waived to the extent permitted by law.
(h) Should any Event of Default occur hereunder, any expenses incurred
by the Notes Trustee in prosecuting, resolving, or settling the claim of the
Notes Trustee shall become an additional "liability" of the Obligor and part
of the Indebtedness secured hereby.
(i) In the event a foreclosure hereunder shall be commenced by the
Notes Trustee, to the extent permitted by any applicable law of California,
the Notes Trustee may at any time before the sale abandon the suit, and may
then institute suit for the acceleration of the Notes and for the foreclosure
of the liens and the Property interest hereof. If the Notes Trustee should
institute a suit for the acceleration of the Notes and for a foreclosure of
the liens and the Property interest hereof, it may at any time before the
entry of a final judgment in said suit dismiss the same and proceed to sell
the Property, or any part thereof, in accordance with the provisions of this
Security Instrument.
(j) The purchase money proceeds or avails of any sale made under or by
virtue of this Security Instrument, together with any other sums which then
may be held by the Notes Trustee under this Security Instrument, whether
under the provisions of this Section 20 or otherwise, shall be applied in
accordance with the laws of California, and to the extent not inconsistent,
as follows.
(A) first, to the payment or reimbursement of the Notes Trustee for
all costs and expenses of such suit or suits or other enforcement
activities of the Notes Trustee, including, but not limited to, the costs
of advertising, sale and conveyance, including attorneys', solicitors'
and stenographers' fees, if permitted by law, outlays for documentary
evidence and the cost of such abstract, examination of title and title
report;
(B) second, to the extent proceeds remain after the application
pursuant to preceding clause (A), to reimburse the Notes Trustee for all
moneys advanced by the Notes Trustee, if any, for any purpose authorized
in this Security Instrument with interest at the default rate specified
in the Notes;
<PAGE>
(C) third, to the extent proceeds remain after the application
pursuant to preceding clause (B), an amount equal to the outstanding
Indebtedness owed to the Holders shall be paid to the Notes Trustee
for the benefit of the Holders; and
(D) fourth, to the extent remaining after the application pursuant
to the proceeding clauses (A), (B) and (C), to the Obligor or to whomever
may be lawfully entitled to receive such payment.
(k) The Obligor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs
and reasonable attorneys' fees, incurred by the Notes Trustee in enforcing
payment and performance of the Indebtedness or in exercising the rights and
remedies of the Notes Trustee hereunder. All such costs and expenses shall be
secured by this Security Instrument and by all other lien and security
documents securing the Indebtedness. In the event of any court proceedings,
court costs and attorneys' fees shall be set by the court and not by jury and
shall be included in any judgment obtained by the Notes Trustee.
(l) In any action by the Notes Trustee to recover a deficiency judgment
for any balance due under the Notes upon the foreclosure of this Security
Instrument or in any action to recover the Indebtedness or Indebtedness
secured hereby, and as a material inducement to making the loan evidenced by
the Notes, the Obligor acknowledges and agrees that the successful bid amount
made at any judicial or non-judicial foreclosure sale, if any, shall be
conclusively deemed to constitute the fair market value of the Property, that
such bid amount shall be binding against the Obligor in any proceeding
seeking to determine or contest the fair market value of the Property. The
Obligor hereby waives and relinquishes any right to have the fair market
value of the Property determined by a judge or jury in any action seeking a
deficiency judgment or any action on the Indebtedness secured hereby,
including, without limitation, a hearing to determine fair market value.
(m) Upon any sale made under or by virtue of this Section 20, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, the Notes
Trustee may bid for and acquire the Property or any part thereof and in lieu
of paying cash therefor may make settlement for the purchase price by
crediting its bid upon the Indebtedness of Company secured by this Security
Instrument.
21. At any time, or from time to time, without liability therefor and
without notice, upon written request of the Beneficiary and presentation of
this Security Instrument, and without affecting the personal liability of any
Person for payment of the Obligations secured hereby or the effect of this
upon the remainder of the Property, Trustee may (i) reconvey any part of the
Property; (ii) consent in writing to the making of any map or plat thereof;
(iii) join in granting any easement or any agreement subordinating the Lien or
charge hereof.
22. The Notes Trustee, in making any payment herein is hereby
authorized in the place and stead of the Obligor to make any payment of: (a)
relating to taxes, assessments, water rates, sewer rentals and other
governmental or municipal charges, fines, impositions or liens
<PAGE>
asserted against the Property, according to any bill, statement or estimate
procured from the appropriate public authority without inquiry into the
validity thereof or (b) relating to any adverse title, lien, statement of
lien, encumbrance, claim or charge, and shall be the sole judge of the
validity of same; or (c) otherwise relating to any purpose herein and hereby
authorized, but not enumerated in this section, whenever, in its good faith
judgment and discretion, such payment shall seem necessary or desirable to
protect the full security intended to be created by this Security Instrument.
In connection with any such payment, the Notes Trustee, at is option, may and
is hereby authorized to obtain a continuation report of title prepared by a
title insurance Obligor, the cost and expenses of which shall be repayable by
the Obligor upon demand and shall be secured hereby.
23. The Trustor's Covenants Regarding Leases.
(a) The Obligor will use commercially reasonable efforts to enforce the
terms, covenants and conditions to be performed by all tenants and other
parties to any Lease or other agreement pertaining to the Deeded Property and
will not, without prior written consent of the Beneficiary, receive or
collect rent from any tenant for a period of more than one month in advance.
(b) If requested by the Notes Trustee, at any reasonable time, and from
time to time (but not more often than once each calendar year), on written
notice from the Beneficiary, the Trustor shall deliver within 30 days to the
Beneficiary a schedule of all Leases then in effect, which schedule shall
include the following: (a) the name of the tenant; (b) a description of the
leased space in form reasonably satisfactory to the Beneficiary, including
but not limited to the approximate number of square feet so leased and the
type of activity performed under such lease; (c) the rental rate, including
escalations, if any; (d) the term of the Lease; and (e) such other
information as the Beneficiary may reasonably request. If requested by the
Beneficiary (but not more than once each year), the Trustor shall also
deliver photocopies of all Leases accompanied by the certificate of the
Trustor that such copies are true, complete and accurate to the best of its
knowledge.
(c) In the event of enforcement by the Beneficiary of the remedies
provided for by law or by this Deed of Trust, each tenant shall, at the
option of the Beneficiary, attorn to any Person succeeding to the interest of
the Trustor as a result of such enforcement and shall recognize such
successor in interest as landlord (or sub-landlord, as the case may be) under
such Lease without change the terms or other provisions thereof (or with
respect to Leases in effect as of the date hereof the Trustor shall use its
best efforts to cause the tenants thereunder to so attorn and recognize such
successor); provided, however, that such successor shall not be bound by any
payment or rent or additional rent for more than one month in advance (other
than any security deposit received by the Trustor, possession of which was
actually transferred to such successor) or any amendment or modification of
any such Lease made without the Beneficiary's consent for that of such
successor in interest. Each such tenant shall, upon request of such successor
in interest, execute and deliver instrument(s) confirming such attornment.
(d) The Beneficiary, at its option, is authorized to foreclose or cause
the foreclosure of this Deed of Trust in accordance with the provisions of
Section 20 hereof in any
<PAGE>
manner authorized by law, including, but not limited to, power of sale or
judicial proceedings, and the failure to make any such tenants parties
defendant in any such foreclosure proceedings and to foreclose their rights
will not be, nor be asserted by the Trustor to be, a defense to any
proceedings instituted by the Beneficiary to collect the sums secured hereby
or to collect any deficiency remaining unpaid after the foreclosure sale of
the Deeded Property.
24. It is the intent of the parties hereto that this Security
Instrument shall constitute a Security Agreement within the meaning of the
Uniform California Commercial Code (the "CODE") and the Obligor hereby
unconditionally and irrevocably transfers, assigns, delivers and grants unto
Trustee for the benefit of the Notes Trustee a security interest in, to and
with respect to (a) the leases and rents assigned by the Obligor to the Notes
Trustee hereunder; (b) so much of the Property as is considered or as shall
be determined to be personal property or "fixtures" (as defined in the Code),
together with all replacements thereof, substitutions therefor or additions
thereto; (c) all casualty insurance policies required to be maintained by
Obligor hereunder, together with all general intangibles, contract rights and
accounts arising therefrom; (d) all proceeds in any condemnation or recovery
event, together with all general intangibles, contract rights and accounts
arising therefore; (e) all cash and non-cash proceeds of the above-mentioned
items; and (f) all right, title and interest in and to so much of the
remainder of the Property as is considered or shall be determined to be
personal property other than records, documents and other items owned by
customers of the Obligor and stored on the Property (said property described
in clauses (a) through (f) above being sometimes hereinafter referred to as
the "COLLATERAL"), and the Obligor further agrees that a security interest
shall attach thereto for the benefit of the Notes Trustee to secure the
Indebtedness. Such security interest shall extend to all collateral of the
kind which is the subject of Sections 24-26 which the Obligor may acquire at
any time during the continuation of this Security Instrument. Upon the
occurrence of and during the continuance of an Event of Default, after the
expiration of the applicable cure period, if any, the Notes Trustee may elect
to treat the fixtures constituting a part of the Property as either real
property collateral or Collateral and then proceed to exercise such rights as
apply to such type of collateral. The Obligor hereby authorizes the Notes
Trustee to file financing and continuation statements with respect to the
Collateral without the signature of the Obligor, if same is lawful, otherwise
the Obligor agrees to execute such financing and continuation statements as
the Notes Trustee may reasonably request. If there shall exist and be
continuing an Event of Default under this Security Instrument, the Notes
Trustee, pursuant to the appropriate provisions of the Code and to the extent
permitted by applicable law, shall have all remedies available to it under
the Code and shall have the option of proceeding as to both real and personal
property in accordance with its rights and remedies in respect of the real
property, in which event the default provisions of the Code shall not apply.
Upon the occurrence and during the continuance of any Event of Default, the
Notes Trustee will have all rights and remedies granted by applicable law,
and particularly by the Code, including, without limitation, the right to
take possession of all personal property constituting a part of the Property,
and for this purpose the Notes Trustee may enter upon any premises which any
or all of such personal property is situated and take possession of and
operate such personal property (or any portion thereof) or remove it
therefrom. The Notes Trustee may require the Obligor to assemble such
personal property and make it available to the Notes Trustee at a place to be
designated by the Notes Trustee which is reasonably convenient to all
parties. Unless such personal property is perishable or threatens to
materially decline speedily
<PAGE>
in value, the Notes Trustee will give the Obligor reasonable notice of the
time and place of any public sale or of the time after which any private sale
or other disposition of such Collateral is to be made. This requirement of
sending reasonable notice will be met, and the Obligor and the Notes Trustee
acknowledge that such notice will be commercially reasonable within the
meaning of the Code, if the notice is given to the Obligor as herein provided
at least ten (10) days before the time of the sale or disposition. The
reasonable expenses of retaking, holding, preparing for sale, selling and the
like incurred by the Notes Trustee shall be assessed against the Obligor and
shall include, but not be limited to the reasonable legal expenses incurred
by the Notes Trustee. The Obligor agrees that it will not remove or permit to
be removed from the Property any of the Collateral except as permitted by the
Security Agreement. All replacements, renewals, substitutions and additions
to the Collateral shall be and become immediately subject to the security
interest of this Security Instrument and the provisions of Sections 24-26.
The Obligor warrants and represents that the Collateral now is free and clear
of all liens and encumbrances or security interests, other than Permitted
Encumbrances, and that all replacements of the Collateral, substitutions
therefor or additions thereto, unless the Notes Trustee otherwise consents,
will be, free and clear of liens, encumbrances or security interests of
others created after the date hereof, except for Liens permitted under the
Trust Indenture.
25. To the extent that any of the Collateral is not subject to the Code,
the Obligor hereby collaterally assigns to the Notes Trustee all of the
Obligor's right, title, and interest in and to the Collateral to secure the
Indebtedness secured hereby, together with the right of set-off with regard
to such Collateral (or any part thereof). Release of the lien of this Security
Instrument shall automatically terminate this assignment.
26. Notwithstanding anything to the contrary contained herein, if any
provision of this Security Instrument relating to the Collateral conflicts
with the provisions of the Security Agreement, the terms of the Security
Agreement shall control.
27. The Obligor agrees, without affecting the liability of any person
for payment of the Indebtedness or affecting the lien of this Security
Instrument upon the Property or any part thereof (other than persons or
property explicitly released as a result of the exercise by the Notes Trustee
of its rights and privileges hereunder), that the Notes Trustee, without
notice, and without regard to the consideration, if any, paid therefor, and
notwithstanding the existence at that time of any inferior liens thereon, may
release as to itself and this Security Instrument any part of the security
described herein or any person liable for an indebtedness secured hereby,
without in any way affecting the priority of the lien of this Security
Instrument to the full extent of the Indebtedness remaining unpaid hereunder
upon any part of the security not expressly released and may agree with any
party obligated on the Indebtedness or having any interest in the security
described herein to extend the time for payment of any part or all of the
Indebtedness secured hereby. Such agreement shall not, in any way, release or
impair the lien hereof, but shall extend the lien hereof as against the title
of all parties having any interest in such security which interest is subject
to such lien. In the event the Notes Trustee: (a) releases, as aforesaid, any
part of the security described herein or any person liable for any
indebtedness secured hereby, (b) grants an extension of time for any payments
of the debt secured hereby, (c) takes other or additional security for the
payment thereof, or (d) waives or fails to exercise any right granted herein,
in the Notes or in any related agreement, no such act or omission shall
release the Obligor, subsequent
<PAGE>
purchasers of all or any part of the Property, any maker or surety of the
Notes or any party to this Security Instrument or any related agreement under
any covenant therein, or preclude the Notes Trustee from exercising any
right, power or privilege herein granted or intended to be granted in the
event of any other default then made or any subsequent default.
28. If Obligor remains in possession of any of the Property after
any foreclosure sale by Notes Trustee, at Notes Trustee's election Obligor
shall be deemed a tenant holding over and shall forthwith surrender possession
to the purchaser or purchasers at such sale or be summarily dispossessed or
evicted according to provisions of law applicable to tenants holding over.
29. Obligor waives, to the extent not prohibited by law, (i) the
benefit of all laws now existing or that hereafter may be enacted providing
for any appraisement of any portion of the Property, (ii) the benefit of all
laws now existing or that may be hereafter enacted in any way extending the
time for the enforcement or the collection of amounts due under any of the
Indebtedness or creating or extending a period of redemption from any sale
made in collecting said debt or any other amounts due Notes Trustee, (iii)
any right to at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force providing for any
appraisement, homestead exemption, valuation, stay, statute of limitations,
extension or redemption, or sale of the Property as separate tracts, units or
estates or as a single parcel in the event of foreclosure or notice of
deficiency, and (iv) all rights of redemption, valuation, appraisement, stay
of execution, notice of election to mature or declare due the whole of or
each of the Indebtedness and marshalling including, but not limited to, the
rights provided by California Civil Code Sections 2899 and 3433, as such
sections may be amended from time to time, in the event of foreclosure of
this Security Instrument.
30. In case Notes Trustee shall proceed to enforce any right,
power or remedy under this Security Instrument by foreclosure, entry or
otherwise, and such proceedings shall be discontinued or abandoned for any
reason, or shall be determined adversely to Notes Trustee, then and in every
such case Obligor and Notes Trustee shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of Notes
Trustee shall continue as if no such proceeding had been taken.
31. In case of any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition or other proceedings
affecting Obligor, Notes Trustee shall, to the extent permitted by law, be
entitled to file such proofs of claim and other documents as may be necessary
or advisable in order to have the claims of Notes Trustee allowed in such
proceedings for the Indebtedness secured by this Security Instrument at the
date of the institution of such proceedings and for any interest accrued,
late charges and additional interest or other amounts due or that may become
due and payable hereunder after such date.
32. It is the intention of the parties hereto that if the Notes
Trustee shall at any time hereafter acquire title to all or any portion of
the Property, then, and until the indebtedness secured hereby has been paid
in full, the interest of the Notes Trustee hereunder and the lien of this
Security Instrument shall not merge or become merged in or with the estate
and interest of the Notes Trustee as the holder and owner of title to all or
any portion of the Property and that,
<PAGE>
until such payment, the estate of the Notes Trustee in the Property and the
lien of this Security Instrument and the interest of the Notes Trustee
hereunder shall continue in full force and effect to the same extent as if
the Notes Trustee had not acquired title to all or any portion of the
Property.
33. Notwithstanding anything contained in this Security Instrument
to the contrary, the Notes Trustee shall never be deemed to have contracted
for or be entitled to receive, collect or apply as interest on the
Indebtedness secured hereby, any amount in excess of the amount permitted and
calculated at the highest lawful rate, and, in the event the Notes Trustee
ever receives, collects or applies as interest any amount in excess of the
amount permitted and calculated at the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of the Indebtedness secured hereby, and, if the principal
balance of the Indebtedness secured hereby is paid in full, any remaining
excess shall forthwith be promptly paid to the Obligor, together with all
interest earned thereon. In determining whether or not the interest paid or
or payable under any specific contingency exceeds the amount of interest
permitted and calculated at the highest lawful rate, the Obligor and the
Notes Trustee shall, to the maximum extent permitted under applicable law,
(i) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense, fee, or
premium, rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) spread the total amount of interest throughout the
entire contemplated term of the indebtedness secured hereby.
34. If at any time the United States of America shall require
internal revenue stamps to be affixed to any of the Notes or any other
Indebtedness, the Obligor will pay (or cause the Company, if the Obligor is
not the Company) for the same with any interest or penalties imposed in
connection herewith.
35. To the extent services are required of the Notes Trustee's
counsel after the date hereof, which are normally incident to the closing,
amendment, alteration, and enforcement of this Security Instrument, and all
provisions herein contained, the Obligor shall, to the extent permitted by
law, pay the reasonable fees therefor, promptly upon the rendering of such a
bill and delivery thereof to the Obligor.
36. The Obligor agrees at all times to cause this Security
Instrument, and each amendment or modification hereof or supplement hereto,
and all assignments of leases, to be recorded, registered and filed, and kept
recorded, registered and filed, in such manner and in such places as
appropriate, and shall comply with all applicable statutes and regulations in
order to establish, preserve and protect the security and priority of this
Security Instrument, and such assignments and the rights of the Notes Trustee
thereunder. The Obligor shall pay, or cause to be paid, all taxes, fees and
other charges incurred in connection with such recording, registration,
filing or compliance.
37. The Obligor acknowledges that it has received from the Notes
Trustee without charge a true and correct copy of this Security Instrument.
<PAGE>
38. The Notes Trustee and its successors and assigns shall be
entitled to all of the benefits of the indemnification provisions of the
Trust Indenture.
39. To the extent permitted by law with respect to the
Indebtedness secured hereby or any renewals or extensions thereof, the
Obligor waives and renounces any and all homestead and exemption rights, as
well as the benefit of all valuation and appraisement privileges, and also
moratoriums under or by virtue of the constitution and laws of the
jurisdiction in which the Property is located or any other state or of the
United States, now existing or hereafter enacted.
40. All the covenants hereof shall run with the land. Nothing
herein contained nor any transaction related hereto shall be construed or
shall so operate, either presently or prospectively, to require the Obligor
to pay interest at a rate greater than is now lawful in such case to
contract for, but shall require payment of interest only to the extent of
such lawful rate.
41. The Obligor shall execute, acknowledge and deliver any and all
such further acts, conveyances, documents, mortgages and assurances as the
Notes Trustee may reasonably require for accomplishing the purpose hereof
forthwith upon the request of the Notes Trustee, whether in writing or
otherwise. The Obligor, within ten days upon request by mail, shall furnish a
written statement duly acknowledged of the amount due upon this Security
Instrument and the Indebtedness (both unpaid principal and accrued interest)
and whether any offset or defenses exist against the Indebtedness, and any
other information which might reasonably be requested in connection with the
sale of the Indebtedness, or any portion thereof or interest therein, to any
third party, or an audit of the Notes Trustee, and which may be relied on for
such purposes.
42. Wherever notices may appropriately be given under this
Security Instrument, such notices shall be in writing and shall always be
treated as having adequately been given if:
(n) when intended for the Obligor, five days after dispatch by
United States certified mail return receipt requested, addressed to the
mailing address, as set out herein or to such other address or to such
other person, as the Obligor may from time to time, designate in writing;
or
(o) when intended for the Notes Trustee, five days after dispatch by
United States certified mail return receipt requested, addressed to the
mailing address of the Notes Trustee as set out herein or to such other
address or to such other person as the Notes Trustee may from time to time
designate in writing.
43. Any of the following occurrences or acts shall constitute an
event of default under this Security Instrument ("Event of Default"): (a) the
Company fails to pay any of the Notes or any installment thereof or interest
thereon when due or when declared due, subject to any applicable grace period
provided therein; (b) an Event of Default under and as defined in the Trust
Indenture shall have occurred; (c) the Obligor (regardless of the pendency of
any bankruptcy, reorganization, receivership, insolvency or other
proceedings, at law, in equity or
<PAGE>
before any administrative tribunal, which have or might have the effect of
preventing the Obligor from complying with the terms of this Security
Instrument), shall fail to observe or perform any of the Obligor's covenants,
agreements or obligations under this Security Instrument and, other than
defaults in the observance or performance of its obligations under Section __
hereof, such failure shall continue for 30 days after notice; (d) a default
shall occur and continue to exist after the expiration of any applicable grace
period under any other document, agreement or instrument between the Company or
any Subsidiary Guarantor and the Notes Trustee or any Holders, with respect to
any of the Indebtedness; (e) any representation contained herein or in the Trust
Indenture or the Notes or made (or deemed made) by the Company or any Subsidiary
Guarantor to the Notes Trustee or any of the Holders in connection with any of
the Indebtedness shall prove to be untrue in any material respect on the date as
of which made or deemed made; (f) the Company or any Subsidiary Guaranty shall
file a voluntary petition in bankruptcy or be adjudicated bankrupt or insolvent,
or the Company or any Subsidiary Guarantor shall file any petition or answer
seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors or protection for creditors,
or the seeking, or the consenting by the Company or any Subsidiary Guarantor to
or acquiescing in the appointment of any trustee, receiver, conservator or
liquidator of the Company or any Subsidiary Guarantor, as the case may be, or of
all or any substantial part of the Property or any or all of the rents, issues
or profits thereof, or the making of any general assignment for the benefit of
creditors, or the admission in writing of its inability to pay its debts
generally as they become due, or the entry by a court of competent jurisdiction
of any order, judgment or decree, which is not dismissed within 60 days
thereafter, approving a petition filed against the Company or any Subsidiary
Guarantor seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future Federal,
state or other statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors or protection for creditors, or the appointment, which
appointment is not dismissed within 60 days thereafter, of any trustee,
receiver, conservator or liquidator of the Company or any such Subsidiary
Guarantor, as the case may be, or of all or any substantial part of the Property
or of all of the rents, issues and profits thereof without the consent or
acquiescence of the Notes Trustee.
44. Upon any Event of Default or any default by the Obligor as provided
herein or in any other instrument evidencing or securing any of the Indebtedness
then, in any of said events, at the option of the Notes Trustee (or, as may be
provided in any instrument pursuant to which any such Indebtedness is created,
at the option of any holder of any such Indebtedness), the whole or any
applicable portion of the Indebtedness secured hereby shall become immediately
due and payable, although the period specified for the payment thereof may not
have expired, anything hereinbefore or in the Notes contained to the contrary
notwithstanding.
45. The obligations of the Obligor under this Security Instrument shall be
absolute and unconditional and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by, any circumstance or occurrence whatsoever, including,
without limitation:
<PAGE>
(A) any renewal, extension, amendment or modification of, or addition
or supplement to or deletion from any document pertaining to the
Indebtedness, or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof;
(B) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Security Instrument except as expressly provided in such renewal,
extension, amendment, modification, addition, supplement, assignment or
transfer;
(C) any furnishing of any additional security to the Notes Trustee or
its assignee or any acceptance thereof or any release of any security by
the Notes Trustee or its assignee;
(D) any limitation on any party's liability or obligations under any
such instrument or agreement or any invalidity or unenforceability, in
whole or in part, of any such instrument or agreement or any term thereof;
or
(E) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
the Company or any Subsidiary Guarantor, or any action taken with respect
to this Security Instrument by any trustee or receiver, or by any court,
whether or not the Obligor shall have notice or knowledge of any of the
foregoing.
46. Obligor acknowledges that this Security Instrument is one of a number
of Other Deeds of Trust or Mortgages and Security Documents that secure the
Indebtedness. Obligor agrees that the lien of this Security Instrument shall be
absolute and unconditional and shall not in any manner be affected or impaired
by any acts or omissions whatsoever of Notes Trustee and without limiting the
generality of the foregoing, the lien hereof shall not be impaired by any
acceptance by the Notes Trustee of any security for or guarantees of any of the
Indebtedness hereby secured, or by any failure, neglect or omission on the part
of Notes Trustee to realize upon or protect any Obligation or indebtedness
hereby secured or any collateral security therefor including the Other Deeds of
Trust or Mortgages and other Security Documents. The lien hereof shall not in
any manner be impaired or affected by any release (except as to the property
released), sale, pledge, surrender, compromise, settlement, renewal, extension,
indulgence, alteration, changing, modification or disposition of any of the
Indebtedness secured or of any of the collateral security therefor, including
the Other Deeds of Trust or Mortgages and other Security Documents or of any
guarantee thereof, and Notes Trustee may at its discretion foreclose, exercise
any power of sale, or exercise any other remedy available to it under any or all
of the Other Deeds of Trust or Mortgagees and other Security Documents without
first exercising or enforcing any of its rights and remedies hereunder. Such
exercise of Notes Trustee's rights and remedies under any or all of the Other
Deeds of Trust or Mortgages and other Security Documents shall not in any manner
impair the indebtedness hereby secured or the lien of this Security Instrument
and any exercise of the rights or remedies of Notes Trustee hereunder shall not
impair the lien of any of the Other Deeds of Trust or Mortgages and other
Security Documents or any of Notes Trustee's rights and remedies thereunder.
Obligor specifically consents and agrees that Notes Trustee may exercise its
rights and remedies hereunder and under
<PAGE>
the Other Deeds of Trust or Mortgages and other Security Documents separately or
concurrently and in any order that it may deem appropriate and waives any rights
of subrogation.
47. The trust created hereby is irrevocable by Obligor unless and until
the Property is reconveyed to Obligor as provided in Section 5.05 hereof.
48. Any provision of this Security Instrument which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforecable such provision in any
other jurisdiction.
49. APPLICABLE LAW; CERTAIN PARTICULAR PROVISIONS. THIS DEED OF TRUST
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE
STATE OF NEW YORK; PROVIDED, HOWEVER, THAT TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PROVISION OF THIS DEED OF TRUST RELATING TO THE CREATION, PERFECTION
AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST CREATED BY THIS DEED OF TRUST
IN RESPECT OF THE DEEDED PROPERTY AND THE EXERCISE OF EACH REMEDY PROVIDED
HEREBY, INCLUDING THE POWER OF FORECLOSURE OR POWER OF SALE PROCEDURES SET FORTH
IN THIS DEED OF TRUST, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAW OF THE STATE WHERE THE DEEDED PROPERTY IS LOCATED, AND TRUSTOR AND
BENEFICIARY AGREE TO SUBMIT TO JURISDICTION AND THE LAYING OF VENUE FOR ANY SUIT
ON THIS DEED OF TRUST IN SUCH STATE.
50. The Trustee, by its acceptance hereof, covenants faithfully to perform
and fulfill the trusts herein created, being liable, however, only for willful
negligence or misconduct, and hereby waives any statutory fee and agrees to
accept reasonable compensation, in lieu thereof, for any services rendered by it
in accordance with the terms hereof.
51. The Trustee may resign at any time without notice. In the event of
the resignation or death or dissolution of the Trustee, or the Trustee's
failure, refusal or inability, for any reason, to make any sale or to perform
any of the trusts herein declared, or, at the option of the Notes Trustee,
without cause, Notes Trustee may appoint a substitute trustee, who shall
thereupon succeed to all concerning the Trustee the estates, titles, rights,
powers, and trusts herein granted to and vested in the Trustee. The instrument
of appointment may, but shall not be required to, be recorded in the register's
office(s) in which this Security Instrument is recorded. If Notes Trustee is a
corporation, such appointment may be made on behalf of such Notes Trustee by any
person who is then the president, or a vice-president, assistant vice-president,
treasurer, cashier, secretary, or any other authorized officer or agent of Notes
Trustee. In the event of the registration or death of any substitute trustee,
or such substitute trustee's failure, refusal or inability to make any such sale
or perform such trusts, or, at the option of Notes Trustee, without cause,
successive substitute trustees may thereafter, from time to time, be appointed
in the same manner.
<PAGE>
52. When the Indebtedness has been paid in full, this Security Instrument
shall be reconveyed, and the Notes Trustee, at the request and expense of the
Obligor, will execute and deliver to the Obligor a proper instrument or
instruments acknowledging the satisfaction and termination of this Security
Instrument.
53. None of the terms and conditions of this Security Instrument may be
changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Obligor and the Notes Trustee.
54. The Obligor and the Notes Trustee each hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Security Instrument or the transactions
contemplated hereby.
55. This Security Instrument shall also constitute a "fixture filing" for
purposes of the Code. Portions of the Collateral are or may become fixtures.
56. The Notes Trustee shall have the right at any time to file this
Security Instrument as a financing statement, but the failure to do so shall
not impair the validity and enforceability of this Security Instrument in any
respect whatsoever. A photographic or other reproduction of this Security
Instrument, or any financing statement relating to this Security Instrument,
shall be sufficient as a financing statement.
57. IT IS SPECIFICALLY AGREED that time is of the essence with respect to
this Security Instrument and that the waiver of the rights or options, or
obligations secured hereby, shall not at any time thereafter be held to be
abandonment of such rights. Notice of the exercise of any right or option
granted to the Notes Trustee herein, or in the Indebtedness secured hereby,
is not required to be given.
<PAGE>
IN WITNESS WHEREOF, the Obligor has caused this Security Instrument to be
executed and delivered as of the date first set forth above.
EPIC RESORTS - PALM SPRINGS MARQUIS
VILLAS, LLC,
a Delaware limited liability company
By
----------------------------------------
Name:
Title:
ATTEST
- -------------------------------
Name:
Title:
<PAGE>
STATE OF PENNSYLVANIA )
)
COUNTY OF_____________ )
On July , 1998 before me, Thomas F. Flatley personally appeared ____________,
personally known to be to the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------------
Notary
<PAGE>
EXHIBIT A
Legal Description
A LEASEHOLD ESTATE CREATED BY THAT CERTAIN BUSINESS LEASE PSL-253 EXECUTED BY
STEVEN ALLEN RICE ALLOTTEE NO. PS-118E, LESSOR, AND WESTERN VENTURES, INC.,
LESSEE, FOR A TERM OF 65 YEARS, UPON AND SUBJECT TO ALL OF THE PROVISIONS
THEREIN CONTAINED, AS DISCLOSED BY LEASE, DATED NOVEMBER 23, 1979, RECORDED
AUGUST 9, 1983 AS INSTRUMENT NO. 160117 OF OFFICIAL RECORDS OF RIVERSIDE
COUNTY, CALIFORNIA.
SAID LEASE WAS AMENDED BY AN AMENDMENT DATED JULY 21, 1983 AS DISCLOSED BY
DOCUMENT RECORDED AUGUST 9, 1983 AS INSTRUMENT NO. 160121 OF OFFICIAL RECORDS
OF RIVERSIDE COUNTY, CALIFORNIA.
SAID LEASE WAS AMENDED BY AMENDMENTS DATED JULY 21, 1983 AS DISCLOSED BY
DOCUMENT RECORDED AUGUST 9, 1983 AS INSTRUMENT NO. 160122 AND BY DOCUMENT
RECORDED APRIL 25, 1997 AS INSTRUMENT NO. 141186 BOTH OF OFFICIAL RECORDS OF
RIVERSIDE COUNTY, CALIFORNIA.
LESSEE'S INTEREST IN SAID LEASE WAS ASSIGNED TO PALM SPRINGS MARQUIS, INC., A
DELAWARE CORPORATION BY AN ASSIGNMENT RECORDED MAY 18, 1988 AS INSTRUMENT NO.
132930 OF OFFICIAL RECORDS OF RIVERSIDE COUNTY, CALIFORNIA.
PARCEL 1
- --------
LOT 1 AND LETTERED LOTS A AND B OF TRACT NO. 16544 AS SHOWN BY MAP ON FILE IN
BOOK 143 PAGES 39-40 OF MAPS, RECORDS OF RIVERSIDE COUNTY, CALIFORNIA.
PARCEL 2
- --------
AN EASEMENT FOR AN UNDERGROUND TUNNEL FOR UNDERGROUND PASSAGE AND FOR ALL
PURPOSES CONNECTED THEREWITH, ALONG THAT CERTAIN 34.50 FOOT WIDE STRIP OF
LAND WITHIN CALLE ENCILIA, AS SAID STREET IS SHOWN ON THE SUPPLEMENTAL PLAT
OF SECTION 14, TOWNSHIP 4 SOUTH, RANGE 4 EAST, SAN BERNARDINO BASED AND
MERIDIAN (ON FILE WITH THE DEPARTMENT OF INTERIOR, GENERAL LAND OFFICE,
WASHINGTON, D.C., ON SEPTEMBER 7, 1927) TOGETHER WITH THE EASTERLY 15.00 FEET
OF BLOCK 22 AND THE WESTERLY 15.00 FEET OF BLOCK 21, ALL SHOWN ON SAID
SUPPLEMENTAL PLAT OF SECTION 14, BEING 17.25 FEET ON EACH SIDE OF THE
FOLLOWING DESCRIBED CENTERLINE.
COMMENCING AT THE NORTHEAST CORNER OF SAID BLOCK 22; THENCE WEST ALONG THE
NORTH LINE OF SAID BLOCK 22, A DISTANCE OF 15.00
<PAGE>
FEET TO A POINT ON A LINE THAT IS PARALLEL WITH AND 15.00 FEET WESTERLY OF
THE EASTERLY LINE SAID BLOCK 22; THENCE SOUTH 0 DEGREES 00' 14'' EAST ALONG
SAID PARALLEL LINE, A DISTANCE OF 100.91 FEET TO THE TRUE POINT OF BEGINNING;
THENCE SOUTH 83 DEGREES 28' 35'' EAST, A DISTANCE OF 80.52 FEET TO A POINT ON
A LINE THAT IS PARALLEL WITH AND 15.00 FEET EASTERLY OF THE WESTERLY LINE OF
SAID BLOCK 21, BY DOCUMENT RECORDED JULY 22, 1985 AS INSTRUMENT NO. 160369 OF
OFFICIAL RECORDS OF RIVERSIDE COUNTY, CALIFORNIA.
-32-
<PAGE>
When recorded, mail to:
Barbara J. Goodman, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
DOCUMENTARY STAMP TAXES AND INTANGIBLE TAXES ARE BEING CALCULATED PURSUANT TO
RULE 12(B)-4.053(32) OF THE FLORIDA ADMINISTRATIVE CODE AND SECTION 199.133
OF THE FLORIDA STATUTES. THE TAX BASE IS DETERMINED BY THE MAXIMUM PRINCIPAL
INDEBTEDNESS SECURED HEREBY IN THE AMOUNT OF $8,800,000 AS PROVIDED HEREIN.
- -------------------------------------------------------------------------------
This document is intended
to be recorded in
Volusia County, Florida
MORTGAGE
This Mortgage (as amended, modified or supplemented from time to time,
this "Security Instrument") is granted as of July 8, 1998, by Daytona Beach
Regency, Ltd., a Florida limited partnership, as mortgagor (hereinafter,
together with its successors and assigns, called the "Mortgagor"), whose
address is 1150 First Avenue, Suite 900, King of Prussia, PA 19406 to United
States Trust Company of New York, a New York banking corporation, acting as
mortgagee (herein together with its successors and assigns in such capacity,
the "Mortgagee" for the Holders (as defined below) pursuant to the Trust
Indenture (as defined below), whose address is 114 West 47th Street, New
York, New York 10036-1532.
PRELIMINARY STATEMENTS
(1) This Security Instrument is made pursuant to the Trust Indenture,
dated as of the date hereof (herein, as amended or otherwise modified from
time to time, the "Trust Indenture"), among Epic Resorts, Inc., a Delaware
corporation (herein, together with its successors and assigns, the
"Company"), Mortgagor and the other Subsidiary Guarantors as identified
therein, and the Mortgagee acting as trustee for the Holders (defined below),
providing, among other things for a loan to the Company of $130,000,000, with
such loan being evidenced by the Company's 13% Senior Secured Notes due 2005
in the aggregate principal amount of $130,000,000 (the "Notes", such term to
include all notes and other securities issued in substitution or exchange
therefor or in replacement thereof).
(2) Mortgagor has guaranteed to the holders of the Notes (the
"Holders") the payment when due of the Notes pursuant to a guaranty (the
"Subsidiary Guaranty").
<PAGE>
(3) It is a condition precedent to the making of the loan to the
Company that the Mortgagor shall have executed and delivered to or for the
benefit of the Mortgagee this Security Instrument.
(4) The Mortgagor desires to execute this Security Instrument to
satisfy the conditions described in the preceding paragraph and to secure the
performance of its covenants and agreements contained in the Trust Indenture,
herein and in any agreement or instrument made by it with respect to any
indebtedness or obligations secured hereby and to secure the payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due), but not necessarily
in the order set forth, of the following indebtedness, liabilities and
obligations, now existing or hereafter arising, ratably (including any
modifications or replacements thereof):
(a) the aggregate principal amount of $130,000,000, with interest
thereon, as evidenced by the Notes, maturing on or prior to June 15,
2005;
(b) all sums advanced by or on behalf of the Mortgagee pursuant to
any term or provision of this Security Instrument or any other agreement
or instrument relating to or securing any of the foregoing;
(c) all advances or disbursements of the Mortgagee with respect to
the Property (defined below) for the payment of taxes, levies,
assessments, insurance, insurance premiums or costs incurred in the
protection of taxes, levies, assessments, insurance, insurance premiums
or costs incurred in the protection of the Property; and
(d) all other liabilities, obligations and indebtedness of the
Mortgagor incurred under, arising out of or in connection with the
Subsidiary Guaranty, the Trust Indenture and this Security Interest.
(all of such indebtedness, liabilities and obligations being collectively
referred to hereinafter as the "Indebtedness").
(5) This Security Instrument creates a lien on the fee simple interest
of the Mortgagor in the Property and shall automatically become a lien on any
and all time share interests in the Property, upon the creation of such time
share interests in the Property.
(6) The creation of time share interests in the Property shall be
permitted only upon satisfaction of the following conditions:
(i) No Event of Default (as hereinafter defined) shall have occurred
or be continuing under this Security Instrument;
(ii) Mortgagor shall have received and approved all documents
necessary for the creation of the time share interests, including, without
limitation, the declaration of the time share regime;
2
<PAGE>
(iii) Mortgagor shall have received all approvals and consents, and
made all filings, required in conjunction with the establishment of the time
shares; and
(iv) Reinman, Matheson, Postro & Vaughn shall have agreed to endorse
the Lender's title insurance policy insuring this Security Instrument, to
provide affirmative insurance to the effect that the Property consists of
time share interests validly created and that the lien of this Security
Instrument shall constitute a valid first lien upon the time share interests.
(7) Provided that no Event of Default has then occurred and is
continuing under this Security Instrument, the Mortgagee shall, at the
expenses of Mortgagor, promptly release the lien hereof on each time share
interest following a sale of such time share interest to a person
unaffiliated with Mortgagor, and the Mortgagee shall not have a lien on the
proceeds of any such sale.
GRANTING CLAUSES
NOW, THEREFORE, in consideration of the sum of $1.00, and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, received to the Mortgagor's full satisfaction, and in
consideration of the loan made or to be made hereafter to or for the benefit
of the Company, the Mortgagor does give, grant, bargain, sell, warrant,
alien, demise, release, convey, assign, transfer, mortgage, hypothecate,
deposit, pledge, set over and grant a security interest in and confirms to
Trustee, in trust with power of sale, for the benefit and security of the
Mortgagee and its successors and assigns, the real property situated in the
State of Nevada, described in Exhibit A attached hereto and made a part
hereof by reference;
(1) TOGETHER WITH all time share interests now and/or hereafter created
at the real property described in Exhibit A attached hereto; and
(2) TOGETHER WITH all rights and easements now and/or hereafter created
which are appurtenant to the real property described in Exhibit A, including
but not limited to those rights and easements more fully identified thereon,
if any; and
(3) TOGETHER WITH all and singular right, title and interest, including
any after-acquired title or reversion, in and to all other ways, easements,
streets, alleys, passages, water, water courses, riparian rights, rights,
liberties and privileges thereof, if any, and in any way appertaining
thereto; and
(4) TOGETHER WITH all rents, royalties, revenues, incomes, issues and
profits accruing and to accrue therefrom; and
(5) TOGETHER WITH all buildings and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction,
3
<PAGE>
reconstruction, alteration and repairs of such improvements now or hereafter
erected thereon, all of which materials shall be deemed to be included within
the property subject to this Security Instrument immediately upon the
delivery thereof to the Property; all fixtures and articles of personal
property now or hereafter owned by the Mortgagor and attached to, or located
on, and used in the operation or management of the Property; and all renewals
or replacements thereof, proceeds therefrom, or articles in substitution
therefor, whether or not the same are or shall be attached to such building
or buildings in any manner; it being mutually agreed that all the aforesaid
property owned by the Mortgagor and placed by it on the Property shall, so
far as permitted by law, be deemed to be fixtures and a part of the realty
and security for the Indebtedness secured by this Security Instrument; and
(6) TOGETHER WITH all leases, written or oral, and all agreements for
use or occupancy of all or any portion of the Property, together with any and
all extensions and renewals thereof and any and all further leases,
subleases, lettings or agreements (including subleases thereof and tenancies
following attornment) upon or covering use or occupancy of all or any part of
the Property (all such leases, agreements, subleases and tenancies sometimes
collectively referred to herein as the "Leases" and sometimes individually as
a "Lease"); and
(7) TOGETHER WITH all of the rents, income, receipts, revenues, issues
and profits now due or which may become due or to which Mortgagor may now or
hereafter (including during the period of redemption, if any, following
foreclosure of this Security Instrument become entitled or may demand or
claim arising or issuing from or out of the Leases or from or out of the
Property or any part thereof, and
(8) TOGETHER WITH all deposits made with or other security given to
utility companies by Mortgagor with respect to the Property, and all proceeds
of all insurance now or hereafter carried by, or payable to, Mortgagor with
respect to the Property, or otherwise now or hereafter payable with respect
to any loss or damage of the Property, and all claims or demands with respect
thereto; and
(9) TOGETHER WITH all right, title and interest of the Mortgagor in and
to any operating, use, or management agreement pertaining to the Property and
all cash payments to be made to or for the account of Mortgagor pursuant
thereto and any other proceeds thereof, and
(10) TOGETHER WITH all right, title and interest of the Mortgagor in
and to any leases for equipment now or hereafter located at or used in
connection with the Property, including without limitation all leases for
office equipment, maintenance and operating equipment, recreational equipment
and fixtures, telephone equipment, furniture and furnishings; and
(11) TOGETHER WITH all permits, licenses and franchises, and all
contract rights and other intangibles now or hereafter owned by the Mortgagor
and relating to the ownership, construction, use, operation, occupancy or
development of the Property, including, without limitation, any plans,
specifications and drawings pertaining to the development thereof, and
contracts with architects and contractors; and
4
<PAGE>
(12) TOGETHER WITH all awards and other compensation heretofore or
hereafter to be made to the present and all subsequent owners of the property
subject to this Security Instrument for any taking by eminent domain, either
permanent or temporary, of all or any part of the Property or any easement or
appurtenance thereof, including severance and consequential damage and change
in grade of streets, which such awards and compensation are hereby assigned
to the Mortgagee; the Mortgagor hereby appoints the Mortgagee its
Attorney-in-Fact, with an interest, and authorizes, directs and empowers such
Attorney, at the option of such Attorney, on behalf of the Mortgagor and its
successors or assigns to collect and receive the proceeds thereof, to give
proper receipts and acquittances therefor (but not to adjust or compromise
the claim) and, after deducting reasonable expenses of collection, to apply
the net proceeds without penalty or premium as a credit upon any portion, as
selected by the Mortgagee, of the Indebtedness secured hereby,
notwithstanding the fact that the amount owing hereon may not then be due and
payable or that such Indebtedness is otherwise adequately secured.
All of the property conveyed or intended to be conveyed to Trustee in
the granting clauses (1) through (12) above, is described in this Security
Instrument as the "Property."
TO HAVE AND TO HOLD the Property with the appurtenances thereunto
belonging unto the Trustee and its successors and assigns, in fee simple,
forever, for the benefit of the Mortgagee for the purposes and uses herein
set forth, until such time as all of the Indebtedness and obligations secured
hereby shall have been paid in full.
The Mortgagor covenants with the Trustee, its successors and assigns,
that at and until the ensealing of these presents: (i) the Mortgagor is well
seized of and has a good and indefeasible estate in fee simple in the
Property, and has good right to bargain, sell and convey, and create a
security interest in, the Property in manner and form as above written; (ii)
the Mortgagor will warrant and defend the Property with the appurtenances
thereunto belonging to the Trustee, its successors and assigns, forever
against all lawful claims, and demands whatsoever subject only to such
exceptions to title permitted by the terms of the Trust Indenture; (iii) the
Property and the intended use thereof by the Mortgagor comply to the best of
the Mortgagor's knowledge with all applicable restrictive covenants, zoning
ordinances and building codes and flood disaster laws, and, to the extent
that noncompliance therewith would materially adversely affect the value or
marketability of the Property, all applicable occupational, health and
environmental and other applicable laws, rules and regulations of any other
governmental authority whatsoever; and (iv) the Mortgagor will execute,
acknowledge and deliver all necessary assurances to the Trustee of the title
to the Property as provided above.
This Security Instrument is granted as security for the payment of the
Indebtedness. In accordance with the provisions of the Notes, the whole of
the principal sum thereof then unpaid may be declared and become due and
payable upon demand or upon the occurrence of an Event of Default hereunder
or under the Trust Indenture or the Notes. This Security Instrument is given
for the purpose of creating a lien on the Property and expressly is to secure
the Indebtedness.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS that are hereinafter set
forth; PROVIDED, HOWEVER, notwithstanding any provision set forth in this
5
<PAGE>
Mortgage to the contrary, the total amount of any recovery pursuant to this
Mortgage shall not exceed $8,800,000;
and further provided, that if the Company pays or causes to be paid to
the Holders all sums secured hereby in the manner provided in the Notes and
the Trust Indenture, and the Mortgagor fully pays and performs its
obligations under the Subsidiary Guaranty, the Trust Indenture, and in this
Security Instrument and does keep and perform every obligation, term,
covenant, condition and warranty contained in the Subsidiary Guaranty, the
Trust Indenture and in this Security Instrument, then and in such case the
estate, right, title and interest of Trustee in and to the Property shall
cease, and upon proof being given to the satisfaction of the Mortgagee that
the Indebtedness has been paid or satisfied in accordance with its terms, and
upon payment of all fees, costs, charges and liabilities chargeable to or
incurred by Trustee or otherwise provided for in this Security Instrument,
then this and the estate hereby granted and conveyed shall be released at the
sole expense of Mortgagor.
The Mortgagor, intending to bind its successors and assigns, hereby
covenants and agrees as follows:
1. The Mortgagor will duly keep and perform all covenants, agreements,
conditions and stipulations binding on the Mortgagor under the Subsidiary
Guaranty or the Trust Indenture. The Mortgagor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Indebtedness and this Security Instrument and any requirement that the
Mortgagee or other holder of the Indebtedness secured hereby protect, secure,
perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against any other person, or
any collateral, or pursue any other remedy in the power of the Mortgagee or
other holder of any of the Indebtedness secured thereby.
2. To facilitate payment and performance of the Indebtedness, the
Mortgagor hereby absolutely transfers and assigns to Mortgagee all right,
title and interest of the Mortgagor in and to the Leases.
3. (a) No later than ten days prior to the date when any installment
of taxes and assessments is due, without penalty, interest or delinquency,
the Mortgagor shall deliver to the Mortgagee evidence of the due and punctual
payment of such taxes, assessments, reassessments and other governmental
charges. The Mortgagor will also pay all taxes and assessments or charges
which may be levied on the Indebtedness secured hereby or the interest
therein excepting the federal income tax imposed under the laws of the United
States and excepting state franchise and state income taxes. Any assessment
which is payable in installments at the application of the Mortgagor shall,
nevertheless, for the purposes of this section, be deemed due and payable by
the Mortgagor in its entirety on the day the first installment becomes due
and payable or a lien, unless the written approval of the Mortgagee is
obtained for such installment payments of assessments.
(b) Notwithstanding the provision of Section 3 above, the Mortgagor
shall have the right to contest in good faith any of such taxes and
assessments upon posting with the
6
<PAGE>
Mortgagee sufficient security, reasonably satisfactory to the Mortgagee, for
the payment thereof, with interest, costs and penalties, under written
agreement conditioning payment of such contested taxes and assessments upon
the resolution of such contest, or prior thereto if the continuance of such
contest shall put the Property or any part thereof in jeopardy of tax sale or
forfeiture.
4. If at any time the United States or the State or Commonwealth in
which the Real Property is located or any of their subdivisions having
jurisdiction shall levy, assess or charge any tax (including, without
limitation, documentary stamp or intangible tax), assessment or imposition
upon this Security Instrument, the Notes, or the Indebtedness secured hereby
or the interest of the Mortgagee in the Property or upon the Mortgagee by
reason of or as holder of any of the foregoing, then the Indebtedness and
accrued interest thereon shall be and become due and payable at the election
of the Mortgagee; provided, however, that such election and the right to
elect shall be unavailing if the Mortgagor lawfully may pay for such stamps
or such tax, including interest and penalties thereon, to or for the benefit
of the Mortgagee and the other holders of the Indebtedness, and the Mortgagor
elects to pay and does, in fact, pay when payable, for all such stamps or
such tax, as the case may be, including interest and penalties thereon, prior
to any such election by the Mortgagee. The Mortgagor further agrees to
deliver to the Mortgagee, at any time, upon demand, evidence of citizenship
and such other evidence as may be required by any government agency having
jurisdiction in order to determine whether the obligation secured hereby is
subject to or exempt from any such tax or any other governmental filing or
reporting requirement.
5. The Mortgagor shall keep the Property free and clear from all
mechanics liens and statutory liens of every kind other than taxes and
permitted assessments which may be a lien but not yet due and payable and the
Mortgagor will not voluntarily create or permit to be created or filed
against their respective interests in the Property, or suffer to exist, any
mortgage lien or other lien or liens inferior or superior to the lien of this
Security Instrument (other than the lien or liens for real estate taxes and
assessments not yet due and payable) or if filed, the Mortgagor will have the
same discharged of record either by payment, the bonding thereof or other
lawful means within 30 days after notice of filing and further, that the
Mortgagor will keep and maintain the same free from all claims of all persons
supplying labor, materials or services which will enter into or otherwise
contribute to the construction of any and all improvements to the Property,
notwithstanding by whom such labor or materials may have been contracted;
provided, however, that the Mortgagor shall have the right to contest in good
faith any such mechanics' lien or statutory lien upon posting with the
Mortgagee sufficient security, satisfactory to the Mortgagee, for the payment
thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics' lien or statutory lien upon
the resolution of such contest, or prior thereto if the continuance of such
contest or litigation shall put the Property or any part thereof in jeopardy
of foreclosure sale or forfeiture for such lien.
6. The Mortgagor agrees that the Mortgagor shall not (i) sell, encumber
(including, without limitation, by means of subordinate mortgage or lien upon
the Property or any part thereof or interest therein), assign, lease or
dispose of the Property or any part thereof or interest therein, except in
accordance with, and to the extent permitted by, the terms and provisions of
the Trust Indenture, or (ii) enter into any contract or agreement to do
anything
7
<PAGE>
prohibited by clause (i) of this Section 6 expressly including, without
limitation, any land contract, lease/purchase, lease/option or option
agreement without, in each such case, first obtaining the written consent of
the Mortgagee; except, however, that the Mortgagor shall have the right,
without such consent, to sell individual lots included in the Property on and
subject to the terms and conditions of the Trust Indenture.
7. The Mortgagor hereby acknowledges that the Indebtedness was incurred
in good faith for full value received.
8. The Mortgagor warrants and represents that:
(a) The Mortgagor is not now in default under any instruments or
obligations relating to the Property and no party has asserted any claim
of default against the Mortgagor relating to the Property.
(b) The execution and performance of this Security Instrument and
the consummation of the transactions hereby contemplated will not result
in any breach of, or constitute a default under, any mortgage, lease,
bank loan, credit agreement, trust indenture or other instrument to
which the Mortgagor is a party or by which it or any of its property
(including, without limitation, the Property) may be bound or affected,
nor do any such instruments impose or contemplate any obligations which
are or may be inconsistent with any other obligations imposed on the
Mortgagor under any other instrument heretofore or hereafter delivered
by the Mortgagor.
(c) As of the date hereof, there are no actions, suits or
proceedings (including, without limitation, any condemnation or
bankruptcy proceedings) pending or threatened against or affecting the
Mortgagor or the Property, or which may adversely affect the validity or
enforceability of this Security Instrument, at law or in equity, or
before or by any governmental authority, except as disclosed in writing
to the Lenders prior to the date of execution and delivery hereof as
contemplated by the terms and provisions of the Trust Indenture, and the
Mortgagor is not in default with respect to any writ, injunction, decree
or demand of any court or any governmental authority affecting the
Property.
(d) The Property is not used principally or primarily for farming
or agricultural purposes.
9. (a) The Mortgagor will maintain flood insurance, if required,
pursuant to a designation of the area in which the Property is located as
flood prone or a flood risk area, as defined by the Flood Disaster Protection
Act of 1973, as amended, as well as comply with any additional requirements
of the National Flood Insurance Program as set forth in such Act.
(b) The Mortgagor shall maintain for the mutual benefit of the
Mortgagee and the Mortgagor general public liability insurance against claims
for personal injury, death or property damage occurring upon, in or about the
Property and on, in or about the adjoining streets and passageways, such
insurance to afford protection to the limits of not less than those then
customarily carried with respect to real property similar in general
location, use and
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occupancy to the Property, but in no event less than a single limit amount of
$5,000,000. All of such insurance shall be primary and non-contributing with
any insurance which may be carried by the Mortgagee.
(c) In the event such coverage is provided as part of a blanket
policy, then in such event the amount of the coverage specifically applicable
to the Property shall be stated on the face of the policy. All insurance
policies, to the extent of its interest, are to be for the benefit of and
first payable in case of loss to the Mortgagee as first mortgagee without
contribution and the Mortgagor shall deliver to the Mortgagee a copy of any
renewal or replacement policies and original certificates thereof to the
Mortgagee at such place or to such other party as the Mortgagee may, from
time to time, designate in writing, before the date of such expiration or
termination of any existing policy.
(d) The Mortgagor shall give prompt written notice to the
Mortgagee of the occurrence of any damage to or destruction of improvements,
including equipment, in excess of $500,000.
(e) In the event of any damage to or destruction of the Property
or any part thereof all insurance proceeds to which the Mortgagor is entitled
shall be applied as provided in the Indenture.
(f) In the event of foreclosure of the lien of this Mortgage or
other transfer of title or assignment of the Property in extinguishment, in
whole or in part, of the Obligations, all right, title and interest of the
Mortgagor in and to all proceeds then payable under any policy of insurance
required by this Mortgage shall inure to the benefit of and pass to the
successor in interest of the Mortgagor, or the purchaser or the Mortgagee of
the Property.
(d) All insurance policies required by this Section 9 shall
contain an express provision or endorsement which states the substance of the
following in a manner acceptable to the Mortgagee: "The policy of insurance
shall not be cancelled, permitted to lapse by reason of non-renewal, altered,
changed, amended or modified, nor shall any coverage therein be reduced,
deleted, amended, modified, changed or cancelled by either the party named as
the insured, or the insurance Mortgagor issuing this policy, without at least
30 days' prior written notice having been given to SunTrust, Central Florida,
National Association, as Mortgagee."
10. (a) The term "Hazardous Materials," as used in this Security
Instrument, shall mean any (i) hazardous wastes and/or toxic chemicals,
materials, substances or wastes as defined by the Environmental Laws set
forth in Subsection 10(b); (ii) any "oil", as defined by the Clean Water Act
(as defined in Subsection 10(b) below), as amended from time to time, and
regulations promulgated thereunder (including crude oil or any fraction
thereof); (iii) any substance, the presence of which is prohibited, regulated
or controlled by any other applicable federal or state or local laws,
regulations, statutes or ordinances now in force or hereafter enacted
relating to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use, generation, storage,
transportation, treatment, release, emission, discharge, disposal, abatement,
cleanup, removal, remediation or handling; (iv) any asbestos or asbestos
containing materials, polychlorinated biphenyls ("PCBs") in the form of
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electrical equipment, fluorescent light fixtures with ballasts, cooling oils
or any other form, urea formaldehyde, atmospheric radon at levels over four
picocuries per cubic liter; (v) any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis, acids,
chemicals, pesticides, herbicides, sewage, industrial sludge or other similar
wastes; (vi) industrial, nuclear or medical by-products; and (vii)
underground storage tanks (whether filled or unfilled).
(b) The term "Environmental Laws," as used in this Section 10,
shall mean all present and future laws, statutes, ordinances, rules,
regulations, orders and determinations of any governmental authority,
pertaining to health, protection of the environment, natural resources,
conservation, wildlife, waste management, regulation of activities involving
Hazardous Materials, and pollution, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund" or "CERCLA"), 42 U.S.C. SECTION 9601, ET SEQ., the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. SECTION
9601(20)(D), the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
SECTION 6901, ET SEQ., the Federal Water Pollution Control Act, as amended by
the Clean Water Act (the "Clean Water Act"), 33 U.S.C. SECTION 1251, ET SEQ.,
the Clean Air Act ("CAA"), 42 U.S.C. SECTION 7401, ET SEQ., and the Toxic
Substances Control Act, 15 U.S.C. SECTION 2601, ET SEQ., as amended from
time to time.
(c) The Mortgagor shall, and the Mortgagor shall cause all
employees, agents, contractors and tenants of the Mortgagor and any other
persons present on or occupying the Real Property to, keep and maintain the
Property, including the soil and ground water thereof, in compliance with,
and not cause or permit the Property, including the soil and ground water
thereof, to be in violation of any Environmental Laws. Neither the Mortgagor
nor any employees, agents, contractors or tenants of the Mortgagor or any
other persons occupying or present on the Property shall use, generate,
manufacture, store or dispose on, under or about the Property or transport to
or from the Property any Hazardous Materials.
(d) The Mortgagor immediately shall advise Mortgagee in writing
of: (i) any notices from any governmental or quasi-governmental agency or
authority of violation or potential violation of any Environmental Law
received by the Mortgagor; (ii) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or threatened
pursuant to any Environmental Law; (iii) all claims made or threatened by any
third party against the Mortgagor or the Property relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials (the matters set forth in clauses (i) (ii) and (iii)
above are hereinafter referred to as "Hazardous Materials Claims"); and (iv)
discovery by the Mortgagor of any occurrence or condition on any real
property adjoining or in the vicinity of the Property that could cause the
Property to become contaminated by or with Hazardous Materials. Mortgagee
shall have the right but not the obligation to join and participate in, as a
party if it so elects, any legal proceedings or actions initiated in
connection with any Hazardous Materials Claims and to have its reasonable
attorneys' and consultants' fees in connection therewith paid by the
Mortgagor upon demand.
(e) The Mortgagor shall be solely responsible for, and shall
indemnify, defend, and hold harmless Mortgagee, its directors, officers,
employees, agents, successors and assigns from and against, any loss, damage,
cost, expense or liability or whatever kind or nature, known
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or unknown, contingent or otherwise, directly or indirectly arising out of or
attributable to the use, generation, storage, release, threatened release,
discharge, disposal or presence (whether prior to or after the date of this
Security Instrument) of Hazardous Materials on, in, under or about the
Property (whether by the Mortgagor, a predecessor in title, any tenant, or
any employees, agents, contractor or subcontractors of any of the foregoing
or any third persons at any time occupying or present on the Property),
including, without limitation: (i) personal injury; (ii) death; (iii) damage
to property; (iv) all consequential damages; (v) the cost of any required or
necessary repair, cleanup or detoxification of the Property, including the
soil and ground water thereof, and the preparation and implementation of any
closure, remedial or other required plans; (vi) damage to any natural
resources; and (vii) all reasonable costs and expenses incurred by Mortgagee
in connection with the foregoing clauses (i) through (vi), including but not
limited to reasonable attorneys' and consultants' fees; provided, however,
that nothing contained in this Section shall be deemed to preclude the
Mortgagor from seeking indemnification from or otherwise proceeding against,
any third party including, without limitation, any tenant or predecessor in
title to the Property. The covenants, agreements and indemnities set forth in
this Section shall be binding upon the Mortgagor and its successors and
assigns, and shall survive each of repayment of the Indebtedness, foreclosure
of the Property, and the Mortgagor granting a deed in lieu of foreclosure of
the Property. Any costs or expenses incurred by Mortgagee for which the
Mortgagor is responsible or for which the Mortgagor has indemnified Mortgagee
shall be paid to Mortgagee on demand, with interest at the default rate
specified in the Notes from the date incurred by Mortgagee until paid in
full, and shall be secured hereby. Without Mortgagee's prior written consent,
the Mortgagor shall not enter into any settlement, consent decree or other
compromise in respect of any Hazardous Materials Claims.
(f) In the event Mortgagee reasonably determines that an
investigation of the Property for the presence of Hazardous Materials (an
"Environmental Audit") is necessary in order to maintain the value of the
Mortgagee's security in the Property, the Mortgagor shall retain, upon
Mortgagee's request, or Mortgagee may retain directly, at the sole cost and
expense of the Mortgagor, a licensed geologist, industrial hygienist or an
environmental consultant (referred to hereinafter as the "Consultant")
acceptable to Mortgagee to conduct the Environmental Audit. Mortgagee's
determination to require an Environmental Audit shall be deemed reasonable at
any time there is Default under the Trust Indenture or hereunder or in the
event that Mortgagee has received notice of the likely existence of Hazardous
Materials upon or in the Property. The Environmental Audit shall be performed
in a manner reasonably calculated to discover the presence of Hazardous
Materials contamination taking into consideration the known uses of the
Property and property in the vicinity of the Property and any factors unique
to the Property. If the Mortgagor shall fail to pay for or obtain an
Environmental Audit as provided for herein, Mortgagee may, but shall not be
obligated to, obtain the Environmental Audit, and the Mortgagor immediately
and without demand shall repay all costs and expenses incurred by Mortgagee
in connection therewith, with interest at the default rate specified in the
Notes from the date of such payments or advances until paid in full, and such
sums so advanced or expended, with interest as aforesaid, shall be secured
hereby.
(g) The Mortgagor shall cooperate with the Consultant and allow
entry and access to all portions of the Property for the purpose of
Consultant's investigation. The Mortgagor shall comply, at its sole cost and
expense, with all recommendations contained in the
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Environmental Audit reasonably required to bring the Property into compliance
with all Environmental Laws and any recommendation for additional testing and
studies to detect the quantity and types of Hazardous Materials present, if
Mortgagee requires the implementation of the same.
11. Mortgagee shall have, and is hereby granted by the Mortgagor with a
warranty of further assurances, the irrevocable power to appoint a substitute
trustee or trustees hereunder and to remove any or all trustees hereunder
from time to time without notice, unless required by applicable law, and
without specifying any reason therefor, by filing for record a deed of
appointment in the office in which this Security Instrument is recorded. Such
power of removal and appointment may be exercised as often and whenever
Mortgagee deems it advisable, and the exercise of such power, no matter how
often, shall not result in an exhaustion of such power. Upon the recordation
of each such deed of appointment or removal, each trustee so appointed shall
become fully vested with identically the same title and estate in and to the
Property and with all the identical rights, powers, trusts and duties of his
predecessor or predecessors in the Property, as if originally named as a
Trustee hereunder. Whenever in this Security Instrument reference is made to
Trustee, such reference shall be construed to mean the trustee or trustees
for the time being, whether the original or any successor trustee. All title,
estate, rights, powers, trusts and duties hereunder given, appertaining to or
devolving upon Trustee shall be in each Trustee if there is more than one
then serving hereunder, so that any action hereunder or purporting to be
hereunder of either one of the original or any successor trustees shall for
all purposes be considered to be, and shall be as effective as, the action of
all trustees. The substitution of one trustee shall be sufficient even if in
replacement of more than one trustee.
12. In the event the Mortgagor shall fail to comply with any or all of
its covenants, agreements, conditions and stipulations herein set forth, then
the Mortgagee shall after notice to the Mortgagor be and hereby is authorized
and empowered at its option, but without legal obligation to do so, to pay or
perform the same without waiver of any other remedy. In addition, the
Mortgagee is authorized and empowered at its option, but without legal
obligation to do so, to enter, or have its agents enter, the Property
whenever necessary for the purpose of inspecting the Property and curing any
default hereunder. The Mortgagor agrees that the Mortgagee shall thereupon
have a claim against the Mortgagor for all sums paid by the Mortgagee for
such defaults so cured, together with a lien upon the Property for the sum so
paid plus interest at the default rate specified in the Notes.
13. The Mortgagor shall not commit waste upon the Property or suffer
waste to be committed thereon. The Mortgagor will keep the Property in good
order and repair and in compliance in all material respects with any law,
regulation, ordinance or contract affecting the Property. The Mortgagor shall
observe and comply with all conditions and requirements necessary to preserve
and extend any and all material rights, licenses, permits (including but not
limited to zoning variances, special exceptions and non-conforming uses),
privileges, franchises and concessions which are applicable to the Property
or which have been granted to or contracted for by the Mortgagor in
connection with any existing or presently contemplated use of the Property
and shall obtain and keep in full force and effect all necessary governmental
and municipal approvals as may be necessary from time to time to comply in
all material respects with
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all mining, environmental and other requirements and with any and all
conditions attached to the insurance relating to the Property and the
condition thereof.
14. The Mortgagor will give the Mortgagee immediate notice of the
actual or threatened commencement of any proceedings under eminent domain
affecting all or any part of the Property or any easement therein or
appurtenances thereof, including severance and consequential damage and
change in grade of streets, and will deliver to the Mortgagee copies of any
and all papers served in connection with any such proceedings. Except as
provided in subsection (a) below, the Mortgagor agrees that all awards
heretofore or hereafter made by any public or quasi-public authority to the
present and all subsequent owners of the Property by virtue of an exercise of
the right of eminent domain by such authority, including any award for taking
of title, possession or right of access of a public way, or for any change of
grade or streets affecting the Property, are hereby assigned to the Mortgagee
and the Mortgagee at its option is hereby authorized, directed and empowered
to collect and receive the proceeds of any such awards from the authorities
making the same and to give proper receipts therefor. After deducting from
such proceeds any expenses incurred by the Mortgagee in the collection or
handling thereof, the Mortgagee shall apply the net proceeds as to the
Indebtedness in such order as determined by the Mortgagee.
The Mortgagor hereby covenants and agrees to and with the Mortgagee,
upon the request of the Mortgagee to make, execute and deliver any and all
assignments and other instruments sufficient for the purpose of assigning all
such awards to the Mortgagee, free and clear and discharged of any and all
encumbrances of any kind or nature whatsoever except as above stated.
15. In the event an action shall be instituted to foreclose this
Security Instrument, or prior to foreclosure but after default, the Mortgagee
shall be entitled to the appointment of a receiver of the rents, issues and
profits of the Property as a matter of right, with power to collect the
rents, issues and profits of the Property due and becoming due during the
period of default and/or the pendency of such foreclosure suit to and
including the date of confirmation of the sale under such foreclosure and
during the redemption period, if any, after such confirmation, such rents,
issues and profits being hereby expressly assigned and pledged as security
for the payment of the Indebtedness secured by this Security Instrument
without regard to the value of the Property or the solvency of any person or
persons liable for the payment of the Indebtedness and regardless of whether
the Mortgagee has an adequate remedy at law. The Mortgagor for itself and for
any subsequent owner hereby waives any and all defenses to the application
for a receiver as above provided and hereby specifically consents to such
appointment, but nothing herein contained is to be construed to deprive the
holder of this Security Instrument of any right or remedy or privilege it may
now have under the law to have a receiver appointed. The provision for the
appointment of a receiver and the assignment of such rents, issues and
profits is made an express condition upon which the Loans hereby secured are
made. In such event, the court shall at once on application of the Mortgagee
or its attorney in such action, appoint a receiver to take immediate
possession of, manage and control the Property, for the benefit of the holder
or holders of the Indebtedness and of any other parties in interest, with
power to collect the rents, issues and profits of the Property during the
pendency of such action, and to apply the same toward the payment of the
several obligations herein mentioned and
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described, notwithstanding that the same or any part thereof is occupied by
the Mortgagor or any other person. The rights and remedies herein provided
for shall be deemed to be cumulative and in addition to and not in limitation
of those provided by law and if there be no receiver so appointed, the
Mortgagee itself may proceed to collect the rents, issues and profits from
the Property. From any such rents, issues, and profits collected by the
receiver or by the Mortgagee prior to a foreclosure sale, there shall be
deducted the cost of collection thereof and the expenses of operation of the
Property, including but not limited to real estate commissions, receiver's
fee and the reasonable fees of its attorney, if any, and the Mortgagee's
attorney's fees, if permitted by law, and court costs, the remainder to be
applied against the Indebtedness. In the event the rents, issues and profits
are not adequate to pay all tax and other expenses of operation, the
Mortgagee may, but is not obligated to, advance to any receiver the amounts
necessary to operate, maintain and repair, if necessary, the Property and any
such amounts so advanced, together with interest thereon at the default rate
specified in the Notes from and after the date of advancement, shall be
secured by this Security Instrument and have the same priority of collection
as the principal of the Indebtedness secured hereby.
16. No sale of the Property, no forbearance on the part of the
Mortgagee, no extension of the time for the payment of the Indebtedness and
no change in the terms of the payment thereof consented to by the Mortgagee
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Mortgagor hereunder or the original
liability of the Borrower or any other Mortgagor under any of the
Indebtedness, either in whole or in part. No waiver by the Mortgagee of any
breach of any covenant of the Mortgagor herein contained shall be construed
as a waiver of any subsequent breach of the same or any other covenant herein
contained. The failure of the Mortgagee to exercise the option for
acceleration of maturity and/or foreclosure (including sale under power of
sale hereunder) following any default as aforesaid or to exercise any other
option granted to the Mortgagee hereunder in any one or more instances, or
the acceptance by the Mortgagee of partial payments hereunder shall not
constitute a waiver of any such default, nor extend or affect the grace
period, if any, but such option shall remain continuously in force with
respect to any unremedied or uncured default. Acceleration of maturity once
claimed hereunder by the Mortgagee may, at the option of the Mortgagee, be
rescinded by written acknowledgment to that effect by the Mortgagee, but the
tender and acceptance of partial payments alone shall not in any way affect
or rescind such acceleration of maturity, or extend or affect the grace
period, if any. The Mortgagee may pursue any of its rights without first
exhausting its rights hereunder and all rights, powers and remedies conferred
upon the Mortgagee herein are in addition to each and every right which the
Mortgagee may have hereunder at law or equity and may be enforced
concurrently therewith.
17. If any action or proceeding be commenced, to which action or
proceeding the Mortgagee is made a party by reason of the execution of this
Security Instrument or the Indebtedness, or in which it becomes necessary to
defend or uphold the lien of this Security Instrument, or the priority
thereof or possession of the Property, or otherwise to perfect the security
hereunder, or in any suit, action, legal proceeding or dispute of any kind in
which the Mortgagee is made a party or appears as party plaintiff or
defendant, affecting the interest created herein, or the Property, including,
but not limited to, bankruptcy, probate and administration proceedings,
foreclosure of this Security Instrument or any condemnation action involving
the Property, all sums paid by the Mortgagee for the expense of any
litigation to prosecute and defend
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the rights and liens created hereby shall be paid by the Mortgagor, to the
extent permitted by applicable law, together with interest from the date of
payment at the Default Rate. Any such sum and the interest thereon shall be
immediately due and payable upon demand and be secured hereby, having the
benefit of the lien hereby created, as a part hereof and its priority.
18. Each remedy or right of the Mortgagee shall not be exclusive of but
shall be in addition to every other remedy or right now or hereafter existing
at law or in equity. No delay in the exercise or omission to exercise any
remedy or right accruing on any default shall impair any such remedy or right
or be construed to be a waiver of any such default or acquiescence therein,
nor shall it affect any subsequent default of the same or a different nature.
Every such remedy or right may be exercised concurrently or independently and
when and as often as may be deemed expedient by the Mortgagee.
19. Upon an Event of Default, to the extent permitted by any applicable
law of Nevada, Mortgagee personally, or by the Trustee, or by their
respective agents or attorneys, and without becoming a
mortgagee-in-possession, may enter into and upon all or any part of the Real
Property, and each and every part hereof, and may exclude the Mortgagor, its
agents, and servants wholly therefrom, and having and holding the same, may
use, operate, manage and control the Security or any part thereof and conduct
the business thereof, either personally or by its superintendents, managers,
agents, servants, attorneys or receivers; and upon such entry, Mortgagee, at
the expense of the Mortgagor, may, at Mortgagee's sole option, insure the
same; and likewise, from time to time, at the expense of the Mortgagor,
Mortgagee may make all necessary or proper repairs, renewals and replacements
and such useful alterations, additions, betterments and improvements thereto
and thereon as to Mortgagee may seem advisable; and in every such case
Mortgagee shall have the right to manage and operate the Security and to
carry on the business thereof and exercise all rights and powers of the
Mortgagor with respect thereto either in the name of the Mortgagor or
otherwise as it shall deem best; and after deducting the expenses of
conducting the business thereof and of all maintenance, repairs, renewals,
replacements, alterations, additions, betterments and improvements necessary
to operate the Improvements or their intended purposes and amounts necessary
to pay for taxes, assessments, insurance and prior or other proper charges
upon the Security or any part hereof, as well as reasonable compensation for
the services of Mortgagee and Trustee, and for all attorneys, consultants,
agents, clerks, servants and other parties employed by Mortgagee or Trustee,
Mortgagee shall apply the moneys arising as aforesaid to the Liabilities in
such manner and at such times as Mortgagee shall determine in its sole
discretion, when and as the same shall become payable and/or to the payment
of any other sums required to be paid by the Mortgagor under this Security
Instrument.
20. (a) Upon an Event of Default, to the extent permitted by any
applicable law of Nevada, Mortgagee may, with or without entry, personally or
by its agents or attorneys, insofar as applicable:
(i) Request the Trustee to sell the Property or any part thereof
pursuant to the procedures provided by law at one or more sales as an
entity or in parcels, and at such time and place upon such terms and
after such notice thereof as may be required or permitted by law; and/or
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(ii) Institute an action of judicial foreclosure on this Security
Instrument or institute other proceedings according to law for the
foreclosure hereof, and may prosecute the same to judgment, execution
and sale for the collection of the Entire Indebtedness, and all interest
with respect thereto, together with all taxes and insurance premiums
advanced by Mortgagee and other sums payable by the Mortgagor hereunder,
and all fees, costs and expenses of such proceedings, including
reasonable attorneys' fees and expenses; and/or
(iii) Take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific
performance of any covenant, condition or agreement in the Loan
Documents or in and of the execution of any power herein granted, or for
any foreclosure hereunder, or for the enforcement of any other
appropriate legal or equitable remedy or otherwise as Mortgagee shall
elect.
(b) To the extent permitted by law of Nevada, the Trustee may postpone
from time to time any sale by them to be made under or by virtue of this
Security Instrument by postponement at the time and place appointed for such
sale or for such postponed sale or sales; and, except as otherwise provided
by any applicable provision of law, the Trustee, without further notice or
publication, may make such sale at the time and place to which the same shall
be so postponed.
(c) Upon the completion of any sale or sales made by the Trustee under
or by virtue of this Security Instrument, Trustee shall execute and deliver
to the accepted purchaser or purchasers a good and sufficient instrument, or
good and sufficient instruments, conveying, assigning and transferring all
estate, right, title and interest in and to the property and rights sold. The
Trustee shall make all the necessary conveyances, assignments, transfers and
deliveries of any part of the Property and rights so sold and for that
purpose the Trustee may execute all necessary instruments of conveyance,
assignment and transfer. Any such sale or sales made under or by virtue of
this Section 19, whether made under the power of sale herein granted or under
or by virtue of judicial proceeding or of a judgment or decree of foreclosure
and sale, shall operate to divest all the estate, right, title, interest,
claim and demand whatsoever, whether at law or in equity, of the Mortgagor in
and to the properties, interests and rights so sold, and shall be a perpetual
bar both at law and in equity against the Mortgagor and against any and all
persons claiming or who may claim the same, or any part thereof from, through
or under the Mortgagor.
(d) Upon any sale, whether under the power of sale hereby given or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, except as required by law, it shall not be necessary for the Trustee or
any public officer acting under execution or order of court to have present
or constructive possession of any of the Property.
(e) The recitals contained in any conveyance made by the Trustee to any
purchaser at any sale made pursuant hereto or under applicable law shall be
conclusive evidence of the matters therein stated, and all prerequisites to
such sale shall be presumed to have been satisfied and performed.
(f) The receipt by Trustee of the purchase money paid at any such sale,
or the receipt by any other person authorized to receive the same, shall be
sufficient discharge therefor
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to any purchaser of the property or any part thereof, sold as aforesaid, and
no such purchaser, or his representatives, grantees or assigns, 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 be bound to
inquire as to the authorization, necessity, expediency or regularity of any
such sale.
(g) In case the liens or the Property interests hereunder shall be
foreclosed by Trustee's sale or by other judicial or non-judicial action, the
purchaser at any such sale shall receive, as an incident to his ownership,
the right to immediate possession of the property or any part thereof,
subsequent to foreclosure, the Mortgagor or the Mortgagor's successors
(except tenants who have entered into subordination, non-disturbance and
attornment agreements with Mortgagee) shall be considered as tenants at
sufferance of the purchaser at foreclosure sale, and anyone occupying the
property after demand made for possession thereof shall be guilty of forcible
detainer and shall be subject to eviction and removal, forcible or otherwise,
with or without process of law, and all damages by reason thereof are hereby
expressly waived to the extent permitted by law.
(h) Should any Event of Default occur hereunder, any expenses incurred
by Mortgagee in prosecuting, resolving, or settling the claim of Mortgagee
shall become an additional "liability" of the Mortgagor and part of the
Indebtedness secured hereby.
(i) In the event a foreclosure hereunder shall be commenced by
Mortgagee, to the extent permitted by any applicable law of Nevada, Mortgagee
may at any time before the sale abandon the suit, and may then institute suit
for the acceleration of the Note and for the foreclosure of the liens and the
Property interest hereof. If Mortgagee should institute a suit for the
acceleration of the Note and for a foreclosure of the liens and the Property
interest hereof, it may at any time before the entry of a final judgment in
said suit dismiss the same and proceed to sell the Property, or any part
thereof, in accordance with the provisions of this Security Instrument.
(j) The purchase money proceeds or avails of any sale made under or by
virtue of this Security Instrument, together with any other sums which then
may be held by Mortgagee under this Security Instrument, whether under the
provisions of this Section 19 or otherwise, shall be applied in accordance
with the laws of Nevada, and to the extent not inconsistent, as follows.
(A) first, to the payment or reimbursement of the Mortgagee for
all costs and expenses of such suit or suits or other enforcement
activities of the Mortgagee, including, but not limited to, the costs of
advertising, sale and conveyance, including attorneys', solicitors' and
stenographers' fees, if permitted by law, outlays for documentary
evidence and the cost of such abstract, examination of title and title
report;
(B) second, to the extent proceeds remain after the application
pursuant to preceding clause (A), to reimburse the Mortgagee for all
moneys advanced by the Mortgagee, if any, for any purpose authorized in
this Security Instrument with interest at the default rate specified in
the Notes;
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<PAGE>
(C) third, to the extent proceeds remain after the application
pursuant to preceding clause (B), an amount equal to the outstanding
Indebtedness owed to the Holders shall be paid to the Mortgagee for the
benefit of the Holders; and
(D) fourth, to the extent remaining after the application pursuant
to the proceeding clauses (A), (B) and (C), to the Mortgagor or to
whomever may be lawfully entitled to receive such payment.
(k) The Mortgagor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs
and reasonable attorneys' fees, incurred by Mortgagee in enforcing payment
and performance of the Indebtedness or in exercising the rights and remedies
of Mortgagee hereunder. All such costs and expenses shall be secured by this
Security Instrument and by all other lien and security documents securing the
Indebtedness. In the event of any court proceedings, court costs and
attorneys' fees shall be set by the court and not by jury and shall be
included in any judgment obtained by Mortgagee.
(l) In any action by Mortgagee to recover a deficiency judgment for any
balance due under the Note upon the foreclosure of this Security Instrument
or in any action to recover the Indebtedness or Indebtedness secured hereby,
and as a material inducement to making the loan evidenced by the Note, the
Mortgagor acknowledges and agrees that the successful bid amount made at any
judicial or non-judicial foreclosure sale, if any, shall be conclusively
deemed to constitute the fair market value of the Property, that such bid
amount shall be binding against the Mortgagor in any proceeding seeking to
determine or contest the fair market value of the Property. The Mortgagor
hereby waives and relinquishes any right to have the fair market value of the
Property determined by a judge or jury in any action seeking a deficiency
judgment or any action on the Indebtedness secured hereby, including, without
limitation, a hearing to determine fair market value.
(m) Upon any sale made under or by virtue of this Section 19, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Lender may
bid for and acquire the Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon
the indebtedness of Borrower secured by this Security Instrument the gross
sales price.
21. The Mortgagee, in making any payment herein and hereby authorized
in the place and stead of the Mortgagor (a) relating to taxes, assessments,
water rates, sewer rentals and other governmental or municipal charges,
fines, impositions or liens asserted against the Property, may do so
according to any bill, statement or estimate procured from the appropriate
public authority without inquiry into the validity thereof, or (b) relating
to any adverse title, lien, statement of lien, encumbrance, claim or charge,
shall be the sole judge of the validity of same; or (c) otherwise relating to
any purpose herein and hereby authorized, but not enumerated in this section,
may do so whenever, in its good faith judgment and discretion, such payment
shall seem necessary or desirable to protect the full security intended to be
created by this Security Instrument. In connection with any such payment, the
Mortgagee, at its option, may and is hereby authorized to obtain a
continuation report of title prepared by a title insurance Mortgagor,
18
<PAGE>
the cost and expenses of which shall be repayable by the Mortgagor upon
demand and shall be secured hereby.
22. The Mortgagor agrees, without affecting the liability of any person
for payment of the Indebtedness or affecting the lien of this Security
Instrument upon the Property or any part thereof (other than persons or
property explicitly released as a result of the exercise by the Mortgagee of
its rights and privileges hereunder), that the Mortgagee, without notice,
and without regard to the consideration, if any, paid therefor, and
notwithstanding the existence at that time of any inferior liens thereon, may
release as to itself and this Security Instrument any part of the security
described herein or any person liable for any indebtedness secured hereby,
without in any way affecting the priority of the lien of this Security
Instrument to the full extent of the Indebtedness remaining unpaid hereunder
upon any part of the security not expressly released and may agree with any
party obligated on the Indebtedness or having any interest in the security
described herein to extend the time for payment of any part or all of the
Indebtedness secured hereby. Such agreement shall not, in any way, release or
impair the lien hereof, but shall extend the lien hereof as against the title
of all parties having any interest in such security which interest is subject
to such lien. In the event the Mortgagee: (a) releases, as aforesaid, any
part of the security described herein or any person liable for any
indebtedness secured hereby, (g) grants an extension of time for any payments
of the debt secured hereby, (c) takes other or additional security for the
payment thereof, or (d) waives or fails to exercise any right granted herein,
in the Notes or in any related agreement, no such act or omission shall
release the Mortgagor, subsequent purchasers of all or any part of the
Property, any maker or surety of the Notes or any party to this Security
Instrument or any related agreement under any covenant therein, or preclude
the Mortgagee from exercising any right, power or privilege herein granted or
intended to be granted in the event of any other default then made or any
subsequent default.
23. If at any time the United States of America shall require internal
revenue stamps to be affixed to any of the Notes or any other Indebtedness,
the Mortgagor will pay (or cause the Borrower, if the Mortgagor is not the
Borrower) for the same with any interest or penalties imposed in connection
herewith.
24. To the extent services are required of the Mortgagee's counsel
after the date hereof, which are normally incident to the closing, amendment,
alteration, and enforcement of this Security Instrument, and all provisions
herein contained, the Mortgagor shall, to the extent permitted by law, pay
the reasonable fees therefor, promptly upon the rendering of such a bill and
delivery thereof to the Mortgagor.
25. The Mortgagor agrees at all times to cause this Security
Instrument, and each amendment or modification hereof or supplement hereto,
and all assignments of leases, to be recorded, registered and filed, and kept
recorded, registered and filed, in such manner and in such places as
appropriate, and shall comply with all applicable statutes and regulations in
order to establish, preserve and protect the security and priority of this
Security Instrument, and such assignments and the rights of the Mortgagee
thereunder. The Mortgagor shall pay, or cause to be paid, all taxes, fees and
other charges incurred in connection with such recording, registration,
filing and compliance.
19
<PAGE>
26. The Mortgagor acknowledges that it has received from the Mortgagee
without charge a true and correct copy of this Security Instrument.
27. The Mortgagee and its successors and assigns shall be entitled to
all of the benefits of the indemnification provisions of the Trust Indenture.
28. To the extent permitted by law with respect to the Indebtedness
secured hereby or any renewals or extensions thereof, the Mortgagor waives
and renounces any and all homestead and exemption rights, as well as the
benefit of all valuation and appraisement privileges, and also moratoriums
under or by virtue of the constitution and laws of the jurisdiction in which
the Property is located or any other state or of the United States, now
existing or hereafter enacted.
29. All the covenants hereof shall run with the land. Nothing herein
contained nor any transaction related hereto shall be construed or shall so
operate, either presently or prospectively, to require the Mortgagor to pay
interest at a rate greater than is now lawful in such case to contract for,
but shall require payment of interest only to the extent of such lawful rate.
30. The Mortgagor shall execute, acknowledge and deliver any and all
such further acts, conveyances, documents, mortgages and assurances as the
Mortgagee may reasonably require for accomplishing the purpose hereof
forthwith upon the request of the Mortgagee, whether in writing or otherwise.
The Mortgagor, within ten days upon request by mail, shall furnish a written
statement duly acknowledged of the amount due upon this Security Instrument
and the Indebtedness (both unpaid principal and accrued interest) and whether
any offset or defenses exist against the Indebtedness, and any other
information which might reasonably be requested in connection with the sale
of the Indebtedness, or any portion thereof or interest therein, to any third
party, or an audit of the Mortgagee, and which may be relied on for such
purposes.
31. Wherever notices may appropriately be given under this Security
Instrument, such notices shall be in writing and shall always be treated as
having adequately been given if:
(a) when intended for the Mortgagor, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing
address, as set out herein or to such other address or to such other
person, as the Mortgagor may from time to time, designate in writing; or
(b) when intended for the Mortgagee, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing
address of the Mortgagee as set out herein or to such other address or
to such other person as the Mortgagee may from time to time designate in
writing.
32. Any of the following occurrences or acts shall constitute an event
of default under this Security Instrument ("Event of Default"): (a) the
Company fails to pay any of the Notes or any installment thereof or interest
thereon when due or when declared due, subject
20
<PAGE>
to any applicable grace period provided therein; (b) an Event of Default
under and as defined in the Trust Indenture shall have occurred; (c) the
Mortgagor (regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings, at law, in equity or before
any administrative tribunal, which have or might have the effect of
preventing the Mortgagor from complying with the terms of this Security
Instrument), shall fail to observe or perform any of the Mortgagor's
covenants, agreements or obligations under this Security Instrument and,
other than defaults in the observance or performance of its obligations under
Section __ hereof, such failure shall continue for 30 days after notice; (d)
a default shall occur and continue to exist after the expiration of any
applicable grace period under any other document, agreement or instrument
between the Company or any Subsidiary Guarantor and the Mortgagee or any
Holders, with respect to any of the Indebtedness; (e) any representation
contained herein or in the Trust Indenture or the Notes or made (or deemed
made) by the Company or any Subsidiary Guarantor to the Mortgagee or any of
the Holders in connection with any of the Indebtedness shall prove to be
untrue in any material respect on the date as of which made or deemed made;
(f) the Company or any Subsidiary Guaranty shall file a voluntary petition in
bankruptcy or be adjudicated a bankrupt or insolvent, or the Company or any
Subsidiary Guarantor shall file any petition or answer seeking or
acquiescing in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors or protection for
creditors, or the seeking, or the consenting by the Company or any Subsidiary
Guarantor to or acquiescing in the appointment of any trustee, receiver,
conservator or liquidator of the Company or any Subsidiary Guarantor, as the
case may be, or of all or any substantial part of the Property or any or all
of the rents, issues or profits thereof, or the making of any general
assignment for the benefit of creditors, or the admission in writing of its
inability to pay its debts generally as they become due, or the entry by a
court of competent jurisdiction of any order, judgment or decree, which is
not dismissed within 60 days thereafter, approving a petition filed against
the Company or any Subsidiary Guarantor seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future Federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief for debtors or
protection for creditors, or the appointment, which appointment is not
dismissed within 60 days thereafter, of any trustee, receiver, conservator or
liquidator of the Company or any such Subsidiary, as the case may be, or of
all or any substantial part of the Property or of all of the rents, issues
and profits thereof without the consent or acquiescence of the Mortgagee.
33. Upon any Event of Default or any default by the Mortgagor as
provided herein or in any other instrument evidencing or securing any of the
Indebtedness then, in any of said events, at the option of the Mortgagee (or,
as may be provided in any instrument pursuant to which any such Indebtedness
is created, at the option of any holder of any such Indebtedness), the whole
or any applicable portion of the Indebtedness secured hereby shall become
immediately due and payable, although the period specified for the payment
thereof may not have expired, anything hereinbefore or in the Notes contained
to the contrary notwithstanding.
34. The obligations of the Mortgagor under this Security Instrument
shall be absolute and unconditional and shall remain in full force and effect
without regard to, and shall
21
<PAGE>
not be released, suspended, discharged, terminated or otherwise affected by,
any circumstance or occurrence whatsoever, including, without limitation:
(A) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any document pertaining to
the Indebtedness, or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof;
(B) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Security Instrument except as expressly provided in such renewal,
extension, amendment, modification, addition, supplement, assignment or
transfer;
(C) any furnishing of any additional security to the Mortgagee or
its assignee or any acceptance thereof or any release of any security by
the Mortgagee or its assignee,
(D) any limitation on any party's liability or obligations under
any such instrument or agreement or any invalidity or unenforceability,
in whole or in part, of any such instrument or agreement or any term
thereof; or
(E) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating
to the Company or any Subsidiary Guarantor, or any action taken with
respect to this Security Instrument by any trustee or receiver, or by
any court, whether or not the Mortgagor shall have notice or knowledge
of any of the foregoing.
35. Any provision of this Security Instrument which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
36. THIS SECURITY INSTRUMENT AND THE RIGHTS AND OBLIGATIONS OF THE
MORTGAGOR AND THE MORTGAGEE HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF NEVADA.
37. When the Indebtedness has been paid in full, this Security
Instrument shall terminate, and the Mortgagee, at the request and expense of
the Mortgagor, will execute and deliver to the Mortgagor a proper instrument
or instruments acknowledging the satisfaction and termination of this
Security Instrument.
38. None of the terms and conditions of this Security Instrument may be
changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Mortgagor and the Mortgagee.
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<PAGE>
39. The Mortgagor and the Mortgagee each hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Security Instrument or the transactions
contemplated hereby.
40. IT IS SPECIFICALLY AGREED that time is of the essence with respect
to this Security Instrument and that the waiver of the rights or options, or
obligations secured hereby, shall not at any time thereafter be held to be
abandonment of such rights. Notice of the exercise of any right or option
granted to the Mortgagee herein, or in the Indebtedness secured hereby, is
not required to be given.
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<PAGE>
EXHIBIT "A"
That portion of the Northeast quarter of Section 1, Township 3 North, Range 4
East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona,
more particularly described as follows:
COMMENCING at the North quarter corner of said Section 1;
Thence South 00 degrees 53 minutes 46 seconds West, along the West line
of said Northeast quarter, 45.00 feet to a point on the Southerly right of
way line of Bell Road marking the POINT OF BEGINNING;
Thence South 89 degrees 52 minutes 20 seconds East, along said right of
way line, 788.10 feet;
Thence South 00 degrees 07 minutes 40 seconds West, 94-57 feet to a
point marking the beginning of a tangent curve, having a radius of 150.00
feet to the left;
Thence Southeasterly, along the arc of said curve, through a central
angle of 69 degrees 52 minutes 27 seconds, having an arc distance of 182.93
feet;
Thence South 69 degrees 44 minutes 47 seconds East 85.64 feet to a point
marking the beginning of a tangent curve, having a radius of 150.00 feet to
the right;
Thence Southeasterly, along the arc of said curve, through a central
angle of 49 degrees 02 minutes 59 seconds, having an arc distance of 128.41
feet:
Thence South 20 degrees 41 minutes 48 seconds East 46.78 feet;
Thence South 79 degrees 15 minutes 10 seconds West 16.63 feet;
Thence South 71 degrees 34 minutes 00 seconds West 47.46 feet,
Thence South 73 degrees 16 minutes 09 seconds West 566.07 feet;
Thence South 61 degrees 23 minutes 15 seconds West 547.83 feet to a
point marking the intersection of the Northerly line of the Granite Reef
Aqueduct with the aforementioned West line of the Northeast quarter of
Section 1;
Thence North 00 degrees 53 minutes 46 seconds East, along said West line,
842.03 feet (record) 842.02 feet (measured) to the POINT OF BEGINNING.
<PAGE>
STATE OF PENNSYLVANIA )
) ss:
COUNTY OF Montgomery )
On this 6th day of July, 1998, before me, the undersigned officer,
personally appeared Thomas F. Flatley, to me known, who, being by me duly
sworn, did depose and say that she/he is the President of Resort Mgmt., Inc.,
a Delaware corporation, the corporation described in and which executed the
above instrument, and that as such officer, being duly authorized to do so
pursuant to its bylaws or a resolution of its board of directors, executed,
subscribed and acknowledged the foregoing instrument for the purpose therein
contained, by signing the name of the corporation by herself/himself in
her/his authorized capacity as such officer as her/his free and voluntary act
and deed and the voluntary act and deed of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ Frances B. Keilt
------------------------ Notarial seal
Notary Public Frances B. Keilt, Notary Public
Name of Notary: Narberth Boro, Montgomery County
My Commission Expires: My Commission Expires April 16, 2001
Member, Pennsylvania Association of Notaries
(SEAL)
<PAGE>
below), whose address is 114 West 47th Street, New York, New York 10036-1532.
PRELIMINARY STATEMENTS
(1) This Security Instrument is made pursuant to the Trust
Indenture, dated as of the date hereof (herein, as amended or otherwise
modified from time to time, the "Trust Indenture"), among Epic Resorts, Inc.,
a Delaware corporation (herein, together with its successors and assigns, the
"Company"), Obligor and the other Subsidiary Guarantors as identified
therein, and the Notes Trustee acting as trustee for the Holders (defined
below), providing, among other things for a loan to the Company of
$130,000,000, with such loan being evidenced by the Company's 13% Senior
Secured Notes due 2005 in the aggregate principal amount of $130,000,000 (the
"Notes", such term to include all notes and other securities issued in
substitution or exchange therefor or in replacement thereof).
(2) Obligor has guaranteed to the holders of the Notes (the
"Holders") the payment when due of the Notes pursuant to a guaranty (the
"Subsidiary Guaranty").
(3) It is a condition precedent to the making of the loan to the
Company that the Obligor shall have executed and delivered to or for the
benefit of the Notes Trustee this Security Instrument.
(4) The Obligor desires to execute this Security Instrument to
satisfy the conditions described in the preceding paragraph and to secure the
performance of its covenants and agreements contained in the Trust Indenture,
herein and in any agreement or instrument made
<PAGE>
by it with respect to any indebtedness or obligations secured hereby and to
secure the payment when due (whether at the stated maturity, by acceleration
or otherwise) of all obligations (including obligations which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become
due), but not necessarily in the order set forth, of the following
indebtedness, liabilities and obligations, now existing or hereafter arising,
ratably (including any modifications or replacements thereof):
(a) the aggregate principal amount of $130,000,000, with interest
thereon, as evidenced by the Notes, maturing on or prior to June 15,
2005;
(b) all sums advanced by or on behalf of the Notes Trustee
pursuant to any term or provision of this Security Instrument or any
other agreement or instrument relating to or securing any of the
foregoing;
(c) all advances or disbursements of the Notes Trustee with
respect to the Property (defined below) for the payment of taxes,
levies, assessments, insurance, insurance premiums or costs incurred in
the protection of taxes, levies, assessments, insurance, insurance
premiums or costs incurred in the protection of the Property; and
(d) all other liabilities, obligations and indebtedness of the
Obligor incurred under, arising out of or in connection with the
Subsidiary Guaranty, the Trust Indenture and this Security Interest.
(all of such indebtedness, liabilities and obligations being collectively
referred to hereinafter as the "Indebtedness").
(5) This Security Instrument creates a lien on the fee simple
interest of the Obligor in the Property and shall automatically become a lien
on any and all time share interests in the Property, upon the creation of
such time share interests in the Property.
(6) The creation of time share interests in the Property shall be
permitted only upon satisfaction of the following conditions:
(i) No Event of Default (as hereinafter defined) shall have
occurred or be continuing under this Security Instrument;
(ii) Notes Trustee shall have received and approved all documents
necessary for the creation of the time share interests, including, without
limitation, a declaration of dedication and other documents establishing the
time share regime which meet the requirements of A.R.S. Section 32-2197.04;
(iii) Obligor shall have received all approvals and consents
(including but not limited to a public report issued by the Arizona
Department of Real Estate pursuant to A.R.S. Section 32-2197.6, and any use
permits or other approvals required by the City of Scottsdale) and shall have
made all filings required in conjunction with the establishment of time share
units and their approval for sale to the public; and
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<PAGE>
(iv) Security Title Agency shall have agreed to endorse the
Lender's title insurance policy insuring the interest of the Notes Trustee
under this Security Instrument to provide affirmative insurance to the effect
that the Property consists of time share interests validly created and that
the lien of this Security Instrument shall constitute a valid first lien upon
the time share interests.
(7) Provided that no Event of Default has then occurred and is
continuing under this Security Instrument, the Notes Trustee shall, at the
expenses of Obligor, promptly release the lien hereof on each time share
interest following a sale of such time share interest to a person
unaffiliated with Obligor, and the Notes Trustee shall not have a lien on the
proceeds of any such sale.
GRANTING CLAUSES
NOW, THEREFORE, in consideration of the sum of $1.00, and other
good and valuable consideration, the receipt, sufficiency and adequacy of
which are hereby acknowledged, received to the Obligor's full satisfaction,
and in consideration of the loan made or to be made hereafter to or for the
benefit of the Company, the Obligor does give, grant, bargain, sell, warrant,
alien, demise, release, convey, assign, transfer, mortgage, hypothecate,
deposit, pledge, set over and grant a security interest in and confirms to
Trustee, in trust with power of sale, for the benefit and security of the
Notes Trustee and its successors and assigns, the real property situated in
the State of Arizona, described in Exhibit A attached hereto and made a part
hereof by reference;
(1) TOGETHER WITH all time share interests now and/or hereafter
created at the real property described in Exhibit A attached hereto; and
(2) TOGETHER WITH all rights and easements now and/or hereafter
created which are appurtenant to the real property described in Exhibit A,
including but not limited to those rights and easements more fully identified
thereon, if any; and
(3) TOGETHER WITH all and singular right, title and interest,
including any after-acquired title or reversion, in and to all other ways,
easements, streets, alleys, passages, water, water courses, riparian rights,
rights, liberties and privileges thereof, if any, and in any way appertaining
thereto; and
(4) TOGETHER WITH all rents, royalties, revenues, incomes, issues
and profits accruing and to accrue therefrom; and
(5) TOGETHER WITH all buildings and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction, reconstruction, alteration and repairs of such
improvements now or hereafter erected thereon, all of which materials shall
be deemed to be included within the property subject to this Security
Instrument immediately upon the delivery thereof to the Property; all
fixtures and articles of personal property now or hereafter owned by the
Obligor and attached to, or located on, and used in the operation or
management of the Property; and all renewals or replacements thereof,
-3-
<PAGE>
proceeds therefrom, or articles in substitution therefor, whether or not
the same are or shall be attached to such building or buildings in any
manner, it being mutually agreed that all the aforesaid property owned by the
Obligor and placed by it on the Property shall, so far as permitted by law,
be deemed to be fixtures and a part of the realty and security for the
Indebtedness secured by this Security Instrument; and
(6) TOGETHER WITH all leases, written or oral, and all agreements
for use or occupancy of all or any portion of the Property, together with any
and all extensions and renewals thereof and any and all further leases,
subleases, lettings or agreements (including subleases thereof and tenancies
following attornment) upon or covering use or occupancy of all or any part of
the Property (all such leases, agreements, subleases and tenancies sometimes
collectively referred to herein as the "Leases" and sometimes individually as
a "Lease"); and
(7) TOGETHER WITH all of the rents, income, receipts, revenues,
issues and profits now due or which may become due or to which Obligor may
now or hereafter (including during the period of redemption, if any,
following foreclosure of this Security Instrument become entitled or may
demand or claim arising or issuing from or out of the Leases or from or out
of the Property or any part thereof; and
(8) TOGETHER WITH all deposits made with or other security given
to utility companies by Obligor with respect to the Property, and all
proceeds of all insurance now or hereafter carried by, or payable to, Obligor
with respect to the Property, or otherwise now or hereafter payable with
respect to any loss or damage of the Property, and all claims or demands with
respect thereto; and
(9) TOGETHER WITH all right, title and interest of the Obligor in
and to any operating, use, or management agreement pertaining to the Property
and all cash payments to be made to or for the account of Obligor pursuant
thereto and any other proceeds thereof; and
(10) TOGETHER WITH all right, title and interest of the Obligor in
and to any leases for equipment now or hereafter located at or used in
connection with the Property, including without limitation all leases for
office equipment, maintenance and operating equipment, recreational equipment
and fixtures, telephone equipment, furniture and furnishings; and
(11) TOGETHER WITH all permits, licenses and franchises, and all
contract rights and other intangibles now or hereafter owned by the Obligor
and relating to the ownership, construction, use, operation, occupancy or
development of the Property, including, without limitation, any plans,
specifications and drawings pertaining to the development thereof, and
contracts with architects and contractors; and
(12) TOGETHER WITH all awards and other compensation heretofore or
hereafter to be made to the present and all subsequent owners of the property
subject to this Security Instrument for any taking by eminent domain, either
permanent or temporary, of all or any part of the Property or any easement or
appurtenance thereof, including severance and consequential damage and change
in grade of streets, which such awards and compensation are hereby assigned
to the Notes Trustee; the Obligor hereby appoints the Notes Trustee its
Attorney-
-4-
<PAGE>
in-Fact, with an interest, and authorizes, directs and empowers such
Attorney, at the option of such Attorney, on behalf of the Obligor and its
successors or assigns to collect and receive the proceeds thereof, to give
proper receipts and acquittances therefor (but not to adjust or compromise
the claim) and, after deducting reasonable expenses of collection, to apply
the net proceeds without penalty or premium as a credit upon any portion, as
selected by the Notes Trustee, of the Indebtedness secured hereby,
notwithstanding the fact that the amount owing hereon may not then be due and
payable or that such Indebtedness is otherwise adequately secured.
All of the property conveyed or intended to be conveyed to Trustee
in the granting clauses (1) through (12) above, is described in this Security
Instrument as the "Property."
TO HAVE AND TO HOLD the Property with the appurtenances thereunto
belonging unto the Trustee and its successors and assigns, in fee simple,
forever, for the benefit of the Notes Trustee for the purposes and uses
herein set forth, until such time as all of the Indebtedness and obligations
secured hereby shall have been paid in full.
The Obligor covenants with the Trustee, its successors and assigns,
that at and until the ensealing of these presents: (i) the Obligor is well
seized of and has a good and indefeasible estate in fee simple in the
Property, and has good right to bargain, sell and convey, and create a
security interest in, the Property in manner and form as above written; (ii)
the Obligor will warrant and defend the Property with the appurtenances
thereunto belonging to the Trustee, its successors and assigns, forever
against all lawful claims, and demands whatsoever subject only to such
exceptions to title permitted by the terms of the Trust Indenture; (iii) the
Property and the intended use thereof by the Obligor comply to the best of
the Obligor's knowledge with all applicable restrictive covenants, zoning
ordinances and building codes and flood disaster laws, and, to the extent
that noncompliance therewith would materially adversely affect the value or
marketability of the Property, all applicable occupational, health and
environmental and other applicable laws, rules and regulations of any other
governmental authority whatsoever; and (iv) the Obligor will execute,
acknowledge and deliver all necessary assurances to the Trustee of the title
to the Property as provided above.
This Security Instrument is granted as security for the payment of
the Indebtedness. In accordance with the provisions of the Notes, the whole
of the principal sum thereof then unpaid may be declared and become due and
payable upon demand or upon the occurrence of an Event of Default hereunder
or under the Trust Indenture or the Notes. This Security Instrument is given
for the purpose of creating a lien on the Property and expressly is to secure
the Indebtedness.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS that are hereinafter
set forth; PROVIDED, HOWEVER, that if the Company pays or causes to be paid
to the Holders all sums secured hereby in the manner provided in the Notes
and the Trust Indenture, and the Obligor fully pays and performs its
obligations under the Subsidiary Guaranty, the Trust Indenture, and in this
Security Instrument and does keep and perform every obligation, term,
covenant, condition and warranty contained in the Subsidiary Guaranty, the
Trust Indenture and in this Security Instrument, then and in such case the
estate, right, title and interest of Trustee in
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and to the Property shall cease, and upon proof being given to the
satisfaction of the Notes Trustee that the Indebtedness has been paid or
satisfied in accordance with its terms, and upon payment of all fees, costs,
charges and liabilities chargeable to or incurred by Trustee or otherwise
provided for in this Security Instrument, then this and the estate hereby
granted and conveyed shall be released at the sole expense of Obligor.
The Obligor, intending to bind its successors and assigns, hereby
covenants and agrees as follows:
1. The Obligor will duly keep and perform all covenants,
agreements, conditions and stipulations binding on the Obligor under the
Subsidiary Guaranty or the Trust Indenture. The Obligor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Indebtedness and this Security Instrument and any requirement
that the Notes Trustee or other holder of the Indebtedness secured hereby
protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right or take any action against any
other person, or any collateral, or pursue any other remedy in the power of
the Notes Trustee or other holder of any of the Indebtedness secured thereby.
2. To facilitate payment and performance of the Indebtedness, the
Obligor hereby absolutely transfers and assigns to Notes Trustee all right,
title and interest of the Obligor in and to the Leases.
3. (a) No later than ten days prior to the date when any
installment of taxes and assessments is due, without penalty, interest or
delinquency, the Obligor shall submit to the Notes Trustee evidence of the
due and punctual payment of such taxes, assessments, reassessments and other
governmental charges. The Obligor will also pay all taxes and assessments or
charges which may be levied on the Indebtedness secured hereby or the
interest therein excepting the federal income tax imposed under the laws of
the United States and excepting state franchise and state income taxes. Any
assessment which is payable in installments at the application of the Obligor
shall, nevertheless, for the purposes of this section, be deemed due and
payable by the Obligor in its entirety on the day the first installment
becomes due and payable or a lien, unless the written approval of the Notes
Trustee is obtained for such installment payments of assessments.
(b) Notwithstanding the provision of Section 3 above, the Obligor
shall have the right to contest in good faith any of such taxes and
assessments upon posting with the Notes Trustee sufficient security,
reasonably satisfactory to the Notes Trustee, for the payment thereof, with
interest, costs and penalties, under written agreement conditioning payment
of such contested taxes and assessments upon the resolution of such contest,
or prior thereto if the continuance of such contest shall put the Property or
any part thereof in jeopardy of tax sale or forfeiture.
4. If at any time the United States or the State or Commonwealth
in which the Real Property is located or any of their subdivisions having
jurisdiction shall levy, assess or charge any tax (including, without
limitation, documentary stamp or intangible tax), assessment or imposition
upon this Security Instrument, the Notes, or the Indebtedness secured hereby
or the
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interest of the Notes Trustee in the Property or upon the Notes Trustee by
reason of or as holder of any of the foregoing, then the Indebtedness and
accrued interest thereon shall be and become due and payable at the election
of the Notes Trustee; provided, however, that such election and the right to
elect shall be unavailing if the Obligor lawfully may pay for such stamps or
such tax, including interest and penalties thereon, to or for the benefit of
the Notes Trustee and the other holders of the Indebtedness, and the Obligor
elects to pay and does, in fact, pay when payable, for all such stamps or
such tax, as the case may be, including interest and penalties thereon, prior
to any such election by the Notes Trustee. The Obligor further agrees to
deliver to the Notes Trustee, at any time, upon demand, evidence of
citizenship and such other evidence as may be required by any government
agency having jurisdiction in order to determine whether the obligation
secured hereby is subject to or exempt from any such tax or any other
governmental filing or reporting requirement.
5. The Obligor shall keep the Property free and clear from all
mechanics liens and statutory liens of every kind other than taxes and
permitted assessments which may be a lien but not yet due and payable and the
Obligor will not voluntarily create or permit to be created or filed against
their respective interests in the Property, or suffer to exist, any mortgage
lien or other lien or liens inferior or superior to the lien of this Security
Instrument (other than the lien or liens for real estate taxes and
assessments not yet due and payable) or if filed, the Obligor will have the
same discharged of record either by payment, the bonding thereof or other
lawful means within 30 days after notice of filing and further, that the
Obligor will keep and maintain the same free from all claims of all persons
supplying labor, materials or services which will enter into or otherwise
contribute to the construction of any and all improvements to the Property,
notwithstanding by whom such labor or materials may have been contracted;
provided, however, that the Obligor shall have the right to contest in good
faith any such mechanics' lien or statutory lien upon posting with the Notes
Trustee sufficient security, satisfactory to the Notes Trustee, for the
payment thereof, with interest, costs and penalties, under written agreement
conditioning payment of such contested mechanics' lien or statutory lien upon
the resolution of such contest, or prior thereto if the continuance of such
contest or litigation shall put the Property or any part thereof in jeopardy
of foreclosure sale or forfeiture for such lien.
6. The Obligor agrees that the Obligor shall not (i) sell,
encumber (including, without limitation, by means of subordinate mortgage or
lien upon the Property or any part thereof or interest therein), assign,
lease or dispose of the Property or any part thereof or interest therein,
except in accordance with, and to the extent permitted by, the terms and
provisions of the Trust Indenture, or (ii) enter into any contract or
agreement to do anything prohibited by clause (i) of this Section 6 expressly
including, without limitation, any land contract, lease/purchase,
lease/option or option agreement without, in each such case, first obtaining
the written consent of the Notes Trustee; except, however, that the Obligor
shall have the right, without such consent, to sell individual lots,
including time-share units or intervals, included in the Property on and
subject to the terms and conditions of the Trust Indenture.
7. The Obligor hereby acknowledges that the Indebtedness was
incurred in good faith for full value received.
8. The Obligor warrants and represents that:
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(a) The Obligor is not now in default under any instruments or
obligations relating to the Property and no party has asserted any claim
of default against the Obligor relating to the Property.
(b) The execution and performance of this Security Instrument and
the consummation of the transactions hereby contemplated will not result
in any breach of, or constitute a default under, any mortgage, lease,
bank loan, credit agreement, trust indenture or other instrument to
which the Obligor is a party or by which it or any of its property
(including, without limitation, the Property) may be bound or affected,
nor do any such instruments impose or contemplate any obligations which
are or may be inconsistent with any other obligations imposed on the
Obligor under any other instrument heretofore or hereafter delivered by
the Obligor.
(c) As of the date hereof, there are no actions, suits or
proceedings (including, without limitation, any condemnation or
bankruptcy proceedings) pending or threatened against or affecting the
Obligor or the Property, or which may adversely affect the validity or
enforceability of this Security Instrument, at law or in equity, or
before or by any governmental authority, except as disclosed in writing
to the Lenders prior to the date of execution and delivery hereof as
contemplated by the terms and provisions of the Trust Indenture, and the
Obligor is not in default with respect to any writ, injunction, decree
or demand of any court or any governmental authority affecting the
Property.
(d) The Property is not used principally or primarily for farming
or agricultural purposes.
9. (a) The Obligor will maintain flood insurance, if required,
pursuant to a designation of the area in which the Property is located as
flood prone or a flood risk area, as defined by the Flood Disaster Protection
Act of 1973, as amended, as well as comply with any additional requirements
of the National Flood Insurance Program as set forth in such Act.
(b) The Obligor shall maintain for the mutual benefit of the Notes
Trustee and the Obligor general public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about the
Property and on, in or about the adjoining streets and passageways, such
insurance to afford protection to the limits of not less than those then
customarily carried with respect to real property similar in general
location, use and occupancy to the Property, but in no event less than a
single limit amount of $5,000,000. All of such insurance shall be primary and
non-contributing with any insurance which may be carried by the Notes Trustee.
(c) In the event such coverage is provided as part of a blanket
policy, then in such event the amount of the coverage specifically applicable
to the Property shall be stated on the face of the policy. All insurance
policies, to the extent of its interest, are to be for the benefit of and
first payable in case of loss to the Notes Trustee as first mortgagee without
contribution and the Obligor shall deliver to the Notes Trustee a copy of any
renewal or replacement policies and original certificates thereof to the
Notes Trustee at such place or to such other party as the
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Notes Trustee may, from time to time, designate in writing, before the date
of such expiration or termination of any existing policy.
(d) All insurance policies required by this Section 9 shall
contain an express provision or endorsement which states the substance of the
following in a manner acceptable to the Notes Trustee: "The policy of
insurance shall not be cancelled, permitted to lapse by reason of
non-renewal, altered, changed, amended or modified, nor shall any coverage
therein be reduced, deleted, amended, modified, changed or cancelled by
either the party named as the insured, or the insurance Obligor issuing this
policy, without at least 30 days' prior written notice having been given to
SunTrust, Central Florida, National Association, as Notes Trustee."
10. (a) The term "Hazardous Materials," as used in this Security
Instrument, shall mean any (i) hazardous wastes and/or toxic chemicals,
materials, substances or wastes as defined by the Environmental Laws set
forth in Subsection 10(b); (ii) any "oil", as defined by the Clean Water Act
(as defined in Subsection 10(b) below), as amended from time to time, and
regulations promulgated thereunder (including crude oil or any fraction
thereof); (iii) any substance, the presence of which is prohibited, regulated
or controlled by any other applicable federal or state or local laws,
regulations, statutes or ordinances now in force or hereafter enacted
relating to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use, generation, storage,
transportation, treatment, release, emission, discharge, disposal, abatement,
cleanup, removal, remediation or handling; (iv) any asbestos or asbestos
containing materials, polychlorinated biphenyls ("PCBs") in the form of
electrical equipment, fluorescent light fixtures with ballasts, cooling oils
or any other form, urea formaldehyde, atmospheric radon at levels over four
picocuries per cubic liter; (v) any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis, acids,
chemicals, pesticides, herbicides, sewage, industrial sludge or other similar
wastes; (vi) industrial, nuclear or medical by-products; and (vii)
underground storage tanks (whether filled or unfilled).
(b) The term "Environmental Laws," as used in this Section 10,
shall mean all present and future laws, statutes, ordinances, rules,
regulations, orders and determinations of any governmental authority,
pertaining to health, protection of the environment, natural resources,
conservation, wildlife, waste management, regulation of activities involving
Hazardous Materials, and pollution, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund" or "CERCLA"), 42 U.S.C. Section 9601, ET SEQ., the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section
9601(20)(D), the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Section 6901, ET SEQ., the Federal Water Pollution Control Act, as amended by
the Clean Water Act (the "Clean Water Act"), 33 U.S.C. Section 1251, ET SEQ.,
the Clean Air Act ("CAA"), 42 U.S.C. Section 7401, ET SEQ., and the Toxic
Substances Control Act, 15 U.S.C. Section 2601, ET SEQ., as amended from
time to time.
(c) The Obligor shall, and the Obligor shall cause all employees,
agents, contractors and tenants of the Obligor and any other persons present
on or occupying the Real Property to, keep and maintain the Property,
including the soil and ground water thereof, in compliance with, and not
cause or permit the Property, including the soil and ground water thereof, to
be in violation of any Environmental Laws. Neither the Obligor nor any
employees,
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agents, contractors or tenants of the Obligor or any other persons occupying
or present on the Property shall use, generate, manufacture, store or dispose
on, under or about the Property or transport to or from the Property any
Hazardous Materials.
(d) The Obligor immediately shall advise Notes Trustee in writing
of (i) any notices from any governmental or quasi-governmental agency or
authority of violation or potential violation of any Environmental Law
received by the Obligor; (ii) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or threatened
pursuant to any Environmental Law; (iii) all claims made or threatened by any
third party against the Obligor or the Property relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials (the matters set forth in clauses (i) (ii) and (iii)
above are hereinafter referred to as "Hazardous Materials Claims"); and (iv)
discovery by the Obligor of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property to
become contaminated by or with Hazardous Materials. Notes Trustee shall have
the right but not the obligation to join and participate in, as a party if it
so elects, any legal proceedings or actions initiated in connection with any
Hazardous Materials Claims and to have its reasonable attorneys' and
consultants' fees in connection therewith paid by the Obligor upon demand.
(e) The Obligor shall be solely responsible for, and shall
indemnify, defend, and hold harmless Notes Trustee, its directors, officers,
employees, agents, successors and assigns from and against, any loss, damage,
cost, expense or liability or whatever kind or nature, known or unknown,
contingent or otherwise, directly or indirectly arising out of or
attributable to the use, generation, storage, release, threatened release,
discharge, disposal or presence (whether prior to or after the date of this
Security Instrument) of Hazardous Materials on, in, under or about the
Property (whether by the Obligor, a predecessor in title, any tenant, or any
employees, agents, contractor or subcontractors of any of the foregoing or
any third persons at any time occupying or present on the Property),
including, without limitation: (i) personal injury; (ii) death; (iii) damage
to property; (iv) all consequential damages; (v) the cost of any required or
necessary repair, cleanup or detoxification of the Property, including the
soil and ground water thereof, and the preparation and implementation of any
closure, remedial or other required plans; (vi) damage to any natural
resources; and (vii) all reasonable costs and expenses incurred by Notes
Trustee in connection with the foregoing clauses (i) through (vi), including
but not limited to reasonable attorneys' and consultants' fees; provided,
however, that nothing contained in this Section shall be deemed to preclude
the Obligor from seeking indemnification from or otherwise proceeding
against, any third party including, without limitation, any tenant or
predecessor in title to the Property. The covenants, agreements and
indemnities set forth in this Section shall be binding upon the Obligor and
its successors and assigns, and shall survive each of repayment of the
Indebtedness, foreclosure of the Property, and the Obligor granting a deed in
lieu of foreclosure of the Property. Any costs or expenses incurred by Notes
Trustee for which the Obligor is responsible or for which the Obligor has
indemnified Notes Trustee shall be paid to Notes Trustee on demand, with
interest at the default rate specified in the Notes from the date incurred by
Notes Trustee until paid in full, and shall be secured hereby. Without Notes
Trustee's prior written consent, the Obligor shall not enter into any
settlement, consent decree or other compromise in respect of any Hazardous
Materials Claims.
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(f) In the event Notes Trustee reasonably determines that an
investigation of the Property for the presence of Hazardous Materials (an
"Environmental Audit") is necessary in order to maintain the value of the
Notes Trustee's security in the Property, the Obligor shall retain, upon
Notes Trustee's request, or Notes Trustee may retain directly, at the sole
cost and expense of the Obligor, a licensed geologist, industrial hygienist
or an environmental consultant (referred to hereinafter as the "Consultant")
acceptable to Notes Trustee to conduct the Environmental Audit. Notes
Trustee's determination to require an Environmental Audit shall be deemed
reasonable at any time there is Default under the Trust Indenture or
hereunder or in the event that Notes Trustee has received notice of the
likely existence of Hazardous Materials upon or in the Property. The
Environmental Audit shall be performed in a manner reasonably calculated to
discover the presence of Hazardous Materials contamination taking into
consideration the known uses of the Property and property in the vicinity of
the Property and any factors unique to the Property. If the Obligor shall
fail to pay for or obtain an Environmental Audit as provided for herein,
Notes Trustee may, but shall not be obligated to, obtain the Environmental
Audit, and the Obligor immediately and without demand shall repay all costs
and expenses incurred by Notes Trustee in connection therewith, with interest
at the default rate specified in the Notes from the date of such payments or
advances until paid in full, and such sums so advanced or expended, with
interest as aforesaid, shall be secured hereby.
(g) The Obligor shall cooperate with the Consultant and allow
entry and access to all portions of the Property for the purpose of
Consultant's investigation. The Obligor shall comply, at its sole cost and
expense, with all recommendations contained in the Environmental Audit
reasonably required to bring the Property into compliance with all
Environmental Laws and any recommendation for additional testing and studies
to detect the quantity and types of Hazardous Materials present, if Notes
Trustee requires the implementation of the same.
11. Notes Trustee shall have, and is hereby granted by the Obligor
with a warranty of further assurances, the irrevocable power to appoint a
substitute trustee or trustees hereunder and to remove any or all trustees
hereunder from time to time without notice, unless required by applicable
law, and without specifying any reason therefor, by filing for record a deed
of appointment in the office in which this Security Instrument is recorded.
Such power of removal and appointment may be exercised as often and whenever
Notes Trustee deems it advisable, and the exercise of such power, no matter
how often, shall not result in an exhaustion of such power. Upon the
recordation of each such deed of appointment or removal, each trustee so
appointed shall become fully vested with identically the same title and
estate in and to the Property and with all the identical rights, powers,
trusts and duties of his predecessor or predecessors in the Property, as if
originally named as a Trustee hereunder. Whenever in this Security Instrument
reference is made to Trustee, such reference shall be construed to mean the
trustee or trustees for the time being, whether the original or any successor
trustee. All title, estate, rights, powers, trusts and duties hereunder
given, appertaining to or devolving upon Trustee shall be in each Trustee if
there is more than one then serving hereunder, so that any action hereunder
or purporting to be hereunder of either one of the original or any successor
trustees shall for all purposes be considered to be, and shall be as
effective as, the action of all trustees. The substitution of one trustee
shall be sufficient even if in replacement of more than one trustee.
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12. In the event the Obligor shall fail to comply with any or all
of its covenants, agreements, conditions and stipulations herein set forth,
then the Notes Trustee shall after notice to the Obligor be and hereby is
authorized and empowered at its option, but without legal obligation to do
so, to pay or perform the same without waiver of any other remedy. In
addition, the Notes Trustee is authorized and empowered at its option, but
without legal obligation to do so, to enter, or have its agents enter, the
Property whenever necessary for the purpose of inspecting the Property and
curing any default hereunder. The Obligor agrees that the Notes Trustee shall
thereupon have a claim against the Obligor for all sums paid by the Notes
Trustee for such defaults so cured, together with a lien upon the Property
for the sum so paid plus interest at the default rate specified in the Notes.
13. The Obligor shall not commit waste upon the Property or suffer
waste to be committed thereon. The Obligor will keep the Property in good
order and repair and in compliance in all material respects with any law,
regulation, ordinance or contract affecting the Property. The Obligor shall
observe and comply with all conditions and requirements necessary to preserve
and extend any and all material rights, licenses, permits (including but not
limited to zoning variances, special exceptions and non-conforming uses),
privileges, franchises and concessions which are applicable to the Property
or which have been granted to or contracted for by the Obligor in connection
with any existing or presently contemplated use of the Property and shall
obtain and keep in full force and effect all necessary governmental and
municipal approvals as may be necessary from time to time to comply in all
material respects with all mining, environmental and other requirements and
with any and all conditions attached to the insurance relating to the
Property and the condition thereof.
14. The Obligor will give the Notes Trustee immediate notice of
the actual or threatened commencement of any proceedings under eminent domain
affecting all or any part of the Property or any easement therein or
appurtenances thereof, including severance and consequential damage and
change in grade of streets, and will deliver to the Notes Trustee copies of
any and all papers served in connection with any such proceedings. Except as
provided in subsection (a) below, the Obligor agrees that all awards
heretofore or hereafter made by any public or quasi-public authority to the
present and all subsequent owners of the Property by virtue of an exercise of
the right of eminent domain by such authority, including any award for taking
of title, possession or right of access of a public way, or for any change of
grade or streets affecting the Property, are hereby assigned to the Notes
Trustee and the Notes Trustee at its option is hereby authorized, directed
and empowered to collect and receive the proceeds of any such awards from the
authorities making the same and to give proper receipts therefor. After
deducting from such proceeds any expenses incurred by the Notes Trustee in
the collection or handling thereof, the Notes Trustee shall apply the net
proceeds as to the Indebtedness in such order as determined by the Notes
Trustee.
The Obligor hereby covenants and agrees to and with the Notes
Trustee, upon the request of the Notes Trustee to make, execute and deliver
any and all assignments and other instruments sufficient for the purpose of
assigning all such awards to the Notes Trustee, free and clear and discharged
of any and all encumbrances of any kind or nature whatsoever except as above
stated.
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15. In the event an action shall be instituted to foreclose this
Security Instrument, or prior to foreclosure but after default, the Notes
Trustee shall be entitled to the appointment of a receiver of the rents,
issues and profits of the Property as a matter of right, with power to
collect the rents, issues and profits of the Property due and becoming due
during the period of default and/or the pendency of such foreclosure suit to
and including the date of confirmation of the sale under such foreclosure and
during the redemption period, if any, after such confirmation, such rents,
issues and profits being hereby expressly assigned and pledged as security
for the payment of the Indebtedness secured by this Security Instrument
without regard to the value of the Property or the solvency of any person or
persons liable for the payment of the Indebtedness and regardless of whether
the Notes Trustee has an adequate remedy at law. The Obligor for itself and
for any subsequent owner hereby waives any and all defenses to the
application for a receiver as above provided and hereby specifically consents
to such appointment, but nothing herein contained is to be construed to
deprive the holder of this Security Instrument of any right or remedy or
privilege it may now have under the law to have a receiver appointed. The
provision for the appointment of a receiver and the assignment of such rents,
issues and profits is made an express condition upon which the Loans hereby
secured are made. In such event, the court shall at once on application of
the Notes Trustee or its attorney in such action, appoint a receiver to take
immediate possession of, manage and control the Property, for the benefit of
the holder or holders of the Indebtedness and of any other parties in
interest, with power to collect the rents, issues and profits of the Property
during the pendency of such action, and to apply the same toward the payment
of the several obligations herein mentioned and described, notwithstanding
that the same or any part thereof is occupied by the Obligor or any other
person. The rights and remedies herein provided for shall be deemed to be
cumulative and in addition to and not in limitation of those provided by law
and if there be no receiver so appointed, the Notes Trustee itself may
proceed to collect the rents, issues and profits from the Property. From any
such rents, issues, and profits collected by the receiver or by the Notes
Trustee prior to a foreclosure sale, there shall be deducted the cost of
collection thereof and the expenses of operation of the Property, including
but not limited to real estate commissions, receiver's fee and the reasonable
fees of its attorney, if any, and the Notes Trustee's attorney's fees, if
permitted by law, and court costs, the remainder to be applied against the
Indebtedness. In the event the rents, issues and profits are not adequate to
pay all tax and other expenses of operation, the Notes Trustee may, but is
not obligated to, advance to any receiver the amounts necessary to operate,
maintain and repair, if necessary, the Property and any such amounts so
advanced, together with interest thereon at the default rate specified in the
Notes from and after the date of advancement, shall be secured by this
Security Instrument and have the same priority of collection as the principal
of the Indebtedness secured hereby.
16. No sale of the Property, no forbearance on the part of the
Notes Trustee, no extension of the time for the payment of the Indebtedness
and no change in the terms of the payment thereof consented to by the Notes
Trustee shall in any way whatsoever operate to release, discharge, modify,
change or affect the original liability of the Obligor hereunder or the
original liability of the Borrower or any other obligor under any of the
Indebtedness, either in whole or in part. No waiver by the Notes Trustee of
any breach of any covenant of the Obligor herein contained shall be construed
as a waiver of any subsequent breach of the same or any other covenant herein
contained. The failure of the Notes Trustee to exercise the option for
acceleration of maturity and/or foreclosure (including sale under power of
sale hereunder) following any default as aforesaid or to
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exercise any other option granted to the Notes Trustee hereunder in any one
or more instances, or the acceptance by the Notes Trustee of partial payments
hereunder shall not constitute a waiver of any such default, nor extend or
affect the grace period, if any, but such option shall remain continuously
in force with respect to any unremedied or uncured default. Acceleration of
maturity once claimed hereunder by the Notes Trustee may, at the option of
the Notes Trustee, be rescinded by written acknowledgment to that effect by
the Notes Trustee, but the tender and acceptance of partial payments alone
shall not in any way affect or rescind such acceleration of maturity, or
extend or affect the grace period, if any. The Notes Trustee may pursue any
of its rights without first exhausting its rights hereunder and all rights,
powers and remedies conferred upon the Notes Trustee herein are in addition
to each and every right which the Notes Trustee may have hereunder at law or
equity and may be enforced concurrently therewith.
17. If any action or proceeding be commenced, to which action or
proceeding the Notes Trustee is made a party by reason of the execution of
this Security Instrument or the Indebtedness, or in which it becomes
necessary to defend or uphold the lien of this Security Instrument, or the
priority thereof or possession of the Property, or otherwise to perfect the
security hereunder, or in any suit, action, legal proceeding or dispute of
any kind in which the Notes Trustee is made a party or appears as party
plaintiff or defendant, affecting the interest created herein, or the
Property, including, but not limited to, bankruptcy, probate and
administration proceedings, foreclosure of this Security Instrument or any
condemnation action involving the Property, all sums paid by the Notes
Trustee for the expense of any litigation to prosecute and defend the rights
and liens created hereby shall be paid by the Obligor, to the extent
permitted by applicable law, together with interest from the date of payment
at the Default Rate. Any such sum and the interest thereon shall be
immediately due and payable upon demand and be secured hereby, having the
benefit of the lien hereby created, as a part hereof and its priority.
18. Each remedy or right of the Notes Trustee shall not be
exclusive of but shall be in addition to every other remedy or right now or
hereafter existing at law or in equity. No delay in the exercise or omission
to exercise any remedy or right accruing on any default shall impair any such
remedy or right or be construed to be a waiver of any such default or
acquiescence therein, nor shall it affect any subsequent default of the same
or a different nature. Every such remedy or right may be exercised
concurrently or independently and when and as often as may be deemed
expedient by the Notes Trustee.
19. Upon an Event of Default, to the extent permitted by any
applicable law of Arizona, Notes Trustee personally, or by the Trustee, or by
their respective agents or attorneys, and without becoming a
mortgagee-in-possession, may enter into and upon all or any part of the Real
Property, and each and every part hereof, and may exclude the Obligor, its
agents, and servants wholly therefrom, and having and holding the same, may
use, operate, manage and control the Security or any part thereof and conduct
the business thereof, either personally or by its superintendents, managers,
agents, servants, attorneys or receivers; and upon such entry, Notes Trustee,
at the expense of the Obligor, may, at Notes Trustee's sole option, insure
the same; and likewise, from time to time, at the expense of the Obligor,
Notes Trustee may make all necessary or proper repairs, renewals and
replacements and such useful alterations, additions, betterments and
improvements thereto and thereon as to Notes Trustee may seem advisable; and
in every such case Notes Trustee shall have the right to manage and operate
the Security and to carry on the
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<PAGE>
business thereof and exercise all rights and powers of the Obligor with
respect thereto either in the name of the Obligor or otherwise as it shall
deem best; and after deducting the expenses of conducting the business
thereof and of all maintenance, repairs, renewals, replacements, alterations,
additions, betterments and improvements necessary to operate the Improvements
or their intended purposes and amounts necessary to pay for taxes,
assessments, insurance and prior or other proper charges upon the Security or
any part hereof, as well as reasonable compensation for the services of Notes
Trustee and Trustee, and for all attorneys, consultants, agents, clerks,
servants and other parties employed by Notes Trustee or Trustee, Notes
Trustee shall apply the moneys arising as aforesaid to the Liabilities in
such manner and at such times as Notes Trustee shall determine in its sole
discretion, when and as the same shall become payable and/or to the payment
of any other sums required to be paid by the Obligor under this Security
Instrument.
20. (a) Upon an Event of Default, to the extent permitted by any
applicable law of Arizona, Notes Trustee may, with or without entry,
personally or by its agents or attorneys, insofar as applicable:
(i) Request the Trustee to sell the Property or any part thereof
pursuant to the procedures provided by law at one or more sales as an entity
or in parcels, and at such time and place upon such terms and after such
notice thereof as may be required or permitted by law; and/or
(ii) Institute an action of judicial foreclosure on this Security
Instrument or institute other proceedings according to law for the
foreclosure hereof, and may prosecute the same to judgment, execution and
sale for the collection of the Entire Indebtedness, and all interest with
respect thereto, together with all taxes and insurance premiums advanced by
Notes Trustee and other sums payable by the Obligor hereunder, and all fees,
costs and expenses of such proceedings, including reasonable attorneys' fees
and expenses; and/or
(iii) Take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific performance
of any covenant, condition or agreement in the Loan Documents or in and of
the execution of any power herein granted, or for any foreclosure hereunder,
or for the enforcement of any other appropriate legal or equitable remedy or
otherwise as Notes Trustee shall elect.
(b) To the extent permitted by law of Arizona, the Trustee may
postpone from time to time any sale by them to be made under or by virtue of
this Security Instrument by postponement at the time and place appointed for
such sale or for such postponed sale or sales; and, except as otherwise
provided by any applicable provision of law, the Trustee, without further
notice or publication, may make such sale at the time and place to which the
same shall be so postponed.
(c) Upon the completion of any sale or sales made by the Trustee
under or by virtue of this Security Instrument, Trustee shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, conveying, assigning and
transferring all estate, right, title and interest in and to the property and
rights sold. The Trustee shall make all the necessary conveyances,
assignments, transfers and deliveries of any
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<PAGE>
part of the Property and rights so sold and for that purpose the Trustee may
execute all necessary instruments of conveyance, assignment and transfer. Any
such sale or sales made under or by virtue of this Section 19, whether made
under the power of sale herein granted or under or by virtue of judicial
proceeding or of a judgment or decree of foreclosure and sale, shall operate
to divest all the estate, right, title, interest, claim and demand
whatsoever, whether at law or in equity, of the Obligor in and to the
properties, interests and rights so sold, and shall be a perpetual bar both
at law and in equity against the Obligor and against any and all persons
claiming or who may claim the same, or any part thereof from, through or
under the Obligor.
(d) Upon any sale, whether under the power of sale hereby given or
by virtue of judicial proceedings or of a judgment or decree of foreclosure
and sale, except as required by law, it shall not be necessary for the
Trustee or any public officer acting under execution or order of court to
have present or constructive possession of any of the Property.
(e) The recitals contained in any conveyance made by the Trustee
to any purchaser at any sale made pursuant hereto or under applicable law
shall be conclusive evidence of the matters therein stated, and all
prerequisites to such sale shall be presumed to have been satisfied and
performed.
(f) The receipt by Trustee of the purchase money paid at any such
sale, or the receipt by any other person authorized to receive the same,
shall be sufficient discharge therefor to any purchaser of the property or
any part thereof, sold as aforesaid, and no such purchaser, or his
representatives, grantees or assigns, 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 be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(g) In case the liens or the Property interests hereunder shall be
foreclosed by Trustee's sale or by other judicial or non-judicial action, the
purchaser at any such sale shall receive, as an incident to his ownership,
the right to immediate possession of the property or any part thereof,
subsequent to foreclosure, the Obligor or the Obligor's successors (except
tenants who have entered into subordination, non-disturbance and attornment
agreements with Notes Trustee) shall be considered as tenants at sufferance
of the purchaser at foreclosure sale, and anyone occupying the property after
demand made for possession thereof shall be guilty of forcible detainer and
shall be subject to eviction and removal, forcible or otherwise, with or
without process of law, and all damages by reason thereof are hereby
expressly waived to the extent permitted by law.
(h) Should any Event of Default occur hereunder, any expenses
incurred by Notes Trustee in prosecuting, resolving, or settling the claim of
Notes Trustee shall become an additional "liability" of the Obligor and part
of the Indebtedness secured hereby.
(i) In the event a foreclosure hereunder shall be commenced by
Notes Trustee, to the extent permitted by any applicable law of Arizona,
Notes Trustee may at any time before the sale abandon the suit, and may then
institute suit for the acceleration of the Note and for the foreclosure of
the liens and the Property interest hereof. If Notes Trustee should institute
a suit for the acceleration of the Note and for a foreclosure of the liens
and the Property interest hereof,
-16-
<PAGE>
it may at any time before the entry of a final judgment in said suit dismiss
the same and proceed to sell the Property, or any part thereof, in accordance
with the provisions of this Security Instrument.
(j) The purchase money proceeds or avails of any sale made under
or by virtue of this Security Instrument, together with any other sums which
then may be held by notes Trustee under this Security Instrument, whether
under the provisions of this Section 19 or otherwise, shall be applied in
accordance with the laws of Arizona, and to the extent not inconsistent, as
follows.
(A) first, to the payment or reimbursement of the Notes Trustee for
all costs and expenses of such suit or suits or other enforcement
activities of the Notes Trustee, including, but not limited to, the
costs of advertising, sale and conveyance, including attorneys',
solicitors' and stenographers' fees, if permitted by law, outlays for
documentary evidence and the cost of such abstract, examination of title
and title report;
(B) second, to the extent proceeds remain after the application
pursuant to preceding clause (A), to reimburse the Notes Trustee for all
moneys advanced by the Notes Trustee, if any, for any purpose authorized
in this Security Instrument with interest at the default rate specified
in the Notes;
(C) third, to the extent proceeds remain after the application
pursuant to preceding clause (B), an amount equal to the outstanding
Indebtedness owed to the Holders shall be paid to the Notes Trustee for
the benefit of the Holders; and
(D) fourth, to the extent remaining after the application pursuant
to the proceeding clauses (A), (B) and (C), to the Obligor or to
whomever may be lawfully entitled to receive such payment.
(k) The Obligor shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs
and reasonable attorneys' fees, incurred by Notes Trustee in enforcing
payment and performance of the Indebtedness or in exercising the rights and
remedies of Notes Trustee hereunder. All such costs and expenses shall be
secured by this Security Instrument and by all other lien and security
documents securing the Indebtedness. In the event of any court proceedings,
court costs and attorneys' fees shall be set by the court and not by jury and
shall be included in any judgment obtained by Notes Trustee.
(l) In any action by Notes Trustee to recover a deficiency judgment
for any balance due under the Note upon the foreclosure of this Security
Instrument or in any action to recover the Indebtedness or Indebtedness
secured hereby, and as a material inducement to making the loan evidenced by
the Note, the Obligor acknowledges and agrees that the successful bid amount
made at any judicial or non-judicial foreclosure sale, if any, shall be
conclusively deemed to constitute the fair market value of the Property, that
such bid amount shall be binding against the Obligor in any proceeding
seeking to determine or contest the fair market value of the Property. The
Obligor hereby waives and relinquishes any right to have the fair market
value of the Property determined by a judge or jury in any action seeking a
deficiency judgment or any
-17-
<PAGE>
action on the Indebtedness secured hereby, including, without limitation, a
hearing to determine fair market value.
(m) Upon any sale made under or by virtue of this Section 19,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Lender may bid for and acquire the Property or any part thereof and in lieu
of paying cash therefor may make settlement for the purchase price by
crediting upon the indebtedness of Borrower secured by this Security
Instrument the gross sales price.
21. The Notes Trustee, in making any payment herein and hereby
authorized in the place and stead of the Obligor (a) relating to taxes,
assessments, water rates, sewer rentals and other governmental or municipal
charges, fines, impositions or liens asserted against the Property, may do so
according to any bill, statement or estimate procured from the appropriate
public authority without inquiry into the validity thereof; or (b) relating
to any adverse title, lien, statement of lien, encumbrance, claim or charge,
shall be the sole judge of the validity of same; or (c) otherwise relating to
any purpose herein and hereby authorized, but not enumerated in this section,
may do so whenever, in its good faith judgment and discretion, such payment
shall seem necessary or desirable to protect the full security intended to be
created by this Security Instrument. In connection with any such payment, the
Notes Trustee, at its option, may and is hereby authorized to obtain a
continuation report of title prepared by a title insurance Obligor, the cost
and expenses of which shall be repayable by the Obligor upon demand and shall
be secured hereby.
22. The Obligor agrees, without affecting the liability of any
person for payment of the Indebtedness or affecting the lien of this Security
Instrument upon the Property or any part thereof (other than persons or
property explicitly released as a result of the exercise by the Notes Trustee
of its rights and privileges hereunder), that the Notes Trustee, without
notice, and without regard to the consideration, if any, paid therefor, and
notwithstanding the existence at that time of any inferior liens thereon, may
release as to itself and this Security Instrument any part of the security
described herein or any person liable for any indebtedness secured hereby,
without in any way affecting the priority of the lien of this Security
Instrument to the full extent of the Indebtedness remaining unpaid hereunder
upon any part of the security not expressly released and may agree with any
party obligated on the Indebtedness or having any interest in the security
described herein to extend the time for payment of any part or all of the
Indebtedness secured hereby. Such agreement shall not, in any way, release or
impair the lien hereof, but shall extend the lien hereof as against the title
of all parties having any interest in such security which interest is subject
to such lien. In the event the Notes Trustee: (a) releases, as aforesaid, any
part of the security described herein or any person liable for any
indebtedness secured hereby, (g) grants an extension of time for any payments
of the debt secured hereby, (c) takes other or additional security for the
payment thereof, or (d) waives or fails to exercise any right granted herein,
in the Notes or in any related agreement, no such act or omission shall
release the Obligor, subsequent purchasers of all or any part of the
Property, any maker or surety of the Notes or any party to this Security
Instrument or any related agreement under any covenant therein, or preclude
the Notes Trustee from exercising any right, power or privilege herein
granted or intended to be granted in the event of any other default then made
or any subsequent default.
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<PAGE>
23. If at any time the United States of America shall require
internal revenue stamps to be affixed to any of the Notes or any other
Indebtedness, the Obligor will pay (or cause the Borrower, if the Obligor is
not the Borrower) for the same with any interest or penalties imposed in
connection herewith.
24. To the extent services are required of the Notes Trustee's
counsel after the date hereof, which are normally incident to the closing,
amendment, alteration, and enforcement of this Security Instrument, and all
provisions herein contained, the Obligor shall, to the extent permitted by
law, pay the reasonable fees therefor, promptly upon the rendering of such a
bill and delivery thereof to the Obligor.
25. The Obligor agrees at all times to cause this Security
Instrument, and each amendment or modification hereof or supplement hereto,
and all assignments of leases, to be recorded, registered and filed, and kept
recorded, registered and filed, in such manner and in such places as
appropriate, and shall comply with all applicable statutes and regulations in
order to establish, preserve and protect the security and priority of this
Security Instrument, and such assignments and the rights of the Notes Trustee
thereunder. The Obligor shall pay, or cause to be paid, all taxes, fees and
other charges incurred in connection with such recording, registration,
filing and compliance.
26. The Obligor acknowledges that it has received from the Notes
Trustee without charge a true and correct copy of this Security Instrument.
27. The Notes Trustee and its successors and assigns shall be
entitled to all of the benefits of the indemnification provisions of the
Trust Indenture.
28. To the extent permitted by law with respect to the
Indebtedness secured hereby or any renewals or extensions thereof, the
Obligor waives and renounces any and all homestead and exemption rights, as
well as the benefit of all valuation and appraisement privileges, and also
moratoriums under or by virtue of the constitution and laws of the
jurisdiction in which the Property is located or any other state or of the
United States, now existing or hereafter enacted.
29. All the covenants hereof shall run with the land. Nothing
herein contained nor any transaction related hereto shall be construed or
shall so operate, either presently or prospectively, to require the Obligor
to pay interest at a rate greater than is now lawful in such case to contract
for, but shall require payment of interest only to the extent of such lawful
rate.
30. The Obligor shall execute, acknowledge and deliver any and all
such further acts, conveyances, documents, mortgages and assurances as the
Notes Trustee may reasonably require for accomplishing the purpose hereof
forthwith upon the request of the Notes Trustee, whether in writing or
otherwise. The Obligor, within ten days upon request by mail, shall furnish a
written statement duly acknowledged of the amount due upon this Security
Instrument and the Indebtedness (both unpaid principal and accrued interest)
and whether any offset or defenses exist against the Indebtedness, and any
other information which might reasonably be requested in connection with the
sale of the Indebtedness, or any portion thereof or interest
-19-
<PAGE>
therein, to any third party, or an audit of the Notes Trustee, and which may
be relied on for such purposes.
31. Wherever notices may appropriately be given under this
Security Instrument, such notices shall be in writing and shall always be
treated as having adequately been given if:
(a) when intended for the Obligor, five days after dispatch by
Certified Mail return receipt requested, addressed to the mailing
address, as set out herein or to such other address or to such other
person, as the Obligor may from time to time, designate in writing; or
(b) when intended for the Notes Trustee, five days after dispatch
by Certified Mail return receipt requested, addressed to the mailing
address of the Notes Trustee as set out herein or to such other address
or to such other person as the Notes Trustee may from time to time
designate in writing.
32. Any of the following occurrences or acts shall constitute an
event of default under this Security Instrument ("Event of Default"): (a) the
Company fails to pay any of the Notes or any installment thereof or interest
thereon when due or when declared due, subject to any applicable grace period
provided therein; (b) an Event of Default under and as defined in the Trust
Indenture shall have occurred; (c) the Obligor (regardless of the pendency of
any bankruptcy, reorganization, receivership, insolvency or other
proceedings, at law, in equity or before any administrative tribunal, which
have or might have the effect of preventing the Obligor from complying with
the terms of this Security Instrument), shall fail to observe or perform any
of the Obligor's covenants, agreements or obligations under this Security
Instrument and, other than defaults in the observance or performance of its
obligations under Section ____ hereof, such failure shall continue for 30
days after notice; (d) a default shall occur and continue to exist after the
expiration of any applicable grace period under any other document, agreement
or instrument between the Company or any Subsidiary Guarantor and the Notes
Trustee or any Holders, with respect to any of the Indebtedness; (e) any
representation contained herein or in the Trust Indenture or the Notes or
made (or deemed made) by the Company or any Subsidiary Guarantor to the Notes
Trustee or any of the Holders in connection with any of the Indebtedness
shall prove to be untrue in any material respect on the date as of which made
or deemed made; (f) the Company or any Subsidiary Guaranty shall file a
voluntary petition in bankruptcy or be adjudicated a bankrupt or insolvent,
or the Company or any Subsidiary Guarantor shall file any petition or answer
seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other statute, law or regulation relating
to bankruptcy, insolvency or other relief for debtors or protection for
creditors, or the seeking, or the consenting by the Company or any Subsidiary
Guarantor to or acquiescing in the appointment of any trustee, receiver,
conservator or liquidator of the Company or any Subsidiary Guarantor, as the
case may be, or of all or any substantial part of the Property or any or all
of the rents, issues or profits thereof, or the making of any general
assignment for the benefit of creditors, or the admission in writing of its
inability to pay its debts generally as they become due, or the entry by a
court of competent jurisdiction of any order, judgment or decree, which is
not dismissed within 60 days thereafter, approving a
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<PAGE>
petition filed against the Company or any Subsidiary Guarantor seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future Federal, state or
other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors or protection for creditors, or the appointment, which
appointment is not dismissed within 60 days thereafter, of any trustee,
receiver, conservator or liquidator of the Company or any such Subsidiary, as
the case may be, or of all or any substantial part of the Property or of all
of the rents, issues and profits thereof without the consent or acquiescence
of the Notes Trustee.
33. Upon any Event of Default or any default by the Obligor as
provided herein or in any other instrument evidencing or securing any of the
Indebtedness then, in any of said events, at the option of the Notes Trustee
(or, as may be provided in any instrument pursuant to which any such
Indebtedness is created, at the option of any holder of any such
Indebtedness), the whole or any applicable portion of the Indebtedness
secured hereby shall become immediately due and payable, although the period
specified for the payment thereof may not have expired, anything hereinbefore
or in the Notes contained to the contrary notwithstanding.
34. The obligations of the Obligor under this Security Instrument
shall be absolute and unconditional and shall remain in full force and effect
without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence
whatsoever, including, without limitation:
(A) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any document pertaining to
the Indebtedness, or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof;
(B) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Security Instrument except as expressly provided in such renewal,
extension, amendment, modification, addition, supplement, assignment or
transfer;
(C) any furnishing of any additional security to the Notes Trustee
or its assignee or any acceptance thereof or any release of any security
by the Notes Trustee or its assignee;
(D) any limitation on any party's liability or obligations under
any such instrument or agreement or any invalidity or unenforceability,
in whole or in part, of any such instrument or agreement or any term
thereof; or
(E) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating
to the Company or any Subsidiary Guarantor, or any action taken with
respect to this Security Instrument by any trustee or receiver, or by
any court, whether or not the Obligor shall have notice or knowledge of
any of the foregoing.
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<PAGE>
35. Any provision of this Security Instrument which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
36. THIS SECURITY INSTRUMENT AND THE RIGHTS AND OBLIGATIONS OF THE
OBLIGOR AND THE NOTES TRUSTEE HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF ARIZONA.
37. When the Indebtedness has been paid in full, this Security
Instrument shall terminate, and the Notes Trustee, at the request and expense
of the Obligor, will execute and deliver to the Obligor a proper instrument
or instruments acknowledging the satisfaction and termination of this
Security Instrument. The grantee in any reconveyance of the estate held
pursuant to this Security Instrument may be described as "the person or
persons legally entitled thereto."
38. None of the terms and conditions of this Security Instrument
may be changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by the Obligor and the Notes Trustee.
39. The Obligor and the Notes Trustee each hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Security Instrument or the transactions
contemplated hereby. Obligor waives the protections furnished to a guarantor
or surety by A.R.S. Section 12-1641 and Section 12-1642.
40. IT IS SPECIFICALLY AGREED that time is of the essence with
respect to this Security Instrument and that the waiver of the rights or
options, or obligations secured hereby, shall not at any time thereafter be
held to be abandonment of such rights. Notice of the exercise of any right or
option granted to the Notes Trustee herein, or in the Indebtedness secured
hereby, is not required to be given.
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<PAGE>
EXHIBIT "A"
Lots Six (6), Seven (7), and Eight (8), in Block Five and One-Half (5 1/2) of
the resubdivision of Blocks Five (5) and Six (6) of BRUSH AND STEWART'S
ADDITION TO SEABREEZE, according to map of said resubdivision recorded in
Map Book 2, page 111, of the Public Records of Volusia County, Florida.
Together with all riparian and littoral rights and accretions thereunto
belonging or in anywise appertaining, EXCEPT HOWEVER, a triangular piece of
land in said Lot Eight (8), containing fifty (50) square feet, more or less,
for right of way, acquired by the State of Florida Department of
Transportation, by Final Judgment recorded in Official Records Book 1355,
page 515 through 520 of said Public Records.
<PAGE>
IN WITNESS WHEREOF, the Obligor has caused this Security Instrument
to be executed and delivered as of the date first set forth above.
EPIC RESORTS - SCOTTSDALE LINKS
RESORT, LLC,
a Delaware limited liability company
By /s/ Thomas F. Flatley
--------------------------------------
Name: Thomas F. Flatley
Title: President
ATTEST:
/s/ Helen A. Brady
- --------------------------------
Name: Helen A. Brady
Title: Executive Assistant
<PAGE>
STATE OF PENNSYLVANIA )
) ss.
COUNTY OF MONTGOMERY )
On this, the 6 day of July, 1998, before me, the undersigned Notary
Public, personally appeared Thomas F. Flatley, the President of ER-SLR, LLC,
a Delaware corporation, and acknowledged to me that he, being authorized to
do so, executed the foregoing instrument for the purposes therein contained
by signing the name of the corporation as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Frances B. Keilt
-----------------------------------
Notary Public
My Commission Expires:
[SEAL]
<PAGE>
EXHIBIT 12.1
EPIC RESORTS, LLC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Fiscal Year Ended December 31,
1998 1997 1997 1996 1995 1994 1993
------ ------ ------- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Income from operations $1,915 $1,275 $ 6,814 $ (562) $(480) $222 $265
Interest expense 1,017 907 3,748 2,143 894 502 700
Capitalized interest included
in cost of sales 45 47 186 6 - - -
Minority interest (543) (446) (1,676) 473 - - -
------ ------ ------- ------ ----- ---- ----
Earnings as adjusted $2,434 $1,783 $ 9,072 $2,060 $ 414 $724 $965
------ ------ ------- ------ ----- ---- ----
------ ------ ------- ------ ----- ---- ----
FIXED CHARGES
Interest expense $1,017 $ 907 $ 3,748 $2,143 $ 894 $502 $700
Interest capitalized 35 80 214 200 - - -
------ ------ ------- ------ ----- ---- ----
Fixed charges $1,052 $ 997 $ 3,962 $2,343 $ 894 $502 $700
------ ------ ------- ------ ----- ---- ----
------ ------ ------- ------ ----- ---- ----
RATIO OF EARNINGS TO FIXED CHARGES 2.31 1.79 2.29 0.88 0.46 1.44 1.38
DEFICIENCY OF EARNINGS TO COVER
FIXED CHARGES $ (283) $(480)
------ -----
------ -----
</TABLE>
<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 Receivables, Inc. . . . . . . . . . . . . . . . . . Delaware
<PAGE>
EXHIBIT 23.2
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
August 12, 1998
<PAGE>
EXHIBIT 24.1
MANAGERS AND OFFICERS OF
EPIC RESORTS, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts, 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/her and in his/her 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 the Company and Epic Capital Corp., 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 August 6, 1998.
/s/ T. F. Flatley /s/ T. F. Flatley
- ---------------------------------- ---------------------------
Thomas F. Flatley, President, Epic Membership Corp.
Chief Executive Officer and Manager By: Thomas F. Flatley
(Principal Executive Officer) Title: President
/s/ Scott J. Egelkamp /s/ Gerald D. Clark
- ---------------------------------- ---------------------------
Scott J. Egelkamp, Vice-President, Gerald D. Clark, Manger
Chief Financial Officer and Secretary
(Principal Financial Officer) /s/ James A. Ditanna
(Principal Accounting Officer) ---------------------------
James A. Ditanna, Manager
/s/ Robert M. Kramer
---------------------------
Robert M. Kramer, Manager
<PAGE>
EXHIBIT 24.2
DIRECTOR AND OFFICERS OF
EPIC CAPITAL CORP.
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Capital
Corp., a Delaware corporation (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 the Company and Epic Resorts, LLC, 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 August 6, 1998.
/s/ T. F. Flatley /s/ Scott J. Egelkamp
- ------------------------------ ------------------------------------------
Thomas F. Flatley, President Scott J. Egelkamp, Secretary and Treasurer
and Sole Director (Principal Financial Officer)
(Principal Executive Officer) (Principal Accounting Officer)
<PAGE>
EXHIBIT 24.3
MEMBER AND OFFICERS OF
LONDON BRIDGE, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of London Bridge Resort,
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 August 5, 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 24.4
MEMBER AND OFFICERS OF
RESORT MANAGEMENT, LLC, GENERAL PARTNER OF
DAYTONA BEACH REGENCY, LTD
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Resort Management, LLC, a
Delaware limited liability company, the General Partner of Daytona Beach
Regency, Ltd, a Florida limited partnership (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 August 6, 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 24.5
MEMBER AND OFFICERS OF
RESORT MANAGEMENT, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Resort 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 August 6, 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 24.6
MEMBER AND OFFICERS OF
RESORT INVESTMENT, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Resort Investment, 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 August 6, 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 24.7
MEMBER AND OFFICERS OF
EPIC RESORTS--HILTON HEAD, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts--Hilton
Head, 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 August 6, 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 24.8
MEMBER AND OFFICERS OF
EPIC RESORTS--PALM SPRINGS MARQUIS VILLAS, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts--Palm
Springs Marquis Villas, 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 August 6, 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 24.9
MEMBER AND OFFICERS OF
EPIC RESORTS--SCOTTSDALE LINKS RESORT, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts--Scottsdale
Links Resort, 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 August 6, 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 24.10
MEMBER AND OFFICERS OF
EPIC RESORTS--WESTPARK RESORT, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Resorts--Westpark
Resort, 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 August 6, 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 24.11
DIRECTORS AND OFFICERS OF
EPIC WARRANT CO.
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Warrant Co., a
Delaware corporation (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 August 6, 1998.
/s/ T. F. Flatley /s/ Scott J. Egelkamp
- ------------------------------ ------------------------------------------
Thomas F. Flatley, President Scott J. Egelkamp, Secretary and Treasurer
and Sole Director (Principal Financial Officer)
(Principal Executive Officer) (Principal Accounting Officer)
<PAGE>
EXHIBIT 24.12
MEMBER AND OFFICERS OF
EPIC TRAVEL, LLC
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of Epic Travel, 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 August 6, 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>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
=====================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
=====================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
NEW YORK 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036-1532
(Address of principal (Zip Code)
executive offices)
NONE
(Name, address and telephone number of agent for service)
========================
EPIC RESORTS, LLC
AND EPIC CAPITAL CORP.
(Exact name of obligor as specified in its charter)
DELAWARE 23-2888968
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1150 FIRST AVENUE, SUITE 900
KING OF PRUSSIA, PENNSYLVANIA 19406
(Address of principal executive offices) (Zip Code)
$130,000,000 SENIOR NOTES DUE 2005, SERIES A
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
FEDERAL RESERVE BANK OF NEW YORK (2ND DISTRICT), NEW YORK, NEW YORK
(BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM)
FEDERAL DEPOSIT INSURANCE CORPORATION, WASHINGTON, D.C.
NEW YORK STATE BANKING DEPARTMENT, ALBANY, NEW YORK
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
THE TRUSTEE IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
2. AFFILIATIONS WITH THE OBLIGOR
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
NONE
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 AND 15:
THE OBLIGOR IS CURRENTLY NOT IN DEFAULT UNDER ANY OF ITS OUTSTANDING
SECURITIES FOR WHICH UNITED STATES TRUST COMPANY OF NEW YORK IS TRUSTEE.
ACCORDINGLY, RESPONSES TO ITEMS 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 AND
15 OF FORM T-1 ARE NOT REQUIRED UNDER GENERAL INSTRUCTION B.
16. LIST OF EXHIBITS
T-1.1 -- ORGANIZATION CERTIFICATE, AS AMENDED, ISSUED BY THE STATE OF
NEW YORK BANKING DEPARTMENT TO TRANSACT BUSINESS AS A TRUST
COMPANY, IS INCORPORATED BY REFERENCE TO EXHIBIT T-1.1 TO
FORM T-1 FILED ON SEPTEMBER 15, 1995 WITH THE COMMISSION
PURSUANT TO THE TRUST INDENTURE ACT OF 1939, AS AMENDED BY
THE TRUST INDENTURE REFORM ACT OF 1990
(REGISTRATION NO. 33-97056).
T-1.2 -- INCLUDED IN EXHIBIT T-1.1.
T-1.3 -- INCLUDED IN EXHIBIT T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- THE BY-LAWS OF UNITED STATES TRUST COMPANY OF NEW YORK, AS
AMENDED, IS INCORPORATED BY REFERENCE TO EXHIBIT T-1.4 TO
FORM T-1 FILED ON SEPTEMBER 15, 1995 WITH THE COMMISSION
PURSUANT TO THE TRUST INDENTURE ACT OF 1939, AS AMENDED BY
THE TRUST INDENTURE REFORM ACT OF 1990 (REGISTRATION NO.
33-97056).
T-1.6 -- THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE
TRUST INDENTURE ACT OF 1939, AS AMENDED BY THE TRUST
INDENTURE REFORM ACT OF 1990.
T-1.7 -- A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR
EXAMINING AUTHORITY.
NOTE
AS OF JULY 23, 1998, THE TRUSTEE HAD 2,999,020 SHARES OF COMMON STOCK
OUTSTANDING, ALL OF WHICH ARE OWNED BY ITS PARENT COMPANY, U.S. TRUST
CORPORATION. THE TERM "TRUSTEE" IN ITEM 2, REFERS TO EACH OF UNITED STATES
TRUST COMPANY OF NEW YORK AND ITS PARENT COMPANY, U. S. TRUST CORPORATION.
IN ANSWERING ITEM 2 IN THIS STATEMENT OF ELIGIBILITY AS TO MATTERS PECULIARLY
WITHIN THE KNOWLEDGE OF THE OBLIGOR OR ITS DIRECTORS, THE TRUSTEE HAS RELIED
UPON INFORMATION FURNISHED TO IT BY THE OBLIGOR AND WILL RELY ON INFORMATION TO
BE FURNISHED BY THE OBLIGOR AND THE TRUSTEE DISCLAIMS RESPONSIBILITY FOR THE
ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
__________________
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE,
UNITED STATES TRUST COMPANY OF NEW YORK, A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF NEW YORK, HAS DULY CAUSED THIS STATEMENT OF
ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, ALL IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON THE 23TH OF
JULY 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, TRUSTEE
/s/LOUIS P. YOUNG
BY: -----------------------
LOUIS P. YOUNG
VICE PRESIDENT
<PAGE>
EXHIBIT T-1.6
THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT
UNITED STATES TRUST COMPANY OF NEW YORK
114 WEST 47TH STREET
NEW YORK, NY 10036
JULY 23, 1998
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, DC 20549
GENTLEMEN:
PURSUANT TO THE PROVISIONS OF SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939,
AS AMENDED BY THE TRUST INDENTURE REFORM ACT OF 1990, AND SUBJECT TO THE
LIMITATIONS SET FORTH THEREIN, UNITED STATES TRUST COMPANY OF NEW YORK ("U.S.
TRUST") HEREBY CONSENTS THAT REPORTS OF EXAMINATIONS OF U.S. TRUST BY FEDERAL,
STATE, TERRITORIAL OR DISTRICT AUTHORITIES MAY BE FURNISHED BY SUCH AUTHORITIES
TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST THEREFOR.
VERY TRULY YOURS,
UNITED STATES TRUST COMPANY
OF NEW YORK
-----------------------
BY: /S/LOUIS P. YOUNG
VICE PRESIDENT
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
ASSETS
CASH AND DUE FROM BANKS $ 303,692
SHORT-TERM INVESTMENTS 325,044
SECURITIES, AVAILABLE FOR SALE 650,954
LOANS 1,717,101
LESS: ALLOWANCE FOR CREDIT LOSSES 16,546
---------------
NET LOANS 1,700,555
PREMISES AND EQUIPMENT 58,868
OTHER ASSETS 120,865
---------------
Total Assets $3,159,978
---------------
---------------
LIABILITIES
- -----------
DEPOSITS:
NON-INTEREST BEARING $ 602,769
INTEREST BEARING 1,955,571
---------------
TOTAL DEPOSITS 2,558,340
SHORT-TERM CREDIT FACILITIES 293,185
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 136,396
---------------
Total Liabilities $2,987,921
---------------
---------------
STOCKHOLDER'S EQUITY
COMMON STOCK 14,995
CAPITAL SURPLUS 49,541
RETAINED EARNINGS 105,214
UNREALIZED GAINS ON SECURITIES
AVAILABLE FOR SALE (NET OF TAXES) 2,307
---------------
Total Stockholder's Equity 172,057
---------------
Total Liabilities and
Stockholder's Equity $3,159,978
---------------
---------------
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named
bank do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN REGISTRATION STATEMENTS 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>
<PAGE>
LETTER OF TRANSMITTAL
EPIC RESORTS, LLC
EPIC CAPITAL CORP.
OFFER TO EXCHANGE
13% SENIOR SECURED NOTES DUE 2005, SERIES B
FOR ANY AND ALL OUTSTANDING
13% SENIOR SECURED NOTES DUE 2005, SERIES A
PURSUANT TO THE PROSPECTUS, DATED , 1998.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
MAIL DELIVERY TO: United States Trust Company of New York, EXCHANGE AGENT
BY MAIL:
United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
<TABLE>
<S> <C>
BY HAND: BY OVERNIGHT DELIVERY:
United States Trust Company of New York United States Trust Company of New York
111 Broadway, Lower Level 770 Broadway, 13th Floor
New York, NY 10006 New York, NY 10003
Attention: Corporate Trust Services Attention: Corporate Trust Services
</TABLE>
BY FACSIMILE TRANSMISSION
(For Eligible Institutions Only)
(212) 420-6152
Confirm By Telephone
1-800-548-6565
- --------------------------------------------------------------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
- --------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1998 (the "Prospectus"), of Epic Resorts, LLC, a
Delaware limited liability company and Epic Capital Corp., a Delaware
corporation (collectively referred to as the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to $130.0
million of its 13% Senior Secured Notes due 2005, Series B (the "New Notes") of
the Company for a like principal amount of the issued and outstanding 13% Senior
Secured Notes due 2005, Series A (the "Old Notes") of the Company from the
holders (the "Holders") thereof. Capitalized terms used but not defined herein
have the meanings given to them in the Exchange Offer.
<PAGE>
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. No interest will be payable on the Old Notes on the date of the
exchange for the New Notes and Old Notes accepted for exchange will cease to
accrue interest from and after the consummation of the Exchange Offer, therefore
no interest will be paid thereon to the Holders at such time. Each New Note will
bear interest at 13% per annum and will be payable in cash semiannually in
arrears on each December 15 and June 15, commencing on December 15, 1998.
Holders of Old Notes accepted for exchange will be deemed to have waived the
right to receive any other payment of interest on the Old Notes. The Company
reserves the right, at any time or from time to time, to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the latest time and date to which the Exchange Offer is extended. The Company
shall notify the Holders of the Old Notes of any extension by means of a press
release or other public announcement prior to 9:00 A.M., New York City time, on
the next business day after the previously scheduled Expiration Date.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering" section of the Prospectus. Holders of
Old Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, may tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER AS
IT APPEARS CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT OF OLD
ON THE 13% SENIOR SECURED NOTES DUE 2005, OF OLD NOTES
SERIES A NOTES TRANSMITTED* TRANSMITTED**
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
2
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number ______________ Transaction Code Number____________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which guaranteed delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ______________ Transaction Code Number _____________________
/ / 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: ___________________________________________________________________
______________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
its agent and attorney-in-fact with full power of substitution, for purposes of
delivering this Letter and the Old Notes to the Company. The Power of Attorney
granted in this paragraph shall be deemed irrevocable from and after the
Expiration Date and coupled with an interest. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered hereby
will have been acquired in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the undersigned, that
neither the Holder of such Old Notes nor any such other person is participating,
intends to participate or has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder of
such Old Notes nor any such other person is an "affiliate," of the Company, as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") set forth in no-action letters to third parties, based on
which the Company believes that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any Holder thereof (other than any such Holder that is
an "affiliate" of the Company 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 New 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 New
Notes. 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
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes, it represents that the Old Notes to
be exchanged for New Notes were acquired by it as a result of market-making
activities or other trading activities, and acknowledges that it will deliver a
prospectus in connection with any resale of such New 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.
The undersigned acknowledges that in reliance on an interpretation by the staff
of the SEC, a broker-dealer may fulfill his prospectus delivery requirements
with respect to the New Notes (other than a resale of an unsold allotment from
the original sale of the Old Notes) with the Prospectus which constitutes part
of this Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
4
<PAGE>
- --------------------------------------------------------------------------------
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person of persons whose signature(s) appear(s) on this Letter above, or if
Old Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
Employer Identification # or Social Security Number: _______________________
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
____________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person of persons whose
signature(s) appear(s) on this Letter above or to such person or persons at
an address other than shown in the box entitled "Description of Old Notes"
on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT; THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
- --------------------------------------------------------------------------------
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX ABOVE.
5
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
<TABLE>
<S> <C>
Dated:
SIGNATURE(S) OF OWNER DATE
</TABLE>
Area code and Telephone Number _____________________________________________
If a Holder is tendering any Old Notes, this Letter must be signed by
the registered Holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Notes or by any person(s) authorized to become registered Holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
<TABLE>
<S> <C>
(AUTHORIZED SIGNATURE)
(TITLE)
(NAME AND FIRM)
Dated:
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER OF 13% SENIOR
SECURED NOTES DUE 2005, SERIES B FOR ANY AND ALL OUTSTANDING 13% SENIOR SECURED
NOTES DUE 2005, SERIES A OF EPIC RESORTS, LLC AND EPIC CAPITAL CORP.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES: This
letter is to be completed by noteholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer--Procedures for
Tendering" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering Holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
$1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made by or through an Eligible
Institution and a Notice of Guaranteed Delivery must be signed by such Holder,
(ii) on or prior to the Expiration Date, the Exchange Agent must receive from
the Holder and the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery), substantially in the form provided by the Company, setting forth the
name and address of the Holder of Old Notes, the certificate number or numbers
of the tendered Old Notes, and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within four
(4) business days after the date of delivery of the Notice of Guaranteed
Delivery, the tendered Old Notes, a duly executed Letter of Transmittal and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent and (iii) the certificates for all physically tendered Old Notes,
in proper form for transfer, or Book-Entry Confirmation, as the case may be, and
all other documents required by this Letter, must be received by the Exchange
Agent within four (4) business days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If such delivery is by mail, it is recommended that registered mail,
properly insured, with return receipt requested, be used. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, it is suggested that the mailing be made sufficiently in
advance of the Expiration Date to permit delivery to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer"
section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER): If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering Holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount of Old Notes Transmitted." Holders
whose Old Notes are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences and subject to the limitations applicable thereto
under the Indenture. Following consummation of the Exchange Offer, the Holders
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such Holders to provide for
the registration under the Securities Act of the Old Notes held by them. ALL OF
7
<PAGE>
THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES: If this Letter is signed by the registered Holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered Holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder or Holder appear(s) on the
certificate(s) and signatures on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE
BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION
LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED
"SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS," ON THIS
LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS: Tendering Holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or Old Notes not exchanged are
to be sent, if different from the name or address of the person signing this
Letter. In the case of issuance in a different name, the employer identification
or social security number of the person named must also be indicated.
Noteholders tendering Old Notes by book-entry transfer may request that Old
Notes not exchanged be credited to such account maintained at the Book-Entry
Transfer Facility as such noteholder may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name or address of the person signing this Letter.
8
<PAGE>
5. TRANSFER TAXES: The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, certificates representing New Notes and/or Old
Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered Holder of the Old Notes tendered hereby, or if tendered Old
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Old Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
6. WAIVER OF CONDITIONS: The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS: No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering Holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES: Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES: Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address indicated above.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, any Holder whose tendered Old Notes
are accepted for payment generally is required to provide the Exchange Agent (as
agent for the payer) with his or her correct taxpayer identification number
("TIN") on Substitute Form W-9 below. If such Holder of Old Notes is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, the Holder of Old Notes may be subject to
a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such Holders of Old Notes with respect to New Notes may be
subject to backup withholding.
Certain Holders of Old Notes (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Holders of Old Notes should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Holder of Old Notes must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to his or her exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold 31
percent of any such payments made to the Holder of Old Notes, Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
9
<PAGE>
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder of Old
Notes with respect to Old Notes exchanged pursuant to the Exchange Offer, each
Holder of Old Notes is required to notify the Exchange Agent of his, her or its
correct TIN by completing the Substitute Form W-9 below certifying the TIN
provided on such form is correct (or that such Holder of Old Notes is awaiting a
TIN) and that (1) such Holder of Old Notes has not been notified by the Internal
Revenue Service that he, she or it is subject to backup withholding as a result
of failure to report all interest or dividends or (2) the Internal Revenue
Service has notified such Holder of Old Notes that he, she or it is no longer
subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder of Old Notes is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the Old
Notes. If the Old Notes are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
10
<PAGE>
PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK AS EXCHANGE AGENT
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------
SUBSTITUTE Part 1: PLEASE Social Security Number
FORM W-9 PROVIDE YOUR TIN IN OR --------------------------
Department of the Treasury THE BOX AT RIGHT AND Employer Identification Number
Internal Revenue Service CERTIFY BY SIGNING
AND DATING BELOW
-------------------------------------------------------
Part 2: Certification--Under penalties of perjury, I
certify that:
(1) The number shown on this form is my current
taxpayer identification number (or I am waiting for a
number to be issued to me) and
(2) I am not subject to backup withholding because (a)
I am exempt from backup withholding, (b) I have not
Payer's Request for Taxpayer been notified by the Internal Revenue Service (the
Identification Number (TIN)
"IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends
or (c) the IRS has notified me that I am no longer
subject to backup withholding.
-------------------------------------------------------
Part 3: Awaiting TIN / /
- -----------------------------------------------------------------------------------------
CERTIFICATE INSTRUCTIONS--You must cross out Item (2) above if you have been notified by
the IRS that you are currently subject to backup withholding because of under-reporting
interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the
IRS that you are no longer subject to backup withholding, do not cross out such Item
(2).
SIGNATURE: ------------------------------------------------- DATE:--------------------
- -----------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE W-9" FOR ADDITIONAL DETAILS
NOTE: YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Officer or
(b) I intend to mail or deliver such an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31 percent of all reportable payments made to me thereafter
will be withheld until I provide a number.
SIGNATURE: ------------------------------------------- DATE: ------------------
- --------------------------------------------------------------------------------
11
<PAGE>
NOTICE OF GUARANTEED DELIVERY
OFFER FOR OUTSTANDING
13% SENIOR SECURED NOTES DUE 2005, SERIES B
IN EXCHANGE FOR
13% SENIOR SECURED NOTES DUE 2005, SERIES A
OF
EPIC RESORTS, LLC
AND
EPIC CAPITAL CORP.
This form or one substantially equivalent to it must be used to exchange the
13% Senior Secured Notes Due 2005, Series A of Epic Resorts, LLC and Epic
Capital Corp. (collectively referred to as the "Company") (the "Old Notes") if
certificates for the Old Notes are not immediately available or if time will not
permit the Letter of Transmittal or other required documents to reach the United
States Trust Company of New York (the "Exchange Agent") prior to 5:00 p.m. New
York City time on , 1998 (the "Expiration Date"), at which time the
right to exchange the Old Notes terminates. This form must be delivered by hand,
mail, telegram or facsimile transmission to the Exchange Agent as follows:
MAIL DELIVERY TO: United States Trust Company of New York, EXCHANGE AGENT
By Mail:
United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
<TABLE>
<CAPTION>
<S> <C>
By Hand: By Overnight Delivery:
United States Trust Company of New York United States Trust Company of New York
111 Broadway, Lower Level 770 Broadway, 13th Floor
New York, NY 10006 New York, NY 10003
Attention: Corporate Trust Services Attention: Corporate Trust Services
</TABLE>
By Facsimile Transmission
(For Eligible Institutions Only):
(212) 420-6152
Confirm By Telephone
1-800-548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN THOSE SHOWN ABOVE DOES
NOT CONSTITUTE VALID DELIVERY.
UNDER THE TERMS OF THIS DOCUMENT, THE OLD NOTES, A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL, AND OTHER DOCUMENTS REQUIRED BY THE LETTER
OF TRANSMITTAL MUST BE DELIVERED TO THE EXCHANGE AGENT WITHIN FOUR BUSINESS DAYS
AFTER THE DATE OF DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by Epic Resorts, LLC, a Delaware
limited liability company and Epic Capital Corp., a Delaware corporation, with
the Securities and Exchange Commission (the "Registration Statement") and the
accompanying Prospectus dated , 1998 included therein (the "Prospectus"),
receipt of which is hereby acknowledged:
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
<S> <C> <C>
Please fill in your name(s) exactly
as it appears on your Note(s) PLEASE FILL IN
and your present address NUMBERS AND AMOUNTS
Name(s): Note Principal
Number(s) Amount
Address(es):
TOTALS
</TABLE>
<TABLE>
<S> <C>
Signatures (all registered holders must sign): Address:
- ------------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
(Please Type or Print) Area Code and Daytime Telephone Number:
( ) -
-------------------------------------------------------
</TABLE>
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office, branch or agency in the
United States, hereby guarantees to deliver to the Exchange Agent at the address
set forth above, Old Note certificates surrendered for exchange hereby in proper
form for transfer, together with a properly completed and duly executed Letter
of Transmittal and any other documents required by the Letter of Transmittal,
within four (4) business days after the date of delivery of this Notice of
Guaranteed Delivery.
<TABLE>
<S> <C>
Dated: , 1998 Name of Firm:
Sign Here:
(Authorized Signature)
Name:
(Please type or print)
(Area code and Telephone Number)
Address:
(Zip Code)
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
