U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
SEDONA WORLDWIDE INCORPORATED
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(Exact name of Registrant as specified in its Charter)
Arizona 86-0718104
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3840 N. 16TH STREET, PHOENIX, ARIZONA 85016
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(Address of principal executive offices)
Issuer's Telephone Number: (602) 263-9600
Securities to be registered under Section 12(b) of the Act: none
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Title of each class to be so registered: n/a
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Name of exchange on which each class is to be registered: n/a
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Securities to be registered under Section 12(g) of the Act: Common Stock, no par
value.
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THIS REGISTRATION STATEMENT INCLUDES CERTAIN "FORWARD-LOOKING"
STATEMENTS, INCLUDING STATEMENTS REGARDING AMONG OTHER ITEMS, THE COMPANY'S
GROWTH STRATEGY, INDUSTRY AND DEMOGRAPHIC TRENDS, THE COMPANY'S ABILITY TO
GENERATE ADDITIONAL SALES OF ITS PRODUCTS AND ANTICIPATED TRENDS IN ITS
BUSINESS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT NOT LIMITED TO,
THE COMPANY'S NEED FOR ADDITIONAL FINANCING, INTENSE COMPETITION IN VARIOUS
ASPECTS OF ITS BUSINESS, THE RISKS OF RAPID GROWTH, ITS DEPENDENCE ON KEY
PERSONNEL AND OTHER FACTORS DESCRIBED IN THIS REGISTRATION STATEMENT.
SEDONA WORLDWIDE(TM)SEDONA SPA(TM)AND RED ROCK GEAR(TM)AND RED ROCK
COLLECTION(TM)ARE TRADEMARKS AND TRADE NAMES OF THE COMPANY. CERTAIN TRADEMARKS
AND TRADE NAMES INCLUDED IN THIS REGISTRATION STATEMENT ARE THE PROPERTY OF
THIRD PARTIES AND THE USE THEREOF DOES NOT IMPLY A DIRECT OR INDIRECT
ENDORSEMENT OF THE COMPANY BY SUCH THIRD pARTIES.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS
GENERAL
Sedona Worldwide Incorporated, an Arizona corporation (the "Company"),
is a majority-owned subsidiary of ILX Resorts Incorporated, an Arizona
corporation ("ILX"). Following the effectiveness of this registration statement,
ILX intends to make a distribution of all of the shares of the Company's Common
Stock which ILX holds to the ILX shareholders on a pro rata basis (the
"Spin-Off"). As a result of the Spin-Off, ILX's shareholders will own, in the
aggregate, 80% of the Company's then outstanding capital stock. The Company is
principally engaged in the development, testing, marketing, and distribution of
its own proprietary "Sedona Spa" branded lines of face, hair and body care
products and apparels containing ingredients or materials indigenous to, and
embodying the appeal of, the Southwestern region of the U.S. and of Sedona,
Arizona in particular. In addition, the Company has recently established a
marketing alliance with Robert Shields, founder of Robert Shields Design, a
jewelry and art design company based in Sedona, Arizona, whereby the Company
will be able to offer a line of Southwestern-style jewelry and artwork similar
to Mr. Shield's existing line of products. Finally, the Company markets and
sells a line of apparel under the brand name "Red Rock Gear." The Company
intends to introduce additional products such as natural vitamins, mineral
supplements, and herbal remedy products, however, it does not currently have any
arrangements in place with respect to the introduction of any such products. See
"--Products" below.
The Company's personal care products have historically been marketed
primarily through direct sales at the Los Abrigados Resort & Spa, the "flagship"
resort of the Company's parent corporation, ILX. In addition, these products
have historically been offered as in-room amenities to guests at various ILX
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resorts and as promotional gifts to targeted customers of such resorts. However,
commencing in 1998, the Company began to shift its focus to increasing the
visibility, brand recognition and sales volume of its products through the
distribution of such products through additional channels independent of ILX.
The Company intends to market its existing and future planned products
through various marketing media designed to capitalize upon the Company's
upscale niche product offerings. Specifically, the Company intends to target
consumers in the 35 to 65-year age group. The Company believes this demographic
group presents the greatest opportunity for future growth as well as expansion
of its existing customer base. The Company is exploring a variety of marketing
strategies including catalog sales, direct mail campaigns, amenities packaging,
and other incentive-based distribution channels. The Company is also exploring
marketing activities in direct-response television campaigns. Additionally, the
Company will continue to offer its products at the ILX resorts.
All of the Company's production and packaging activities are currently
conducted by third parties through contractual arrangements in accordance with
the Company's specifications. Inventory of the Company's products, distribution
and customer service are handled in-house at the Company's principal offices.
However, such activities may in the future also be conducted by third parties in
response to increased sales volume if the Company's marketing and growth
strategies are successful.
The Company was initially incorporated in Arizona in 1992 under the
name "Red Rock Collection Incorporated." In 1997, the Company changed its
corporate name to Sedona Worldwide Incorporated. The Company headquarters are
located at 3840 N. 16th Street, Phoenix, Arizona 85016. Its telephone number is
(602) 263-9600.
INDUSTRY OVERVIEW
COSMETICS AND TOILETRIES MARKET. According to DRUG AND COSMETIC
INDUSTRY MAGAZINE ("DCI"), June 1998 edition, the U.S. cosmetics and toiletries
industry is one of the world's largest markets, with $36.4 billion in sales in
1997 and a compounded annual growth rate of 3.4%. In addition, this industry has
experienced significant growth in recent years. In 1997, hair care comprised
14.5% of the market share with products sold for in-salon services and retail
representing $1.8 billion at the manufacturer level up from $1.2 billion in the
prior year. Sales of hair care products experienced retail sales reaching
approximately $5.27 million in 1997 up from $4.8 million in 1993. Skin care
products comprised 13.7% of the market with retail sales reaching almost $5.0
billion in 1997. In 1997, U.S. retail sales of skin care products reached $3.98
billion with sales for 1998 projected to be $4.18 billion, $4.37 billion in
1999, and $4.57 billion in 2000, according to Packaged Facts, a marketing
research organization. A major factor contributing to this growth is the current
trend of the skin care market being driven by the aging baby boom generation who
are striving to keep a youthful and healthy appearance. Also, mass market
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moisturizer sales jumped 24% to $489.9 million for the year ended February 22,
1998, according to Information Resources, of Chicago, Illinois.
The personal hygiene market, which includes bath and shower products,
had retail sales of $4.3 billion in 1997 and an annual growth rate of 1.0%
between 1993 and 1997. The Company believes that the growth experienced in this
segment is primarily attributable to new niche products, product extensions of
existing successful products, as well as packaging and marketing trends which
cater to an increasingly sophisticated consumer. In addition, the Company
believes that the growth experienced in the cosmetics and toiletries industry in
general is largely attributable to a growing number of persons in the 45 to
54-year age group, also being the most affluent households according to
HOUSEHOLD SPENDING, 4TH EDITION. Also according to this source, in 1997 U.S.
households with incomes of $70,000 and greater spent 79% more than the average
household in personal care products and services.
The cosmetics and toiletries industry is a rapidly changing and highly
competitive global industry and the Company expects it to continue to be so in
the future. The market is dominated by a large number of well-capitalized,
diverse companies, such as Avon, Clairol, Alberto Culver, Revlon, L'Oreal, Estee
Lauder, Unilever, Gillette, Proctor & Gamble, Colgate-Palmolive, Matrix, John
Paul Mitchell Systems, Nexxus and Redken, all of which have strong brand-name
recognition associated with their products. However, more recently, product
offerings by various niche marketers have been able to successfully capture a
significant share of the consumer market dollar. The Company believes this trend
is at least partially attributable to the growing number of aging "baby-boomers"
in the 45 to 60-year age group with significant disposable income, many of whom
are particularly interested in products that seek to erase or reduce visible
effects of aging. According to DCI, June 1998 edition, the "baby boomer" segment
of the U.S. population spends, on average, more per capita than any other group.
Marked by a lower level of brand loyalty than their parents' generation, these
baby boomers typically are more willing to experiment with new products they
believe may bring their desired results. The Company intends to capitalize upon
this perceived demand for lines of specialty personal care products through its
upscale Sedona Spa products.
Cosmetics and toiletry products are distributed through a broad variety
of wholesale and retail channels. Recently, beauty products superstore chains
such as Trade Secrets and Ulta3 have emerged, offering convenient one-stop
shopping for all beauty care needs. There has also been a recent proliferation
of private-label products offered by major retailers such as Sears, J.C. Penney,
Target, Wal-Mart, Osco, Walgreens, and Revco, in response to increasing demand
for low-price products of non- prestigious brands. These large merchandisers,
grocery and drugstore chains, and department stores have successfully utilized
traditional mass marketing approaches, such as television commercials and
national magazine advertisements, to distribute their products. In-salon
purchases have proved to be highly successful for hair care products from
Matrix, John Paul Mitchell Systems, Nexxus, Aveda, Redken and others. In
addition, cataloger retailers such as Avon have also successfully penetrated
this market. Finally, smaller stand-alone specialty retailers such as Origins,
Bodyworks, H2O, and The Body Shop
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have also emerged more recently with significant success. The Company expects
competition to increase as the number and variety of entities offering
competitive products continues to increase in the future.
As competition has increased, cosmetics and toiletries manufacturers
and distributors have been engaged in a trend toward consolidation. Recent
examples include Estee Lauder purchasing Aveda, Bristol-Myers Squibb purchasing
Redmond Products, Jergens purchasing Bausch & Lomb's skin care business,
Cosmair/L'Oreal purchasing Maybelline and Redken, Unilever purchasing Helene
Curtis, Bristol Meyers Squibb purchasing Clairol and Matrix, and German-based
Wella purchasing Sebastian. The Company expects this consolidating trend to
continue in the future resulting in larger, better capitalized competitors
offering a greater variety of niche products to an ever-demanding base of
consumers.
JEWELRY. The combined value of all goods produced by costume jewelry
manufacturers in the United States totaled $1.6 billion in 1996, according to
the ENCYCLOPEDIA OF AMERICAN INDUSTRIES, SECOND EDITION 1998. Unlike many of the
other large consumer markets, there is a lower level of brand identity in the
jewelry arena, and the largest manufacturers have not historically dominated the
market, to the degree experienced in the cosmetics and toiletries industry. In
fact, most manufacturers are relatively small independent operators, often of an
arts and crafts nature. Nonetheless, the industry includes several large
publicly traded companies like Tiffany & Co., with 1995 revenues of $803.0
million; Jostens, Inc. with 1995 revenues of $665.0 million; and Jan Bell
Marketing with 1995 revenues of $254.0 million. The top company involved in the
costume jewelry industry in 1995 in the U.S. was Illinois-based Artra Group, a
publicly held conglomerate founded in 1933. Artra held many subsidiaries,
including the number two firm, Lori Corp. Lori Corp.'s 1995 sales totaled
approximately $160.0 million. Third in line was the Napa Company, whose origins
date back to 1875, making it the oldest costume jewelry manufacturer in the U.S.
Their 1995 sales totaled approximately $70.0 million. The New York City based
firm of Trifari Krussman and Fischel, Inc. was fourth in production and sales,
with origins that date back to the early 1920's and sales totaled around $63.0
million in 1995. Most jewelry sales are made through jewelry store chains and
independents as well as department stores, with costume jewelry achieving
notable success on home shopping networks. The Company believes that there
currently exists a trend in the jewelry industry of including the use of
materials and motifs inspired by indigenous cultures and natural elements. The
Company intends to capitalize upon this trend through its offering of The Robert
Shields Collection products.
APPAREL. Retail apparel sales totaled some $170.0 billion in 1997, up
4.9% from 1996, following a 2.2% gain in 1996 from the prior year, according to
the NPD Group Inc.
Apparel is sold at a variety of retail outlets. Based on data from the
NPD Group, discount stores, off price retailers and factory outlets accounted
for 26% of 1997 apparel sales, while specialty stores and department stores
accounted for about 22% and 21%, respectively. Another 14.5% are at major
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chains, and direct mail/catalogs accounted for 8%. About 30% of the apparel
marketed consisted of national brands (e.g., Liz Claiborne, Fruit of the Loom,
Jones Apparel, Phillips Van Heusen, Polo Ralph Lauren) produced by about 20
different large companies. The second tier, accounting for about 70% of all
apparel distributed, comprises small brands and store (or private label) goods.
The women's segment has traditionally accounted for more than half of all
apparel sales, according to research from the NPD Group reported in WOMEN'S WEAR
DAILY, it totaled nearly 53% in 1997.
Leaders in the apparel industry included Liz Claiborne ($2.4 billion),
Fruit of the Loom ($2.1 billion), Jones Apparel ($1.3 billion), Phillips-Van
Heusen ($1.3 billion) and Polo Ralph Lauren ($1.2 billion). One of the most
significant trends affecting the apparel industry is the increase in casual
dressing due to relaxed workplace dress codes, an aging population, and a
growing reluctance to spend significant amounts of money on clothes. The Company
intends to enter this vast apparel market with its "Red Rock Gear" line which
offers niche apparel products intended to provide the consumer with quality,
comfort, value and a natural image. The Company believes that this emphasis upon
natural products is consistent with the brand image of its other products, which
is intended to increase awareness of and loyalty to the entire line of the
Company's product offerings.
VITAMINS, MINERALS AND SUPPLEMENTS. The market for vitamins, minerals
and supplements has experienced significant growth in recent years, with sales
of an estimated $910.0 million in 1997 according to Packaged Facts, New York.
The vitamins, minerals and supplements industry has traditionally been dominated
by national and international pharmaceutical companies, with most sales taking
place through drug stores, grocery stores, mass merchandisers and
health/nutrition chains. However, a significant amount of vitamins, minerals and
supplements have more recently been successfully sold through direct marketing
channels, with examples including Herbalife, Equinox and New Vision.
THE CONSUMER
The profile of a typical consumer of cosmetics and toiletry products
spans virtually all demographic groupings, regardless of age, gender, race,
color, marital status, or socio-economic status. As pointed out in the June 1996
issue of DCI, aging baby boomers are expected to become an increasingly larger
segment of the market. The segment of the female population within the age range
of 40 to 59 is predicted to be more likely to spend money on anti-aging
treatments and the Company believes its product line responds to customer
preferences for such products.
The Company believes that consumers are becoming increasingly
sophisticated and demanding, generally demonstrating an increasing level of
concern and knowledge about the ingredients of a product and, as a result, are
more likely to read the labels of the products they purchase, taking into
consideration objective product comparison factors apart from brand loyalty in
making their purchase decisions. The Company believes this trend could work to
the advantage of truly well-positioned niche marketers, including itself.
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OPERATING STRATEGY
Since 1994, the Company has test marketed its unique line of face, hair
and body care products through promotional use, and retail sales at the ILX
resorts, and direct sales, including direct mail, network marketing, in-bound
and out-bound telemarketing, direct wholesaling, trade show, internet and
consignment programs. Based upon such test marketing efforts, the Company
believes that its products will be most favorably received by people 35 to 65
years of age. As a result, the Company intends to proceed with its planned
introduction of botanically created face, hair and body products, a line of
Southwest jewelry and artwork based upon Mr. Robert Shield's existing designs,
expand its "Red Rock Gear" apparel line, as well as develop a line of natural
vitamins and mineral supplements and other products consistent with its Sedona
motif.
The Company's strategy is to seek to satisfy a particular sector of the
consumer population who, because of their attraction to the natural beauty and
mystique of the Southwestern U.S., and particularly Sedona, Arizona, are
attracted to botanically originated products for the face, hair and body,
jewelry and apparel which seek to represent or capture the "spirit" or the
"essence" of the Southwest and Sedona. The Company's personal care products have
been formulated using a variety of natural botanical extracts, essential oils
and minerals, as demonstrated in the Arizona Mud Masque from the Southwest. The
Company's "Red Rock Gear" features natural fibers, Southwest styling and its
particular line of "dirt shirts" uses Sedona red rock materials as natural dye.
Additionally, the Company designs its products with an emphasis upon branded
packaging concepts which stress aesthetic appeal as well as convenience of use.
The Company seeks to develop products which respond to the
sophisticated demands and concerns of its targeted consumer. For example, no
animal testing is performed; and natural pump sprays as opposed to
ozone-depleting propellants are selected. The Company believes that given its
philosophy in developing its products and their unique marketing appeal, its
products will be embraced by its intended niche market and as a result, the
Company seeks to further expand its current sales volume and product diversity.
PRODUCTS
The Company's existing product offerings consist of the Sedona Spa line
of "botanical treats" for the face, hair and body, the Robert Shields Collection
of jewelry, and Red Rock Gear of apparel. Each product group is marketed and
distributed in a manner tailored to capitalize upon the perceived greatest
demand for such products, however, all of them are conceived, designed and
distributed in a manner intended to capture the spirit of Sedona, with an
emphasis upon indigenous ingredients and motifs marketed to an upscale niche
market.
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SEDONA SPA COLLECTION. The Company's Sedona Spa group of products
consists of a complete line of face, hair and body products. The Company intends
to modify existing products as well as add new products through development or
acquisition in response to consumer demand and as appropriate opportunities
present themselves. The existing line of Sedona Spa products, grouped by
category, are as follows:
SEDONA SPA SKIN CARE (FACIAL)
Advanced Daily Cleanser
Refreshing Facial Toner
Wildberry Facial Moisturizer
Hydrating Facial Moisturizer
Nighttime Refining Moisturizer
Arizona Mud Masque
SEDONA SPA HAIR CARE (HAIR)
Mountain Moisture Shampoo
Mountain Moisture Conditioner
Maximum Body Shampoo
Maximum Body Conditioner
Gold Shaping Gel
SEDONA SPA SKIN CARE (BODY)
Body Balm Moisturizer
Spa Shower Gel
Sea Kelp Soap
THE ROBERT SHIELDS COLLECTION. The Company has recently entered into an
arrangement with Robert Shields of "Shields & Yarnell" fame to market a line of
Southwest jewelry, artwork and clothing (to be marketed in conjunction with the
Company's branded Red Rock Gear line as described below) based on his existing
line of such products. The Robert Shields Design is a jewelry and art design
company based in Sedona, Arizona, which distributes his Southwest style art and
jewelry to retailers, museums, galleries, and resorts across the country.
Shields maintains galleries in Prescott, Jerome and Sedona, Arizona to showcase
his work, including one at the Los Abrigados Resort & Spa. His jewelry often
features sterling silver, turquoise, beads and other Southwest materials, and
includes earrings, necklaces, pins and pendants. His artistic creations include
sketches, sculpture, paintings, masks, painted wood and photography.
RED ROCK GEAR. "Red Rock Gear" is the name of the Company's line of
apparel featuring natural fibers and Southwest styling. The line presently
includes a "dirt shirt," with Sedona red rock materials used as a natural dye,
unique Southwestern style skirts, a terry-cloth spa robe, t-shirts and caps.
Additionally, portions of the successful Robert Shields Design line of clothing
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will be marketed under the Red Rock Gear label. This line includes contemporary
Southwestern men's and women's apparel and accessories, predominately in earth
and gem tones embellished with Shields' jewelry. The Company intends to expand
its existing line of Red Rock Gear offerings with other items such as hiking
apparel, women's casual wear, men's shirts, sweatshirts and other accessories.
RED ROCK NATURAL HEALTH. Although the Company does not currently
produce or distribute such products, it is exploring the development of a line
of natural vitamins, mineral supplements and herbal-based products. The Company
believes such products may capitalize on the increasingly mainstream consumer
interest in natural medicine and well-being. The Company believes such products
will be attractive to consumers of its Sedona Spa products and Red Rock Gear
line and may be marketed both separately as well as in conjunction with such
product lines. The Company expects to introduce its Red Rock Natural Health
products in 1999. However, the Company does not currently have any arrangements
in place with respect to the production, testing, marketing or distribution of
such products and such activities remain subject to a determination by the
Company's management of the feasibility and desirability of offering such
products.
ADDITIONAL PRODUCT CATEGORIES. In addition to the core product lines
described above, the Company believes that opportunities for additional products
indigenous to, or associated with, the Southwest and Sedona may be developed in
the future in a manner consistent with its existing product offerings.
Accordingly, the Company may determine to test market other products such as
spices and condiments, arts and crafts items, coffees and teas, "New Age"
products and others. Preliminary research indicates that such related products
have the potential for market success, however, there can be no assurances in
this regard. The Company does not currently have any agreements, oral or
written, to test, develop or otherwise distribute any such additional products.
MARKETING STRATEGY
The Company's marketing plan emphasizes various direct sales media for
promoting its proprietary branded product lines. Historically, the Company has
primarily offered its Sedona Spa products as part of the marketing efforts of
its parent corporation ILX as in-room amenities to visitors of the Los Abrigados
Resort & Spa, the flagship resort of ILX, which is located in Sedona, Arizona,
at other ILX resorts and as promotional premiums to potential purchasers of
ILX's vacation ownership interest inventory. Commencing in late 1998, the
Company began to pursue the development of a market for its products independent
of its corporate parent ILX. The Company's strategy is to explore the marketing
of its products through direct response television, such as a 24-hour home
shopping network, a long format infomercial and/or traditional short format
commercial advertising. In addition, the Company may utilize catalog, direct
mail or other mediums intended to most efficiently expose its products to a
targeted base of potential consumers. The primary objective of the Company's
marketing strategy is to increase the number of consumers who try its products,
with the secondary objective of obtaining a database of potential customers for
further follow-up by direct mail, telemarketing and automatic order programs.
Certain marketing activities, such as billboard advertising and radio campaigns
have commenced in 1998 to create brand awareness, recognition, identity and
interest among consumers.
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The first stage of the Company's marketing plan involves the full scale
launch of its Sedona Spa product line by, when and if appropriate, the
association of Debbie Reynolds as celebrity spokesperson to assist in targeting
the older baby boomer and 50+ age markets. Direct response television
infomercials and commercials, catalogs and other direct sales media are being
considered, to be supplemented by traditional advertising, promotion and a
public relations campaign, also supported, in some instances, by Ms. Reynolds'
promotion. The Company intends to focus its marketing efforts initially in the
Southwestern United States, with a national marketing campaign to be implemented
thereafter. The Company also intends to continue to distribute its products
through the ILX resorts.
MANUFACTURING AND DISTRIBUTION
PRODUCT DEVELOPMENT, PRODUCTION AND PACKAGING. All of the Company's
product development, production and packaging functions are performed by third
parties on a contractual basis. The Company believes that outsourcing these
aspects of its operations enables it to access the particular technical
expertise of its third party suppliers while simultaneously realizing certain
economic advantages enjoyed by such suppliers, including flexible production
capacity and raw materials purchasing power. In addition, the Company believes
such arrangements permit it to avoid the costs associated with the facilities
maintenance and administration activities associated with such functions. The
Company works closely with its outside suppliers in an effort to ensure the
quality and consistency of its products.
Development of a new product typically commences with a market research
and feasibility analysis conducted by the Company and its suppliers. When the
Company has determined that a particular product concept is feasible, it employs
an outside supplier to prepare prototype samples in accordance with the
Company's instructions. The Company ultimately selects the desired prototype,
obtains the necessary governmental approvals, if any, and initiates the
manufacturing process.
Manufacturing of the Company's products is typically completed pursuant
to a purchase order by the Company for a specified number of units. The Company
provides precise product specifications to the manufacturer and requires the
manufacturer to undertake documented quality control procedures throughout the
manufacturing process.
Product labeling and packaging are typically obtained by the Company on
a turn-key basis from third party suppliers. Historically, the Company has
utilized particular stock packaging materials in an effort to avoid the costs
and long lead times associated with obtaining custom packaging materials.
Currently, all of the Company's Sedona Spa products are developed,
manufactured and packaged by three suppliers, Hewitt Soap Co. of Dayton, Ohio;
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La Dove, Inc., a privately owned cosmetics laboratory and manufacturing company
located in Florida; and Arizona Natural Resources, a privately owned company
located in Phoenix, Arizona. The Company's Red Rock Gear products are
manufactured and packaged through arrangements with third party suppliers. All
of the Robert Shields' Collection products are produced and packaged by Robert
Shields Design, which subcontracts with third parties in connection with the
production of certain products. With the exception of its Robert Shields
Collection, the Company believes there exist multiple alternative suppliers for
each of its personal care product development, manufacturing and packaging
operations. However, there can be no assurance that the Company would be able to
secure the services of such suppliers as and when needed, if ever, or that it
could do so on favorable terms.
PRODUCT DISTRIBUTION. The Company's inventory of its products are
currently maintained at its principal facilities in Phoenix, Arizona. However,
the Company has arranged for some of its inventory to be stored in the future at
the facilities of its third party suppliers as the Company increases its
production volume in accordance with its growth strategy. The Company may
consider alternative inventory warehousing arrangements, including expansion of
its existing facilities or the acquisition of additional facilities, if
warranted by increased demand for its products or other factors. The Company
does not currently have any agreements in place with respect to such operations
and there can be no assurance that such resources will be available if and when
needed, or if available, will be on terms acceptable to the Company.
Currently, all of the Company's order processing and fulfillment
operations are conducted internally at the Company's principal facilities in
Phoenix, Arizona. Orders are processed by the Company's customer service
employees, and fulfilled by its shipping and receiving staff from existing
inventory. However, some or all of the Company's customer service, order
processing and fulfillment operations may in the future be conducted by third
parties in response to increased volume or other factors, many of which are
beyond the Company's control. The Company does not currently have any agreements
in place with respect to such operations and there can be no assurance that such
resources will be available if and when needed, or if available, will be on
terms acceptable to the Company.
INTELLECTUAL PROPERTY
The Company has registered "Red Rock Collection" and "Sedona Spa" as
trade names with the Arizona Secretary of State and has filed applications
pending with the U.S. Patent and Trademark Office for the registration of its
trademarks, "Sedona Worldwide," "Red Rock Gear" and "Sedona Spa." Such
applications are currently pending, although there can be no assurances
regarding when such registrations will be issued, if at all.
The Company considers its corporate and product names, logos,
formulations and designs proprietary. The Company currently protects its rights
to such intellectual property rights through a combination of trade secret,
confidentiality and non-disclosure agreements. The Company's product
formulations and designs are not patented and the Company has no state and/or
federal trademark applications pending with respect to its products.
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The Company is not aware of its products and/or formulations infringing
any intellectual property rights of any other party. However, there can be no
assurances in this regard. The Company would incur substantial costs in
defending itself in infringement litigation brought by others, or in prosecuting
infringement claims against third parties. An adverse party claiming trademark
or copyright infringement might assert claims for substantial damages or seek to
obtain an injunction or other equitable relief, which could effectively block
the ability of the Company to make, use, distribute and sell products.
The Company relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its employees and
third party suppliers. However, there can be no assurance that the Company's
confidentiality agreements, when in place, will not be breached, or that the
Company would have adequate remedies for any breach. In addition, there can be
no assurance that any trade secrets owned by the Company will afford adequate
protection to the Company or not be circumvented, or that any such interests
will provide competitive advantages to the Company.
RESEARCH AND DEVELOPMENT
During each of the fiscal years ended December 31, 1996 and 1997, the
Company spent an aggregate of approximately $5,000 and $19,000, respectively, on
research and development activities. The Company's research and development
activities have historically consisted primarily of product testing and logo and
packaging design, among other activities. Commencing in 1998, the Company
renegotiated its agreements with certain suppliers to provide that such
suppliers will conduct all testing associated with products purchased from them
by the Company. As a result, the Company anticipates its expenses associated
with testing of its current product lines to significantly decrease in the
future. However, the Company may incur certain costs in the future in connection
with the introduction of additional products.
GOVERNMENTAL REGULATION
In certain instances, personal care and health products are subject to
regulation by the U.S. Food and Drug Administration (the "FDA"). None of the
Company's existing products require the Company to obtain the approval of the
FDA or any other state or federal agency in order to sell such products. While
the Company's sunscreen formulation has received FDA approval, it is not
currently being marketed. The Company believes it is in compliance with all
applicable FDA and other governmental regulations. However, there can be no
assurance that any of the Company's current or future planned products will not
become subject to governmental approval in the future. The Company intends to
comply with all governmental regulations which may become applicable in the
future including any related to its planned line of Red Rock Natural Health
products.
12
<PAGE>
PROPERTIES
The Company leases approximately 4,000 square feet for its principal
offices in Phoenix, Arizona, pursuant to a lease which expires in 2000.
EMPLOYEES
As of June 1, 1998, the Company had four employees, all of whom are
employed on a full-time basis. The Company also utilizes ILX staff from time to
time.
LEGAL PROCEEDINGS
The Company is not currently the subject of any pending or, to its
knowledge, threatened legal claims.
INSURANCE
The Company maintains general liability, automobile liability,
workmen's compensation and umbrella coverage insurance in amounts which it
believes are customary for a company of its size engaged in a comparable
industry. However, there can be no assurance that the Company will not be
subject to claims in the future which its insurance may not cover or as to which
its coverage limits may be inadequate.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. WHEN USED IN
THIS REGISTRATION STATEMENT, THE WORDS "ESTIMATE," "PROJECTION," "INTEND,"
"ANTICIPATES" AND SIMILAR TERMS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS THAT RELATE TO THE COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS ARE
SUBJECT TO SUBSTANTIAL UNCERTAINTY. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THE FORWARD-LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN.
OVERVIEW
Sedona Worldwide Incorporated was formed in 1992 to develop, test,
market and distribute its own proprietary "Sedona Spa" branded lines of face,
hair and body care products and apparels containing ingredients or materials
indigenous to, and embodying the appeal of, the Southwestern region of the
United States and of Sedona, Arizona in particular. To date, the Company has
generated revenue primarily through the sale of its face, hair and body care
products to ILX, of which it is an 80% subsidiary. ILX distributes the Company's
products as in-room amenities at its resorts and hotels, as premiums
(incentives) to its customers for attending vacation ownership sales
presentations, and for retail sales at its resort gift shops, and at the Sedona
Spa at Los Abrigados Resort & Spa. The Company also generates revenue from
direct mail sales to consumers (many of whom were introduced to the products as
in-room amenities or premiums) and from limited retail distribution in specialty
shops.
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RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30,
----------------- -----------------
1996 1997 1997 1998
---- ---- ---- ----
Net sales:
Sales to affiliates (1) 71.0% 80.5% 74.1% 83.9%
Sales to non-affiliates 29.0% 19.5% 25.9% 16.1%
----- ------ ----- -----
Total sales 100.0% 100.00% 100.0% 100.0%
===== ====== ===== =====
As a percentage of net sales:
Cost of sales 63.0% 69.7% 71.2% 73.1%
Contribution margin 37.0% 30.3% 28.8% 26.9%
Selling, general and 95.0% 128.5% 135.7% 168.5%
administrative expense
Net Loss 61.1% 100.8% 109.7% 143.8%
- ----------
(1) Sales to affiliates are made at lower prices (generally cost plus a small
mark up) than sales to non-affiliates. ILX is an affiliate of the Company.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1997
Net sales decreased 37% from $542,000 in 1996 to $341,000 in 1997. The
decrease reflects the Company's decision to discontinue several of the
distribution methods it had been testing, including multi-level marketing, and
distribution through professional hair salons and certain retail outlets, as
well as a change in the use of Sedona Spa products by ILX. In 1997, ILX resorts
began distributing a three-pack of Sedona Spa products to the majority of its
tour guests as an unexpected gift to the customer during the sales presentation,
rather than distributing a more extensive array of products to certain guests as
an inducement to tour. Also in 1997, ILX resorts deleted hair spray from their
standard resort room amenities, thereby offering three bottled products (Body
Balm, Mountain Moisture Shampoo and Mountain Moisture Conditioner) rather than
four, plus seaweed soap and glycerin soap. In addition, during 1997 ILX resorts
ceased offering complimentary midweek replenishments of amenities to its
vacation ownership exchange guests. ILX resorts continue to offer vacation
owners and vacation ownership exchange guests the full amenities described above
at check-in, a service not typically offered in vacation ownership resorts.
As a result of the discontinuation of the trial distribution methods,
sales decreased from 1996 to 1997. Sales to non-affiliates decreased as a
percentage of total sales from 1996 to 1997, and sales to affiliates, while
lower in dollar amount in 1997 than 1996, increased as a percentage of total
sales. Sales to affiliates are made at negotiated prices
15
<PAGE>
based on cost plus an agreed upon profit margin, with such pricing being lower
than prices offered to non-affiliates. Accordingly, cost of sales increased as a
percentage of sales from 1996 to 1997.
Selling, general and administrative expenses decreased from $515,000 in
1996 to $438,000 in 1997 as a result of a reduction in sales and marketing
expenses associated with the discontinuation of the trial marketing and
distribution programs earlier described.
Interest expense decreased from $17,000 in 1996 to $9,000 in 1997 due
to reductions in interest bearing indebtedness, including capital leases.
There is no income tax benefit recorded in 1996 or 1997 because the
Company has recorded a valuation allowance equal to its deferred tax asset at
December 31, 1996 and 1997, respectively. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the estimated future tax effects
attributable to differences between the amounts of the Company's existing assets
and liabilities and their respective tax basis. To date, the Company has not yet
generated taxable income, and therefore, there is insufficient evidence that
differences in financial and taxable income and net operating loss carryforwards
will be utilized to reduce future income taxes.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO JUNE 30, 1998
Net sales decreased 39% from $184,000 for the first six months of 1997
to $112,000 in the first six months of 1998, reflecting the full effect of the
cessation in 1997 of certain test marketing and distribution methods as well as
the changes in ILX resorts' use of products as amenities and premiums. Cost of
sales as a percentage of sales for the six months ended June 30, 1998 of 73.1%
is slightly higher than for the six months ended June 30, 1997 of 71.2% because
of the change in sales mix between affiliates and non-affiliates. Sales to
affiliates, which are a greater portion of sales in 1998, are made at lower
profit margins than sales to non-affiliates.
Selling, general and administrative expenses decreased from $250,000
for the first six months of 1997 to $189,000 for the first six months of 1998.
Interest expense of $5,000 for the first six months of 1997 and $2,000
for the first six months of 1998 reflects interest on capital lease obligations.
Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the estimated future tax effects attributable to differences between the
amounts of the Company's existing assets and liabilities and their respective
tax basis. Because the Company has not yet generated taxable income, and
therefore sufficient evidence does not exist that differences in financial and
taxable income and net operating loss carryforwards will be utilized to reduce
future income taxes, no income tax benefit has been recorded for the first six
months of 1997 or 1998.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company's cash flows from product sales have not been
sufficient to fund its operations, and shortfalls have been funded by its
majority parent, ILX. ILX advanced the Company $447,000 during 1996, $289,000
during 1997 and $240,000 during the first six months of 1998.
ILX has funded the Company's cash shortfalls since June 30, 1998 and
will continue to do so until the completion of the Spin-Off. As of September 30,
1998, the Company was indebted to ILX in an amount in excess of $2,108,000. An
affiliate of ILX has agreed to fund the Company's cash shortfalls following the
Spin-Off through December 31, 1998. Following December 31, 1998 there can be no
assurances that such affiliated party will fund the Company's cash needs.
Without such a commitment, or other sources of working capital financing which
at present do not exist, the Company's current cash flows will be insufficient
to meet its liquidity, operating and capital requirements. The Company currently
has no credit facility with a bank or other financial institution. The Company
will attempt to obtain a credit facility to address its cash flow needs. There
can be no assurance that any such financing will be available if needed, or, if
available will be on terms acceptable to the Company.
The Company anticipates that its expenses will increase as it attempts
to expand its business by acquiring new products and increasing sales and
marketing efforts and other operations. The Company expects to continue to incur
losses until such time as it is able to sell a sufficient volume of products at
prices that provide adequate gross profit to cover operating costs. The
Company's working capital requirements will depend upon numerous factors,
including payment cycles for its shipped products, credit arrangements with
suppliers, the scale-up of its sales and marketing resources, acquisition of new
products and the terms upon which such products are acquired, competitive
factors, and marketing activities. There can be no assurance when, if ever, the
Company will be able to generate sufficient revenues from its operations to
offset its expenses or to secure additional capital commitments. IF THE COMPANY
IS UNABLE TO GENERATE MORE CASH FLOWS THAN IT DOES CURRENTLY, IT WILL BE
INSOLVENT AND MAY HAVE TO DISCONTINUE ITS BUSINESS OPERATIONS.
To date, the Company has been unable to obtain commercial financing. In
addition, any commercial financing obtained is likely to impose certain
financial and other restrictive covenants upon the Company and result in
increased interest expense. Further, any issuance of additional equity or debt
securities by the Company to raise additional capital or in connection with any
future business combination could result in further dilution to the Company's
stockholders, including those who receive shares as a result of the Spin-Off.
The Company has historically filed its income tax returns as a member
of the ILX consolidated income tax return. There is no formal income tax sharing
agreement to allocate income taxes among the members of the group and,
historically, the Company has not recorded an income tax benefit for losses it
has incurred that were utilized by ILX. In addition, the Company has recorded a
valuation allowance equal to its deferred tax asset because on a stand-alone
17
<PAGE>
basis the Company has not generated taxable income and therefore insufficient
evidence exists that such deferred assets can be utilized to reduce future
income taxes.
As of December 31, 1997, the Company had approximately $800,000 of
federal and state net operating loss ("NOL"), carryforward which will begin to
expire in 2011 for federal income tax purposes and 2001 for state income tax
purposes. Section 382 of the Internal Revenue Code imposes limitations on the
utilization of NOLs by a corporation following various types of ownership
changes which result in more than a 50% change in ownership of a corporation
within a three-year period. Such a change is expected to result from the
Spin-Off of the Company's Common Stock. As a result, following the Spin-Off, the
limitations of Section 382 are expected to apply and may limit or deny the
future utilization of the NOL by the Company.
SEASONALITY
Presently the Company's revenues are only minimally seasonal, with
fluctuations reflecting seasonality in resort guests of its major customer, ILX.
If the Company is able to expand its customer base and marketing and
distribution methods, it may experience different seasonality dynamics that may
cause operating results to fluctuate.
CONCENTRATION
The majority of the Company's revenues are generated from its parent
company, ILX. There are no long-term commitments to purchase by ILX and, in the
event ILX ceased to be a customer of the Company, revenues would be
significantly impacted. If ILX remains a customer, revenues are expected to
increase as ILX adds more resorts (which utilize in-room amenities) and sales
offices (which offer premiums to touring guests), although there can be no
assurances in this regard.
YEAR 2000 ISSUES
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit calendar year is commonly referred to as the "Year 2000 Compliance" issue.
As the calendar year 2000 approaches, such systems may be unable to accurately
process certain date-based information.
The Company has identified all significant in-house applications that
will require modifications or upgrades to ensure Year 2000 Compliance. Internal
and external resources are being used to make the required modifications and
upgrades and to test Year 2000 Compliance. The modification and upgrade of all
significant applications is currently in process. The Company plans on
completing the modification and upgrade process of all significant applications
by December 31, 1998.
18
<PAGE>
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000
Compliance issues. The Company expects to have completed these determinations by
the end of the first fiscal quarter of 1999. However, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. Since the Company commenced its
assessment of its Year 2000 Compliance during early 1998, it has expended
approximately $17,000, consisting primarily of software purchases and associated
training and consultation services. In addition, certain employees of the
Company and ILX have devoted a portion of their time to assessing and
implementing the Company's Year 2000 Compliance, the costs of which have not
been separately allocated by the Company. The Company anticipates that its
additional expenses to be incurred in the future related to Year 2000 Compliance
will not exceed $10,000. These costs and the date on which the Company plans to
complete the Year 2000 Compliance modifications, upgrades and testing processes
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ from those plans.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, loss from operations or net loss for the years ended
December 31, 1996 and 1997, or the six month periods ended June 30, 1997 or
1998.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares and percentage of all
shares of the Company's Common Stock outstanding as of October 1, 1998 held by
(i) any person known to the Company to be the beneficial owner of 5% or more of
the Company's outstanding Common Stock, (ii) each director, (iii) the Chief
Executive Officer of the Company during the year ended December 31, 1997, and
(iv) all directors and executive officers as a group.
NAME AND ADDRESS OF
BENEFICIAL OWNER 1 AMOUNT OF SHARES PERCENT OF CLASS
- ------------------ ---------------- ----------------
ILX Resorts Incorporated 3,360,000 80%
2111 E. Highland Avenue
Suite 210
Phoenix, Arizona 85016
Todd Fisher 840,000 20%
Patrick J. McGroder 0 0
James W. Myers 0 0
Robert Shields 0 0
Joseph P. Martori 0 0
All officers and directors as
a group (6 persons) 840,000 20%
- ----------
1 Unless otherwise indicated, each of these holders has an address of c/o
Sedona Worldwide Incorporated, 3840 N. 16th Street, Phoenix, Arizona 85016.
THE SPIN-OFF
Following the effectiveness of this Registration Statement, ILX intends
to distribute all of the Company's outstanding Common Stock owned by ILX, to its
shareholders on a pro rata basis.
20
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's executive officers and directors. Except as otherwise noted, none of
the executive officers are directors or officers of any publicly owned
corporation or entity.
NAME AGE PRINCIPAL POSITION
---- --- ------------------
Patrick J. McGroder III 53 Chairman of the Board of Directors
James W. Myers 63 Director
Todd Fisher 40 Director
Robert Shields 47 Director
Mia A. Green 45 Director, President and Treasurer
Joelle A. Ciardella 38 Vice President Customer Services and Secretary
PATRICK J. MCGRODER III has served as Chairman and as director of the
Company since April 1998. Mr. McGroder has been a trial lawyer engaged in the
practice of law since 1970, and has served since 1990 as a Vice President,
Treasurer and Secretary of the law firm of Goldstein & McGroder, Ltd. of
Phoenix, Arizona (which he co-founded). Mr. McGroder received a B.A. degree from
the University of Notre Dame and a J.D. degree from the University of Arizona
School of Law. Mr. McGroder is also a director of ILX Resorts Incorporated, the
Company's parent.
JAMES W. MYERS has served as a director of the Company since April
1998. Mr. Myers has served as President and a director of Myers Management and
Capital Group, Inc., a management consulting firm he founded, since December
1995. From 1986 to 1995, Mr. Myers was President, Chief Executive Officer and a
director of Myers Craig Vallone Francois, Inc., a mortgage banking and
management advisory firm he also founded. Prior thereto, Mr. Myers held
executive positions with a variety of public and private companies from 1956 to
1986. Mr. Myers also serves as a director of Chambers Belt, Inc., China Mist
Tea, Landiscor, Inc., Solar Cells, Inc. and Nanomics, Inc. Mr. Myers received a
B.S. degree from Northwestern University and an M.B.A. degree from the
University of Chicago. Mr. Myers is also a director of ILX.
TODD FISHER has served as a director of the Company since April 1998.
He has also served as Chief Executive Officer and President of Debbie Reynolds
Hotel & Casino, Inc. ("DRHC"), a publicly-traded corporation that owns and
operates the Debbie Reynolds Hotel & Casino in Las Vegas, Nevada; and as
President of two of DRHC's subsidiaries, Debbie Reynolds Resort Inc., a Nevada
corporation that owned, developed and marketed the timeshare intervals at the
Debbie Reynolds Hotel & Casino prior to its recent sale to the Worldwide
Wrestling Federation, and Debbie Reynolds Management, Inc., a Nevada corporation
responsible for management of DRHC's timeshare operations, each since 1994. Mr.
Fisher is also a consultant to Raymax Productions, Inc. Mr. Fisher received his
B.S. degree in Engineering from Brigham Young University.
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<PAGE>
ROBERT SHIELDS has served as a director of the Company since April
1998. Mr. Shields has also been employed as a partner of Holy Mackerel, a
wholesaler of wooden art carvings designed by Mr. Shields and produced in Bali,
since 1996, as Director of Clowns for Ringling Bros. & Barnum and Bailey Circus
since May 1998 and since 1994, Mr. Shields has owned and operated Robert Shields
Design a wholesaler of his art and jewelry based in Sedona, Arizona, which sells
primarily to other retailers, as well as museums, galleries and resorts across
the country. In addition, Mr. Shields has acted since the 1970's when at the age
of eighteen he was discovered by Marcel Marceau. By twenty-three his talents led
him to his own hit television show as one-half of the renowned mime duo, Shields
& Yarnell.
MIA A. GREEN has served as a director and President of the Company
since April 1998. Prior thereto, Ms. Green served as Vice President of
Operations from July 1995 and as Secretary and Treasurer from January 1994 until
February 1997. Ms. Green has also served as corporate secretary of Martori
Enterprises Incorporated, a private investment company which owned approximately
23% of the outstanding ILX Common Stock as of September 30, 1998. Ms. Green has
a biological sciences background and significant experience in operations and
office management. Ms. Green earned an M.A. in Biological Sciences from Northern
Arizona University in 1977 and a B.S. in Wildlife Biology from Colorado State
University in 1975.
JOELLE A. CIARDELLA has served as Vice President since April 1998 and
as Customer Service Manager of the Company since 1996. Prior to joining the
Company in 1996, Ms. Ciardella was a Customer Service Team Leader for Federal
Mogul Corp., a distributor of automotive parts and equipment, from October 1994
until August 1996; and was a Customer Service Representative for Siemens Medical
Systems, a distributor of medical equipment and supplies from October 1989 until
May 1994.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Chief
Executive Officer of the Company for the fiscal year ended December 31, 1997.
None of the Company's other employees' compensation exceeded $100,000 or would
have exceeded $100,000 on an annualized basis, for such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation Awards
-------------------------------- ----------------------------------------------------
Payouts
Securities ---------------------
Name and Principal Other Annual Restricted Underlying LTIP All other
Position Salary ($) Bonus Compensation Stock Award Options/SARs (#) Payouts Compensation
- ------------------ ---------- ----- ------------ ----------- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph P. Martori $15,000 1 0 0 0 0 0 0
</TABLE>
- ----------
1 Represents a portion of total salary paid to Mr. Martori by the Company's
parent corporation, ILX, in consideration of his services as the Company's
Chief Executive Officer.
DIRECTOR COMPENSATION
Directors of the Company do not receive any compensation for their
services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1997, Todd Fisher entered into an agreement with the
Company pursuant to which Mr. Fisher has agreed to provide certain production
services in connection with Debbie Reynolds' services as a spokesperson for the
Company's products pursuant to an agreement entered into by the Company and Ms.
Reynolds also as of January 1, 1997. As a consideration for Mr. Fisher's
services, Mr. Fisher received 10% of the Company's outstanding Common Stock.
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<PAGE>
DESCRIPTION OF SECURITIES
The following description of the capital stock of the Company and
certain provisions of the Company's Articles of Incorporation and Bylaws is a
summary and is qualified in its entirety by the provisions of the Articles of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement.
The Company has authorized capital of fifty (50) million shares of
Common Stock with no par value and five (5) million shares of preferred stock
with a par value of $10 per share ("Preferred Stock"). As of September 1, 1998,
there were 4,200,000 shares of Common Stock outstanding, of which 3,360,000
shares are owned by the Company. The remaining 840,000 shares are held by Mr.
Todd Fisher. See "Certain Relationships and Related Transactions" above. There
are currently no shares of Preferred Stock outstanding.
COMMON STOCK
Each share of the Company's Common Stock entitles the holder thereof to
one vote on all matters submitted to a vote by the Company's shareholders,
except with respect to voting for election of directors. Holders of the
Company's Common Stock are entitled to cumulative voting rights with respect to
the election of directors. Cumulative voting permits each holder of Common Stock
to cast an aggregate number of votes equal to the number of directorships to be
filled multiplied by the number of shares of Common Stock as to which they are
entitled to cast votes. The holders may cast all of such votes in favor of any
individual nominee or may allocate them among multiple nominees as they choose.
PREFERRED STOCK
Shares of Preferred Stock may be issued without shareholder approval.
The Board of Directors is authorized to issue such shares in one or more series
and to fix the rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any vote or action by the shareholders. No shares of Preferred
Stock are currently outstanding and the Company has no present intention to
issue any shares of Preferred Stock. Any Preferred Stock to be issued could rank
prior to the Common Stock with respect to dividend rights and rights on
liquidation. The Board of Directors, without shareholder approval, may issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of holders of Common Stock and discourage, delay or prevent a
change in control of the Company.
CERTAIN SHAREHOLDER AGREEMENTS
No holder of Company Common Stock has any preemptive right to subscribe
for or purchase additional shares of Company's stock, however, the Company has
agreed not to issue additional shares of its Common Stock or otherwise effect
24
<PAGE>
any change in its capital structure which would result in Mr. Fisher holding
less than 10% of the Common Stock outstanding at any time prior to the Company's
completion of a firmly underwritten initial public offering of its Common Stock,
if ever. Holders of Company Common Stock are entitled to share ratably in all
dividends that are declared by the Board of Directors, and in all assets
available for distribution upon liquidation.
TRANSFER AGENT
Harris Bank, Chicago, Illinois has been appointed to serve as Transfer
Agent for the shares of the Company's Common Stock to be distributed to ILX
shareholders in the Spin-Off.
ARIZONA ANTI-TAKEOVER LEGISLATION AND ANTI-TAKEOVER DEVICES
Arizona Revised Statutes ("ARS") Sections 10-2701 ET SEQ. were adopted
by the Arizona legislature in an attempt to prevent corporate "greenmail" and
restrict the ability of a potential suitor to acquire domestic corporations.
These statutes generally apply to business combinations or control share
acquisitions of "issuing public corporations," which defined term includes the
Company. These statutes could impede an acquisition of the Company and its
affiliates. ARS Section 10-2704 limits the ability of a corporation to
repurchase stock from a beneficial owner of more than 5% of the voting power of
an issuing public corporation unless certain conditions are satisfied. ARS
Section 10-2705 limits the ability of the issuing public corporation to enter
into or amend any agreements containing provisions that increase the current or
future compensation of any officer or director of the issuing public corporation
during any tender offer or request or invitation for tenders of any class or
series of shares of the issuing public corporation (other than an offer, request
or invitation by the issuing public corporation). ARS Sections 10-2721, ET SEQ.
regulates "control share acquisitions," defined as a direct or indirect
acquisition of beneficial ownership of shares of an issuing public corporation
that would, when added to all other shares of the issuing public corporation
beneficially owned by the acquiring person, entitle the acquiring person
immediately after the acquisition to exercise either (a) at least 20% but less
than 33-1/3% or (b) at least 33-1/3% but less than or equal to 50% or (c) more
than 50% of the voting power in the election of directors. Among other things,
control share acquisitions exclude statutory mergers and acquisitions, and
acquisitions pursuant to security agreements. Within ten days after engaging in
a control share acquisition, the acquiring person must deliver to the issuing
public corporation an information statement setting forth the identity of the
acquiring person and all of its affiliates, the number and class of securities
of the issuing public corporation beneficially owned before, and to be acquired,
the control share acquisition, and the terms of the control share acquisition.
The shares acquired in a control share acquisition have all the same voting
rights as other shares in elections for directors, but do not have the right to
vote on other matters unless approved by a resolution of shareholders of the
issuing public corporation other than the acquiring person and any officer or
director. If the shareholders vote not to accord voting rights to the shares
acquired by the acquiring person, the issuing public corporation may redeem the
control shares at their then current market price. Finally, in certain
25
<PAGE>
circumstances, ARS Section 10-2741 prohibits an issuing public corporation or a
subsidiary thereof from engaging in a business combination with any interested
shareholder (i.e., a beneficial owner of at least 10% of the outstanding shares
of the company or an affiliate thereof) of the issuing public corporation or any
affiliate or associate of the interested shareholder for three years after the
interested shareholder's share acquisition date.
The constitutionality of these provisions of Arizona law has not been
tested under Arizona or federal law. No assurance can be given that such
statutes would withstand any such constitutional challenge. The existence of
these statutes may make the Company a less attractive merger or acquisition
candidate.
Except as described above with respect to the statutory provisions of
the Arizona anti-takeover laws, the Company has not adopted any anti-takeover
devices with respect to its capital stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
In general, each director and officer of the Company is eligible to be
indemnified by the Company against all expenses, including attorneys' fees,
judgments, fines, punitive damages and amounts paid in settlement, that were
incurred in connection with a proceeding to which such director or officer was a
party by reason of the fact that such officer or director was acting on behalf
of the Company to the fullest extent permissible under the ARS.
The Company's Bylaws also require the Company to indemnify its
officers, directors, employees and agents against all expenses incurred by them
in connection with any legal action, including shareholder derivative suits,
based on any action or omission alleged to have been committed while acting
within the scope of such relationship to the Company to the fullest extent
permissible under the ARS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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PART II
ITEM 1-MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
None
ITEM 2-LEGAL PROCEEDINGS
Not Applicable
ITEM 3- CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4- RECENT SALES OF UNREGISTERED SECURITIES.
None
ITEM 5- INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, each director and officer of the Company is eligible to be
indemnified by the Company against all expenses, including attorneys' fees,
judgments, fines, punitive damages and amounts paid in settlement, that were
incurred in connection with a proceeding to which such director or officer was a
party by reason of the fact that such officer or director was acting on behalf
of the Company to the fullest extent permissible under the ARS.
The Company's Bylaws also require the Company to indemnify its
officers, directors, employees and agents against all expenses incurred by them
in connection with any legal action, including shareholder derative suits, based
on any action or omission alleged to have been committed while acting within the
scope of such relationship to the Company to the fullest extend permissible
under the ARS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders
Sedona Worldwide Incorporated
Phoenix, Arizona
We have audited the accompanying balance sheets of Sedona Worldwide
Incorporated, formerly Red Rock Collection Incorporated, (the "Company"), a
majority-owned subsidiary of ILX Resorts Incorporated, as of December 31, 1996
and 1997, and the related statements of operations, stockholders' net capital
deficiency, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and 1997,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Company
had been operated as an unaffiliated company. Portions of certain expenses
represent allocations made from ILX Resorts Incorporated applicable to the
Company as a whole.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
October 14, 1998
F-1
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, JUNE 30, 1998
----------------------- -------------
1996 1997 (Unaudited)
---- ---- -----------
ASSETS
CURRENT ASSETS:
Cash $ 22,326 $ 17,296 $ 3,216
Accounts receivable 5,591 1,866 1,794
Inventories 158,881 75,933 141,164
Prepaid expenses and other
current assets 23,474 37,581 51,791
----------- ----------- -----------
Total current assets 210,272 132,676 197,965
PROPERTY AND EQUIPMENT - Net
(Notes 2 and 4) 94,582 53,316 53,930
----------- ----------- -----------
TOTAL $ 304,854 $ 185,992 $ 251,895
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
NET CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Accounts payable 17,199 12,454 25,478
Due to parent 1,577,133 1,866,583 2,106,640
Accrued expenses 44,100 29,921 21,163
Current portion of capital lease
obligations (Note 4) 45,759 30,964 25,949
----------- ----------- -----------
Total current liabilities 1,684,191 1,939,922 2,179,230
CAPITAL LEASE OBLIGATIONS - Less
current portion (Note 4) 54,920 23,956 11,980
----------- ----------- -----------
Total liabilities 1,739,111 1,963,878 2,191,210
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' NET CAPITAL DEFICIENCY:
Preferred Stock, $10 par value -
authorized, 5,000,000 shares;
none issued
Common stock, no par value - 10,000,000
shares authorized, 4,200,000 shares
issued and outstanding 1,000,000 1,000,000 1,000,000
Deficit (2,434,257) (2,777,886) (2,939,315)
----------- ----------- -----------
Total stockholders' net capital
deficiency (1,434,257) (1,777,886) (1,939,315)
----------- ----------- -----------
TOTAL $ 304,854 $ 185,992 $ 251,895
=========== =========== ===========
See notes to financial statements.
F-2
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- ----------------------
1996 1997 1997 1998
---- ---- ---- ----
(Unaudited)
NET SALES (Note 6):
Customers $ 157,123 $ 66,472 $ 47,722 $ 18,089
Affiliates 384,874 274,501 136,393 94,198
---------- ---------- ---------- ----------
Total net sales 541,997 340,973 184,115 112,287
COST OF SALES 341,233 237,503 131,111 82,094
---------- ---------- ---------- ----------
Gross profit 200,764 103,470 53,004 30,193
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
(Note 6) 514,772 438,222 249,850 189,182
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (314,008) (334,752) (196,846) (158,989)
INTEREST EXPENSE 17,256 8,877 5,083 2,440
---------- ---------- ---------- ----------
NET LOSS $ (331,264) $ (343,629) $ (201,929) $ (161,429)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 4,200,000 4,200,000 4,200,000 4,200,000
========== ========== ========== ==========
BASIC NET LOSS PER SHARE $ (.08) $ (.08) $ (.05) $ (.04)
========== ========== ========== ==========
See notes to financial statements.
F-3
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
STATEMENTS OF STOCKHOLDERS' NET CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCK
---------------------
SHARES AMOUNT DEFICIT TOTAL
------ ------ ------- -----
BALANCE, JANUARY 1, 1996 4,200,000 $1,000,000 $(2,102,993) $(1,102,993)
Net loss (331,264) (331,264)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 4,200,000 1,000,000 (2,434,257) (1,434,257)
Net loss (343,629) (343,629)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 4,200,000 1,000,000 (2,777,886) (1,777,886)
Net loss (unaudited) (161,429) (161,429)
--------- ---------- ----------- -----------
BALANCE, JUNE 30, 1998
(unaudited) 4,200,000 $1,000,000 $(2,939,315) $(1,939,315)
========= ========== =========== ===========
See notes to financial statements.
F-4
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- --------------------
1996 1997 1997 1998
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(331,264) $(343,629) $(201,929) $(161,429)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 59,064 62,404 32,213 18,799
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,677) 3,725 2,121 72
(Increase) decrease in inventory (21,013) 82,948 50,146 (65,231)
Increase in prepaid expenses and other assets (18,573) (14,107) (12,832) (14,210)
Decrease (increase) in accounts payable (33,249) (4,745) (9,219) 13,024
Decrease in accrued expenses (35,370) (14,179) (12,211) (8,758)
--------- --------- --------- ---------
Net cash used in operating activities (383,082) (227,583) (151,711) (217,733)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (890) (21,138) (9,027) (19,411)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt
and capital lease obligations (58,816) (45,759) (27,213) (16,993)
Advances from parent 446,964 289,450 169,217 240,057
--------- --------- --------- ---------
Net cash provided by financing activities 388,148 243,691 142,004 223,064
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH 4,176 (5,030) (18,734) (14,080)
CASH, BEGINNING OF PERIOD 18,150 22,326 22,326 17,296
--------- --------- --------- ---------
CASH, END OF PERIOD $ 22,326 $ 17,296 $ 3,592 $ 3,216
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the
period for interest $ 29,644 $ 8,877 $ 5,083 $ 2,439
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES - Notes payable
assumed by buyer of property and
equipment with net book value of
$180,000 (Note 6) $(180,000)
=========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND SIX MONTHS
ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Sedona Worldwide Incorporated, formerly Red Rock
Collection Incorporated (the "Company"), commenced operations in April 1992, and
is incorporated in the State of Arizona. The Company is an 80 percent owned
subsidiary of ILX Resorts Incorporated ("ILX").
The Company markets and distributes skin and hair care products through ILX
resorts located in Arizona, Colorado and Indiana and on a limited basis through
sales primarily in the southwestern United States.
BASIS OF PRESENTATION - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As show in the
financial statements, during the years ended December 31, 1996 and 1997, the
Company incurred net losses of $331,264 and $343,629, respectively, and, as of
those dates, the Company's current liabilities exceeded its current assets by
$1,473,919 and $1,807,246 respectively, and its total liabilities exceeded its
total assets by $1,434,257 and $1,777,886, respectively.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain financing as may be required, and ultimately to attain profitable
operations. ILX has funded the Company's cash shortfalls since inception.
Following the effectiveness of a registration statement to be filed on or about
November 2, 1998, ILX intends to make a distribution of all of the shares of the
Company's common stock which ILX holds to the ILX shareholders on a pro rata
basis ("the Spin-Off"). Subsequent to the Spin-Off, an affiliate of ILX has
committed to fund the Company's cash shortfalls through December 31, 1998. The
Company is also attempting to obtain a credit facility to address its cash flow
needs.
F-6
<PAGE>
SIGNIFICANT ACCOUNTING POLICIES are as follows:
a. STOCK SPLIT - On August 24, 1998, the Company's shareholders approved an
amendment to the Company's Articles of Incorporation to effect a six-for-one
stock split of the Company's issued and outstanding shares of common stock.
The stock split has been retroactively reflected in the accompanying
financial statements.
b. INVENTORIES are recorded at the lower of cost (first-in, first-out) or
market.
c. PROPERTY AND EQUIPMENT are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
which range from three to five years. Property and equipment under
capitalized leases are stated at the lesser of fair value or the present
value of future minimum lease payments at the date placed in service, and
amortized on the straight-line method over the term of the lease.
d. INCOME TAXES are accounted for using Statement of Financial Accounting
Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the estimated future
tax effects attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The Company provides for taxes as if the Company had operated on a
stand-alone basis.
e. REVENUE RECOGNITION - The Company recognizes sales of products when the
products are shipped. Revenue from consigned goods are recognized when sold
and are not considered significant to the operations of the Company.
f. ACCOUNTING MATTERS - In June 1996, the Financial Accounting Standards Board
("FASB") issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which is effective for
fiscal years beginning after December 31, 1996. During 1997, SFAS No. 125
was adopted and had no impact on the Company's financial position, results
of operations or of cash flows.
The Company has adopted SFAS No. 128, EARNINGS PER SHARE. Loss per share
data in 1996 has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the year.
In February 1997, the FASB issued SFAS No. 129, DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE, which is effective for financial statements for
periods ending after December 15, 1997 and establishes standards for
disclosing information about an entity's capital structure. During 1997,
SFAS No. 129 was adopted and had no significant effect on the Company's
disclosures about its capital structure.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which is effective for financial statements for periods beginning after
December 15, 1997 and establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. During 1998,
SFAS No. 130 was adopted and had no material impact on its financial
statement presentation or related disclosures.
F-7
<PAGE>
In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which is effective for fiscal years
beginning after December 15, 1997 and establishes standards for the way that
public business enterprises report information about operating segments in
annual financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The Company has not completed the process of
evaluating the impact that will result from adopting SFAS No. 131.
g. 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.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
1996 1997
---- ----
Leasehold improvements (Note 4) $ 2,600
Furniture and fixtures (Note 4) $ 166,893 178,128
Computer equipment 69,893 77,087
--------- ---------
Total 236,786 257,815
Less accumulated depreciation (142,204) (204,499)
--------- ---------
Property and equipment - net $ 94,582 $ 53,316
========= =========
3. INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
statement and income tax reporting for certain transactions, primarily net
operating loss carryover and amortization of start-up costs capitalized.
Net deferred income taxes at December 31 consist of the following:
1996 1997
---- ----
Deferred income tax assets $ 288,341 $ 467,012
Valuation allowance (288,341) (467,012)
--------- ---------
Net deferred income tax asset $ -- $ --
========= =========
F-8
<PAGE>
The Company files its income tax returns as a member of the ILX consolidated
income tax return. However, there is no formal income tax sharing agreement to
allocate income taxes among the members of the consolidated group. Historically,
the Company has not recorded an income tax benefit for losses it has incurred
that were utilized by ILX.
The Company has recorded a valuation allowance equal to its deferred tax asset
at December 31, 1996 and 1997 because, on a stand-alone basis, the Company has
never generated taxable income and there is insufficient evidence that temporary
differences between financial and taxable income, as well as net operating loss
carryovers, can be utilized to reduce future income taxes. This treatment
results in no income tax benefit being recorded in 1996 and 1997.
The Company has approximately $800,000 of federal and state net operating loss
carryovers which will begin to expire in 2011 for federal and 2001 for state.
4. LEASE COMMITMENTS
OPERATING LEASES - The Company leases its facilities under an operating lease.
The facilities are currently being leased under a renewable one-year option at
an annual rate of $48,000. The Company also has an option to renew its lease
annually through December 2000. Total rent expense for the years ended December
31, 1996 and 1997 was $44,000 and $48,000, respectively.
CAPITAL LEASES - The Company leases furniture and fixtures and computer
equipment under capital leases. Capital lease assets and accumulated
amortization included in property and equipment in the accompanying financial
statements as of December 31 are as follows:
1996 1997
---- ----
Furniture and fixtures and computer equipment $203,000 $97,400
Less accumulated amortization 124,600 67,700
-------- -------
Net $ 78,400 $29,700
======== =======
Capital lease obligations at December 31 consist of the following
1996 1997
---- ----
Obligations under capital leases $115,110 $60,736
Less amount representing interest at 9.54% to 11.55% 14,431 5,816
-------- -------
100,679 54,920
Less current portion 45,759 30,964
-------- -------
Long-term portion of capital lease obligations $ 54,920 $23,956
======== =======
F-9
<PAGE>
5. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
that the Company disclose estimated fair values for its financial instruments.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties, matters of judgment and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Because the fair value is
estimated as of December 31, 1997, the amounts that will actually be realized or
paid in settlement of the instruments could be significantly different.
For the Company's cash, the carrying amount is the fair value. The carrying
amount is assumed to be the fair value for accounts receivable, accounts payable
and other accrued expenses because of the short maturity of the portfolios. The
fair value of the Company's capital lease obligations approximates the terms in
the marketplace under which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
6. RELATED PARTIES
Sales to affiliates for the years ended December 31, 1996 and 1997 were $384,874
and $274,501 representing approximately 71 percent and 81 percent, respectively,
of total sales.
Certain administrative expenses aggregating $21,000 and $19,800 during the years
ended December 31, 1996 and 1997, respectively, have been allocated to the
Company by ILX based on a budget formula that was agreed upon by ILX and its
subsidiaries at the beginning of the year.
In December 1995, the Company sold its building to an affiliate for $500,000.
The purchase price consisted of a reduction in the principal balance of the
Company's note payable to the affiliate of $320,000 in December 1995 and, in
January 1996, payment by the affiliate of the $180,000 note collateralized by a
deed of trust on the building. The Company leased back the building for a
one-year term, with four one-year options to renew through December 2000. Rent
of $44,000 was paid in 1996 and $48,000 in 1997.
7. NOTE TO UNAUDITED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited consolidated financial statements for the six months
ended June 30, 1997 and 1998 have been prepared in accordance with generally
accepted accounting principles for interim financial information. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are only of a normal
recurring nature. Operating results for the six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
F-10
<PAGE>
RELATED PARTIES - Sales to affiliates for the six months ended June 30, 1997 and
1998 were $136,393 and $94,198, representing approximately 74 percent and 84
percent, respectively, of total sales.
8. SUBSEQUENT EVENTS
On October 13, 1998, the Company's shareholders approved an amendment to the
Company's Articles of Incorporation to increase the number of the Company's
authorized shares of common stock to 50,000,000.
* * * * * * *
F-11
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
EXHIBIT LOCATION IN
NO. DESCRIPTION EDGAR FILING
------- ----------- ------------
2.1 Articles of Incorporation of Registrant, as amended Page 42
2.2 ByLaws of Registrant, as amended Page 51
6.1 Agreement, dated as of January 1, 1997, among the Page 69
Registrant Page and ILX Incorporated, on the one
hand, and Todd Fisher, on the other hand
6.2 Agreement, dated as of January 1, 1997, among the Page 75
Registrant and ILX Incorporated, and Debbie
Reynolds, on the other hand
6.3 Lease Agreement, dated December 29, 1995, among Page 84
the Registrant and Edward John Martori
6.4 Agreement, dated as of December 29, 1995, among Page 91
ILX Incorporated, Martori Enterprises
Incorporated, Los Abrigados Partners Limited
Partnership, Registrant, Edward J. Martori and
Joseph P. Martori, as trustee for Cynthia J.
Polich Irrevocable Trust dated June 1, 1989
relating to the sale/leaseback of certain real
property and amendment of other agreements in
connection therewith
6.5 Master Lease Agreement, dated as of April 13, Page 136
1993, among ILX Incorporated and CRA, Inc.
27 Financial Data Schedule Page 150
III-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
SEDONA WORLDWIDE INCORPORATED
November 3, 1998 By: /s/ Mia A. Green
--------------------------
Name: Mia A. Green
Title: President
S-1
ARTICLES OF INCORPORATION
OF
RED ROCK COLLECTION INCORPORATED
1. NAME: The name of the Corporation shall be Red Rock Collection
Incorporated.
2. PURPOSE: The purpose for which this Corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the laws of the State of Arizona, as they may be amended from
time to time.
3. INITIAL BUSINESS: The Corporation initially intends to conduct the
business of multi-level marketing. Such initial intention shall in no manner
whatever limit the character of the business which the Corporation may
ultimately conduct.
4. AUTHORIZED CAPITAL: The authorized capital stock of this Corporation
shall be (1) Ten Million (10,000,000) shares of common stock having no par
value, and (2) Five Million (5,000,000) shares of preferred stock having a par
value of Ten Dollars ($10.00) per share.
4.1 PREFERRED STOCK: Of the shares of capital stock hereinbefore
authorized, Five Million (5,000,000) shares having a par value of Ten Dollars
($10.00) per share shall constitute Preferred Stock. The Preferred Stock may be
issued, from time to time, in one or more series, each of such series to have
such designation and such relative voting, dividend, liquidation, conversion and
other rights, preferences and limitations as are fixed by the Board of Directors
from time to time. Authority is hereby expressly vested in and granted to the
Board of Directors of this Corporation from time to time, subject to the
provisions of this Paragraph, to adopt a resolution or resolutions dividing the
shares of Preferred Stock into one or more series and, with respect to each such
series, fixing the following:
(a) The number of shares to constitute such series and the
distinctive designation thereof;
<PAGE>
(b) The annual dividend rate on the shares of such series
and the date or dates from which dividends shall be accumulated
as herein provided;
(c) The times when and the price at which shares of such
series shall be redeemable, the limitations and restrictions with
respect to such redemptions and the amount, if any, in addition
to any accumulated dividends thereon which the holders of shares
of such series shall be entitled to receive upon the redemption
thereof, which amount may vary at different redemption dates and
may differ in the case of shares redeemed through the operation
of any purchase, retirement or sinking fund from the case of
shares otherwise redeemed;
(d) The amount, if any, in addition to any accumulated
dividends thereon which the holders of shares of such series
shall be entitled to receive upon the liquidation, dissolution or
winding-up of this Corporation, which amount may vary depending
on whether such liquidation, dissolution or winding-up is
voluntary or involuntary and, if voluntary, may vary at different
dates;
(e) whether or not the shares of such series shall be
subject to the operation of a purchase, retirement or sinking
fund and, if so, the extent to and manner in which such purchase,
retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or for
other corporate purposes and the terms and provisions relative to
the operation of said fund or funds;
(f) whether or not the shares of such series shall be
convertible into shares of stock of any other class or classes,
or of and other series of Preferred Stock or series of other
class of shares, and if so convertible, the price or prices, the
rate or rates of conversion and the method, if any, of adjusting
the same;
(g) The limitations and restrictions, if any, to be
effective while any shares of such series are outstanding upon
the payment of dividends or making of other distributions on, and
upon the purchase, redemption or other acquisition by this
Corporation or any subsidiary of this Corporation, of the Common
Stock or any other class or series of stock of this Corporation
ranking on a parity with or junior to the shares of such series
either as to dividends or upon liquidation;
(h) The conditions or restrictions, if any, upon the
creation of indebtedness of this Corporation or of any
subsidiary, or upon the issue of any additional stock (including
additional shares of such series or of any other series or of any
other class) ranking on a parity with or prior to the shares of
such series either as to dividends or upon liquidation;
(i) The regular and/or special voting powers, if any, of
such series; and
-2-
<PAGE>
(j) Such other preferences and relative, participating,
optional or other special rights, or qualifications, limitations
or restrictions, as shall not be inconsistent with these Articles
or applicable law.
The Board of Directors also have authority to change the designation of shares,
or the relative rights, preferences and limitations of the shares and further,
the Board shall have authority to increase or decrease the number of shares of
any series previously determined by it, provided, however, that the number of
shares of any series shall not be decreased to a number less than that of the
shares of that series then outstanding.
4.2 NO PREEMPTIVE RIGHTS, STOCK OPTIONS AND RIGHTS: No
stockholder of this Corporation shall have any preemptive or other similar right
or option with respect to shares of capital stock proposed to be offered or
issued by this Corporation. The Board of Directors shall have the authority to
create and issue rights and options entitling the holders thereof to purchase
from this Corporation shares of its capital stock. Any such rights or options
need not be offered or issued generally to stockholders of this Corporation and
may be offered or issued to such persons including directors, officers and/or
employees of this Corporation and/or any affiliate) as the Board of Directors
deems appropriate.
5. STATUTORY AGENT: The name and address of the initial statutory agent
of the corporation is Brown & Bain, P.A., 2901 North Central Avenue, P.O. Box
400, Phoenix, Arizona 85012.
6. BOARD OF DIRECTORS: The initial Board of Directors shall consist of
one (1) director. The person who is to serve as director until the first annual
meeting of the shareholders or until his successor is elected and qualified is:
-3-
<PAGE>
Edward John Martori
c/o Brown & Bain, P.A.
2901 North Central Avenue
Phoenix, Arizona 85012
otherwise, the number of persons to serve on the Board of Directors shall be
fixed by the Bylaws of the Corporation.
7. INCORPORATORS: The names and addresses of the incorporators of the
Corporation are:
Mia Green Susan Malone
c/o Brown & Bain, P.A. c/o Brown & Bain, P.A.
2901 North Central Avenue 2901 North Central Avenue
Phoenix, Arizona 85012 Phoenix, Arizona 85012
All powers, duties and responsibilities of the incorporators shall
cease at the time of filing of these Articles of Incorporation with the Arizona
Corporation Commission.
8. DISTRIBUTIONS FROM CAPITAL SURPLUS: The Board of Directors of the
Corporation may, from time to time, distribute to its shareholders out of, or
purchase its own shares from, the capital surplus of the Corporation.
9. DIVIDENDS: The Board of Directors may authorize the payment of
dividends to the holders of shares of any class of stock payable in cash, in
shares of any other class, or as otherwise determined by the Board of Directors.
10. REPURCHASE OF SHARES: The Board of Directors of the Corporation
may, from time to time, cause the Corporation to purchase its own shares to the
extent of the unreserved and unrestricted earned and capital surplus of the
Corporation.
11. INDEMNIFICATION AND EXCULPATION OF OFFICERS AND DIRECTORS: The
Corporation may indemnify and exculpate officers and directors to, the fullest
extent permitted under Section 10-005 of the Arizona Revised Statutes or any
successor statute.
-4-
<PAGE>
12. LIMITATION OF LIABILITY: The liability of directors to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty is eliminated and/or limited to the full extent permitted by Arizona law.
IN WITNESS WHEREOF, we, the undersigned, have hereunto set our hands
this 14th day of October, 1992.
/s/ Mia Green
-------------------------------
Mia Green
/s/ Susan Malone
-------------------------------
Susan Malone
-5-
<PAGE>
ARTICLES OF AMENDMENT
OF
THE ARTICLES OF INCORPORATION
OF
RED ROCK COLLECTION INCORPORATED
AN ARIZONA CORPORATION
1. NAME. The name of the Corporation is Red Rock Collection
Incorporated.
2. AMENDMENTS. The Board of Directors and the Shareholders of the
Corporation have amended the corporation's Articles of Incorporation by amending
Article 1 to state that the name of the Corporation shall be "Sedona Worldwide
Incorporated."
3. DATE OF ADOPTION. The Amendment was adopted as of September 18,
1997.
4. DUE ADOPTION. The Amendment was duly adopted by act of the
Corporation's Board of Directors and Shareholders.
5. SHAREHOLDER ACTION. The Corporation has Seven Hundred Thousand
(700,000) shares of common stock outstanding, and Seven Hundred Thousand
(700,000) votes were entitled to be cast. Seven Hundred Thousand (700,000) votes
were cast in favor of the Amendment and no votes were cast against the
Amendment.
Dated: September 18, 1997.
RED ROCK COLLECTION
INCORPORATED an Arizona corporation
By /s/ Joseph P. Martori
--------------------------------------
Joseph P. Martori, Chairman
By: /s/ Stephanie D. Castronova
--------------------------------------
Stephanie Castronova, Secretary
-6-
<PAGE>
STATE OF ARIZONA
STATEMENT OF CHANGE
OF STATUTORY AGENT, AND
APPOINTMENT OF NEW STATUTORY AGENT
OF
SEDONA WORLDWIDE INCORPORATED
An Arizona corporation
As authorized by Section 10-502 of the Arizona Revised Statutes, the
undersigned, on behalf of Sedona Worldwide Incorporated, submits the following
information:
FIRST: Sedona Worldwide Incorporated is an Arizona corporation.
SECOND: The name and address of the corporation's current statutory
agent is:
Brown & Bain, P.A.
2901 North Central Avenue, Suite 2000
Phoenix, Arizona 85012
THIRD: The statutory agent of the corporation has been changed. The
name and address of the successor statutory agent is:
George C. Wallach
2111 East Highland Avenue, Suite 210
Phoenix, Arizona 85016
DATED: November 17, 1997
-----------------------
SEDONA WORLDWIDE INCORPORATED
By /s/ Joseph P. Martori
--------------------------------------
Joseph P. Martori, Chairman
-7-
<PAGE>
ACCEPTANCE OF STATUTORY AGENT
George C. Wallach, having been designated to act as Statutory Agent for
Sedona Worldwide Incorporated, consents to act in that capacity until his
removal or resignation in accordance with the Arizona Revised Statutes.
/s/ George C. Wallach
--------------------------------------
George C. Wallach
Address: 2111 East Highland Avenue, Suite 210
Phoenix, Arizona 85016
-8-
<PAGE>
STATE OF ARIZONA
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
SEDONA WORLDWIDE INCORPORATED
Pursuant to the provisions of Section 10-1006, Arizona Revised
Statutes, the undersigned corporation adopts these Articles of Amendment to the
Articles of Incorporation:
1. The name of the corporation is Sedona Worldwide Incorporated.
2. The corporation adopts the following amendment to its Articles of
Incorporation:
The first sentence of Article 4 of the Articles of Incorporation of
the Corporation, as amended, is hereby amended in its entirety as follows:
4. AUTHORIZED CAPITAL: The authorized capital stock of this
Corporation shall be (1) Fifty Million (50,000,000) shares of
common stock having no par value, and (2) Five Million
(5,000,,000) shares of preferred stock having a par value of Ten
Dollars ($10.00) per share.
3. The aforesaid amendment was adopted by the shareholders of the
corporation on September 30, 1998, in the manner prescribed by the Arizona
Revised Statutes.
4. The number of shares of the corporation outstanding at the time of
such adoption was 4,200,000 shares of Common Stock. All the issued and
outstanding shares were voted for the amendment.
DATED: October 9, 1998
---------------------
SEDONA WORLDWIDE INCORPORATED
By /s/ Mia Green
--------------------------------------
Mia Green, President
-9-
- --------------------------------------------------------------------------------
Bylaws
of
Red Rock Collection Incorporated
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO BYLAWS
Page
----
ARTICLE I OFFICES AND CORPORATE SEAL 1
SECTION 1. Principal Office 1
SECTION 2. Other Offices 1
SECTION 3. Corporate Seal 1
ARTICLE II SHAREHOLDERS 1
SECTION 1. Shareholders'Meetings 1
SECTION 2. Annual Meetings 2
SECTION 3. Special Meetings of Shareholders 2
SECTION 4. List of Shareholders 2
SECTION 5. Notice of Shareholders'Meetings 2
SECTION 6. Closing of Transfer Books or Fixing of Record Date 3
SECTION 7. Quorum and Adjournment 4
SECTION 8. Voting 5
SECTION 9. Action Without Meeting 5
SECTION 10. Waiver of Notice 5
ARTICLE III DIRECTORS 5
SECTION 1. Number 5
SECTION 2. Vacancies 6
SECTION 3. Powers 6
SECTION 4. Removal of Directors 6
SECTION 5. Place of Meetings 6
SECTION 6. Annual Meetings 6
SECTION 7. Regular Meetings 7
SECTION 8. Special Meetings 7
SECTION 9. Quorum 7
SECTION 10. Action Without Meeting 7
SECTION 11. Committees of the Board 7
SECTION 12. Compensation 8
SECTION 13. Waiver of Notice 8
ARTICLE IV OFFICERS 8
SECTION 1. Designation of Titles 8
SECTION 2. Election, Term of Office, Qualification 9
SECTION 3. Subordinate Officers. Etc. 9
SECTION 4. Removal 9
SECTION 5. Vacancies 9
SECTION 6. Chairman of the Board 9
SECTION 7. The President 10
SECTION 8. Vice President 10
SECTION 9. The Treasurer 10
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<PAGE>
SECTION 10. The Secretary 11
ARTICLE V RESIGNATIONS 12
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS 12
SECTION 1. Contracts 12
SECTION 2. Loans 12
SECTION 3. Checks, Drafts, Etc. 12
SECTION 4. Deposits 12
ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER 13
SECTION 1. Certificates for Shares 13
SECTION 2. Transfer of Shares 13
ARTICLE VIII FISCAL YEAR 14
ARTICLE IX DIVIDENDS 14
ARTICLE X INDEMNIFICATION AND EXCULPATION OF OFFICERS AND DIRECTORS 14
ARTICLE XI LIMITATION OF LIABILITY 14
ARTICLE XII REPEAL, ALTERATION OR AMENDMENT 14
-ii-
<PAGE>
BYLAWS
OF
RED ROCK COLLECTION INCORPORATED
ARTICLE I
OFFICES AND CORPORATE SEAL
SECTION 1. PRINCIPAL OFFICE. In addition to its known place of
business, which shall be the office of its statutory agent, Red Rock Collection
Incorporated (hereinafter called "the corporation") shall maintain a principal
office in Maricopa County, Arizona.
SECTION 2. OTHER OFFICES. The corporation may also maintain offices at
such other place or places, either within or without the State of Arizona, as
may be designated from time to time by the Board of Directors (hereinafter
called the "board"), and the business of the corporation may be transacted at
such other offices with the same effect as that conducted at the principal
office.
SECTION 3. CORPORATE SEAL. A corporate seal shall not be requisite to
the validity of any instrument executed by or on behalf of the corporation, but
nevertheless if in any instance a corporate seal be used, the same shall be a
circle having on the circumference thereof the name of the corporation and, in
the center, the year incorporated and the state where incorporated.
ARTICLE II
SHAREHOLDERS
SECTION 1. SHAREHOLDERS' MEETINGS. All meetings of shareholders shall
be held at such place as may be fixed from time to time by the board, or in the
absence of direction by the board, by the president or secretary of the
corporation, either within or without the State of
<PAGE>
2
Arizona, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of shareholders shall be
held on the 4th Friday of March of each year, or if that day shall be a legal
holiday, then on the next succeeding business day, or at such other date and
time as shall be designated from time to time by the board and stated in the
notice of the meeting. At the annual meeting, shareholders shall elect a board
and transact such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
Arizona statute or by the Articles of Incorporation (hereinafter called
"articles"), may be called by the president and shall be called by the president
or secretary at the request in writing of a majority of the board, or at the
request in writing of shareholders owning a majority of the entire capital stock
of the corporation issued, outstanding, and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
SECTION 4. LIST OF SHAREHOLDERS. The officer who has charge of the
stock transfer books for shares of the corporation shall prepare and make a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address and the number of shares registered
in the name of each shareholder. Such list shall be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder present.
SECTION 5. NOTICE OF SHAREHOLDERS' MEETINGS. Written notice of the
annual meeting stating the place, date and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given, either personally or by mail,
<PAGE>
3
to each shareholder of record entitled to vote at such meeting not less than ten
(10) nor more than fifty (50) days before the date of the meeting. If mailed,
such notice shall be deemed to be delivered when mailed to the shareholder at
his address as it appears on the stock transfer books of the corporation.
Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice unless determined otherwise by the unanimous
vote of the holders of all the issued and outstanding shares of the corporation
present at the meeting in person or represented by proxy.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board may provide that the stock
transfer books shall be closed for a stated period but not to exceed, in any
case, seventy (70) days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the board may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days and, in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, 4:00 o'clock in the afternoon on the day before the day
on which notice of the meeting is given shall be the record date for such
determination of shareholders. When a determination of
<PAGE>
4
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 7. QUORUM AND ADJOURNMENT.
(a) The holders of a majority of the shares issued, outstanding, and
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by Arizona statute or by
the articles.
(b) Business may be conducted once a quorum is present and may continue
until adjournment of the meeting notwithstanding the withdrawal or temporary
absence of sufficient shares to reduce the number present to less than a quorum.
Unless the vote of a greater number or voting by classes is required by Arizona
statute or the articles, the affirmative vote of the majority of the shares then
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders; provided, however, that if the shares then
represented are less than required to constitute a quorum, the affirmative vote
must be such as would constitute a majority if a quorum were present; and
provided further, that the affirmative vote of a majority of the shares then
present shall be sufficient in all cases to adjourn a meeting.
(c) If a quorum shall not be present or represented at any meeting of
the shareholders, the shareholders entitled to vote at the meeting, present in
person or represented by proxy, shall have power to adjourn the meeting to
another time or place, without notice other than announcement at the meeting at
which adjournment is taken, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new
<PAGE>
5
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
SECTION 8. VOTING. At every meeting of the shareholders, each
shareholder shall be entitled to one vote in person or by proxy for each share
of the capital stock having voting power held by such shareholder, but no proxy
shall be voted or acted upon after eleven (11) months from its date, unless the
proxy provides for a longer period.
SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any annual or special meeting of shareholders may be taken without a
meeting, without prior notice, and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of all of the
outstanding shares entitled to vote with respect to the subject matter of the
action.
SECTION 10. WAIVER OF NOTICE. Attendance of a shareholder at a meeting
shall constitute waiver of notice of such meeting, except when such attendance
is for the purpose of protesting that the meeting is not lawfully called or
convened. Any shareholder may waive notice of any annual or special meeting of
shareholders by executing a written waiver of notice either before, at or after
the time of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER. The number of directors which shall constitute the
whole board shall be not less than one (1) nor more than seven (7). The
directors shall be elected at the annual meeting of the shareholders, except as
provided in Section 2 of this article, and except that the initial directors
shall be as named in the articles, and each director elected shall hold office
until his or her successor is elected and qualified. Directors need not be
shareholders.
<PAGE>
6
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the affirmative vote of a majority of the remaining directors then in office,
though not less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute.
SECTION 3. POWERS. The business and affairs of the corporation shall be
managed by the board, which may exercise all such powers of the corporation and
do all such lawful acts as are not by Arizona statute, the Articles of
Incorporation, or these Bylaws directed or required to be exercised or done by
the shareholders.
SECTION 4. REMOVAL OF DIRECTORS. Any director or the entire board may
be removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors at a meeting of
shareholders called expressly for that purpose.
SECTION 5. PLACE OF MEETINGS. The board of the corporation may hold
meetings, both regular and special, either within or without the State of
Arizona, and such meetings may be held by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
section, shall constitute presence in person at such meeting.
SECTION 6. ANNUAL MEETINGS. Annual meetings of the board shall be held
immediately following the annual meeting of shareholders and in the same place
as the annual meeting of shareholders, and no notice to the newly elected
directors of such meeting shall be necessary in order legally to hold the
meeting, provided a quorum shall be present. In the event such meeting is not
held, the meeting may be held at such time and place as shall be specified in
<PAGE>
7
a notice given as hereinafter provided for special meetings of the board or as
shall be specified in a written waiver of notice by all of the directors.
SECTION 7. REGULAR MEETINGS. Regular meetings of the board may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 8. SPECIAL MEETINGS. Special meetings of the board may be
called by the president or the secretary on one (1) day's notice to each
director, either personally, by mail, by telegram, or by telephone; special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of two (2) directors.
SECTION 9. QUORUM. A quorum at any meeting of the board shall consist
of a majority of the number of directors then serving, but not less than two (2)
directors, provided that if and when a board comprised of one member is
authorized, or in the event that only one director is then serving, then one
director shall constitute a quorum as provided by Arizona statute or by the
articles. If a quorum shall not be present at any meeting of the board, the
directors then present may adjourn the meeting to another time or place, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 10. ACTION WITHOUT MEETING. Unless otherwise restricted by the
articles or these bylaws, any action required or permitted to be taken at any
meeting of the board 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 of proceedings
of the board or committee.
SECTION 11. COMMITTEES OF THE BOARD. The board by resolution, adopted
by a majority of the full board, may designate from among its members an
executive committee and one or more other committees each of which, to the
extent provided in such resolution and
<PAGE>
8
permitted by law, shall have and may exercise all the authority of the board.
The board, with or without cause, may dissolve any such committee or remove any
member thereof at any time. The designation of any such committee and the
delegation thereto of authority shall not operate to relieve the board, or any
member thereof, of any responsibility imposed by law.
SECTION 12. COMPENSATION. By resolution of the board, each director may
be paid his expenses, if any, of attendance at each meeting of the board of
directors, and may be paid a stated salary as director or a fixed sum for
attendance at each meeting of the board or both. No such payment shall preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 13. WAIVER OF NOTICE. Attendance of a director at a meeting
shall constitute waiver of notice of such meeting, except when the person
attends the meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened. Any
director may waive notice of any annual, regular, or special meeting of
directors by executing a written notice of waiver either before or after the
time of the meeting.
ARTICLE IV
OFFICERS
SECTION 1. DESIGNATION OF TITLES. The officers of the corporation shall
be chosen by the board and shall be a president, who shall be a member of the
board, a vice president, a secretary, and a treasurer. The board may also choose
a chairman of the board. Any number of offices, except the offices of president
and secretary, may be held by the same person, unless the articles or these
bylaws otherwise provide. The board may require any such officer, agent or
employee to give security for the faithful performance of his duties.
<PAGE>
9
SECTION 2. ELECTION, TERM OF OFFICE, QUALIFICATION. The executive
officers of the corporation shall be elected annually by the board, each to hold
office for one year or until his successor shall have been duly appointed or
elected and shall qualify, or until his death, or until he shall resign, or
shall have been removed in the manner hereinafter provided.
SECTION 3. SUBORDINATE OFFICERS. ETC. The board may appoint such
subordinate officers, agents or employees as the board may deem necessary or
advisable, including one or more additional vice presidents, one or more
assistant treasurers and one or more assistant secretaries, each of whom shall
hold office for such period, have authority and perform such duties as are
provided in these bylaws or as the board may from time to time determine. The
board may delegate to any executive officer or to any committee the power to
appoint any such additional officers, agents or employees. Notwithstanding the
foregoing, no assistant secretary or assistant treasurer shall have power or
authority to collect, account for, or pay over any tax imposed by any federal,
state, or city government.
SECTION 4. REMOVAL. Any officer or agent may be removed by the board
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
SECTION 5. VACANCIES. A vacancy in any office, because of death,
resignation, removal, or any other cause, shall be filled for the unexpired
portion of the term in the manner prescribed in Sections 2 and 3 of this Article
IV for election or appointment to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The chairman of the board, if one
shall have been appointed and be serving, shall preside at all meetings of the
board and shall perform such other duties as from time to time may be assigned
to him.
<PAGE>
10
SECTION 7. THE PRESIDENT. The president shall preside at all meetings
of shareholders, and if a chairman of the board shall not have been appointed
or, having been appointed, shall not be serving or be absent, the president
shall preside at all meetings of the board. The president shall be the principal
executive officer of the corporation and, subject to the control of the board,
shall in general supervise and control all of the business and affairs of the
corporation. He may sign, either alone or with the secretary or any other proper
officer of the corporation thereunto authorized by the board, certificates for
shares of the corporation and deeds, mortgages, bonds, contracts, or other
instruments which the board has authorized to be executed, except in cases where
the signing and execution thereof shall be expressly delegated by the board or
by these bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of the president and such other duties as may
be prescribed by the board from time to time.
SECTION 8. VICE PRESIDENT. Each vice president shall have such powers
and perform such duties as the board or the president may from time to time
prescribe and shall perform such other duties as may be prescribed by these
bylaws. At the request of the president, or in case of his absence or inability
to act, the vice president or, if there shall be more than one vice president
then in office, then one of them who shall be designated for the purpose by the
president or by the board shall perform the duties of the president, and when so
acting shall have all powers of, and be subject to all the restrictions upon,
the president.
SECTION 9. THE TREASURER. The treasurer shall have charge and custody
of, and be responsible for, all the funds and securities of the corporation and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit
<PAGE>
11
all monies and other valuable effects in the name of and to the credit of the
corporation in such banks and other depositaries as may be designated by the
board; he shall disburse the funds of the corporation as may be ordered by the
board, taking proper vouchers for such disbursements, and shall render to the
president and to the directors at the regular meetings of the board or whenever
they may require it, a statement of all his transactions as treasurer and an
account of the financial condition of the corporation; and, in general, he shall
perform all the duties incident to the office of treasurer and such other duties
as may from time to time be assigned to him by the board.
SECTION 10. THE SECRETARY. The secretary shall act as secretary of, and
keep the minutes of, all meetings of the board and of the shareholders; he shall
cause to be given notice of all meetings of the shareholders and directors; he
shall be custodian of the seal of the corporation and shall affix the seal, or
cause it to be fixed, to all proper instruments when deemed advisable by him; he
shall have charge of the stock book and also of the other books, records and
papers of the corporation relating to its organization as a corporation, and
shall see that the reports, statements and other documents required by law are
properly kept or filed; and he shall in general perform all the duties incident
to the office of secretary. He may sign, with the president or a vice president,
certificates of stock of the corporation. He shall also have such powers and
perform such duties as are assigned to him by these bylaws, and he shall have
such other powers and perform such other duties, not inconsistent with these
bylaws, as the board shall from time to time prescribe.
<PAGE>
12
ARTICLE V
RESIGNATIONS
Any director or other officer may resign his office at any time by
giving written notice of his resignation to the president or the secretary of
the corporation. Such resignation shall take effect at the time specified
therein or, if no time be specified therein, at the time of the receipt thereof,
and the acceptance thereof shall not be necessary to make it effective.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board, except that the president of the
corporation is authorized to contract loans or issue negotiable paper on behalf
of the corporation and in its name to the extent of $10,000. Such authority may
be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the board may select.
<PAGE>
13
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as shall be determined by the board. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the corporation itself or one of its employees. Each
certificate for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the corporation as the board may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof, by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes.
<PAGE>
14
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall be as determined by the board.
ARTICLE IX
DIVIDENDS
The board may, from time to time, declare and the corporation may pay
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its articles.
ARTICLE X
INDEMNIFICATION AND EXCULPATION OF OFFICERS AND DIRECTORS
The corporation shall indemnify its officers and directors against
expenses incurred, and exculpate its officers and directors, in actions by third
parties or by or in right of the Corporation to the full extent permitted by and
as provided in Section 10-005 of the Arizona Revised Statutes or any successor
statute.
ARTICLE XI
LIMITATION OF LIABILITY
The liability of directors to the corporation or its shareholders for
monetary damages for breach of fiduciary duty is eliminated and/or limited to
the full extent permitted by law.
ARTICLE XII
REPEAL, ALTERATION OR AMENDMENT
These bylaws may be repealed, altered, or amended, or substitute bylaws
may be adopted at any time by a majority of the board at any regular or special
meeting.
<PAGE>
15
The undersigned, Gordon R. Wren, Secretary of Red Rock Collection
Incorporated, hereby certifies that the foregoing bylaws were duly adopted by
written consent of the Board of Directors of Red Rock Collection Incorporated on
October 14, 1992.
/s/ Gordon R. Wren
-----------------------
Gordon R. Wren
AGREEMENT
This agreement ("Agreement") is entered in to as of January 1, 1997,
among Todd Fisher ("TF") (or a corporation to be designated by him), on the one
hand, and ILX, Incorporated ("ILX") and Red Rock Collection Incorporated ("Red
Rock"), jointly and severally on the other, and is made with reference to the
following facts:
A. ILX is the owner of the Los Abrigados Resort and Spa in Sedona,
Arizona) the "Hotel"). Red Rock is a wholly-owned subsidiary of ILX and is
engaged in the business of manufacturing and selling personal care products
utilizing natural ingredients indigenous to the Sedona area and which is
marketed utilizing a Sedona theme, including, at the Hotel. Red Rock is seeking
to expand the marketing and sales of its product line through various
distribution channels including sales through its resort properties, sales to
other properties, direct sales, radio advertising, television infomercial
advertising and buying clubs.
B. Red Rock is concurrently herewith entering into an agreement ("DR
Agreement") with Debbie Reynolds ("DR") to act as a spokesperson for Red Rock's
products.
C. Red Rock is seeking the services of TF to assist in the production
and implementation of its initial advertising and promotional campaign and
materials utilizing DR and Red Rock is also desirous of acquiring the design for
a hairclip owned by TF for use in Red Rock's product line.
It is now agreed among the parties as follows:
1. SERVICES. Red Rock hereby engages TF on an non-exclusive basis to
consult in the creation, development and production of the initial marketing and
promotional campaign for Red Rock's product line, and the use of DR's name,
image and likeness in connection therewith ("Initial Campaign"). It is
anticipated that the Initial Campaign will include radio spots, one or more
television infomercials and print materials.
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All services of TF hereunder shall be rendered at the Hotel, except
that certain production services in connection with campaign materials may be
rendered in Las Vegas or Los Angeles. TF's services hereunder shall at all times
be subject to his availability, including his responsibilities at the Debbie
Reynolds Hotel & Casino. Red Rock shall be responsible for all costs and
expenses incurred by TF in connection with the rendition of his services
hereunder.
2. TERM. The Term of this Agreement shall commence on the date hereof
and shall expire upon completion of the Initial Campaign materials, but no
longer than one (1) year. The Term may be extended upon material agreement of
the parties.
3. HAIRCLIP. Concurrently with the execution hereof, DR shall quitclaim
to Red Rock of all of his interest in that certain hairclip design which TF has
previously provided to Red Rock for the purpose of including same in Red Rock's
product line.
4. CONSIDERATION. As full consideration for the grant of rights
specified in Paragraph 3 above and for the services of TF in connection with the
Initial Campaign upon execution hereof ILX shall irrevocably transfer ownership
to TF or his designee of ten percent (10%) of the issued and outstanding stock
of Red Rock ("TF Percentage"). ILX and Red Rock warrant that there is only one
class of stock outstanding. Immediately prior to the transfer of said shares,
all existing intercompany debt owed by Red Rock to ILX shall be converted to a
contribution to capital by ILX such that no intercompany debt shall exist at the
time of the transfer. TF's percentage shall be based upon the total number of
Red Rock shares issued and outstanding after taking into account any additional
shares issued or to be issued in respect of such ILX capital contribution.
Within sixty (60) days following the transfer of shares to DR, ILX
shall "spinoff" thirty percent (30%) of the issued and outstanding shares of Red
Rock to the existing ILX shareholders. ILX shall then undertake to promptly
register Red Rock shares with the SEC with a view to listing Red Rock on NASDAQ
as soon as all requirements for listing are met. Either as part of the aforesaid
registration or by separate registration, and upon the advice of Red Rock's
underwriters, Red Rock shall undertake an initial public offering ("IPO") of
$2-5 Million
2
<PAGE>
Dollars. The TF Percentage shall not be diluted by, or at any time prior to, the
initial IPO (but may be diluted by subsequent public offerings in the same
manner as applicable to the other shareholders). In the event the IPO does not
occur within one (1) year after the date hereof, TF shall have the right to
terminate this Agreement.
The TF shares shall be subject to a Stock Transfer Agreement to be
entered into concurrently herewith which shall contain the foregoing terms and
additional mutually acceptable terms, including a 2 year "lock up" provision and
a "buy-sell" agreement which shall provide, INTER ALIA, that TF shall be given
the opportunity to sell his shares prior to any sale of shares by Joseph Martori
(or any individual, trust or other entity related to Joseph Martori) and to
participate on an equal basis in all public and private offerings. A copy of the
Stock Transfer Agreement is attached hereto as Exhibit "A" and incorporated
herein by this reference.
Red Rock will pay for the cost of a professional valuation of both Red
Rock and the TF Percentage and TF's approval of such valuation shall be a
condition precedent to the effectiveness of this Agreement. The parties
acknowledge that the Mentor Group of Westlake Village, California has been
engaged to undertake such valuation.
5. ADDITIONAL CONSIDERATION. The parties acknowledge that the
consideration specified in Paragraph 4 hereof compensates TF for his consulting
and production services in connection with the Initial Campaign materials and
that the parties shall negotiate in good faith and agree upon monetary fees for
any additional consulting and production services which Red Rock may desire and
which TF shall desire to undertake.
6. TRAVEL AND EXPENSES. At any time TF's services hereunder are
required at a location other than the city of his residence (currently Las
Vegas), Red Rock shall provide first-class air transportation and hotel
accommodations for two, together with payment of all expenses, including meals,
incidentals and the like. When TF's services are required in Sedona, the
accommodations shall be, when available, the Stonehouse lodging at the Hotel (or
other accommodations acceptable to TF if the Stonehouse is not available), and
TF shall be provided with first-class meals for TF and his guest and free use of
all of the Hotel's facilities and
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<PAGE>
services. TF shall be provided with first-class ground transportation (limousine
if requested) to and from all airports, locations where her services may be
rendered and at all other times when desired by TF while at a location.
7. NO ASSIGNMENT. Neither party shall have the right to assign this
Agreement or its rights without the prior written approval of the other, except
that TF may assign his Red Rock stock hereunder subject to the terms of the
Stock Transfer Agreement.
8. BREACH. In the event of a breach hereof by Red Rock, TF shall have
the right to terminate this Agreement unless the breach is cured within fifteen
(15) days after Red Rock's receipt of notice thereof from Lender. Said notice
shall be five (5) business days with respect to payments hereunder.
9. INDEMNIFICATION. Red Rock agrees to defend, indemnify and hold TF
and his representatives from and against any claims, losses, suits, liabilities,
obligations, costs and attorneys' fees which TF or TF's representatives may
suffer as a result of any actions (including, without limitation, consumer
actions) stemming directly or indirectly from TF's participation on behalf of
Red Rock, including, without limitation, any product liability claims, errors
and omissions claims, claims by competitors or governmental authorities.
10. INSURANCE. ILX and Red Rock shall name TF as an additional insured
on each of their product liability insurance policies, general liability
insurance policies and errors and omissions insurance policies. Said policies
shall initially be in an amount not less than One Million Dollars ($1,000,000)
per person and Five Million Dollars ($5,000,000) per occurrence, but shall be
raised to Two Million Dollars ($2,000,000) per person and Ten Million Dollars
($10,000,000) per occurrence on the earlier of the IPO or the commencement of
the second year of the Term. Such policies shall be maintained by Red Rock in
effect during the Term and for two (2) years thereafter. Said policies shall
further provide that TF will receive at least thirty (30) days advance notice of
termination of such insurance. Prior to the dissemination of any commercials or
other productions utilizing TF's name, voice or likeness, TF will be provided
with Certificates of Insurance with respect to such insurance. A breach by Red
Rock of this
4
<PAGE>
paragraph shall be a material breach of this Agreement giving TF the right to
terminate and to seek injunctive relief, without limitation of any other
remedies.
11. CHANGE OF CONTROL. TF shall have the right to terminate this
Agreement and his further obligations hereunder if Joseph P. Martori shall cease
to be the Chairman and Chief Executive Officer of ILX and Red Rock, as well as
the controlling shareholder of ILX and, if and when Red Rock is no longer a
subsidiary of ILX, Red Rock.
12. NOTICES. All notices, payments and statements given hereunder shall
be mailed, postage pre-paid, hand-delivered or, in the case of notices which do
not involve payment or an accounting statement, telefaxed. Notices shall be
effective on the third day after the date of mailing by United States mail or on
the date of telefax or hand delivery. Notices to the parties shall, until
further notice, be sent to the following addresses:
TF: RED ROCK/ILX
Todd Fisher Red Rock Incorporated
______________________ 3840 North 16th Street
______________________ Phoenix, Arizona 85016
______________________ Attention: Joseph P. Martori
WITH COPY TO:
Kleinberg, Lopez, Lange, Brisbin & Cuddy
2049 Century Park East, Suite 3180
Los Angeles, California 90067-3863
Attention: Robert M. Lange, Esq.
13. GENERAL. This Agreement sets forth the entire Agreement between the
parties and supersedes all other written or oral agreements of the parties
relating to the subject matter hereof. This Agreement cannot be modified,
altered or amended except by an agreement in writing signed by each of the
parties. The failure of either party to this Agreement to object or take action
with respect to breach of this Agreement shall not be construed as a waiver said
breach or any future breach hereof. This Agreement shall be construed and
interpreted in accordance with the laws of the State of California, applicable
to agreements to be executed and performed
5
<PAGE>
therein. If either party initiates legal action to enforce this Agreement, the
prevailing party shall be entitled to recover, in addition to such other relief
as may be granted, all reasonable attorneys' fees and costs incurred in
connection with such litigation. Headings are for the convenience of the parties
and should not be used to construe meaning. This Agreement may be executed in
counterparts with some legal effect as if each party had signed the same copy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the dated first indicated above.
RED ROCK INCORPORATED
/s/ Todd Fisher By: /s/ Joseph P. Martori
- -------------------------------- ---------------------------------
TODD FISHER
Its: CHIARMAN
--------------------------------
ILX INCORPORATED
By: /s/ Joseph P. Martori
---------------------------------
Its: CHAIRMAN
--------------------------------
6
AGREEMENT
This agreement ("Agreement") is entered in to as of January 1, 1997,
among Debbie Reynolds ("DR") (or a corporation to be designated by her), on the
one hand, and ILX, Incorporated ("ILX") and Red Rock Collection Incorporated
("Red Rock"), jointly and severally on the other, and is made with reference to
the following facts:
A. ILX is the owner of the Los Abrigados Resort and Spa in Sedona,
Arizona) the "Hotel"). Red Rock is a wholly-owned subsidiary of ILX and is
engaged in the business of manufacturing and selling personal care products
utilizing natural ingredients indigenous to the Sedona area and which is
marketed utilizing a Sedona theme, including, at the Hotel. Red Rock is seeking
to expand the marketing and sales of its product line through various
distribution channels including sales through its resort properties, sales to
other properties, direct sales, radio advertising, television infomercial
advertising and buying clubs.
B. Red Rock is seeking the services of DR to act as a spokesperson for
Red Rock's products and is desirous of acquiring certain personal care products
and video materials owned by DR for use in Red Rock's product line.
It is now agreed among the parties as follows:
1. SERVICES. Red Rock hereby engages DR to promote and endorse Red
Rock's line of face, body, bath and hair products ("Red Rock Line"). This
Agreement shall not cover any makeup or accessories unless specifically agreed
upon in writing by the parties.
DR's services shall consist of:
+ approximately two promotional appearances per year at the Hotel;
+ a limited number of radio spots;
+ a limited number of newspaper and magazine advertisements;
+ one or more (if agreed to by DR) television infomercials;
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<PAGE>
+ such additional reasonable promotional services as may mutually
determined and approved by DR.
All services of DR hereunder shall be rendered at the Hotel, except
that certain production services in connection with the production of
advertising materials may be rendered in Las Vegas or Los Angeles. DR shall not
be required to travel to other locations to promote the Red Rock line. DR's
services shall not exceed two weeks per year. It is anticipated that DR shall
render such services during two visits to the Hotel for approximately one week
each during each year of the Term. During each such visit, advertising materials
may be produced and/or updated, if necessary, and DR will make one personal
appearance on behalf of the Red Rock Line. DR's services hereunder shall at all
times be subject to her availability, including her responsibilities at the
Debbie Reynolds Hotel & Casino and her live performing, and motion picture and
television engagements.
2. APPROVALS. DR shall have approval of all of her services hereunder
and all aspects of Red Rock's promotional campaign utilizing her name, voice or
likeness (the "Campaign"), including all personal appearances, all print
advertisements, all radio and television advertising, all other marketing and
advertising materials and of the media, method and duration in which such
advertising and marketing occurs. DR shall have the right to utilize Todd Fisher
("TF") to produce all infomercial and radio spots and subject to DR's approval
rights, TF shall have creative control thereof. DR shall also have the right to
designate TF to consult with Red Rock from time to time on her behalf as to
other matters hereunder. The parties shall consult on an ongoing basis with
respect to the creation and development of the Campaign and the utilization of
DR in connection therewith. DR shall have the right to designate TF to assist
and supervise in the development and implementation of the Campaign.
3. TERM. The Term of this Agreement shall be five (5) years, commencing
on the date hereof, subject to earlier termination as provided herein and
subject to extension upon mutual agreement of the parties.
4. TERRITORY: The United States (the "Territory").
2
<PAGE>
5. ROYALTIES. DR shall receive a royalty (the "Royalty") of fifteen
percent (15%) of all gross revenues received or credited to the account of Red
Rock (or any related entity) from any and all sales of any and all products
included in the Red Rock Line ("Products") during the Term hereof and for the
three-month period following the Term, less a reasonable allowance for returns,
not to exceed ten (10%) of gross revenues, with no other deductions whatsoever.
If after the first 6 months of the Term is its apparent that such reserve for
returns is inadequate to cover actual returns, then such reserve shall be
adjusted upwards, but not higher than fifteen percent (15%) and such reserve
shall be reduced if it is apparent that a lower reserve would be adequate to
cover actual returns on an ongoing basis, but not below five percent (5%). The
unused portion of any allowance for returns shall be liquidated and payment made
based thereon to DR within six (6) months. Notwithstanding the foregoing, DR
shall not be paid the Royalty on (i) sales of Products by Red Rock to ILX for
use as give away "premiums" to prospective time share purchasers or for use as
hotel amenities (i.e., sample size containers provided in hotel guest rooms) at
hotels owned by ILX, or (ii) limited quantities of sample Products given away
(and not sold) by Red Rock for the purpose of promoting the Red Rock line to
potential customers such as other hotels, retailers and the like ("Excluded
Sales"). No other sales or other distribution of Products by Red Rock, ILX or
any related entity shall be Excluded Sales.
6. ACCOUNTINGS/AUDITS. DR shall receive bi-monthly accounting
statements within twenty (20) days of the expiration of each calendar monthly
period detailing all sales, the gross revenues received by or credited to Red
Rock (or any related entity) all return allowances, any unused return allowance
from prior periods, all Excluded Sales and the amount due DR for such accounting
period. Each accounting statement shall be accompanies by payment of the amount
due DR for such period. DR shall also receive on a quarterly basis, within
twenty (20) days of the expiration of each calendar quarter a statement
detailing all sales and returns on a Product by Product basis.
Red Rock shall maintain accurate books and records concerning all sales
and returns of Products made by Red Rock (or any affiliated entity) at its
principal office and DR shall have the right at any time upon not less than ten
(10) days prior notice to inspect the books and records of
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<PAGE>
Red Rock to verify the accuracy thereof. In the event that as a result of any
such inspection it is determined that an accounting statement provided to DR
contains a discrepancy in the amount due DR of more that five percent (5%), then
Red Rock shall pay for cost of such audit.
7. MINIMUM ROYALTIES. DR shall have the right to terminate this
Agreement if DR has not received the following minimum royalties during the
following applicable period:
+ Commencement through end of second year to Term: $350,000
+ Third and each succeeding year of Term: $250,000
8. RED ROCK STOCK. As an inducement to DR to enter into this Agreement,
upon execution hereof ILX shall irrevocably transfer ownership to DR or her
designee of ten percent (10%) of the issued and outstanding stock of Red Rock
("DR Percentage"). ILX and Red Rock warrant that there is only one class of
stock outstanding. Immediately prior to the transfer of said shares, all
existing intercompany debt owed by Red Rock to ILX shall be converted to a
contribution to capital by ILX such that no intercompany debt shall exist at the
time of the transfer. DR's percentage shall be based upon the total number of
Red Rock shares issued and outstanding after taking into account any additional
shares issued or to be issued in respect of such ILX capital contribution.
Within sixty (60) days following the transfer of shares to DR, ILX
shall "spinoff" thirty percent (30%) of the issued and outstanding shares of Red
Rock to the existing ILX shareholders. ILX shall then undertake to promptly
register Red Rock shares with the SEC with a view to listing Red Rock on NASDAQ
as soon as all requirements for listing are met. Either as part of the aforesaid
registration or by separate registration, and upon the advice of Red Rock's
underwriters, Red Rock shall undertake an initial public offering ("IPO") of
$2-5 Million Dollars. The DR Percentage shall not be diluted by, or at any time
prior to, the initial IPO (but may be diluted by subsequent public offerings in
the same manner as applicable to the other shareholders). In the event the IPO
does not occur within one (1) year after the date hereof, DR shall have the
right to terminate this Agreement.
4
<PAGE>
The DR shares shall be subject to a Stock Transfer Agreement to be
entered into concurrently herewith which shall contain the foregoing terms and
additional mutually acceptable terms, including a 2 year "lock up" provision and
a "buy-sell" agreement which shall provide, INTER ALIA, that DR shall be given
the opportunity to sell her shares prior to any sale of shares by Joseph Martori
(or any individual, trust or other entity related to Joseph Martori) and to
participate on an equal basis in all public and private offerings. A copy of the
Stock Transfer Agreement is attached hereto as Exhibit "A" and incorporated
herein by this reference.
Red Rock will pay for the cost of a professional valuation of both Red
Rock and the DR Percentage and DR's approval of such valuation shall be a
condition precedent to the effectiveness of this Agreement. The parties
acknowledge that the Mentor Group of Westlake Village, California has been
engaged to undertake such valuation.
9. DR OWNED PRODUCTS. Concurrently with the execution hereof, DR shall
quitclaim all of her interest in the personal care products listed in Exhibit
"B" hereof to Red Rock for the purpose of including same (either in present or
reformulated state) in the Red Rock Line. DR shall also concurrently grant an
exclusive license to Red Rock during the Term in the Territory to distribute and
sell the existing "make up and hair" videotape production featuring DR
previously delivered to Red Rock (the "Video") in the United States. The cost of
any necessary legal clearances in connection with the exploitation of the Video
shall be borne by Red Rock. Such products (together with the hairclip being
concurrently transferred to Red Rock by Todd Fisher) and the Video shall be
considered Products hereunder upon which Royalties are payable in accordance
with the terms hereof. DR shall have approval over all manner of distribution of
the Video and advertising therefor and same shall not be edited or modified
except with DR's written approval. DR may require that any editing of the Video
be undertaken by TF. Upon expiration of the Term, all materials relating to the
Video, including the video master and all copies thereof, shall be returned to
DR.
10. EXCLUSIVITY. During the Term hereof, DR shall not authorize the use
of DR's name, likeness or identifiable voice to appear in or endorse any
"Competitive Products" in the
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Territory. "Competitive Products" shall be defined as face, body, bath and hair
care products, but excluding make up and accessories.
11. TIMESHARE. In further consideration for the services of DR
hereunder, upon execution hereof, DR shall be granted a continuing one-week
timeshare interest at the "Stonehouse" lodging at the Hotel, which shall not be
subject to any yearly dues or other costs or assessments. Concurrently herewith
and as a condition precedent to DR's obligations hereunder, ILX shall deed to DR
and record in DR's name such timeshare interest.
12. TRAVEL AND EXPENSES. At any time DR's services hereunder are
required at a location other than the city of her residence, Red Rock shall
provide first-class air transportation and hotel accommodations for two,
together with payment of all expenses, including meals, incidentals and the
like. When DR's services are required in Sedona, the accommodations shall be,
when available, the Stonehouse lodging at the Hotel (or other accommodations
acceptable to DR if the Stonehouse is not available), and DR shall be provided
with first-class meals for DR and her guest and free use of all of the Hotel's
facilities and services. DR shall be provided with first-class ground
transportation (limousine if requested) to and from all airports, locations
where her services may be rendered and at all other times when desired by DR
while at a location.
13. HAIR STYLIST AND MAKE UP ARTIST. Red Rock agrees to utilize and pay
customary rates for DR's designated hair stylist and make up artist for all
services hereunder.
14. LEGAL FEES. Red Rock agrees to reimburse DR for all legal expenses
incurred in the review of any registration statements or other similar public
filing prepared by ILX and Red Rock, as contemplated hereunder. In addition, Red
Rock agrees to pay directly or reimburse DR for legal fees incurred in the
preparation, review and negotiation of this Agreement, and the related
agreements being executed concurrently herewith, not exceeding Twenty Thousand
Dollars ($20,000.00).
15. UNION SIGNATORY. Red Rock agrees that all television or radio
commercials produced hereunder shall be produced in a manner consistent with the
Union having jurisdiction
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<PAGE>
over same, and subject to all the terms and conditions of the applicable Union
Agreement. The production company involved shall be a Union Signatory. Red Rock
shall pay any minimum amounts required to be paid pursuant to such Union
Agreement to DR and in respect of pension, health and welfare contributions.
16. NO ASSIGNMENT. Red Rock shall not have the right to assign this
Agreement or its rights without DR's prior written approval.
17. BREACH. In the event of a breach hereof by Red Rock, DR shall have
the right to terminate this Agreement unless the breach is cured within fifteen
(15) days after Red Rock's receipt of notice thereof from Lender. Said notice
shall be five (5) business days with respect to payments hereunder. Upon any
termination of this Agreement, there shall be no further use or dissemination by
Red Rock of DR's name, voice or likeness, including, but not limited to, in or
in connection with any advertising, marketing or promotional materials or
products.
18. INDEMNIFICATION. Red Rock agrees to defend, indemnify and hold DR
and her representatives from and against any claims, losses, suits, liabilities,
obligations, costs and attorneys' fees which DR or DR's representatives may
suffer as a result of any actions (including, without limitation, consumer
actions) stemming directly or indirectly from DR's participation on behalf of
Red Rock, including, without limitation, any product liability claims, errors
and omissions claims, claims by competitors or governmental authorities.
19. INSURANCE. ILX and Red Rock shall name DR as an additional insured
on each of their product liability insurance policies, general liability
insurance policies and errors and omissions insurance policies. Said policies
shall initially be in an amount not less than One Million Dollars ($1,000,000)
per person and Five Million Dollars ($5,000,000) per occurrence, but shall be
raised to Two Million Dollars ($2,000,000) per person and Ten Million Dollars
($10,000,000) per occurrence on the earlier of the IPO or the commencement of
the second year of the Term. Such policies shall be maintained by Red Rock in
effect during the Term and for two (2) years thereafter. Said policies shall
further provide that DR will receive at least thirty (30) days advance notice of
termination of such insurance. Prior to the dissemination of any
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<PAGE>
commercials or other productions utilizing DR's name, voice or likeness, DR will
be provided with Certificates of Insurance with respect to such insurance. A
breach by Red Rock of this paragraph shall be a material breach of this
Agreement giving DR the right to terminate and to seek injunctive relief,
without limitation of any other remedies.
20. CHANGE OF CONTROL. DR shall have the right to terminate this
Agreement and her further obligations hereunder if Joseph P. Martori shall cease
to be the Chairman and Chief Executive Officer of ILX and Red Rock, as well as
the controlling shareholder of ILX and, if and when Red Rock is no longer a
subsidiary of ILX, Red Rock.
21. NOTICES. All notices, payments and statements given hereunder shall
be mailed, postage pre-paid, hand-delivered or, in the case of notices which do
not involve payment or an accounting statement, telefaxed. Notices shall be
effective on the third day after the date of mailing by United States mail or on
the date of telefax or hand delivery. Notices to the parties shall, until
further notice, be sent to the following addresses:
DR: RED ROCK/ILX
c/o Owen & De Salvo Company Red Rock Incorporated
1684 Ventura Boulevard, Suite 800 3840 North 16th Street
Studio City, California 91604 Phoenix, Arizona 85016
Attention: Mr. David De Salvo Attention: Joseph P. Martori
WITH COPY TO:
Kleinberg, Lopez, Lange, Brisbin & Cuddy
2049 Century Park East, Suite 3180
Los Angeles, California 90067-3863
Attention: Robert M. Lange, Esq.
22. GENERAL. This Agreement sets forth the entire Agreement between the
parties and supersedes all other written or oral agreements of the parties
relating to the subject matter hereof. This Agreement cannot be modified,
altered or amended except by an agreement in writing signed by each of the
parties. The failure of either party to this Agreement to object or take action
with respect to breach of this Agreement shall not be construed as a waiver said
breach or any future breach hereof. This Agreement shall be construed and
interpreted in accordance with
8
<PAGE>
the laws of the State of California, applicable to agreements to be executed and
performed therein. If either party initiates legal action to enforce this
Agreement, the prevailing party shall be entitled to recover, in addition to
such other relief as may be granted, all reasonable attorneys' fees and costs
incurred in connection with such litigation. Headings are for the convenience of
the parties and should not be used to construe meaning. This Agreement may be
executed in counterparts with some legal effect as if each party had signed the
same copy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the dated first indicated above.
RED ROCK INCORPORATED
/s/ Debbie Reynolds By: /s/ Joseph P. Martori
- -------------------------------- ---------------------------------
DEBBIE REYNOLDS
Its: CHIARMAN
--------------------------------
ILX INCORPORATED
By: /s/ Joseph P. Martori
---------------------------------
Its: CHAIRMAN
--------------------------------
9
LEASE AGREEMENT
Edward John Martori, hereinafter "Landlord", agrees to lease to Red Rock
Collection Incorporated, an Arizona corporation, hereafter "Tenant", and Tenant
agrees to lease from Landlord, the real property situated in Maricopa County,
Arizona, more particularly described in Exhibit "A" attached hereto located at
3840 North 16th Street, Phoenix, Arizona, hereafter "the premises", upon the
following terms and conditions:
1. TERM: The term of this Lease shall commence on the 29th day of December,
1995 and shall terminate on the 31st day of December, 1996. Tenant shall
have four options to extend the term, each for a successive additional one
calendar year period, by giving written notice thereof to Landlord at least
thirty (30) days in advance of the commencement of such extended term.
2. POSSESSION: Tenant shall take possession of the premises on December 29,
1995. Tenant shall be bound by all provisions of this Lese, including the
payment of rent, at all times Tenant is in possession of the premises.
3. RENT: Tenant agrees to pay Landlord as base rent FOUR THOUSAND DOLLARS
($4,000) per month for each month of the Lease. Rent is due on or before the
last day of each month and is payable at Landlord's offices or at such other
place as Landlord may designate in writing. Rent shall be prorated on the
basis of a thirty (30) day month for each partial month during the term of
this Lease or during which Tenant is in possession of the premises. All
other monetary obligations of Tenant under this Lease shall constitute
additional rent and shall be due as specified in each instance.
4. TAXES AND ASSESSMENTS: Tenant agrees to pay as additional rent during each
lese year or partial lease year of the term of this Lease, all real estate
and assessments levied and assessed for any such year upon the premises and
the underlying realty. For any partial lease year of the term hereof such
amount shall be pro rated on a daily basis. The amount to be paid by Tenant
shall be paid to Landlord at least five (5) days before the due date
thereof.
Tenant shall pay to Landlord, in addition to and along with the rental
otherwise payable hereunder, any excise, transaction, sales or privilege tax
not or hereafter imposed by any government or agency upon Landlord and
attributed to or measured by rent or prorations payable by Tenant.
5. OPERATING EXPENSES: The operating expenses of the premises shall be paid by
Tenant. The operating expenses of the Project include without limitations:
property taxes, special assessments, utilities, maintenance, supplies,
management fees, janitorial services, trash removal, fire and liability
insurance premiums, repairs and all other costs which can properly be
considered expenses of operating and maintaining the building and
surrounding property of which the premises are a part, including necessary
capital expenditures. Without limiting the generality of the foregoing,
Tenant shall at its own
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good and safe condition, including plate glass, heating and air conditioning
units, of, exterior walls, electrical wiring, plumbing and any other systems
or equipment upon the premises. Tenant will promptly pay when due all
electric, water, gas and other similar charges directly attributable to the
premises.
6. USE OF PREMISES: Tenant shall use the premises for the sole purpose of
office/warehouse use and shall not us or allow the premises to be used for
any illegal or objectionable purpose. Tenant shall at its own cost and
expense obtain all licenses and permits necessary for such use. Tenant shall
use its best efforts to comply with all governmental laws, ordinances and
regulations applicable to the use of the demised remises, and shall use its
beset efforts to promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the use of the demised premises all at Tenant's sole
expense. Tenant shall not operate its business in such manner so as to
constitute an annoyance to other tenants and shall endeavor to control its
customers so as to maintain an orderly premises. Tenant shall not do or
permit anything to be done which would increase the cost of any fire,
extended coverage or any other insurance covering the premises.
7. REPAIR: Tenant shall at its own expense keep the premises in good condition
and repair.
8. ASSIGNMENT: Tenant shall not assign or hypothecate this Lease, or enter into
a sublease relating to all or any portion of the premises, without
Landlord's prior written consent, which consent may be withheld in
Landlord's sole discretion. Any such assignment or subletting without
consent shall be void. Landlord's approval of any such assignment or
sublease shall not release Tenant from its obligations under this Lese or
constitute assent to any subsequent assignment or sublease.
9. RETURN OF PREMISES: Upon the termination of this Lease, Tenant shall return
the premises to Landlord in its original condition, ordinary wear and tear
and alterations or improvements not designated to be removed excepted.
10. INSURANCE: Tenant, during the term hereof, at its own expense, will provide
and keep in force for the benefit of Landlord and Tenant, as their
respective interests may appear, fire, comprehensive, plate glass and
general and public liability insurance protection with respect to the
premises and for claims for personal injury or death or property damage in
and about the premises with limits not less than $1,000,000 in the event of
bodily injury or death of any number of persons in any one accident and
limits of not less than $1,000,000 for damage to property, and shall provide
Landlord with a copy of the policy upon Landlord's written request. Tenant
shall name Landlord as an additional insured under the policy and provide
Landlord a certificate of insurance. The insurance shall be primary
insurance and shall provide that any right of subrogation against Landlord
is waived. The policy shall further provide that non act or omission by
Tenant shall impair the rights of the insured to receive the proceeds of the
policy and that the policy shall not be cancelled except upon thirty (30)
days prior written notice to each named insured.
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11. INDEMNIFICATION: Tenant shall indemnify, defend and hold Landlord harmless
from all actions, claims, demands, penalties or liabilities arising out of
events occurring in or about the premises or caused in whole or in part by
Tenant or Tenant's agents, servants, employees or invites, except for
matters attributable to Landlord's willful misconduct or gross negligence.
This indemnification shall include all costs and expenses and reasonable
attorney's fees which Landlord may expend in connection with any of the
foregoing.
12. LIMITATION OF LIABILITY: Landlord shall not be liable to Tenant for damages
nor shall Tenant be entitled to a reduction in rent by reason of any of the
following: (i) the Landlord's failure to provide utilities or services when
such failure is caused by accident, repairs, strikes, disturbances or any
other cause beyond the reasonable control of Landlord (ii) disruption to
Tenant's business caused by Landlords' repairs or improvements to the
project (iii) damages to the premises or Tenant's property unless caused by
Landlord's gross negligence or wilful misconduct.
13. NOTICE: All notices or demands under this Lease or required to be given by
law are to be made in writing by registered or certified mail, return
receipt requested, and are deemed given when deposited in the United States
mail postage prepaid and addressed to Landlord or Tenant at the addresses
set forth on the signature page of this Lease. Each party shall have the
right, from time to time, to designate a different address to which notices
and demands are to be sent by giving notice in the manner provided for above
except that Landlord may in any event use the premises as Tenant's address
for notice purposes.
14. ENTRY BY LANDLORD: Landlord shall have the right to enter the premises at
all reasonable times for the purposes of inspecting, repairing or
maintaining the premises, determining whether the terms of the Lease are
being complied with, posting such notices as Landlord deems advisable for
its protection, and showing the premises to prospective tenants, purchaser
or lenders. Landlord may at any time within ninety (90) days prior to the
expiration of this lease place upon the premises any customary "For Lease"
signs, and reasonably permit persons desiring to lease the same to inspect
the premises.
15. DEFAULT & REMEDIES:
(a) The occurrence of one or more of the following events shall constitute a
default of this Lease by Tenant:
(1) The abandonment of the premises by Tenant or absence of Tenant from
premises for thirty (30) days or longer while failing to comply with
any provision of this lease.
(2) The failure by Tenant to make any payment of rent or other payment
required to be made by Tenant under this Lease when due.
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(3) The failure by Tenant to observe or perform any provision of this
Lease other than the payment of money where such failure continues
for a period of thirty (30) days after written notice thereof from
Landlord to Tenant. This notice shall be in lieu of, and not in
addition to, any notice required under Arizona law.
(4) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition
under the United States Bankruptcy Code unless dismissed within
thirty (30) days; (iii) the appointment of a receiver or trustee to
take possession of substantially all of Tenant's assets located at
the premises or of this Lease where possession is not restored to
Tenant within thirty (30) days; (iv) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets
located on the premises where such seizure is not discharged within
thirty (30) days.
(b) In the event of any default by Tenant as defined above, Landlord may
exercise one or more of the following remedies in addition to any remedy
provided for at law or equity:
(1) With or without notice or process of law and using such force as
Landlord may deem reasonably necessary under the circumstances, and
without terminating this Lease or relieving Tenant of any obligation
hereunder, Landlord may re-enter and take possession of the premises
and of all property located therein. Under no circumstances shall
Landlord be liable in damages or otherwise by reason of the exercise
by Landlord of any such re-entry or eviction, or by reason of the
exercise by Landlord of any other remedy provided in this
subparagraph (b).
(2) In the event that Landlord recovers possession of the premises
without termination of this Lease, Tenant shall pay to Landlord all
sums due under this Leas on the dates due as if Tenant remained in
possession of the premises.
(3) Landlord may recover from Tenant, and Tenant shall pay upon demand,
all expenses incurred in recovering possession of the premises,
repairing and altering the premises for reletting, and attempting to
relet the premises, including commissions and attorneys fees.
(c) The remedies described in subparagraph (b) are cumulative and in
addition to any remedy at law or in equity. The filing of an action by
Landlord against Tenant requesting under one or more remedies shall not
be deemed an election of that remedy or remedies to the exclusion of all
others.
(d) Landlord shall be under no obligation to observe or perform any duty
imposed by this Lease which accrues after the date of any default by
Tenant.
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(e) The failure or delay of Landlord in exercising any right or remedy shall
not be construed as a waiver of any such right or remedy or of any
default by Tenant.
16. ATTORNEYS FEES: In the event any action or proceeding is brought by either
party against the other under this Lease, prevailing party shall be entitled
to recover from the other party its reasonable costs, expenses and
attorneys' fees.
17. WAIVER: The waiver by Landlord of Tenant's breach by any provision of this
Lease shall not constitute a continuing waiver of any subsequent breach by
Tenant of the same or other provision.
18. DEFAULT BY LANDLORD: Landlord shall not be in default unless Landlord fails
to perform is obligations under this Lease within thirty (30) days after
written notice by Tenant to Landlord specifying the obligations which the
Landlord has failed to perform. If an obligation is such that it cannot
reasonably be completed within such thirty (30) day period, Landlord shall
not be in default if Landlord commences performance within thirty (30) days
and thereafter diligently prosecutes the same to completion.
19. SURRENDER OF PREMISES: The surrender of this lease by Tenant to Landlord
shall not work a merger and shall, at the option of Landlord, operate as an
assignment to it of any subleases affecting the premises.
20. ESTOPPEL CERTIFICATE:
(a) Tenant shall upon not less than five (5) days prior written notice from
Landlord execute, acknowledge and deliver to Landlord a statement in
writing (i) certifying that this Lease is unmodified and in full force
and effect and if modified, stating the nature of such modification and
certifying that this L ease as modified is in full force and effect,
(ii) specifying the dates to which rental and other charges are paid in
advance, and (iii) acknowledging that there are no uncured defaults on
the part of Landlord or specifying such defaults if any are claimed. Any
such settlement may be relied upon by any prospective purchaser or
encumbrances of the real property of which the premises are a part.
(b) Tenant's failure to deliver such a statement within the time specified
above shall be conclusive upon Tenant (i) that this Lease is in full
force and effect and without modification except as may be represented
by Landlord, and (ii) that there are no uncured defaults by Landlord.
21. CONDITION OF PREMISES: Tenant acknowledges that neither the Landlord nor any
of the Landlord's agents has made any representation or warranty with
respect to the premises or building or with respect to the suitability of
either for the conduct of Tenant's business. Taking possession of the
premises by Tenant shall conclusively establish that the premises and
building were in good, sanitary order, condition and repair at such time.
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22. DESTRUCTION OF PREMISES: In the event that the premises or the building of
which the premises are a part are destroyed in whole or in part by fire or
other casualty, Landlord may terminate this Lease at its option. If Landlord
does not terminate this Lease and elects to repair the damage, this Lease
shall remain in full force and effect.
23. CONDEMNATION: If all or a portion of the leased premises are appropriated by
a public or quasi-public authority under the power or eminent domain or are
transferred by Landlord in lieu thereof, Landlord may terminate this Lease
without liability to Tenant for any unexpired term of this Lease. If this
Lease is not terminated as a result of such a appropriation or transfer,
base rent shall be equitably reduced. In either event, Landlord shall
entitled to the entire condemnation award or settlement except that Tenant
shall be entitled to any award made by such authority specifically to Tenant
for moving expenses or damages for disruption to Tenant's business.
24. LATE CHARGES: All sums due under this Lease not paid by Tenant within ten
(10) days from the date such payment is due shall be subject to a late
charge of the greater of Twenty Dollars ($20.00) or Five Percent (5%) of the
amount due and shall bear interest at a rate of Eighteen Percent (18%) per
annum until paid.
25 SALE BY LANDLORD: In the event of a sale or conveyance by Landlord of the
premises, the same shall operate to release Landlord from any future
liability upon any of the covenants or conditions, express or implied,
herein contained in favor of Tenant (so long as the purchaser expressly
assumes such liability), and in such event Tenant agrees to look solely to
the responsibility of the successor in interest of Landlord in and to this
Lease. This Lease shall not be affected by any such sale, and Tenant agrees
to attorn to the purchaser or assignee.
26. LANDLORD'S CONSENT: Except as otherwise provided herein, where Landlord's
consent is required under this Lease, such consent shall not be unreasonably
withheld.
27. APPLICABLE LAW: This lease shall be governed by the laws of the State of
Arizona.
28. TIME OF ESSENCE: Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
INTENDING TO BE LEGALLY BOUND, the parties have executed this Lease agreement
effective as of the 19th day of December, 1995.
LANDLORD: TENANT:
/s/ Edward John Martori Red Rock Collection Incorporated
- -------------------------------
Edward John Martori
2777 E. Camelback Road By: /s/ Michael Stone
Phoenix, Arizona 85016 -------------------------------
Its: President
------------------------------
2777 E. Camelback Road
Phoenix, Arizona 85016
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EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
The North 106 feet of Lots 4 and 5, of DUNDEE SUBDIVISION, according to the
plat of record in the office of the County Recorder of Maricopa County,
Arizona, recorded in Book 10 of Maps, Page 5.
EXCEPT the East 7 feet of the North 106 feet of Lot 5.
7
AGREEMENT
This Agreement is made and entered into as of the 29th day of December,
1995, by and among the following parties: ILX Incorporated, an Arizona
corporation ("ILX"), Martori Enterprises Incorporated, an Arizona corporation
("MEI"), Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"), Red Rock Collection Incorporated, an Arizona corporation
("RRC") , Edward John Martori ("EJM") and Joseph P. Martori as Trustee for
Cynthia J. Polich Irrevocable Trust dated June 1, 1989 ("Polich").
R E C I T A L S:
A. The parties desire to effect certain transactions whereby certain
existing agreements will be modified or otherwise affected; namely those
agreements represented by the following documents:
Installment Promissory Note in the face amount of $1,000,000 dated
October 1, 1994 made by ILX payable to EJM (the "EJM/LAP Note"), which
note is secured by ILX's Class A limited partnership interest in LAP.
Promissory Note in the face amount of $900,000 dated July 27, 1995 made
by LAP and ILX payable to EJM and Polich in accordance with their
respective participation interests therein (the "EJM/Polich Note") ,
which note is secured by 320 timeshare weeks in the Sedona Vacation
Club at Los Abrigados ("Weeks") as represented by that certain Deed of
Trust and Assignment of Rents dated July 27, 1995 and recorded July 27,
1995 in the Official Records of Coconino County at Instrument No.
95-21171 (the "EJM/Polich Deed of Trust").
Guarantee Fee Agreement dated as of September 9, 1991 between Arthur J.
Martori ("AJM") and Alan R. Mishkin and LAP (the "Guarantee Fee
Agreement"), AJM's interest under which was assigned to MEI pursuant to
that certain Memorandum of Guaranty/Partnership Interest Exchange
Agreement dated as of January 1, 1993 between MEI and Arthur J. Martori
and Sue L. Martori.
B. EJM and RRC desire to enter into a sale/leaseback transaction
involving the real property presently owned and occupied by RRC located at 3840
N. 16th Street, Phoenix, Arizona (the "RRC Building"), which real property was
recently independently appraised at $465,000.
C. The parties desire to memorialize said transactions by this one,
all-inclusive agreement.
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A G R E E M E N T:
1. MODIFICATION OF EJM NOTE. Effective after the January 1, 1996
payment, the EJM/LAP Note shall be amended and restated by the form of
Installment Promissory Note attached hereto as EXHIBIT "A" so as to be modified
so that the indented portion of the first paragraph thereof reads as follows:
Installments of interest only shall be payable quarterly on the first
day of January, April, July, and October of each year commencing April
1, 1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Upon maturity of the EJM/LAP Note, EJM shall have the option to convert all or
any portion of the note balance into ILX common stock at a price of $2.00 per
share; provided, however, that any such exercise shall not cause EJM's interest,
direct or indirect, in ILX to exceed 50%.
Except as specifically provided herein, the EJM/LAP Note (as amended and
restated) and security therefor shall remain in full force and effect and
unamended hereby.
2. MODIFICATION OF EJM/POLICH NOTE. Effective after the January 1, 1996
payment, and further subject to the simultaneous modifications described
hereinafter, the EJM/Polich Note shall be substituted with two notes, one
payable to EJM in the face amount of $550,000 (the "EJM/SVC Note") and one
payable to Polich in the face amount of $350,000 (the "Polich/SVC Note"). Both
such notes shall be in substantially the same format as the EJM/Polich Note,
except that the Note Rate in each shall be reduced to 10% and they shall each be
further modified so that the indented portions of the first paragraphs thereof
read as follows:
Payments of interest only shall be made quarterly on the first day of
January, April, July, and October of each year commencing April 1,
1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Simultaneously, 100 Weeks under the EJM/Polich Deed of Trust shall be released
in accordance with the form of Deed of Partial Release and Partial Reconveyance
attached hereto as EXHIBIT "B", and the following additional modifications shall
be made:
A. POLICH/SVC NOTE. The makers of the Polich/SVC Note shall make a cash
payment to Polich on or before January 5, 1996 such that the Polich/SVC
Note shall be reduced to a face amount of $250,000. The Polich/SVC Note
(as so reduced) shall be secured by 120 of the 220 Weeks remaining
subject to the EJM/Polich Deed of Trust by the execution and
recordation of the Assignment of Beneficial Interest Under Deed of
Trust in the form attached hereto as EXHIBIT "C". Upon maturity of the
Polich/SVC Note, Polich shall have the option to convert all or any
portion of the note balance into ILX common stock at a price of $2.00
per share; provided, however, that any such exercise shall not cause
Polich's interest, direct or indirect, in ILX to exceed 50%. The
Polich/SVC Note (taking
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into account all of the simultaneous modifications described in this
Agreement) shall be in the form attached hereto as EXHIBIT "D".
B. EJM/SVC NOTE. As payment by EJM of part of the Purchase Price for
the RRC Building (as such terms are defined and such transaction is
described hereinafter), the makers of the EJM/SVC Note shall credit the
account of RRC on their books in the amount of $320,000 and the EJM/SVC
Note shall be reduced to a face amount of $230,000 (the "Initial Note
Reduction"). The EJM/SVC Note (as so reduced) shall be secured by 100
of the 220 Weeks remaining subject to the EJM/Polich Deed of Trust by
the execution and recordation of the Assignment of Beneficial Interest
Under Deed of Trust in the form attached hereto as EXHIBIT "C". Upon
maturity of the EJM/SVC Note, EJM shall have the option to convert all
or any portion of the note balance into ILX common stock at a price of
$2.00 per share; provided, however, that any such exercise shall not
cause EJM's interest, direct or indirect, in ILX to exceed 50%. The
EJM/SVC Note (taking into account all of the simultaneous modifications
described in this Agreement) shall be in the form attached hereto as
EXHIBIT "E". Notwithstanding the foregoing, the EJM/SVC Note shall be
subject to further future reductions as described below.
3. ACQUISITION OF RRC BUILDING. EJM agrees to purchase from RRC, and
RRC agrees to sell to EJM, the RRC Building at a price of $500,000, with closing
to occur on or before December 29, 1995 by recordation of a Warranty Deed (along
with an Affidavit of Real Property Value) in the form attached hereto as EXHIBIT
"F". The Purchase Price shall be payable $320,000 by the Initial Note Reduction
with the $180,000 balance payable by "Subsequent Note Reductions" as hereinafter
described. RRC agrees to pay the last half 1995 taxes on or before the payment
due date thereof. Additional terms and conditions of the purchase and sale
transaction shall be as appears in Escrow Instructions attached hereto as
EXHIBIT "G".
EJM agrees to acquire the RRC Building subject to RRC'S outstanding purchase
money obligation represented by that certain All-Inclusive Purchase Money
Promissory Note Secured by All-Inclusive Purchase Money Deed of Trust in the
face amount of $225,000 dated January 18, 1994 made by RRC payable to GPH
Properties, Inc. ("GPH") (the "GPH Note"), which note is secured by the RRC
Building pursuant to that certain All-Inclusive Purchase Money Deed of Trust and
Assignment of Rents dated January 18, 1994 and recorded February 17, 1994 in the
Official Records of Maricopa County at Instrument No. 94-0135554 and re-recorded
November 4, 1994 at Instrument No. 94-0791828 (the "GPH Deed of Trust"), as well
as the underlying note and deed of trust. RRC warrants that the current
principal balance under the GPH Note is $180,000.
RRC hereby affirms and agrees to honor all remaining monetary and non-monetary
obligations under the GPH Note and the GPH Deed of Trust (the "Obligations").
ILX and LAP, solely for the benefit of EJM and not for the benefit of GPH or any
other third party, each hereby guarantees the Obligations. With respect to the
principal payment to be made in 1996 and the principal and interest payments to
be made thereafter under the GPH Note by or on behalf of RRC, as each such
payment is made, the makers of the EJM/SVC Note shall credit the account
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of RRC on their books the amount of such payment and the outstanding balance of
principal under the EJM/SVC Note shall be reduced (the "Subsequent Note
Reductions").
4. LEASE OF RRC BUILDING. Commencing December 29, 1995, EJM shall lease
to RRC the RRC Building at an annual rental of $48,000 payable $4,000 monthly on
a triple net basis. The term of the lease shall be one (1) year with four one
year options to renew by RRC. The lease shall be in the form attached hereto as
EXHIBIT "H".
5. GUARANTEE FEE AND HOLDBACK PAYMENTS. Effective after the January 1,
1996 fee and payment, and in consideration of $160,000 payable by LAP as
described below, MEI hereby forever relinquishes and waives its rights under the
Guarantee Fee Agreement to the guarantee fee and holdback payments as may be
accrued and unpaid on, due on or due after such effective date. Said sum shall
be payable $60,000 in cash on or before January 5, 1996 with the $100, 000
balance represented by a promissory note substantially in the form attached
hereto as EXHIBIT "I".
6. MISCELLANEOUS PROVISIONS. Any notice hereunder shall be given in
writing and hand-delivered. The provisions of this Agreement shall be governed
and interpreted in accordance with the laws of the State of Arizona. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. This instrument contains the entire
agreement of the parties and may not be modified except by a writing signed by
the parties affected thereby. Each provision of this Agreement is divisible and
separable from all others and the parties agree that each such provision shall
be fully enforceable notwithstanding the fact that one or more other provisions
may be determined to be illegal or otherwise unenforceable in whole or in part.
Should one or more of the provisions of this Agreement be determined to be
illegal, wholly or partially unenforceable, or unreasonable, the parties hereby
empower the Court to enforce any such provision to the fullest extent being
possible under Arizona law. Each of the parties hereto agrees in good faith to
execute such further or additional documents as may be necessary or appropriate
to fully carry out the intent and purpose of this Agreement. Time shall be of
the essence in the performance of each and every term of this Agreement. If any
action is brought by either party in respect of its rights under this Agreement,
the substantially prevailing party shall be entitled to recover from the other
party its court costs, and reasonable attorneys' fees as determined by the
Court, to the maximum extent permitted by law. No waiver by any party to insist
upon the strict performance of any covenant, duty, agreement, or condition of
this Agreement or to exercise any right or remedy upon a breach hereof shall
constitute a waiver of such remedy. No waiver shall effect or alter the
remainder of this Agreement, but each and every covenant, agreement, term and
condition thereof shall continue in full force and effect with respect to any
then existing or subsequent breach of this Agreement. This Agreement may be
executed in several counterparts, all of which taken together shall constitute
one Agreement binding upon all of the parties, notwithstanding that all of the
parties are not signatories to the original or the same counterpart.
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Effective as of the date and year first above written.
ILX Incorporated
By: /s/ Nancy J. Stone
------------------------------------
Its: Executive Vice President
-----------------------------------
Martori Enterprises Incorporated
By: /s/ Joseph P. Martori
------------------------------------
Its: Chairman
-----------------------------------
Los Abrigados Partners Limited Partnership
By: ILE Sedona Incorporated,
General Partner
By: /s/ Nancy J. Stone
--------------------------------
Its: Vice President
-------------------------------
Red Rock Collection Incorporated
By: /s/ Michael Stone
------------------------------------
Its: President
-----------------------------------
/S/ EDWARD JOHN MARTORI
Edward John Martori
/s/ Joseph P. Martori, Trustee
- ---------------------------------------
Joseph P. Martori as Trustee
for Cynthia J. Polich Irrevocable
Trust dated June 1, 1989
5
<PAGE>
EXHIBIT "A"
$909,078 EJM/LAP NOTE (AMENDED AND RESTATED)
<PAGE>
INSTALLMENT PROMISSORY NOTE
(AMENDED AND RESTATED)
$909,078 January 1, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned, ILX INCORPORATED, an Arizona
corporation (the "undersigned"), promises to pay to the order of Edward J.
Martori ("Payee"), at Phoenix, Arizona, or at such other place as the holder
hereof may from time to time designate, the principal sum of Nine Hundred Nine
Thousand and Seventy Eight Dollars ($909,078), together with interest thereon as
computed below, as follows:
Installments of interest only shall be payable quarterly on the first
day of January, April, July, and October of each year commencing April
1, 1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Interest shall be charged on the unpaid principal balance of this Note
to the date of maturity on a daily basis for the actual number of days any
portion of the principal is outstanding, computed on the basis of a 360-day
year, at a per annum rate (the "Note Rate") equal to eight percent (8%).
Upon maturity of this Note, Payee shall have the option to convert all
or any portion of the balance outstanding hereunder into ILX Incorporated common
stock at a price of $2.00 per share; provided, however, that any such exercise
shall not cause Payee's interest, direct or indirect, in ILX Incorporated to
exceed 50%.
The undersigned acknowledges that the undersigned has agreed to the
rate of interest represented by the Note Rate, and any additional charges, costs
and fees arising out of or related to the transaction of which this Note is a
part, to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful
money of the United State of America and in immediately available funds , and
when made shall be first applied to accrued costs, expenses and fees, if any,
then to accrued interest that has not yet been added to principal, and then to
the reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, without penalty or premium, provided that each such payment
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall
constitute a "default" hereunder, and, upon the occurrence of any of the
following, all obligations hereunder shall, at the option of the holder hereof,
become immediately due and payable, without presentment for payment, diligence,
grace, exhibition of this Note, protest, further demand or notice of any kind,
all of which are hereby expressly waived: (i) any sum owing hereunder or under
other indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or application for any form of relief under any provision of Title 11,
United States Code, as
1
<PAGE>
amended from time to time (the "Bankruptcy Code") or any other law pertaining to
reorganization, insolvency or readjustment of debts is filed by or against the
undersigned, its assets or affairs; (iii) the undersigned makes an assignment
for the benefit of creditors, is not paying debts as they become due, or is
granted an order for relief under any chapter of the Bankruptcy Code; (iv) a
custodian, as defined by the Bankruptcy Code, takes charge of any property of
the undersigned; (v) garnishment, attachment, levy or execution is issued
against any of the property or effects of the undersigned; (vi) there is a
termination, failure to exist or dissolution of the undersigned; or (vii) there
is any default or breach of any representation, warranty or covenant, or there
is any false statement or material omission, by the undersigned under any
document farming part of the transaction in respect of which this Note is made
or forming part of any other transaction under which the undersigned is indebted
to Payee.
The undersigned hereby agrees: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit shall be determined by a court without a jury.
This Note is secured by a Security Agreement dated July 1, 1994.
This Note is executed to be effective as of the date set forth above.
ILX INCORPORATED, an Arizona corporation
ATTEST: By: /s/ Nancy J. Stone
------------------------------------
Its: Executive Vice President
-----------------------------------
By: /s/
------------------------------------
Its: Vice President
-----------------------------------
2
<PAGE>
EXHIBIT "B"
DEED OF PARTIAL RELEASE AND PARTIAL RECONVEYANCE (100 WEEKS)
<PAGE>
Recording Requested by:
When recorded mail to:
Sam Ciatu, Esq.
c/o 2777 East Camelback Road
Phoenix, Arizona 85016
- --------------------------------------------------------------------------------
DEED OF PARTIAL RELEASE AND PARTIAL RECONVEYANCE
(BENEFICIARY)
JOSEPH P. MARTORI, Trustee for the CYNTHIA J. POLICH IRREVOCABLE TRUST dated
June 1, 1989 and EDWARD JOHN MARTORI, a single man, Beneficiaries under the Deed
of Trust executed by LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, AN ARIZONA
LIMITED PARTNERSHIP, as Trustor, dated JULY 27, 1995, and recorded JULY 27,
1995, in Docket/Book 1789, Page 134, Records of Coconino County, Arizona, hereby
releases and reconveys to the person or persons legally entitled thereto,
without covenant or warranty, express or implied, all the estate, title, and
interest acquired by Trustee under said Deed of Trust, in and to that portion of
the property described as follows:
An undivided 100/8,925 fee simple interest in and to the real property situated
in Coconino County, Arizona, more particularly described in Docket 1738, page
236 ET SEQ., at the office of the Coconino County Recorder, Coconino County,
Arizona. Together with all buildings, improvements and fixtures thereon.
The remaining property described in said Deed of Trust shall continue to be held
by Trustee under the terms thereof, and, as provided therein, this partial
reconveyance does not affect the personal liability of any person for payment of
the indebtedness secured thereby.
NOW THEREFORE, the Beneficiary does hereby partially release said Deed of Trust
pursuant to the provisions of Arizona Revised Statutes Section 33-707.
DATED: December 27, 1995
--------------------
/s/ Edward John Martori
------------------------------------
Edward John Martori, Beneficiary
The Cynthia J. Polich Irrevocable
Trust dated June 1, 1989, Beneficiary
By: /s/ Joseph P. Martori, Trustee
---------------------------------
Joseph P. Martori, Trustee
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC.,
1995 by EDWARD JOHN MARTORI.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC. 1995
by JOSEPH P. MARTORI who acknowledged to be the TRUSTEE of the CYNTHIA J. POLICH
IRREVOCABLE TRUST DATED JUNE 1, 1989, and that as such Trustee, being authorized
so to do, signed the name of the trust as such Trustee.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
<PAGE>
EXHIBIT "C"
ASSIGNMENTS OF BENEFICIAL INTEREST
UNDER DEED OF TRUST (100/120 WEEKS)
<PAGE>
Recording Requested by:
When recorded mail to:
Sam Ciatu, Esq.
c/o 2777 East Camelback Road
Phoenix, Arizona 85016
- --------------------------------------------------------------------------------
ASSIGNMENT OF BENEFICIAL INTEREST UNDER DEED OF TRUST
FOR VALUE RECEIVED, the undersigned Beneficiaries hereby assign and transfer to
JOSEPH P. MARTORI, TRUSTEE FOR THE CYNTHIA J. POLICH IRREVOCABLE TRUST DATED
JUNE 1, 1989 all beneficial interest under that certain Deed of Trust dated JULY
27, 1995 executed by LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, AN ARIZONA
LIMITED PARTNERSHIP, Trustor, to SECURITY TITLE AGENCY. AN ARIZONA CORPORATION,
Trustee, and recorded JULY 27, 1995, in Docket/Book 1789, Page 134, in the
records of Coconino County, Arizona, as it relates to the following described
real property:
An undivided 120/8,925 fee simple interest in and to the real property situated
in Coconino County, Arizona, more particularly described in Docket 1738, page
236 ET SEQ., at the office of the Coconino County Recorder, Coconino County,
Arizona. Together with all buildings, improvements and fixtures thereon.
IN WITNESS WHEREOF, said Beneficiaries have signed this instrument on December
19TH, 1995.
/s/ Edward John Martori
------------------------------------
Edward John Martori, Beneficiary
The Cynthia J. Polich Irrevocable
Trust dated June 1, 1989, Beneficiary
By: /s/ Joseph P. Martori, Trustee
---------------------------------
Joseph P. Martori, Trustee
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC.,
1995 by EDWARD JOHN MARTORI.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC. 1995
by JOSEPH P. MARTORI who acknowledged to be the TRUSTEE of the CYNTHIA J. POLICH
IRREVOCABLE TRUST DATED JUNE 1, 1989, and that as such Trustee, being authorized
so to do, signed the name of the trust as such Trustee.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
<PAGE>
Recording Requested by:
When recorded mail to:
Sam Ciatu, Esq.
c/o 2777 East Camelback Road
Phoenix, Arizona 85016
- --------------------------------------------------------------------------------
ASSIGNMENT OF BENEFICIAL MEREST UNDER DEED OF TRUST
FOR VALUE RECEIVED, the undersigned Beneficiaries hereby assign and transfer to
EDWARD JOHN MARTORI, A SINGLE MAN all beneficial interest under that certain
Deed of Trust dated JULY 27, 1995 executed by LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, AN ARIZONA LIMITED PARTNERSHIP, Trustor, to SECURITY TITLE AGENCY,
AN ARIZONA CORPORATION, Trustee, and recorded JULY 27, 1995 in Docket/Book 1789,
Page 134, in the records of Coconino County, Arizona, as it relates to the
following described real property:
An undivided 100/8,925 fee simple interest in and to the real property situated
in Coconino County, Arizona, more particularly described in Docket 1738, page
236 ET SEQ., at the office of the Coconino County Recorder, Coconino County,
Arizona. Together with all buildings, improvements and fixtures thereon.
IN WITNESS WHEREOF, said Beneficiaries have signed this instrument on December
19TH, 1995.
/s/ Edward John Martori
------------------------------------
Edward John Martori, Beneficiary
The Cynthia J. Polich Irrevocable
Trust dated June 1, 1989, Beneficiary
By: /s/ Joseph P. Martori, Trustee
---------------------------------
Joseph P. Martori, Trustee
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC.,
1995 by EDWARD JOHN MARTORI.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this 29 day of DEC. 1995
by JOSEPH P. MARTORI who acknowledged to be the TRUSTEE of the CYNTHIA J. POLICH
IRREVOCABLE TRUST DATED JUNE 1, 1989, and that as such Trustee, being authorized
so to do, signed the name of the trust as such Trustee.
My Commission Expires:
/s/ Michelle C. Parker
-----------------------------
Notary Public
<PAGE>
EXHIBIT "D"
$250,000 POLICH/SVC NOTE
<PAGE>
PROMISSORY NOTE
$250,000 January 1, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an' Arizona limited partnership, and ILX INCORPORATED, an Arizona
corporation (the "undersigned"), jointly and severally, promise to pay to the
order of Joseph P. Martori as Trustee for the Cynthia J. Polich Irrevocable
Trust dated June 1, 1989 ("Payee") , at Phoenix, Arizona, or at such other place
as the holder hereof may from time to time designate, the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000), together with interest thereon as
computed below, as follows:
Payments of interest only shall be made quarterly on the first day of
January, April, July, and October of each year commencing April 1,
1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Interest shall be charged on the unpaid principal balance of this Note
from the date hereof to the date of maturity on a daily basis for the actual
number of days any portion of the principal is outstanding, computed on the
basis of a 360-day year, at a per annum rate (the "Note Rate") equal to ten
percent (10%).
Upon maturity of this Note, Payee shall have the option to convert all
or any portion of the balance outstanding hereunder into ILX Incorporated common
stock at a price of $2.00 per share; provided, however, that any such exercise
shall not cause Payee's interest, direct or indirect, in ILX Incorporated to
exceed 50%.
The undersigned acknowledges that the undersigned has agreed to the
rate of interest represented by the Note Rate, and any additional charges, costs
and fees arising out of or related to the transaction of which this Note is a
part, to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful
money of the United State of America and in immediately available funds, and
when made shall be first applied to accrued costs, expenses and fees, if any,
then to accrued interest that has not yet been added to principal, and then to
the reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, without penalty or premium, provided that each such payment
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall
constitute a "default" hereunder, and, upon the occurrence of any of the
following, all obligations hereunder shall, at the option of the holder hereof,
become immediately due and payable, without presentment for payment, diligence,
grace, exhibition of this Note, protest, further demand or notice of any kind,
all of which are hereby expressly waived: (i) any sum owing hereunder or under
other indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or
1
<PAGE>
application for any form of relief under any provision of Title 11, United
States Code, as amended from time to time (the "Bankruptcy Code") or any other
law pertaining to reorganization, insolvency or readjustment of debts is filed
by or against the undersigned, its assets or affairs; (iii) the undersigned
makes an assignment for the benefit of creditors, is not paying debts as they
become due, or is granted an order for relief under any chapter of the
Bankruptcy Code; (iv) a custodian, as defined by the Bankruptcy Code, takes
charge of any property of the undersigned; (v) garnishment, attachment, levy or
execution is issued against any of the property or effects of the undersigned;
(vi) there is a termination, failure to exist or dissolution of the undersigned;
or (vii) there is any default or breach of any representation, warranty or
covenant, or there is any false statement or material omission, by the
undersigned under any document forming part of the transaction in respect of
which this Note is made or forming part of any other transaction under which the
undersigned is indebted to Payee.
The undersigned hereby agree: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be, paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit shall be determined by a court sitting without
a jury.
This Note is secured by a Deed of Trust and Assignment of Rents dated
July 27, 1995, as modified.
2
<PAGE>
This Note is executed to be effective as of the date set forth above.
LOS ABRIGADOS PARTNERS LIMITED ILX INCORPORATED, an Arizona
PARTNERSHIP, an Arizona limited corporation
partnership By: /s/ Nancy J. Stone
---------------------------------
By: ILE SEDONA INCORPORATED, an Its: Executive Vice President
Arizona corporation, its general --------------------------------
partner
By: /s/ Nancy J. Stone
---------------------------------
Its: Vice President
--------------------------------
3
<PAGE>
EXHIBIT "E"
$230,000 EJM/SVC NOTE
<PAGE>
PROMISSORY NOTE
$230,000 January 1, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an' Arizona limited partnership, and ILX INCORPORATED, an Arizona
corporation (the "undersigned") , jointly and severally, promise to pay to the
order of Edward John Martori ("Payee"), at Phoenix, Arizona, or at such other
place as the holder hereof may from time to time designate, the principal sum of
Two Hundred Thirty Thousand Dollars ($230,000), together with interest thereon
as computed below, as follows:
Payments of interest only shall be made quarterly on the first day of
January, April, July, and October of each year commencing April 1,
1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Interest shall be charged on the unpaid principal balance of this Note
from the date hereof to the date of maturity on a daily basis for the actual
number of days any portion of the principal is outstanding, computed on the
basis of a 360-day year, at a per annum rate (the "Note Rate") equal to ten
percent (10%).
Upon maturity of this Note, Payee shall have the option to convert all
or any portion of the balance outstanding hereunder into ILX Incorporated common
stock at a price of $2.00 per share; provided, however, that any such exercise
shall not cause Payee's interest, direct or indirect, in ILX Incorporated to
exceed 50%.
The undersigned acknowledges that the undersigned has agreed to the
rate of interest represented by the Note Rate, and any additional charges, costs
and fees arising, out of or related to the transaction of which this Note is a
part, to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful
money of the United State of America and in immediately available funds, and
when made shall be first applied to accrued costs, expenses and fees, if any,
then to accrued interest that has not yet been added to principal, and then to
the reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, without penalty or premium, provided that each such payment
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall
constitute a "default" hereunder, and, upon the occurrence of any of the
following, all obligations hereunder shall, at the option of the holder hereof,
become immediately due and payable, without presentment for payment, diligence,
grace, exhibition of this Note, protest, further demand or notice of any kind,
all of which are hereby expressly waived: (i) any sum owing hereunder or under
other indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or application for any form of relief under any provision of Title 11,
United States Code, as
1
<PAGE>
amended from time to time (the "Bankruptcy Code") or any other law pertaining to
reorganization, insolvency or readjustment of debts is filed by or against the
undersigned, its assets or affairs; (iii) the undersigned makes an assignment
for the benefit of creditors, is not paying debts as they become due, or is
granted an order for relief under any chapter of the Bankruptcy Code; (iv) a
custodian, as defined by the Bankruptcy Code, takes charge of any property of
the undersigned; (v) garnishment, attachment, levy or execution is issued
against any of the property or effects of the undersigned; (vi) there is a
termination, failure to exist or dissolution of the undersigned; or (vii) there
is any default or breach of any representation, warranty or covenant, or there
is any false statement or material omission, by the undersigned under any
document forming part of the transaction in respect of which this Note is made
or forming part of any other transaction under which the undersigned is indebted
to Payee.
The undersigned hereby agree: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit shall be determined by a court sitting without
a jury.
This Note is secured by a Deed of Trust and Assignment of Rents dated
July 27, 1995, as modified.
2
<PAGE>
This Note is executed to be effective as of the date set forth above.
LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, an Arizona limited partnership
LOS ABRIGADOS PARTNERS LIMITED ILX INCORPORATED, an Arizona
PARTNERSHIP, an Arizona limited corporation
partnership By: /s/ Nancy J. Stone
---------------------------------
By: ILE SEDONA INCORPORATED, an Its: Executive Vice President
Arizona corporation, its general --------------------------------
partner
By: /s/ Nancy J. Stone
---------------------------------
Its: Vice President
--------------------------------
3
<PAGE>
EXHIBIT "F"
WARRANTY DEED AND AFFIDAVIT OF REAL PROPERTY VALUE
<PAGE>
When recorded, mail to:
Edward John Martori
c/o: General Counsel
2777 East Camelback
Phoenix, AZ 85016
WARRANTY DEED
For the consideration of Ten Dollars, and other valuable
considerations, I or we, RED ROCK COLLECTION INCORPORATED, an Arizona
corporation, do hereby convey to Edward John Martori, a single man, the
following real property situated in Maricopa county, Arizona:
The North 106 feet of Lots 4 and 5, of DUNDEE SUBDIVISION, according to
the plat of record in the office of the County Recorder of Maricopa
County, Arizona, recorded in Book 10 of Maps, Page 5.
EXCEPT the East 7 feet of the North 106 feet of Lot 5.
Subject to current taxes and assessments, reservations and all
easements, rights of way, covenants, conditions, restrictions, liens and
encumbrances of record.
And I or we do warrant the title against all persons whomsoever subject
to the matters above set forth.
Dated this 28th day of December, 1995.
RED ROCK COLLECTION INCORPORATED,
an Arizona corporation
By: /s/ Michael Stone
----------------------------------
Its: President
---------------------------------
STATE OF ARIZONA )
) ss.
County of Maricopa
The foregoing instrument was acknowledged before me this 28th day of December,
1995, by Michael J. Stone, President of RED ROCK COLLECTION INCORPORATED, an
Arizona corporation, on behalf of the corporation.
/s/ Michelle C. Parker
---------------------------------
Notary Public
My commission will expire:
<PAGE>
EXHIBIT "G"
ESCROW INSTRUCTIONS
<PAGE>
ESCROW INSTRUCTIONS TO FIRST AMERICAN TITLE
2929 East Camelback Rd, Suite 125, Phoenix, AZ. 85016
(602) 224-0223 ! Fax: (602) 381-1833
DATE: 12/27/95 ESCROW OFFICER: DONALD M. MILTZ ESCROW NO. 213-222-692147
RED ROCK COLLECTION INCORPORATED, an Arizona corporation
HEREIN CALLED SELLER
ADDRESS: 2777 East Camelback Road, Phoenix, AZ 85016
TELEPHONE NO. home work (602) 957-2777
AND
EDWARD JOHN MARTORI, an unmarried man
HEREIN CALLED BUYER
ADDRESS: 2777 East Camelback Road, Phoenix, AZ 85016
TELEPHONE NO. home work (602) 957-2777
hereby employ FIRST AMERICAN TITLE INSURANCE COMPANY to act as ESCROW AGENT in
connection with a sale of the hereafter described property upon the following
terms and conditions, including the General Provisions incorporated herein,
which shall be complied with by said parties on 12/29/95 , except as otherwise
specified herein.
THESE INSTRUCTIONS ARE NOT BINDING UPON ESCROW AGENT UNTIL FULLY EXECUTED AND
DEPOSITED WITH ESCROW AGENT.
The North 106 feet of Lots 4 and 5, of DUNDEE SUBDIVISION, according to the plat
of record in the office of the County Recorder of Maricopa County, Arizona.
recorded in Book 10 of Maps, Page 5. EXCEPT the East 7 feet of the North 106
feet of Lot 5.
SELLER REPRESENTS PROPERTY ADDRESS TO BE: 3840 NORTH 16TH STREET, PHOENIX,
ARIZONA
<TABLE>
<CAPTION>
==================================================================================================
<S> <C> <C> <C> <C>
SALES PRICE $500,000 PARTY OBLIGATIONS (X) SELLER BUYER
- ---------------------------------------------------------------------------------------------------
which is represented by: ESCROW FEE X X
EARNEST MONEY $ TITLE POLICY INSURING:
Paid Direct & Outside of Escrow $500,000 0OWNER X X
pursuant to agmt. between parties TRANSFER FEES (IF ANY) X X
IMPROVEMENT LIEN ASMTS X X
BROKER COMMISSION None Present. if any X
Future. if any X
FIRE INSURANCE POLICY Buyer to
obtain new outside of escrow.
RECORDING FEES: As per custom
THERE SHALL BE NO PRORATIONS
==================================================================================================
NET PROCEED due Seller to be payable NO PERSONAL PROPERTY INCLUDED IN
to Seller. THIS ESCROW.
==================================================================================================
</TABLE>
SEE THE FOLLOWING PAGES FOR CONTINUED TERMS AND CONDITIONS
THESE ESCROW INSTRUCTIONS CONSIST OF 3 PAGES, PLUS ANY NOTED EXHIBITS
SELLER'S SIGNATURES: BUYER'S SIGNATURES:
RED ROCK COLLECTION INCORPORATED,
An Arizona Corporation /s/ Edward John Martori
---------------------------------- ----------------------------------
EDWARD JOHN MARTORI
By: /s/ Micahael Stone
---------------------------------- ----------------------------------
Its: President
Page 1 of 4
<PAGE>
GENERAL PROVISIONS
SELLER AND BUYER AGREE:
1. That Escrow Agent, in connection with these instructions, cannot give legal
advice to any party hereto.
2. To deposit with Escrow Agent all documents and monies necessary to complete
the sale as established by the terms at these instructions.
3. That all funds for the escrow be paid to Escrow Agent unless otherwise
specified and that the disbursement of any funds be made by check of Escrow
Agent.
4. Escrow Agent is authorized to act upon any statement furnished by a
lienholder or his agent, without liability or responsibility for the
accuracy of such statements.
5. Escrow Agent is authorized to pay (ram available funds held by it for said
purposes any amounts necessary to procure documents and to pay charges and
obligations necessary to consummate this transaction.
6. Escrow Agent shall have no responsibility to see that fire insurance
provided for herein is renewed upon expiration or otherwise kept in force,
either during the interim and/or subsequent to close of escrow and further
authorize Escrow Agent to complete the necessary Fire Insurance Endorsement
Request.
7. That when these instructions and all title requirements have been complied
with, Escrow Agent is authorized to deliver or record in. the appropriate
public office all necessary documents. disburse all funds and have said
Title Insurance Policy issued.
8. That any amendments or addendums to these escrow instructions shall be in
writing, executed by the Seller and Buyer. Escrow Agent shall not be bound
by any unilateral instructions.
9. To indemnify and save harmless Escrow Agent against all costs, damages,
attorney's fees, expenses and liabilities which it may incur or sustain in
connection with these instructions or any interpleader action and will pay
the same on demand.
10. To grant Escrow Agent a lien upon the property herein described and
authority to reimburse and offset itself for its charges and for all damages
or expenses which it may incur or sustain in connection herewith, from all
of the rights, title and interest of the Seller and Buyer in all of the
documents and money deposited hereunder.
11. If any date for compliance with these instructions occurs an a day Escrow
Agent is closed for business, the requirement may be met on the next
succeeding day Escrow Agent is open for business. `Close at Escrow' shall
mean the effective date of the Policy of Title Insurance.
12. It either party. after having fully complied, elects to cancel these
instructions because of the failure of the other party to comply with any of
the terms within the time limits provided herein, the party electing to
cancel shall deliver to Escrow Agent a written notice these instructions
shall be cancelled. If other party fails to comply, these instructions shall
be cancelled. Escrow Agent shall:
First: Pay to the party electing to cancel any earnest money deposited, and
pay other money to the party who made the deposit.
Second: Return all documents deposited to the party who delivered them,
except documents executed by both Seller and Buyer, which shall be
retained in the cancelled Escrow file.
13. Escrow Agent shall, within three (3) days after receipt of any Notice,
Demand or Declaration, send it to the party to whom it is directed by
enclosing a copy of said instrument in an envelope addressed to said party
at the last written address which said party shall have filed with Escrow
Agent. If no written address has been filed, the notice shall be sent in
care of General Delivery at the City in which the office of the Escrow Agent
is located as shown on the first Page at these instructions. The notice
shall be deposited in the United States mail. The mailing of any such
instrument by Escrow Agent in the manner herein provided shall constitute
notice at the contents of such instrument to the party to whom the
instrument is directed as of the date of such mailing and no further notice
shall be required.
14. Escrow Agent shall not accept payments under a cancellation notice, unless
in cash, certified or cashier's check or money order.
15. It under these instructions a commission is to be paid to a licensed Real
Estate Broker, regardless of the provisions of Paragraph 12(a) above, upon
the cancellation of these instructions by notice the Real Estate Broker
shall receive one-half of the earnest money, not to exceed the total amount
of commission. Further, the party obligated to pay the commission shall not
acquiesce in any mutual cancellation without written approval of the Real
Estate Broker.
16. Escrow Agent has the right to resign upon written notice thereof mailed to
the parties ten (10) business days prior to the effective date. If such
right is exercised, all funds and documents shall be returned to the party
who deposited them except documents executed by both Seller and Buyer which
shall be retained in the cancelled Escrow file.
17. Escrow Agent may at its election, in the event of any conflicting demands
made upon it concerning these instructions or this escrow, hold any money
and documents deposited hereunder until it receives mutual instructions by
all parties or until a civil action shall have been concluded in a court of
competent jurisdiction, determining the rights of the parties. In the
alternative, Escrow Agent may at anytime at its discretion, commence a civil
action to interplead any conflicting demands to a court of competent
jurisdiction. In the event of any interpleader action commenced by Escrow
Agent, Escrow Agent shall be entitled to recover reasonable attorney's fees
and expert witness expenses together with all costs incurred in such action.
The order discharging Escrow Agent shall provide for the payment of such
fees and expenses from the amount deposited into court by Escrow Agent and,
to the extent such sum is insufficient to fully reimburse Escrow Agent. the
court shall designate the party or parties responsible for any additional
payment.
18. In the event of any litigation or arbitration relating to the interpretation
or enforcement of these instructions or any provision hereof, or seeking a
declaration of the rights or obligations of any party hereunder, the
prevailing party or parties in such proceedings will be entitled to recover,
in addition to any other available remedy, reasonable attorney's fees.
expert witness fees and all costs incurred therein, which fees and expenses
shall be determined by the court or arbitrator, and not by a jury, in a
separate proceeding. The rights of Escrow Agent
Page 2 of 4
<PAGE>
under this provision are in addition to any rights which Escrow Agent may
have under any indemnification provision of these instructions. Any action
shall be commenced in the county in which the real property subject to these
instructions is situated.
19. To complete and execute the Standard Account Servicing Instructions of
Escrow Agent if Escrow Agent is hereby employed and appointed to act as
Account Servicing Agent.
20. The title insurance to be provided, unless otherwise specified, shall be
evidenced by the standard coverage form of title insurance of First American
Title Insurance Company, on file with the Insurance Director of the State of
Arizona subject to exceptions shown in the Commitment for Title Insurance
and Policy of Title Insurance issued.
NOTE: There are some matters for which First American Title assumes no
liability, including but not limited to unrecorded liens, personal
property taxes; transfer of personal property, utility charges,
boundary lines, location of improvements and possession; compliance
with zoning, building ordinances and building restrictions;
reservations and exceptions in Patents.
Page 3 of 4
<PAGE>
ESCROW INSTRUCTIONS TO - FIRST AMERICAN TITLE
2929 East Camelback Rd, Suite 125, Phoenix, AZ. 85016
(602) 224-0223
DATE: 12/27/95 ESCROW NO. 213-222-692147
- --------------------------------------------------------------------------------
CONTINUED TERMS AND CONDITIONS:
1. The parties hereto agree these escrow instructions are the final agreement
between the Buyer and Seller.
2. The Buyer understands and agrees that the following items will be shown as
exceptions to Schedule B to the policy of title insurance to be issued in
conjunction herewith:
"A Deed of Trust given to secure an indebtedness in the original
principal amount of $100,000.00, together with any and all other
obligations secured thereby, dated March 16, 1993, recorded
April 1, 1993, in 93-0194692 of Official Records.
TRUSTOR : GPH PROPERTIES, INC., an Arizona corporation
TRUSTEE : M & I THUNDERBIRD BANK, an Arizona corporation
BENEFICIARY : M & I THUNDERBIRD BANK, an Arizona corporation
AND
A Deed of Trust given to secure an indebtedness in the original
principal amount of $225,000.00, together with any and all other
obligations secured thereby, dated January 18, 1994, recorded
February 17, 1994, in 94-0135554 of Official Records and
re-recorded November 4, 1994 in 94-0791828 of Official Records.
TRUSTOR : RED ROCK COLLECTION INCORPORATED, an Arizona
corporation
TRUSTEE : UNITED TITLE AGENCY OF ARIZONA, INC., an Arizona
corporation
BENEFICIARY : GPH PROPERTIES, INC., an Arizona corporation"
3. These Escrow Instructions may be signed in counterpart with each such
counterpart to be deemed an original hereof. Telefax signatures shall be fully
binding upon the parties and shall be deemed as if original.
Page 4 of 4
<PAGE>
EXHIBIT "H"
RRC BUILDING LEASE
<PAGE>
LEASE AGREEMENT
Edward John Martori, hereafter "Landlord", agrees to lease to Red Rock
Collection Incorporated, an Arizona corporation, hereafter "Tenant", and Tenant
agrees to lease from Landlord, the real property situated in Maricopa County,
Arizona, more particularly described in Exhibit "A" attached hereto located at
3840 N. 16th Street, Phoenix, Arizona, hereafter "the premises", upon the
following terms and conditions:
1. TERM: The term of this Lease shall commence on the 29th day of December,
1995 and shall terminate on the 31st day of December, 1996. Tenant shall
have four options to extend the term, each for a successive additional one
calendar year period, by giving written notice thereof to Landlord at least
thirty (30) days in advance of the commencement of such extended term.
2. POSSESSION: Tenant shall take possession of the premises on December 29,
1995. Tenant shall be bound by all provisions of this Lease, including the
payment of rent, at all times Tenant is in possession of the premises.
3. RENT: Tenant agrees to pay Landlord as base rent FOUR THOUSAND DOLLARS
($4,000) per month for each month of the Lease. Rent is due on or before the
last day of each month and is payable at Landlord's offices or at such other
place as Landlord may designate in writing. Rent shall be prorated on the
basis of a thirty (30) day month for each partial month during the term of
this Lease or during which Tenant is in possession of the premises. All
other monetary obligations of Tenant under this Lease shall constitute
additional rent and shall be due as specified in each instance.
4. TAXES AND ASSESSMENTS: Tenant agrees to pay as additional rent during each
lease year or partial lease year of the term of this lease, all real estate
taxes and assessments levied and assessed for any such year upon the
premises and the underlying realty. For any partial lease year of the term
hereof such amount shall be pro rated on a daily basis. The amount to be
paid by Tenant shall be paid to Landlord at least five (5) days before the
due date thereof.
Tenant shall pay to Landlord, in addition to and along with the rental
otherwise payable hereunder, any excise, transaction, sales or privilege tax
now or hereafter imposed by any government or agency upon Landlord and
attributed to or measured by rent or prorations payable by Tenant.
5. OPERATING EXPENSES: The operating expenses of the premises shall be paid by
Tenant. The operating expenses of the Project include without limitation:
property taxes, special assessments, utilities, maintenance, supplies,
management fees, janitorial services, trash removal, fire and liability
insurance premiums, repairs and all other costs which can properly be
considered expenses of operating and maintaining the building and
surrounding property of which the premises are a part, including necessary
capital expenditures. Without limiting the generality of the foregoing,
Tenant shall at its own expense and at all times maintain the premises in
good and safe condition, including plate glass, heating and air conditioning
units, roof, exterior walls, electrical wiring, plumbing
1
<PAGE>
and any other systems or equipment upon the premises. Tenant will promptly
pay when due all electric, water, gas and other similar charges directly
attributable to the premises.
6. USE OF PREMISES: Tenant shall use the premises for the sole purpose of
office/warehouse use and shall not use or allow the premises to be used for
any illegal or objectionable purpose. Tenant shall at its own cost and
expense obtain all licenses and permits necessary for such use. Tenant shall
use its best efforts to comply with all governmental laws, ordinances and
regulations applicable to the use of the demised premises, and shall use its
best efforts to promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the use of the demised premises all at Tenant's sole
expense. Tenant shall not operate its business in such manner so as to
constitute an annoyance to other tenants and shall endeavor to control its
customers so as to maintain an orderly premises. Tenant shall not do or
permit anything to be done which would increase the cost of any fire,
extended coverage or any other insurance covering the premises.
7. REPAIR: Tenant shall at its own expense keep the premises in good condition
and repair.
8. ASSIGNMENT: Tenant shall not assign or hypothecate this Lease, or enter into
a sublease relating to all or any portion of the premises, without
Landlord's prior written consent, which consent may be withheld in
Landlord's sole discretion. Any such assignment or subletting without
consent shall be void. Landlord's approval of any such assignment or
sublease shall not release Tenant from its obligations under this Lease or
constitute assent to any subsequent assignment or sublease.
9. RETURN OF PREMISES: Upon the termination of this Lease, Tenant shall return
the premises to Landlord in its original condition, ordinary wear and tear
and alterations or improvements not designated to be removed excepted.
10. INSURANCE: Tenant, during the term hereof, at its own expense, will provide
and keep in force for the benefit of Landlord and Tenant, as their
respective interests may appear, fire, comprehensive, plate glass and
general and public liability insurance protection with respect to the
premises and for claims for personal injury or death or property damage in
and about the premises with limits not less than $1,000,000 in the event of
bodily injury or death of any number of persons in any one accident and
limits of not less that $1,000,000 for damage to property, and shall provide
Landlord with a copy of the policy upon Landlord's written request. Tenant
shall name Landlord as an additional insured under the policy and provide
Landlord a certificate of insurance. The insurance shall be primary
insurance and shall provide that any right of subrogation against Landlord
is waived. The policy shall further provide that no act or omission by
Tenant shall impair the rights of the insured to receive the proceeds of the
policy and that the policy shall not be canceled except upon thirty (30)
days prior written notice to each named insured.
11. INDEMNIFICATION: Tenant shall indemnify, defend and hold Landlord harmless
from all actions, claims, demands, penalties or liabilities arising out of
events occurring in or about the premises or caused in whole or in part by
Tenant or Tenant's agents, servants,
2
<PAGE>
employees or invites, except for matters attributable to Landlord's willful
misconduct or gross negligence. This indemnification shall include all costs
and expenses and reasonable attorney's fees which Landlord may expend in
connection with any of the foregoing.
12. LIMITATION OF LIABILITY: Landlord shall not be liable to Tenant for damages
nor shall Tenant be entitled to a reduction in rent by reason of any of the
following: (i) Landlord's failure to provide utilities or services when such
failure is caused by accident, repairs, strikes, disturbances or any other
cause beyond the reasonable control of Landlord (ii) disruption to Tenant's
business caused by Landlord's repairs or improvements to the project (iii)
damages to the premises or Tenant's property unless caused by Landlord's
gross negligence or willful misconduct.
13. NOTICE: All notices or demands under this Lease or required to be given by
law are to be made in writing by registered or certified mail, return
receipt requested, and are deemed given when deposited in the United States
mail postage prepaid and addressed to Landlord or Tenant at the addresses
set forth on the signature page of this Lease. Each party shall have the
right, from time to time, to designate a different address to which notices
and demands are to be sent by giving notice in the manner provided for above
except that Landlord may in any event use the premises as Tenant's address
for notice purposes.
14. ENTRY BY LANDLORD: Landlord shall have the right to enter the premises at
all reasonable times for the purposes of inspecting, repairing or
maintaining the premises, determining whether the terms of the Lease are
being complied with, posting such notices as Landlord deems advisable for
its protection, and showing the premises to prospective tenants, purchasers
or lenders. Landlord may at any time within ninety (90) days prior to the
expiration of this lease place upon the premises any customary "For Lease"
signs, and reasonably permit persons desiring to lease the same to inspect
the premises.
15. DEFAULT & REMEDIES:
(a) The occurrence of one or more of the following events shall constitute a
default of this Lease by Tenant:
(1) The abandonment of the premises by Tenant or absence of Tenant from
premises for thirty (30) days or longer while failing to comply with
any provision of this Lease.
(2) The failure by Tenant to make any payment of rent or other payment
required to be made by Tenant under this Lease when due.
(3) The failure by Tenant to observe or perform any provision of this
Lease other than the payment of money where such failure continues
for a period of thirty (30) days after written notice thereof from
Landlord to Tenant. This notice shall be in lieu of, and not in
addition to, any notice required under Arizona law.
3
<PAGE>
(4) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition
under the United States Bankruptcy Code unless dismissed within
thirty (30) days; (iii) the appointment of a receiver or trustee to
take possession of substantially all of Tenant's assets located at
the premises or of this Lease where possession is not restored to
Tenant within thirty (30) days; (iv) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets
located on the premises where such seizure is not discharged within
thirty (30) days.
(b) In the event of any default by Tenant as defined above. Landlord may
exercise one or more of the following remedies in addition to any remedy
provided for at law or equity:
(1) With or without notice or process of law and using such force as
Landlord may deem reasonably necessary under the circumstances, and
without terminating this Lease or relieving Tenant of any obligation
hereunder, Landlord may re-enter and take possession of the premises
and of all property located therein. Under no circumstances shall
Landlord be liable in damages or otherwise by reason of the exercise
by Landlord of any such re-entry or eviction, or by reason of the
exercise by Landlord of any other remedy provided in this
subparagraph (b).
(2) In the event that Landlord recovers possession of the premises
without termination of this Lease, Tenant shall pay to Landlord all
sums due under this Lease on the dates due as if Tenant remained in
possession of the premises.
(3) Landlord may recover from Tenant, and Tenant shall pay upon demand,
all expenses incurred in recovering possession of the premises,
repairing and altering the premises for reletting, and attempting to
relet the premises, including commissions and attorney fees.
(c) The remedies described in subparagraph (b) are cumulative and in
addition to any remedy at law or in equity. The filing of an action by
Landlord against Tenant requesting under one or more remedies shall not
be deemed an election of that remedy or remedies to the exclusion of all
others.
(d) Landlord shall be under no obligation to observe or perform any duty
imposed by this Lease which accrues after the date of any default by
Tenant.
(e) The failure or delay of Landlord in exercising any right or remedy shall
not be construed as a waiver of any such right or remedy or of any
default by Tenant.
4
<PAGE>
16. ATTORNEY'S FEES: In the event any action or proceeding is brought by either
party against the other under this Lease, the prevailing party shall be
entitled to recover from the other party its reasonable costs, expenses and
attorneys' fees.
17. WAIVER: The waiver by Landlord of Tenant's breach by any provision of this
Lease shall not constitute a continuing waiver of any subsequent breach by
Tenant of the same or other provision.
18. DEFAULT BY LANDLORD: Landlord shall not be in default unless Landlord fails
to perform is obligations under this Lease within thirty (30) days after
written notice by Tenant to Landlord specifying the obligations which the
Landlord has failed to perform. If an obligation is such that it cannot
reasonably be completed within such thirty (30) day period, Landlord shall
not be in default if Landlord commences performance within thirty (30) days
and thereafter diligently prosecutes the same to completion.
19. SURRENDER OF PREMISES: The surrender of this lease by Tenant to Landlord
shall not work a merger and shall, at the option of Landlord, operate as an
assignment to it of any subleases affecting the premises.
20. ESTOPPEL CERTIFICATE:
(a) Tenant shall upon not less than five (5) days prior written notice from
Landlord execute, acknowledge and deliver to Landlord a statement in
writing (i) certifying that this Lease is unmodified and in full force
and effect and if modified, stating the nature of such modification and
certifying that this Lease as modified is in full force and effect, (ii)
specifying the dates to which rental and other charges are paid in
advance, and (iii) acknowledging that there are no uncured defaults on
the part of Landlord or specifying such defaults if any are claimed. Any
such statement may be relied upon by any prospective purchaser or
encumbrancer of the real property of which the premises are a part.
(b) Tenant's failure to deliver such a statement within the time specified
above shall be conclusive upon Tenant (i) that this Lease is in full
force and effect and without modification except as may be represented
by Landlord, and (ii) that there are no uncured defaults by Landlord.
21. CONDITION OF PREMISES: Tenant acknowledges that neither the Landlord nor any
of the Landlord's agents has made any representation or warranty with
respect to the premises or building or with respect to the suitability of
either for the conduct of Tenant's business. Taking possession of the
premises by Tenant shall conclusively establish that the premises and
building were in good, sanitary order, condition and repair at such time.
22. DESTRUCTION OF PREMISES: In the event that the premises or the building of
which the premises are a part are destroyed in whole or in part by fire or
other casualty, Landlord may terminate this Lease at its option. If Landlord
does not terminate this Lease and elects to repair the damage, this Lease
shall remain in full force and effect.
5
<PAGE>
23. CONDEMNATION: If all or a portion of the leased premises are appropriated by
a public or quasi-public authority under the power of eminent domain or are
transferred by Landlord in lieu thereof, Landlord may terminate this Lease
without liability to Tenant for any unexpired term of this Lease. If this
Lease is not terminated as a result of such appropriation or transfer, base
rent shall be equitably reduced. In either event, Landlord shall be entitled
to the entire condemnation award or settlement except that Tenant shall be
entitled to any award made by such authority specifically to Tenant for
moving expenses or damages for disruption to Tenant's business.
24. LATE CHARGES: All sums due under this Lease not paid by Tenant within ten
(10) days from the date such payment is due shall be subject to a late
charge of the greater of Twenty Dollars ($20.00) or Five Percent (5%) of the
amount due and shall bear interest at a rate of Eighteen Percent (18%) per
annum until paid.
25. SALE BY LANDLORD: In the event of a sale or conveyance by Landlord of the
premises, the same shall operate to release Landlord from any future
liability upon any of the covenants or conditions, express or implied,
herein contained in favor of Tenant (so long as the purchaser expressly
assumes such liability), and in such event Tenant agrees to look solely to
the responsibility of the successor in interest of Landlord in and to this
Lease. This Lease shall not be affected by any such sale, and Tenant agrees
to attorn to the purchaser or assignee.
26. LANDLORD'S CONSENT: Except as otherwise provided herein, where Landlord's
consent is required under this Lease, such consent shall not be unreasonably
withheld.
27. APPLICABLE LAW: This lease shall be governed by the laws of the State of
Arizona.
28. TIME OF ESSENCE: Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
INTENDING TO BE LEGALLY BOUND, the parties have executed this Lease agreement
effective as of the 29th day of December, 1995.
LANDLORD: TENANT:
/s/ Edward John Martori Red Rock Collection Incorporated
- -------------------------------
Edward John Martori
By: /s/ Michael Stone
2777 E. Camelback Road -------------------------------
Phoenix, AZ 85016 Its: PRESIDENT
-------------------------------
2777 E. Camelback Road
Phoenix, AZ 85016
6
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
The North 106 feet of Lots 4 and 5, of DUNDEE SUBDIVISION, according to the plat
of record in the office of the County Recorder of Maricopa County, Arizona,
recorded in Book 10 of Maps, Page 5.
EXCEPT the East 7 feet of the North 106 feet of Lot 5.
7
<PAGE>
EXHIBIT "I"
$100,000 PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
$100,000 January 1, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited partnership (the "undersigned"), promises to pay
to the order of Martori Enterprises Incorporated, an Arizona corporation
("Payee") , at Phoenix, Arizona, or at such other place as the holder hereof may
from time to time designate, the principal sum of One Hundred Thousand Dollars
($100,000), together with interest thereon as computed below, as follows:
Payments of interest only shall be made quarterly on the first day of
January, April, July, and October of each year commencing April 1,
1996. The entire unpaid principal balance, together with all accrued
and unpaid interest thereon and other costs payable hereunder, shall be
paid in full on December 31, 1999.
Interest shall be charged on the unpaid principal balance of this Note
from the date hereof to the date of maturity on a daily basis for the actual
number of days any portion of the principal is outstanding, computed on the
basis of a 360-day year, at a per annum rate (the "Note Rate") equal to ten
percent (10%).
The undersigned acknowledges that the undersigned has agreed to the
rate of interest represented by the Note Rate, and any additional charges, costs
and fees arising out of or related to the transaction of which this Note is a
part, to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful
money of the United State of America and in immediately available funds, and
when made shall be first applied to accrued costs, expenses and fees, if any,
then to accrued interest that has not yet been added to principal, and then to
the reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, Without penalty or premium, provided that each such payment
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall
constitute a "default" hereunder, and, upon the occurrence of any of the
following, all obligations hereunder shall, at the option of the holder hereof,
become immediately due and payable, without presentment for payment, diligence,
grace, exhibition of this Note, protest, further demand or notice of any kind,
all of which are hereby expressly waived: (i) any sum owing hereunder or under
other indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or application for any form of relief under any provision of Title 11,
United States Code, as amended from time to time (the "Bankruptcy Code") or any
other law pertaining to reorganization, insolvency or readjustment of debts is
filed by or against the undersigned, its assets or affairs; (iii) the
undersigned makes an assignment for the benefit of creditors, is not paying
debts as they become due, or is granted an order for relief under any chapter of
the
1
<PAGE>
Bankruptcy Code; (iv) a custodian, as defined by the Bankruptcy Code, takes
charge of any property of the undersigned; (v) garnishment, attachment, levy or
execution is issued against any of the property or effects of the undersigned;
(vi) there is a termination, failure to exist or dissolution of the undersigned;
or (vii) there is any default or breach of any representation, warranty or
covenant, or there is any false statement or material omission, by the
undersigned under any document forming part of the transaction in respect of
which this Note is made or forming part of any other transaction under which the
undersigned is indebted to Payee.
The undersigned hereby agree: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit shall be determined by a court sitting without
a jury.
This Note is unsecured.
This Note is executed to be effective as of the date set forth above.
LOS ABRIGADOS PARTNERS
LIMITED PARTNERSHIP,
an Arizona limited partnership
By: ILE SEDONA INCORPORATED,
an Arizona corporation,
its general partner
By:/s/ Nancy J. Stone
-------------------------------
Its: Vice President
------------------------------
2
<PAGE>
FIRST AMERICAN TITLE INSURANCE COMPANY
2929 East Camelback Road o Suite 125 o Phoenix, Arizona 85016
(602) 244-0223 o FAX (602) 381-1833
SETTLEMENT STATEMENT
PRE-AUDIT ONLY 12/27/1995 ( 1:09 PM) SUBJECT TO ADJUSTMENTS AT CLOSING
DATE: December 27, 1995 SETTLEMENT DATE:
ESCROW OFFICER: DONALD M. MILTZ ESCROW NUMBER: 213-222-892147
SELLER: RED ROCK COLLECTION INCORPORATED, AN ARIZONA CORPORATION
BUYER: PART OF LOTS 4 & 5, DUNDEE SUBDIVISION (10/5)
3840 NORTH 16TH STREET, PHOENIX, ARIZONA
<TABLE>
<CAPTION>
=========================================================================================
SELLER BUYER
CHARGES CREDITS CHARGES CREDITS
=========================================================================================
<S> <C> <C> <C> <C>
SALES PRICE 500,000.00 500,000.00
PAID DIRECT & OUTSIDE ESCROW 500,000.00 500,000
PER AGREEMENT
DISBURSEMENT/CHARGES
--------------------
FIRST AMERICAN TITLE
ESCROW FEE 228.55 228.55
TITLE INSURANCE 1,092.00
RECORDING FEES 8.00
AFFIDAVIT OF VALUE 2.00
- --------------------------------------------------------------------------------------------
SUB TOTALS: 501,322.55 500,000.00 500,236.55 500,000.00
FUNDS DUE FROM SELLER 1,322.55
FUNDS DUE FROM BUYER 236.55
TOTALS: 501,322.55 501,322.55 500,236.55 500,236.55
</TABLE>
<PAGE>
CONSENT TO ACTION BY DIRECTORS OF
RED ROCK COLLECTION INCORPORATED
WITHOUT A MEETING
EFFECTIVE AS OF DECEMBER 29, 1995
The undersigned, being all of the directors of the above-named Arizona
corporation (the "Corporation"), hereby consent to the adoption of the following
resolutions without a meeting:
RESOLVED, that Joseph P. Martori as Chairman, Michael W. Stone as
President, or Nancy J. Stone as Vice President of the Corporation is
hereby authorized and empowered to take all such actions, execute all
such documents or instruments and make and/or receive all such payments
as shall be necessary or appropriate to consummate the real estate
transaction that is the subject of Escrow No. 213-222-692147 at First
American Title Insurance Company.
The action taken hereby shall be of the same force and effect as if taken at a
meeting of the directors of the Corporation, duly called and constituted
pursuant to law.
/s/ Joseph P. Martori
----------------------------------
Joseph P. Martori
/s/ Edward J. Martori
----------------------------------
Edward J. Martori
/s/ Michael W. Stone
----------------------------------
Michael W. Stone
MASTER LEASE AGREEMENT
Lease Number R2529
THIS MASTER LEASE AGREEMENT dated as of APRIL 13 , 1993, is between CRA, Inc.
(herein called "Lessor"), having its principal place of business at 11011 North
23rd Avenue, Phoenix, Arizona 85029, and INTERNATIONAL LEISURE ENTERPRISES
(herein called "Lessee"), having its business at 4745 NORTH 7TH STREET, SUITE
222, PHOENIX, ARIZONA 85014
IN CONSIDERATION of the mutual agreements set forth hereinafter and the payment
of rent as provided for herein, the parties agree as follows:
1. PROPERTY LEASED. Lessor, by the acceptance at its principal place of business
of an Equipment Schedule executed by Lessee and incorporating the terms and
conditions of this Master Lease Agreement, as amended from time to time, agrees
to lease to Lessee, and Lessee thereby agrees to lease from Lessor, all of the
tangible personal property listed in each Equipment Schedule (in the form
attached hereto as Exhibit A; executed by Lessor and Lessee from time to time.
Such tangible personal property, together with (i) any replacements, parts,
repairs, additions, attachments and accessories incorporated herein, and (ii)
all cables and other such items not specifically listed in the Equipment
Schedule which are required for installation, is referred to herein as the
"Equipment" and each individual component thereof is referred to as an "Item of
Equipment." The Equipment is leased for business purposes only and not for
consumer, personal, household or family purposes.
This is a Master Lease Agreement executed exclusively for the purpose of setting
forth terms and conditions which the parties may incorporate by reference into
an Equipment Schedule. Neither Lessor nor Lessee shall have any obligation
solely by execution of this Master Lease Agreement, and all obligations shall
arise under an Equipment Schedule executed and delivered by Lessor and Lessee
which refers to this Master Lease Agreement and incorporates some or all of its
terms and conditions. The term "Lease" as used hereinafter shall refer to an
Individual Equipment Schedule. An Equipment Schedule may contain additional
and/or different terms and conditions and, in the event of a conflict between
this Master Lease Agreement and an Equipment Schedule, the Equipment Schedule
shall control. Each Equipment Schedule (together with the terms and conditions
of this Master Lease Agreement, to the extent incorporated therein) shall
constitute a separate and distinct purchase money lease.
2. TERM, RENTAL AND NOTICES. This Master Lease Agreement shall be effective when
signed by both parties and shall continue thereafter so long as any obligations
under any Equipment Schedule incorporating the terms of this Master Lease
Agreement remains in effect. Any obligations hereunder outstanding as of the end
of the term, or which arise hereunder after the end of such term of any
Equipment Schedule, shall survive termination.
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Lessee agrees to pay all Rental Payments as set forth in this Section. Rental
Payments for each Equipment Schedule shall begin on the Initial Rental Date (as
defined in each Equipment Schedule) prorated on a 30 day basis for a partial
month and shall continue for the lease term. The lease term for each Equipment
Schedule is defined as the Commencement Period plus the Initial Term identified
in the Equipment Schedule. The Commencement Period is the period from the
Initial Rental Date to the Commencement Date. The Commencement Date shall be the
first day of the first month following the month in which the Initial Rental
Date occurs or the Initial Rental Date if such date is the first day of the
month. The lease term shall automatically continue through the end of the
calendar month (at the Rental Payment in effect at the end of the Initial Term)
until such date which is the later of (x) the last day of the Initial Term or
(y) 180 days after receipt by Lessor of Lessee's written notice of termination
of the Lease. Any such notice of termination by Lessee may not thereafter be
rescinded without the written consent of the Lessor. Advance rentals paid by
Lessee shall not be refundable to Lessee but, rather, shall be retained by the
Lessor as liquidated damages in the event the lease term of the Equipment
Schedule does not commence through no fault of Lessor's. All Rental Payments
shall be payable in advance on the Initial Rental Date and on the first day of
each calendar month thereafter during the term of the Lease, and sent to the
address of Lessor specified above or to such other address as Lessor may
designate. Notices required hereunder shall be given by certified mail addressed
to each party at the address and/or addresses of such party specified above,
with the right of either party to change, by notice to the other, its address
for the foregoing purposes. Notices and Rental Payments shall be effective upon
receipt. In the event that any Rental Payments shall not have been paid when due
and payable, Lessee agrees to pay a late payment charge equal to the lesser of
either (i) the greater of $20.00 or six percent (6%) of the payment, or (ii) the
maximum amount permitted by law.
3. TITLE. As between Lessor and Lessee, Lessor shall and hereby does retain full
legal title to the Equipment, notwithstanding the delivery thereof to and the
possession and use thereof by Lessee. Lessee shall have no right, title or
interest in the Equipment except as a lessee, as expressly set forth herein. All
documents of title and evidences of delivery shall be delivered to Lessor.
Lessee will not change or remove any insignia or lettering which is on the
Equipment at the time of delivery thereof or which is thereafter placed thereon
indicating Lessor's ownership thereof, and at any time during the lease term,
upon request of Lessor, will affix to the Equipment, in a prominent place,
labels, plates or other markings supplied by Lessor stating that the Equipment
is owned by Lessor and/or has been assigned by Lessor to a secured party. Lessor
is hereby authorized by Lessee to cause any lease o any statement or other
instrument in respect of any lease showing the interest of Lessor in the
Equipment to be filed or recorded and refiled and rerecorded, at Lessee's
expense, and Lessee agrees to execute and deliver any statement or instrument
requested by Lessor for such purpose. Lessor may file or record such statements
and instruments without Lessee's signature where permitted by law. Lessee shall
at its expense protect and defend Lessor's title against all persons claiming
against or through Lessee, at all times keeping the Equipment, any lease and the
Lessor's right, title and interests therein free from any legal process or
encumbrance whatsoever, including but not limited to liens, attachments, levies
and executions (other than encumbrances created by or through Lessor), and shall
give Lessor immediate written notice of any encumbrances that exist in violation
of this agreement, and shall indemnify Lessor from any loss caused thereby.
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4. PURCHASE, DELIVERY AND ACCEPTANCE. Lessee has requested Lessor to provide the
Equipment from a supplier chosen or approved by Lessee (herein called the
"Seller"), and to arrange for delivery, at Lessee's expense. Delivery shall be
deemed complete upon arrival at Lessee's premises or when received by Lessee's
agent or by any carrier consigned for shipment to Lessee or any agent of Lessee,
whichever shall be earlier. Lessee shall arrange for and pay all costs and
expenses of installation of the Equipment. Upon acceptance of any Equipment
(evidenced conclusively by Lessee's execution of an Acceptance Letter in the
form attached hereto as Exhibit B), the Lessee waives any right to revoke such
acceptance, and waives any security interest in such Equipment, whether such
right or security interests is conferred by statute or otherwise. In the event
the Lessee desires to exercise any rights under a supplier contract to reject
any Equipment, whether prior to or after acceptance thereof, the Lessee shall
have no right to sell, to storage charges for, or to any reduction of rental
with respect to, such Equipment.
5. NO WARRANTIES AND LIMITATION OF LIABILITY. LESSOR, NOT BEING THE MANUFACTURER
OF THE EQUIPMENT NOR THE MANUFACTURER'S AGENT, HEREBY EXPRESSLY DISCLAIMS AND
MAKES NO EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND WHATSOEVER
WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: THE MERCHANTABILITY
OF THE EQUIPMENT OR ITS FITNESS FOR ANY PARTICULAR PURPOSE; THE DESIGN OR
CONDITION OF THE EQUIPMENT; THE QUALITY OR CAPACITY OF THE EQUIPMENT; THE
WORKMANSHIP IN THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS
OF ANY LAW, RULE, SPECIFICATION OR CONTRACT PERTAINING THERETO; PATENT OR OTHER
INFRINGEMENT; OR LATENT DEFECTS. IT IS EXPRESSLY UNDERSTOOD AND AGREED BY LESSEE
THAT LESSOR HEREBY LEASES THE EQUIPMENT "AS IS" EXCEPT THAT LESSOR WARRANTS THAT
IT WILL HAVE OR ACQUIRE TITLE TO OR THE RIGHT TO LEASE EACH ITEM OF EQUIPMENT
UPON ACCEPTANCE THEREOF. NO REPRESENTATION AS TO THE EQUIPMENT OR ANY OTHER
MATTER BY THE SELLER SHALL IN ANY WAY AFFECT LESSEE'S DUTY TO PERFORM ITS
OBLIGATIONS AS SET FORTH IN THE LEASE. If the Equipment is not properly
installed, does not operate as represented or warranted by the Seller, or is
unsatisfactory for any reason, Lessee shall make any claim on account thereon
solely against the Seller and shall, nevertheless, pay Lessor all rentals
payable under the Lease without any setoff, counterclaim, recoupment, defense
or other right which Lessee may have against the Seller of the Equipment or any
other party. Lessor hereby assigns to Lessee, during the term of this Lease,
solely for the purpose of making and prosecuting any such claim, all of the
rights which Lessor has against the Seller for breach of warranty or other
representation respecting the Equipment. Lessor shall have no responsibility for
delay or failure of the Seller to fill the order for the Equipment. LESSOR SHALL
NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
6. TAXES.
Lessee shall pay, upon receipt of invoices, any taxes, however designated,
levied or based on the Rental Payments hereunder or on this Lease or on the
Equipment or its use, including sales, use, and personal property taxes, state
and local privilege or excise taxes,
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based on gross revenue, and any taxes on amounts in lieu thereof paid or payable
by Lessor in respect of the foregoing, exclusive, however, of taxes based on net
income of Lessor.
7. CARE AND USE OF EQUIPMENT. Lessee shall at its own expense enter into and
maintain in force a maintenance agreement with the manufacturer of the Equipment
or other maintenance company approved in writing by Lessor, covering a prime
shift maintenance contract for each Item of Equipment, effective upon
installation of the Equipment, and shall keep the Equipment in as good repair,
condition and working order as when delivered to Lessee hereunder, reasonable
wear and tear from the proper use thereof alone excepted. Lessee shall provide
the required suitable electric current to operate the Equipment and a suitable
place of installation with all facilities as specified in the manufacturer's
installation manual and meeting at all times the minimum standard of the
National Board of Power Underwriters for the protection of the electronic
computer systems as recommended by the national Power Protection Association.
Lessee shall not make any modification, alteration, or addition to the Equipment
(other than normal operating accessories or controls) without the written
consent of Lessor, which shall not be unreasonably withheld; shall not so affix
the Equipment to realty so as to change its nature to a fixture or real property
and agrees that the Equipment shall remain personal property at all times
regardless of how attached or installed; and shall keep the Equipment at the
location shown on the Equipment Schedule, and shall not remove the Equipment
therefrom, without the prior written consent of lessor, which shall not be
unreasonably withheld if the place of relocation is in one of the continental
United States. All modification, repairs, alterations, additions, operating
accessories and controls shall be deemed incorporated in the Equipment, shall
become the property of Lessor and shall be made at the sole cost and expense of
Lessee. Expenses of repair shall include labor, materials, parts and similar
items. Lessor shall have the right, during normal business hours, subject to
applicable laws and regulations, to enter upon the premises where the Equipment
is located in order to inspect, observe or remove the same, or otherwise protect
Lessor's interest, and Lessee shall cooperate in affording Lessor the
opportunity to do so.
Upon Lease expiration, Lessee shall return the Equipment to the location
described in Section 16 hereof in the condition described above and so as to be
acceptable and eligible for a continued or renewed maintenance agreement with
the manufacturer. Lessee shall be solely responsible for payment of all charges
incurred in bringing the Equipment to the condition required by the manufacturer
for issuance of a continued or renewed maintenance agreement including, but not
limited to, repairs, product enhancements, field changes, engineering changes,
and board upgrades. It is understood and agreed that in the event Lessor
approves a maintenance agreement with a maintenance company other than the
manufacturer, Lessee remains obligated to return the Equipment in such condition
as to be acceptable and eligible for a continued or renewed maintenance
agreement with the manufacturer and to deliver to Lessor a manufacturer's letter
certifying such eligibility at the time of return.
8. INSURANCE. Lessee shall keep the equipment insured against all risks of loss
or damage from every cause whatsoever, for the greater of (x) the full
replacement value thereof, or (y) 125% of the present value at the Discount Rate
specified in the Equipment Schedule of all rent through the end of the Initial
Term, provided that the amount of such insurance shall be sufficient so that
neither Lessor nor Lessee will be considered a coinsurer. Lessee also shall
carry public liability insurance, both personal injury and property damage,
covering the
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Equipment. All such insurance shall be in form and amount and with companies
satisfactory to Lessor. All insurance for loss or damage shall provide that
losses, if any, shall be payable to Lessor (or to any Bank), and Lessor and its
assigns shall be named as an additional insured with respect to all such
property insurance. Lessee shall pay the premiums for such insurance and deliver
to Lessor the policies of such insurance or duplicates thereof, or other
evidences satisfactory to Lessor of the insurance coverage required hereunder.
Each insurer shall agree, by endorsement upon the policy or policies issued by
it or by independent instrument furnished to Lessor, that (a) it will give
Lessor 30 days prior written notice of the effective date of any alteration,
modification or cancellation of or failure to renew such policy, and (b)
insurance as to the interest of any named additional insured or loss payee other
than Lessee shall not be invalidated by any actions, inactions, breach of
warranty or conditions or negligence of Lessee with respect to such policy or
policies. Lessee hereby irrevocably appoints Lessor as Lessee's attorneyinfact
to make claim for, receive payment of and execute and endorse all documents,
checks, or drafts received in payment for loss or damage to the Equipment under
any such insurance policy. All insurance proceeds shall be applied in accordance
with Section 13 herein.
9. INDEMNITY. Lessee shall and does hereby agree to indemnify, defend and hold
Lessor harmless from any and all loss, damage and liability, including legal
expenses and attorneys' fees, arising out of the ownership se ection,
possession, leasing, renting, operation, control, use, maintenance, delivery and
return of the Equipment, or its condition (including without limitation, latent
or other defects and whether or not discoverable by Lessor or Lessee, any claim
in tort for strict liability, and claim for patent, trademark or copyright
infringement). Provided that Lessee is not then in Default hereunder, Lessee's
obligations under this Section 9 shall be reduced by any amounts actually
received by Lessor as the proceeds of any liability insurance procured by
Lessee.
10. TAX INDEMNITY. This Lease is entered into on the basis that Lessor shall be
the owner of the Equipment for federal and state income tax purposes and
entitled to such deductions, credits and other benefits as are provided an owner
of property, including but not limited to (a) the maximum cost recovery
deductions for 5year property under Section 168 of the Tax Reform Act of 1986,
as amended ("Code"); and (b) interest deductions in the full amount of any
interest paid or accrued with respect to any loan made to Lessor to finance the
purchase of the Equipment (hereinafter collectively referred to as "Tax
Benefits").
If, with respect to any Item of Equipment, Lessor shall not have or shall lose
the right to claim all or any portion of the Tax Benefits or if all or any
portion of the Tax Benefits shall be disallowed or recaptured (hereinafter
referred to as a "Tax Benefit Loss"), then subject to the exceptions set forth
below, Lessee shall, within thirty (30) days after written notice from Lessor
that a Tax Benefit Loss has occurred, pay to Lessor at Lessor's option, either a
lumpsum payment or an increase to the remaining Rental Payments due under this
Lease in an amount which, after taking into account the effects of interest,
penalties and additional taxes payable by Lessor as a result of the Tax Benefit
Loss and the receipt of payment hereunder, will cause Lessor's net effective
after tax return over the lease term to equal the net effective after tax return
which would have been available if Lessor had not been entitled to the
utilization of all the Tax Benefits.
For purposes hereof a Tax Benefit Loss shall occur upon the earliest of (i) the
happening of an event which causes such Tax Benefit Loss, (ii) the payment by
Lessor to the Internal Revenue
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Service or the applicable state revenue office of the tax increase resulting
from such Tax Benefit Loss, or (iii) the adjustment of the tax return of Lessor
to reflect such Tax Benefit Loss. Notwithstanding the foregoing, Lessor shall
not be entitled to a payment hereunder on account of any Tax Benefit Loss
directly attributable to any of the following: (i) any act on the part of Lessor
which causes a Tax Benefit Loss; (ii) the failure of Lessor to have sufficient
taxable income or tax liability to utilize such Tax Benefits; or (iii) the
happening of any other event with respect to Lessor (such as a disqualifying
change in Lessor's business or characterization of Lessor as a personal holding
company) which causes a Tax Benefit Loss.
This Paragraph is expressly made for the benefit of, and shall be enforceable by
Lessor, any person, firm, corporation or other entity to which Lessor transfers
title to all or a portion of the Equipment and their successors and assigns
("Owner"). For purposes hereof, the term "Owner" shall include an affiliated
group (within the meaning of the Code) of which Lessor is a member for any year
in which a consolidated income tax return is filed for such affiliated group.
Lessee agrees to indemnify, defend and hold any such Owner harmless from any Tax
Benefit Loss on the same terms and to the same extent as it would have
indemnified and held Lessor harmless as if said Owner were the Lessor hereunder.
All of Lessor's rights and privileges arising from the indemnities contained
herein shall survive the expiration or other termination of this Lease and
continue for a period of two years thereafter after which all such rights and
privileges shall terminate.
11. OTHER COVENANTS AND WARRANTIES OF LESSEE. Lessee agrees that its obligations
under each Lease are absolute and unconditional, and shall continue in full
force and effect regardless of any disability of Lessee to use the Equipment or
any part thereof because of any reason including, but not limited to, war, act
of God, government regulations, strike, loss, damage, destruction, obsolescence,
failure of or delay in delivery, failure of the Equipment to operate properly,
or any other cause, and that its obligations shall not abate due to any ground
of insecurity, lack of assurance of due performance, claim or setoff against
Lessor, except for breach of Lessor's warranty as to its title to the Items of
Equipment. Lessee agrees that the application, statements and financial reports
submitted by it to Lessor are material inducements to the execution by Lessor of
each Lease, and Lessee warrants that such applications, statements, and reports
are, and all information hereafter furnished by Lessee to Lessor will be, true
and correct in all material respects as of the date submitted. Lessee agrees to
procure for Lessor such estoppel certificates, landlord's and mortgagee's
waivers or other similar documents as Lessor may reasonably request. Lessee
agrees to furnish promptly to Lessor the annual financial statement of Lessee,
certified by independent certified public accountants, and such interim
financial statements of Lessee as lessor may require. Lessee warrants that each
Lease has been duly authorized, executed and delivered; that each Lease
constitutes the legal, valid and binding obligations of Lessee enforceable in
accordance with its terms; and that no provision of any Lease is inconsistent
with Lessee's charter, bylaws, or will breach any loan or credit agreement or
other instrument to which Lessee is a party or by which Lessee or its property
may be bound or affected. Lessee represents that it is not a merchant dealing in
goods of the kind subject to the Lease.
12. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In case of the failure of
Lessee to comply with any provision of the Lease, Lessor shall have the right,
but shall not be obligated, to effect such compliance on behalf of Lessee; in
such event all moneys spent
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by and expenses of Lessor in effecting such compliance shall be deemed to be
additional rental and shall be paid by Lessee to Lessor at the time of payment
for the next Rental Payment hereunder, together with interest thereon at the
rate of 18% per annum or the maximum rate permitted by law, whichever is less.
13. RISK OF LOSS. Lessee hereby assumes the entire risk of loss, damage or
destruction of the Equipment from any and every cause whatsoever commencing with
delivery of such Equipment to Lessee, an agent of Lessee, or to a carrier
consigned for shipment to Lessee or an agent of Lessee, whichever is earlier. In
event of loss, damage or destruction of any Item of Equipment, Lessee at its
expense (except to the extent of any proceeds of insurance provided by Lessee
which shall have been received by Lessor as a result of such loss, damage or
destruction) and at Lessor's option, shall either (a) repair such item, if
repairable, returning it to its previous condition, or (b) pay Lessor fair
market value of a like item in good condition and of equivalent value and
utility, together with all thenaccrued but unpaid rent and all rent which would
have accrued through the end of the Initial Term as may be allocated to such
Item, discounted to present value at the Discount Rate specified in the Lease
plus any amounts due under Section 10, or (c) replace such item with a like item
acceptable to Lessor and in good condition and of equivalent value and utility,
which shall become the property of Lessor and included with the term "Equipment"
as used herein. Any proceeds remaining after such application shall be the
property of Lessor. Upon payment or replacement provided for in clauses (b) or
(c) hereof, the Lease shall terminate with respect to the Items of equipment so
paid for or replaced and Lessee shall take title to same on an asis, whereis
basis.
14. DEFAULT, REMEDIES. Lessee shall be deemed to be in default hereunder
("Default") if (a) Lessee refuses, without justification, to accept delivery of
the Equipment as provided in Section 4 hereof and execute and deliver an
Acceptance Letter therefor; or (b) Lessee shall fail to make any payment
hereunder within five (5) days after the same shall have become due; or (c)
Lessee shall fail to comply with the provisions of Section 8 hereof; or (d)
Lessee shall fail to perform or observe any other covenant or agreement made by
it hereunder and such failure shall continue unremedied for a period of thirty
(30) days after written notice thereof to Lessee by Lessor; or (e) Lessee shall
consent to the appointment of a receiver, trustee or liquidator of itself or of
a substantial part of its property, or shall admit in writing its inability to
pay its debts generally as they come due, or shall make a general assignment for
the benefit of creditors, or shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegation of a petition filed against Lessee in any such proceeding,
or Lessee shall by voluntary petition, seek relief under the provisions of any
other now existing or future bankruptcy or other similar law providing for the
reorganization or windingup of corporations, or providing for an agreement,
composition, extension or adjustment with its creditors; or (f) an order,
judgment or decree shall be entered by any court of competent jurisdiction
appointing, without the consent of the Lessee, a receiver, trustee, or
liquidator of Lessee or of any substantial part of its property, or any
substantial part of the property of Lessee shall be sequestered or judgment or
decree of appointment or sequestration shall remain in force undismissed,
unstayed or unvacated for a period of sixty (60) days after the date of entry
thereof; or (g) a petition against Lessee in proceedings under the federal
bankruptcy laws or other insolvency laws (as now or hereafter in effect) shall
be filed and shall not be withdrawn or
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dismissed within sixty (60) days thereafter, or if, under the provisions or any
law providing for reorganization or windingup of corporations, which may apply
to Lessee, any court of competent jurisdiction shall assume jurisdiction,
custody or control of Lessee or of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished, unstayed
or unterminated for a period of sixty (60) days; or (h) the occurrence of any
event described in subparts (e), (f) or (g) hereof with respect to any
guarantor or any other party liable for payment or performance of the Lease; or
(i) any certificate, statement, representation, warranty or audit heretofore or
hereafter furnished with respect hereto by or on behalf of Lessee or any
guarantor or other party liable for payment or performance of the Lease shall
prove to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified, or shall have omitted any
substantial contingent or unliquidated liability or claim against Lessee or any
such guarantor or other party; or (j) Lessee shall be in default under any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of any rent under any lease agreement covering real
or personal property, and the applicable grace period with respect thereto shall
have expired and the obligation shall not be contested in good faith by
appropriate legal proceedings.
In the event of Default hereunder, Lessor may, at its option, without notice of
its election and without demand, declare this Lease to be in Default, and at any
time thereafter may do any one or more of the following all of which are hereby
authorized by Lessee: (1) declare all thenaccrued but unpaid rental under this
Lease, together with all other sums then due hereunder and all Rental Payments
which would have accrued through the end of the lease term discounted to present
value at the Discount Rate specified in the Lease, immediately due and payable
(the parties also deem that such amount best reflects the reasonably anticipated
harm to the Lessor caused by a Default, as well as the damages Lessor would
sustain in the event of Lessee's bankruptcy or insolvency if the Lease were not
assumed); (2) sue for and recover all amounts declared due and payable under (1)
above; (3) take possession of or render unusable any or all of the Equipment
wherever it may be located, without any court order or other process of law and
without liability for any damages occasioned by such taking of possession (any
such taking of possession shall constitute an automatic termination of this
Lease as it applies to those Items of Equipment taken without further notice,
and such taking of possession shall not prohibit Lessor from exercising its
other remedies hereunder); (4) require Lessee to assemble any or all of the
Equipment at the location to which the Equipment was delivered or the location
to which such Equipment may have been moved by Lessee or such other location in
reasonable proximity to either of the foregoing as Lessor shall designate; or to
return promptly, at Lessee's expense, any or all of the Equipment to Lessor at
the location, in the condition or otherwise in accordance with all of the terms
of Section 7 hereof; (5) dispose of any or all of the Equipment, whether or not
in Lessor's possession, in a commercially reasonable manner at public or private
sale and with or without notice to Lessee, and apply the net proceeds to such
sale after deducting all costs of such sale (including but not limited to costs
of transportation, possession, storage, refurbishing to be in the condition
described in Section 7, advertising and brokers' fees and attorneys' fees) to
the obligations of lessee hereunder (including all amounts declared due and
payable under (1) above) with Lessee remaining liable for any deficiency and
with any excess being retained by Lessor; (6) retain any repossessed Equipment
and credit the present value (at the Discount Rate) of the fair market rental
value of the Equipment, for the remaining Initial Term, to the obligations of
Lessee hereunder with Lessee remaining liable for any deficiency and with Lessor
having no
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obligation to reimburse Lessee on account of any excess of such reasonable value
over such obligations; (7) terminate this Lease as to any or all of the
Equipment; or (8) exercise any other right or remedy available to Lessor at law
or in equity. Unless otherwise provided above, a termination hereunder shall
occur only upon written notice by Lessor to Lessee and only with respect to such
Items of Equipment as Lessor specifically elects to terminate in such notice.
Notwithstanding any such termination, this Lease shall remain in full force and
effect and Lessee shall remain liable for the full performance of all its
obligations hereunder.
In addition, Lessee shall be liable for any and all attorneys' fees and other
costs and expenses incurred by reason of any Default or the exercise of Lessor's
remedies with respect thereto, including all costs and expense incurred in
connection with the return of any Equipment in accordance with the terms of
Section 7 hereof or in placing such Equipment in the condition required by said
Section. No right or remedy referred to in this Section is intended to be
exclusive, but each shall be cumulative, and shall be in addition to any other
remedy referred to above or otherwise available at law or in equity (provided,
that no remedy granted solely by reason of uniform Commercial Code Article 2A,
as in effect in any applicable jurisdiction, shall be available to Lessor or
Lessee) and may be exercised concurrently or separately from time to time. The
failure of Lessor to exercise the rights granted hereunder upon any Default by
Lessee shall not constitute a waiver of any such right upon the continuation or
recurrence of any such Default.
15. ASSIGNMENT. LESSEE SHALL NOT ASSIGN THIS LEASE OR TRANSFER ITS RIGHTS OR
OBLIGATIONS OR ANY INTEREST THEREIN OR SUBLEASE ALL OR ANY PART OF THE LEASED
PROPERTY WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any or all of lessor's
right, title and interest in and to the Lease and the Equipment may be
transferred, sold or assigned by Lessor without notice and Lessor's assignee
shall have the rights, powers, privileges and remedies of Lessor hereunder. Each
Equipment Schedule is separately assignable. Any such assignee shall not be
obligated to perform any of the obligations of Lessor hereunder and Lessee shall
not be entitled to terminate or amend the Lease without the prior written
consent of such assignee. If Lessor assigns the Lease to a bank, leasing company
or other financial institution, including any entity acting as trustee or agent
for any of the foregoing (collectively, herein called the "Bank"), Lessee, to
induce said Bank at its option to purchase the Lease or to extend credit on the
security of the rights so assigned, agrees unconditionally, upon receipt of
notice of assignment, to pay to said Bank, at the address it specifies, the
rentals specified in the lease, or an amount equal to such rentals, together
with all other sums due thereunder, at the times specified therein,
notwithstanding any of the terms of the Lease or any other fact or event which
might relieve Lessee from the payment of such rentals or their sums to Lessor,
or the termination of the Lease for any reason, or any other event whatsoever,
including, without limitation, the bankruptcy and insolvency of Lessor or any
disaffirmance of the Lease by any trustee or receiver, and notwithstanding any
defense, setoff or counterclaim whatsoever, whether by reason of breach of the
Lessee or otherwise, which Lessee may or might now or hereafter have as against
Lessor or any other party whatsoever (Lessee reserving its right to have
recourse directly against Lessor on account of any such defense, setoff or
counterclaim) and Lessee shall execute such documents as the Bank may reasonably
request in order to reaffirm the foregoing and other facts pertaining to the
Lease. Lessee further agrees to hold the Equipment and the possession thereof
for and on
- --------------------------------------------------------------------------------
THIS IS PAGE 9 OF 17 PAGES OF THIS AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
behalf of said Bank to the extent of said Bank's rights under any assignment,
subject to and without impairment of Lessee's rights hereunder. Any Bank shall
be sole loss payee of any property insurance. In the event Lessor finances the
Equipment through a Bank and executes an assignment of the Lease and/or rentals
under the Lease to the Bank as security therefore, such assignment shall not
affect Lessor's standing to sue to enforce the terms of the Lease and a
reassignment from the Bank is not a condition precedent to Lessor's bringing
suit. Lessee recognizes Lessor's property interest in the Equipment whether or
not an Assignment is worded "revocable" or "irrevocable" when made to secure
performance of any indebtedness incurred executed by Lessor for the purpose of
financing the Equipment. Lessee acknowledges that any assignment of Lessor's
interest does not materially change the Lessee's duty nor materially increase
the burden or risk imposed on the Lessee under the Lease.
16. REDELIVERY. At the expiration of the Lease, Lessee shall, at its expense,
deliver the Equipment to Lessor at such location as directed by Lessor (provided
that the expense of delivery to such location does not exceed the expense which
would be incurred if redelivery were to be made to Phoenix, Arizona).
17. AMENDMENTS. The Lease contains the entire agreement between the parties with
respect to the Equipment, and may not be altered or modified except in writing
signed by both parties.
18. TIME. Time is of the essence hereof.
19. QUIET POSSESSION. Lessor hereby represents and warrants to Lessee that,
conditioned upon Lessee performing all of the covenants and conditions hereof,
as to claims of Lessor, or persons claiming under Lessor, or the Seller of the
Equipment, Lessee (in lieu of any statutory rights or remedies otherwise
available to Lessee) shall peaceably and quietly hold, possess and use the
Equipment during the term of the Lease subject to the terms and provisions
hereof.
20. MISCELLANEOUS. All matters regarding the construction, validity, performance
and enforcement of the Lease will be governed by the laws of the State of
Arizona. The Lease is binding at the time Lessor executes its countersignature
which evidences Lessor's acceptance in the State of Arizona. The Lease is to be
performed in Arizona and all lease payments are to be made to Lessor in Arizona
unless Lessor instructions Lessee to make payments to Lessor or Lessor's
assignee at some other place. Lessee waives, insofar as permitted by law, trial
by jury in any action between the parties. Lessor and Lessee intend this Lease
to be a valid and subsisting legal instrument and no provision of this Lease
which may be deemed unenforceable shall in any way invalidate any other
provision or provisions of this Lease, all of which shall remain in full force
and effect. The Lease shall be binding upon the parties, their successors, legal
representatives and assigns. The obligations of lessee, which accrue during the
term of the Lease, shall survive the termination of the Lease.
- --------------------------------------------------------------------------------
THIS IS PAGE 10 OF 17 PAGES OF THIS AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
THIS MASTER LEASE AGREEMENT OR ANY EQUIPMENT SCHEDULE THERETO MAY NOT BE
AMENDED, MODIFIED OR RESCINDED EXCEPT IN WRITING ND SIGNED BY BOTH PARTIES.
LESSEE'S INITIALS /S/
ACCEPTED BY; ACCEPTED BY:
CRA, INC. INTERNATIONAL LEISURE ENTERPRISES
Signature /s/ Peter C. Colling Signature /s/ Frank S. Flournoy
Name Peter C. Colling Name Frank S. Flournoy
Title Vice President Title Executive Vice President
THIS IS PAGE 11 OF 17 PAGES OF THIS AGREEMENT
<PAGE>
ADDENDUM 1 TO
MASTER LEASE AGREEMENT
NUMBER R2529
Lessor and Lessee hereby agree to amend and modify the terms and conditions of
the above referenced Lease as set forth below:
+ Section 14, line 4. Delete the words "the same shall have become due" and
replace with the words "receipt of written notice of such nonpayment from
Lessor".
+ Section 14, line 30. Delete the remainder of the sentence after the word
"party".
+ Section 14, paragraph 3. Add the following sentence at the end of the
paragraph. "Notwithstanding anything to the contrary above, in any action
between the Lessor and Lessee, the unsuccessful party shall pay its
attorneys' fees and the prevailing party's attorneys' fees.
All other terms and conditions of the abovereferenced Lease shall remain in
full force and effect and shall not be affected by this Addendum.
ACCEPTED BY; ACCEPTED BY:
CRA, INC. INTERNATIONAL LEISURE ENTERPRISES
Signature /s/ Peter C. Colling Signature /s/ Frank S. Flournoy
-------------------------- --------------------------
Name Peter C. Colling Name Frank S. Flournoy
------------------------------- -------------------------------
Title Vice President Title Executive Vice President
----------------------------- ------------------------------
<PAGE>
EXHIBIT A
Counterpart 2 of 2 counterparts. A security interest of a Bank in this Equipment
Schedule can only be perfected by possession by such Bank of Counterpart #1.
EQUIPMENT SCHEDULE M
TO MASTER LEASE AGREEMENT NUMBER R2529
This Equipment Schedule incorporates the terms and conditions of the above
Master Lease Agreement to the extent those terms and conditions are neither
amended by or otherwise inconsistent with the terms and conditions of this
Equipment Schedule. Any term not otherwise defined herein has the meaning given
it in the Master Lease Agreement. If there is any inconsistency between such
Master Lease Agreement and this Equipment Schedule, the terms of the Equipment
Schedule shall prevail.
EQUIPMENT SUBJECT TO THIS EQUIPMENT SCHEDULE
QTY. MODEL # DESCRIPTION
SEE ATTACHED EXHIBIT A
INITIAL TERM: 48 months
INITIAL RENTAL DATE: December 1, 1995
RENTAL PAYMENT: $2,358.00 per month.
EQUIPMENT LOCATION: ILX Incorporated
c/o Red Rock Collections
3840 N. 16th Street
Phoenix, Arizona 85016
DISCOUNT RATE: 4% % per annum, compounded monthly.
ACCEPTED BY; ACCEPTED BY:
CRA, INC. ILX INCORPORATED
By ILLEGIBLE By /s/ Nancy J. Stone
------------------------------- --------------------------------
Title Vice President Title Executive Vice President
---------------------------- -----------------------------
Date 12/21/95 Date 12/21/95
----------------------------- ------------------------------
<PAGE>
EXHIBIT B
ACCEPTANCE LETTER
This acceptance letter covers the equipment described below and referenced in
Equipment Schedule _______________to Master Lease Agreement Number ___________.
Model Serial
Quantity Number Description Number
- --------------------------------------------------------------------------------
xxx xxxx xxxxxxxxxx xxxxx
INSTALLED AT:___________________________________________________________________
We hereby acknowledge that on ___________________ the Equipment described in the
Equipment Schedule referred to above has been properly installed, is operating
satisfactorily and has been accepted by _________________________ under a
standard maintenance contract.
We will make all payments to Lessor its order. We agree that any rights we have
against the supplier or manufacturer of subject Equipment will not be asserted
as a counterclaim or defense against our Lease obligations.
Lessor is neither the manufacturer, distributor nor seller of the Equipment and
has no control, knowledge or familiarity with the conditioning, capacity,
functioning or other characteristics of the Equipment.
By signature below we authorize Lessor to make payment to the supplier of the
Equipment described in the referenced Equipment Schedule.
We agree that said Equipment has been unconditionally accepted by the
undersigned.
We acknowledge that the provisions of the referenced Master Lease Agreement and
Equipment Schedule and of this Acceptance Letter are in full force and effect.
LESSEE:
--------------------------------
BY:
--------------------------------
TITLE:
--------------------------------
DATE:
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 17,296 3,216
<SECURITIES> 0 0
<RECEIVABLES> 1,866 1,794
<ALLOWANCES> 0 0
<INVENTORY> 75,933 141,164
<CURRENT-ASSETS> 132,676 197,965
<PP&E> 257,815 277,226
<DEPRECIATION> 204,499 223,296
<TOTAL-ASSETS> 185,992 251,895
<CURRENT-LIABILITIES> 1,939,922 2,179,230
<BONDS> 23,956 11,980
0 0
0 0
<COMMON> 1,000,000 1,000,000
<OTHER-SE> (2,777,886) (2,939,315)
<TOTAL-LIABILITY-AND-EQUITY> 185,992 251,895
<SALES> 340,973 112,287
<TOTAL-REVENUES> 340,973 112,287
<CGS> 237,503 82,094
<TOTAL-COSTS> 237,503 82,094
<OTHER-EXPENSES> 438,222 189,182
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,877 2,440
<INCOME-PRETAX> (343,629) (161,429)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (343,629) (161,429)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (343,629) (161,429)
<EPS-PRIMARY> (.08) (.04)
<EPS-DILUTED> (.08) (.04)
</TABLE>
