UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 (Fee Required)
For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities Act
of 1934 (No Fee Required)
For the transition period from _______________ to _______________
Commission File Number 33-16122
ILX INCORPORATED
ARIZONA 86-0564171
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2777 East Camelback Road, Phoenix, AZ 85016
-------------------------------------------
Registrant's telephone number, including area code (602)957-2777
-------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Class on which registered
- -------------- -------------------
Common Stock, without par value Over the Counter
Preferred Stock, $10 par value
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of the latest practicable date.
Class Outstanding at January 31, 1996
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Common Stock, without par value 12,664,510 shares
Preferred Stock, $10 par value 403,263 shares
At January 31, 1996, the aggregate market value of Registrant's common shares
held by non-affiliates, based upon the closing bid price at which such stock was
sold as reported by the National Association of Securities Dealers, was
approximately $5.2 million.
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 24, 1996 are incorporated in Parts II and III as
set forth in said Parts.
<PAGE>
<TABLE>
ILX INCORPORATED
<CAPTION>
1995 Form 10-K Annual Report
Table of Contents
<S> <C>
PART I------------------------------------------------------------------------------------------------- 3
Item 1. Business------------------------------------------------------------------------------------- 3
Item 2. Properties----------------------------------------------------------------------------------- 6
Item 3. Legal Proceedings---------------------------------------------------------------------------- 8
Item 4. Submission of Matters to a Vote of Security Holders------------------------------------------ 8
PART II------------------------------------------------------------------------------------------------ 9
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters------------------------- 9
Item 6. Selected Financial Data----------------------------------------------------------------------- 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--------- 9
Item 8. Financial Statements and Supplementary Data---------------------------------------------------16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure----------16
PART III-----------------------------------------------------------------------------------------------17
Item 10. Directors and Executive Officers of the Registrant-------------------------------------------17
Item 11. Executive Compensation-----------------------------------------------------------------------17
Item 12. Security Ownership of Certain Beneficial Owners and Management-------------------------------17
Item 13. Certain Relationships and Related Transactions-----------------------------------------------17
PART IV------------------------------------------------------------------------------------------------18
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K------------------------------18
</TABLE>
<PAGE>
PART I
Item 1. Business
ILX Incorporated ("ILX" or the "Company") is an Arizona corporation formed in
October, 1986 for the purpose of developing, operating, financing and marketing
interval ownership interests in resort properties and engaging in other
leisure-oriented business activities. In November 1993, the Company acquired
interests in unimproved real estate through its acquisition of Genesis
Investment Group, Inc. and during 1994, ILX expanded its operations to include
marketing of skin and hair care products.
Resorts
ILX sells timeshare interests in resorts located in Arizona, Colorado, Florida,
Indiana and Mexico. Generally, ILX either owns an interest in the resort itself,
or it owns a designated number of timeshare interests in a resort and has a
corresponding right to sell those timeshare interests to third parties.
ILX owns an interest in the following resorts: Los Abrigados in Sedona, Arizona,
Kohl's Ranch Lodge in Gila County, Arizona, Golden Eagle Resort in Estes Park,
Colorado, and Varsity Clubs of America in Mishawaka, Indiana. The properties
owned by ILX or its subsidiaries are operated as hotels to the extent of unused
or unsold timeshare inventory.
In addition, ILX owns a designated number of timeshare interests in the
following resorts and has a right to sell those timeshare interests to third
party purchasers: Ventura Resort in Boca Raton, Florida and Costa Vida Vallarta
Resort in Puerto Vallarta, Mexico.
Except for the Costa Vida Vallarta Resort, described below, timeshare purchasers
acquire deed and title to an undivided fractional interest in a unit or type of
unit, which entitles the purchaser to use a unit at the selected resort and to
use the resort's common areas during a designated time period.
Each of the above referenced resorts is affiliated with a not-for-profit
organization, the members of which are the purchasers of timeshare interests in
each such resort. These not-for-profit organizations have certain recorded
governing documents that contain restrictions concerning the use of the resort
property.
With respect to those resort properties owned by ILX or its subsidiaries, a
portion of the price paid to ILX by a purchaser of a timeshare interest in those
resorts must be paid by ILX to the holder(s) of the underlying mortgage(s) on
the property in order to release such timeshare interest from the lender's
underlying encumbrance. This "release fee" ensures that the timeshare purchaser
can acquire clear title to his or her timeshare interest.
ILX began marketing timeshare interests in the Ventura Resort in Boca Raton,
Florida in 1987. The Ventura Resort is located across from Boca Beach in Boca
Raton, Florida. ILX is authorized by the states of Arizona and Florida to sell
timeshare interests in Ventura Resort in those states. ILX had approximately 20
weeks available for sale at December 31, 1995.
In 1986, ILX purchased, and in 1987 began operations at, the Golden Eagle
Resort, which is located in the town of Estes Park, Colorado, within three miles
of the Rocky Mountain National Park. ILX plans to offer a minimum of 1,785
timeshare weeks in the Golden Eagle Resort. Arizona, Colorado and Indiana have
authorized ILX to sell timeshare interests in Golden Eagle Resort in those
states. ILX had approximately 501 weeks available for sale in completed suites
at December 31, 1995.
In September, 1988, ILX acquired an ownership interest in the Los Abrigados
resort in Sedona, Arizona through BIS-ILE Associates ("BIS-ILE"), a partnership
that was formed to acquire and market the property and in which ILX held an
interest as a general partner. See ILE Sedona Incorporated below.
Marketing of timeshare interests in the Los Abrigados resort began in February,
1989. ILX, directly and through its wholly owned subsidiary, ILE Sedona
Incorporated, has served as managing general partner of BIS-ILE and its
successor, Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"), since inception. A total of 9,100 timeshare weeks may be
sold in Los Abrigados. Arizona, Colorado, Indiana, Iowa and Nevada have
authorized ILX to sell timeshare interests in Los Abrigados in those states. At
December 31, 1995, ILX had approximately 3,360 weeks available for sale, and
options to purchase 430 weeks had been extended to owners of timeshare interests
in the Golden Eagle Resort on substantially the same terms offered to current
purchasers. In addition, one to two year options have been extended to certain
owners of alternate year usage at Los Abrigados which allow the owners to
increase their ownership to every year usage. Such options are at prices in
excess of the current prices. Also at December 31, 1995, Genesis Investment
Group, Inc., a wholly owned subsidiary of ILX, holds an option to purchase 517
additional timeshare weeks for $2,100 each in Los Abrigados, which timeshare
weeks will be made available for sale upon exercise of the option.
The Costa Vida Vallarta Resort is a beach front resort located in Puerto
Vallarta, Mexico. During 1993, 1994, and 1995 ILX acquired timeshare weeks in
the resort that provide a right to occupy a specific week and unit in the resort
and to use the common areas of the resort (during the week of occupancy) through
and including the year 2009. Arizona, Colorado and Indiana have authorized ILX
to sell timeshare interests in the Costa Vida Vallarta Resort in those states.
ILX had approximately 53 timeshare interests available for sale as of December
31, 1995.
On June 1, 1995, ILX acquired ownership of Kohl's Ranch Lodge ("Kohl's Ranch").
Kohl's Ranch is a 10.5 acre property located 17 miles northeast of Payson,
Arizona. On June 14, 1995, the Arizona Department of Real Estate approved ILX's
application to sell timeshare interests in Kohl's Ranch. Timeshare sales
commenced in July, 1995. As of December 31, 1995, ILX had approximately 2,574
timeshare weeks available for sale. The Company has begun refurbishing Kohl's
Ranch and intends to maintain its authentic ranch atmosphere and decor. The
Company anticipates constructing six additional duplex cabins as needed to
accommodate timeshare sales, thus adding twelve 2-bedroom cabins, for a total of
64 units and 3,328 timeshare intervals.
The Company markets timeshare interests in Los Abrigados, Kohl's Ranch, the
Golden Eagle Resort and the Costa Vida Vallarta Resort from its Sales Offices
located at Los Abrigados and Kohl's Ranch. There are several other timeshare
resorts in Sedona and elsewhere in Arizona which draw upon the same metropolitan
Phoenix customers the Company does for both its Los Abrigados and Kohl's Ranch
Sales Offices. To date the Company has been able to successfully compete to
attract such customers to attend its timeshare presentations. The Company
markets its Golden Eagle interests exclusively from its Arizona and Indiana
sales offices and does not, therefore, compete directly with Colorado timeshare
resorts.
The Company's wholly owned subsidiary, Varsity Clubs of America ("VCA"), was
formed to capitalize on a perceived niche market: The potential demand for high
quality accommodations near prominent colleges and universities with nationally
recognized athletic programs. Large universities host a variety of sporting,
recreational, academic and cultural events that create a substantial and
relatively constant influx of participants, attendees and spectators. The
Varsity Clubs concept is a lodging alternative targeted to appeal to university
alumni, basketball or football season ticket holders, parents of university
students and corporate sponsors of university functions, among others. The
Varsity Clubs concept is designed to address the specific needs of these
individuals and entities by creating specialty timeshare hotels that have a
flexible ownership structure, enabling the purchase of anything from a single
day (such as the first home football game) to an entire football season. Each
Varsity Clubs facility will operate as a hotel to the extent of unsold unused
timeshare inventory.
The first Varsity Clubs facility was completed in August 1995 and is located in
Mishawaka, Indiana, approximately 2.8 miles from the University of Notre Dame
("Varsity Clubs of America-Notre Dame"). Customers purchase deed and title to a
floating number of night's use of a unit and unlimited use of the common areas
of the resort. Purchasers may also receive the right to utilize the facility on
specified dates, such as dates of home football games, for which they pay a
premium. The company operates the resort as a commercial lodging facility to the
extent of unsold intervals. At December 31, 1995, ILX had approximately 19,492
one night intervals available for sale. To the Company's knowledge, no other
timeshare properties exist proximate to the University of Notre Dame. In
addition, the Company believes the hotel will compete favorably for commercial
guests because of its superior facilities and amenities relative to other
lodging accommodations in the area.
The site for the second Varsity Clubs facility was acquired in July, 1995 and is
located in Tucson, Arizona, approximately 2.3 miles from the University of
Arizona. Construction of the Arizona facility is expected to commence in 1996.
ILX extends financing, not to exceed 90% of the purchase price of the ownership
interval, to qualified purchasers of timeshare interests in the Company's
various resorts. ILX sells with recourse a portion of the consumer obligations,
borrows against a portion, and carries the balance. On occasion, ILX reacquires
an interval from a customer who defaults on his obligation. Intervals are not
reacquired unless ILX has exhausted its collection attempts (which include a
series of telephone calls and letters and reporting to national credit bureaus)
and has determined the obligation to be uncollectible. Such reacquired ownership
interests are held for resale.
ILX's interval ownership plans compete both with other interval ownership plans
as well as hotels, motels, condominium developments and second homes. ILX
considers its competitive environment to include not only the areas surrounding
its properties but also other vacation destination alternatives. ILX's
competitive posture is based on the distinction of its products, the
desirability of the locations of its properties, the quality of the amenities
ancillary to the interval ownership weeks, the value received for the price and
the availability of a variety of destination locations. ILX plans to continue
exploring options for the development and marketing of new resort facilities.
ILE Sedona Incorporated
In September, 1988, ILX acquired, through its wholly owned subsidiary, ILE
Sedona Incorporated ("ILES"), a 40% interest in BIS-ILE, the owner in fee simple
of Los Abrigados resort. During 1989, ILX acquired additional interests that
increased its ownership in BIS-ILE. On January 8, 1990, BIS-ILE filed a petition
for relief with the United States Bankruptcy Court for the District of Arizona,
under Chapter 11 of the Bankruptcy Code. At that time, ILX owned 55.875% of
BIS-ILE. Sales of vacation ownership interests in Los Abrigados had ceased on
January 8, 1990, pending completion of the Chapter 11 filing. During 1990, while
BIS-ILE prepared its plan of reorganization, and in anticipation of that plan,
ILX increased its interest in BIS-ILE to 89.999%. On August 26, 1991, the
Bankruptcy Court approved BIS-ILE's amended plan of reorganization and sales of
vacation ownership interests in Los Abrigados resumed on September 20, 1991,
following the successful reorganization. On September 10, 1991, Los Abrigados
Partners Limited Partnership, an Arizona limited partnership ("LAP") became the
successor in interest to BIS-ILE. ILX, directly and through ILES, owns a total
of 78.5% of LAP, which now owns Los Abrigados. ILES serves as LAP's managing
general partner. LAP has contracted with ILX to manage the resort and to market
fee simple interval ownership interests in the resort through the sale of
membership interests in the Sedona Vacation Club.
Red Rock Collection
In July 1994, ILX, through its wholly owned subsidiary, Red Rock Collection
Incorporated ("RRC"), commenced sales of a complete line of spa and salon
formulated products for face, body, bath and hair care. The products are
produced by outside laboratories according to RRC's specifications and raw
materials are readily available. Currently, Red Rock Collection products
primarily are marketed through resort properties owned and operated by ILX,
through salons, and through direct mail to consumers. The resort-based sales
program includes an upscale amenities line, an in-room gift basket promotion and
retail product sales at ILX resort venues. In addition, Red Rock Collection
products are offered by ILX and its subsidiaries as tour promotion incentives.
RRC then markets by direct mail to these resort and tour customers who have
experienced Red Rock Collection products. RRC is also exploring opportunities to
offer RRC formulated amenities to outside resorts and hotels.
Genesis
ILX, through its wholly owned subsidiary Genesis Investment Group, Inc.
("Genesis"), holds for the purpose of liquidation ownership interests in real
estate, (both fee and lien), most of which is unimproved. ILX acquired Genesis
in November 1993 through the merger of ILX's wholly owned subsidiary and
Genesis. Pursuant to the terms of the merger, holders of Genesis common stock
received the right to receive five shares of ILX common stock and three shares
of ILX Series C Convertible Preferred stock for every ten shares of Genesis
common stock. (At the time of the merger, the Genesis shareholders were entitled
to receive a maximum of 305,964 shares of the ILX Series C Convertible Preferred
stock and 509,940 shares of ILX common stock.) Since the merger, Genesis has
continued to liquidate its real estate holdings and has acquired an option to
purchase 667 timeshare intervals in the Los Abrigados resort. Pursuant to such
option, Genesis had acquired 150 timeshare intervals as of December 31, 1995 and
has marketed the interests through LAP.
Other
ILX employs approximately 500 people.
Item 2. Properties
Los Abrigados Resort
Los Abrigados resort is located in Sedona, Arizona, approximately 110 miles
northwest of Phoenix. The resort consists of a main building which houses the
lobby and registration area, executive offices, meeting space, a health spa and
athletic club, food and beverage facilities and support areas. The hotel
contains 174 suites in 22 one and two story free-standing structures. In
addition, a two-bedroom historic homesite which has been renovated to include a
spa and other luxury features is also located on the property and has been
marketed by the Company. The resort has an outdoor swimming pool, tennis courts
and other recreational amenities and is situated on approximately 19 acres of
land.
The Company offers membership interests to customers in the form of deed and
title which provide the right to occupy the resort for a designated amount of
time each year in perpetuity. A total of 9,100 interval ownership memberships
may be sold, of which approximately 3,360 were available for sale at December
31, 1995. In addition, Genesis holds an option to purchase 517 additional
memberships at $2,100 each. One to two year options to purchase approximately
430 of these available memberships have been extended to owners of timeshare
interests in the Golden Eagle Resort on terms substantially the same as those
offered to current purchasers. Similarly, purchasers of bi-annual interests in
Los Abrigados have been offered one and two year options to expand to annual
interests for specified prices. Such prices exceed current offering prices.
The Company holds fee simple title to the property, which is encumbered by a
first deed of trust securing loans in the principal amount of $805,000, and by
two subordinate deeds of trust of equal priority securing repurchase obligations
relating to borrowings against consumer notes receivable of approximately
$246,828 and sales of consumer notes receivable with recourse in the amount of
approximately $17 million at December 31, 1995. In addition, 320 interests which
are not encumbered by the first and second deeds of trust secure two notes
payable to affiliates totaling $580,000 at December 31, 1995.
Golden Eagle Resort
The Golden Eagle Resort, located within the corporate limits of the Town of
Estes Park, Colorado and within three miles of the Rocky Mountain National Park,
contains a resort lodge which overlooks the Estes Valley and is bounded
generally by undeveloped forested mountainside land. Approximately four acres of
land are owned along with a four-story wood-frame main lodge that was
constructed in 1914. The lodge property contains 27 guest rooms, a restaurant,
bar, library and outdoor swimming pool, as well as two other free standing
buildings containing six guest rooms and support facilities. Space is available
to construct additional suites in the lodge and adjacent buildings. The Company
also owns a residence in a duplex adjacent to the property which may be
marketed.
The Company offers deed and title interests which provide the right to occupy a
specific unit for a specific week each year in perpetuity and plans to offer a
minimum of approximately 1,785 such interval ownership weeks, exclusive of the
adjacent condominium. Approximately 501 interests in completed suites are
available for sale at December 31, 1995. The Company offers certain purchasers
of Golden Eagle interests the option to convert their ownership to other ILX
owned properties at a designated time for a pre-determined amount. Golden Eagle
interests received from converting owners are offered for resale.
The Company holds fee simple title to the property which is encumbered by a
first deed of trust securing a loan in the principal amount of $1,549,990 and by
a second deed of trust securing repurchase obligations relating to borrowings
against consumer notes receivable in the principal amount of $1,195,716 and
sales of consumer notes receivable sold with recourse in the approximate amount
of $923,000 at December 31, 1995.
Kohl's Ranch Lodge
On June 1, 1995, ILX acquired ownership of Kohl's Ranch Lodge ("Kohl's Ranch").
Kohl's Ranch is a 10.5 acre property located 17 miles northeast of Payson,
Arizona. It is bordered on the eastern side by Tonto Creek and is surrounded by
Tonto National Forest. The main lodge of Kohl's Ranch contains 41 guest rooms
and a variety of common area amenities. Kohl's Ranch also includes eight (8)
one- and two-bedroom cabins along Tonto Creek, a triplex cabin with two
one-bedroom units and one efficiency unit, and a free standing building that
contains sales offices and food and beverage facilities.
On June 14, 1995, the Arizona Department of Real Estate approved ILX's
application to sell timeshare interests in Kohl's Ranch. In July, 1995, the
Company began offering membership interests to customers in the form of deed and
title which provide the right to occupy the resort for a designated amount of
time each year in perpetuity. Timeshare sales commenced in July, 1995. As of
December 31, 1995, ILX had 2,574 timeshare weeks available for sale. In addition
to the sale of timeshare interests, ILX intends to continue operating Kohl's
Ranch as a lodge-hotel. ILX has begun refurbishing Kohl's Ranch and intends to
maintain its authentic ranch atmosphere and decor. ILX anticipates commencing
construction of six new duplex cabins on the property as needed to accommodate
timeshare sales, thus adding twelve two-bedroom cabins, for a total of 64 units
and 3,328 timeshare weeks. The Company holds fee simple title to the property
which at December 31, 1995, is encumbered by a first position note and deed of
trust in the amount of $853,500, a second position note and deed of trust in the
amount of $334,800, and a third position note and deed of trust securing
repurchase obligations relating to borrowings against consumer notes receivable
in the principal amount of $338,849.
Interval Ownership Interests in Costa Vida and Ventura Resorts
At December 31, 1995, the Company owned and held for sale 20 interval ownership
interests in the Ventura Resort in Boca Raton, Florida, 53 interval ownership
interests in the Costa Vida Resort in Puerto Vallarta, Mexico, and 55 interval
ownership interests in other resort properties worldwide. These intervals are
owned free and clear by the Company at December 31, 1995.
Varsity Clubs of America - Notre Dame
Varsity Clubs of America - Notre Dame is located in Mishawaka, Indiana ,
approximately 2.8 miles from the University of Notre Dame. The hotel is situated
on approximately four acres of land and consists of a three story main building
which houses 60 one and two-bedroom suites, the lobby, gift shop, meeting space,
member lounge, health club, and food and beverage facilities and a separate one
story building which contains a three-bedroom suite and a one-bedroom suite.
The Company offers membership interests to customers in the form of deed and
title which provide the right to occupy the resort for a designated amount of
time each year in perpetuity. Memberships are offered in one day intervals.
Approximately 22,568 one day intervals will be offered for sale. Approximately
19,492 one day intervals are available for sale at December 31, 1995.
The Company holds the fee simple title to the property, which is encumbered by a
first mortgage securing construction financing in the amount of $4,186,869 and a
second mortgage securing sales of consumer notes receivable with recourse in the
approximate amount of $2.3 million at December 31, 1995.
Varsity Clubs of America - Tucson
The site for the second Varsity Clubs facility was acquired in July, 1995 and is
located in Tucson, Arizona, approximately 2.3 miles from the University of
Arizona. Construction of the Arizona facility is expected to commence in 1996.
The Company has a commitment for construction financing for the Arizona facility
in the amount of $6 million, which is expected to be sufficient to build and
furnish the property. In addition, the commitment includes up to $20 million in
financing for eligible notes received from the sale of timeshare interests in
the Arizona facility. The property is held in fee simple title and is encumbered
by a first deed of trust in the amount of $701,400 at December 31, 1995.
Land
The Company owns various parcels of unimproved real estate in Arizona through
its wholly owned subsidiary Genesis and is presently marketing these properties.
At December 31, 1995, the real estate held for sale less encumbrances was
recorded at $1,545,184. It is the Company's intention to liquidate this land in
the next twelve to twenty-four months.
Red Rock Collection Building
The RRC office and warehouse facilities are housed in an 8,400 square foot
building in Phoenix, Arizona. RRC leases the facility under a one year lease
through December 31, 1996, and has an option to renew the lease for four
additional one year periods through December 31, 2000.
Company Headquarters
The Company leases its corporate headquarters in Phoenix, Arizona under a five
year lease through April 30, 1998. The terms of the lease provide the Company
with the option to extend the lease for three additional one year periods and
with a right of first refusal to purchase the building. The landlord has the
right to cancel the lease upon one year notice and payment of a $20,000
cancellation fee in the event the building is sold. Such cancellation may not
occur prior to May 1, 1997. The landlord has exercised this right, subject to
the ability of the purchaser to perform.
Other
In the opinion of management, the Company's properties are adequately covered by
insurance.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded over-the-counter under the National
Association of Securities Dealers (NASD) trading symbol ILEX. The following
table sets forth the high and low bid and ask prices for the stock for each full
quarterly period during 1995 and 1994. The following over-the-counter market
quotations reflect inter-dealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
Bid Ask
------------- --------------
Quarter Ended High Low High Low
- ------------- ---- ---- ---- ---
December 31, 1995 2.38 1.19 2.50 1.25
September 30, 1995 2.44 1.81 2.50 1.94
June 30, 1995 1.88 1.13 2.06 1.19
March 31, 1995 1.56 1.13 1.69 1.25
December 31, 1994 1.63 1.13 1.75 1.31
September 30, 1994 1.75 1.50 1.94 1.56
June 30, 1994 2.00 1.13 2.13 1.31
March 31, 1994 1.75 1.19 2.00 1.25
On January 31, 1996, the number of holders of the Company's common stock was
approximately 1,300. No dividends have been declared by the Company since
inception and dividends are not anticipated in the foreseeable future.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1995 1994 1993(1) 1992 1991
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<S> <C> <C> <C> <C> <C>
Revenue $32,079,049 $29,950,669 $20,459,379 $18,856,660 $6,095,859
Net income (loss) 624,663 2,148,287 2,076,231 1,325,874 (307,051)
Net income (loss) per common
and equivalent share .05 .17 .18 .12 (.04)
Total assets 37,752,513 28,403,404 24,906,969 15,748,315 15,026,975
Notes payable 15,027,857 7,332,261 5,408,898 4,865,107 5,577,229
Total shareholders' equity 13,775,102 12,957,129 10,541,495 6,477,838 5,095,895
</TABLE>
(1) The 1993 data includes the effects of the acquisition of Genesis effective
November 1, 1993.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the Company's financial condition and results of
operations includes certain forward looking statements. When used in this
report, the words "estimate", "projection", "plan" and "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 forward
looking statements set forth below. The Company undertakes no obligation to
publicly release the results of any revisions to any of the forward looking
statements contained herein.
Results of Operations
Fiscal Year 1994 to 1995
Sales of timeshare interests of $21,353,758 in 1995 were 14.1% higher than sales
of $18,713,970 in 1994. The increase in sales from 1994 to 1995 reflects 1995
sales of interests in both Varsity Clubs of America-Notre Dame and in the Kohl's
Ranch, net of a decrease in sales made from the Phoenix Sales Office.
Sales of interests in Varsity Clubs of America-Notre Dame recognized in 1995
were $5,233,023, and include approximately $513,000 in sales made in 1994 for
which recognition was deferred until 1995 when construction of the facility was
substantially complete. 1995 sales include $1,122,043 in sales of interests in
Kohl's Ranch. Sales of Kohl's Ranch timeshares commenced in July 1995, following
acquisition of the property in June. Sales of interests in Varsity Clubs of
America-Notre Dame and Kohl's Ranch are generated primarily from the sales
offices at the respective properties.
The Sedona Sales Office sells primarily interests in the Los Abrigados resort
and the Golden Eagle Resort. Sedona Sales Office closing rates (number of
timeshare sales divided by number of timeshare tours) and efficiency rates
(timeshare revenue divided by the number of timeshare tours) both increased from
1994 to 1995. As a result, sales of timeshare interests by the Sedona Sales
Office (excluding upgrades by existing customers) increased from 1994 to 1995 by
approximately 2% ($298,000) on 11.5% fewer tours. In addition, upgrades by
existing owners and other specialty programs increased by approximately $451,000
from 1994 to 1995. The reduction in tours to the Sedona Sales Office is due in
part to the allocation of tours to the new Kohl's Ranch Sales Office. The
Company is in the process of relocating and expanding its telemarketing
operations in order to increase tour flow to both the Sedona and Kohl's Ranch
Sales Offices.
On April 1, 1995, the Company closed the Phoenix Sales Office which had sold
primarily interests in Los Abrigados, in favor of directing all Phoenix area
potential customers to the Sedona Sales Office. The Sedona Sales Office has had
consistently higher closing rates than the Phoenix Sales Office. The Phoenix
Sales Office generated approximately $4.7 million in timeshare sales in 1994 and
approximately $771,000 in 1995, prior to closure of the office.
1994 sales of timeshare interests include the recognition of $428,100 in
deferred revenue from a 1992 bulk sale.
Cost of timeshare interests as a percentage of sales of timeshare interests has
increased slightly from 1994 to 1995, excluding the 1994 bulk sale revenue
recognition for which there was no related cost of sale. The increase reflects
sales of interests in Varsity Clubs of America-Notre Dame which have a higher
product cost than interests in the Los Abrigados resort.
The increase in resort operating revenue from $8,764,558 in 1994 to $8,868,344
in 1995 reflects revenue from Varsity Clubs of America-Notre Dame which opened
in mid August 1995 and revenue from Kohl's Ranch which was acquired on June 1,
1995, net of reduced room revenue at the Los Abrigados resort as a result of the
increasing usage of the resort by prospective timeshare purchasers and timeshare
owners and decreasing availability of rooms for resort guests. The cost of
resort operations as a percentage of revenues has increased from 1994 to 1995
due to the start up of operations at Kohl's Ranch and Varsity Clubs of
America-Note Dame and due to the decreasing occupancy of traditional resort
guests at Los Abrigados as timeshare owners and prospective purchasers, who pay
substantially reduced rates for their room usage, utilize a greater portion of
the facilities.
Occupancy at Kohl's Ranch was lower in 1995 than it is expected to be in 1996
and beyond because renovations at the resort in 1995 reduced the number of rooms
available for rental. In addition, the planned expansion of timeshare marketing
programs in 1996 is expected to create demand for a greater number of rooms by
prospective timeshare purchasers. Kohl's Ranch resort operating expenses in 1995
include repairs, landscaping, cleaning, and training associated with start up of
the operation.
Occupancy at Varsity Clubs of America-Note Dame was low in 1995 due to minimal
pre-opening marketing of the facility to groups and individual hotel guests.
Occupancy is expected to increase in 1996 because additional room nights will be
utilized by prospective timeshare purchasers and by timeshare owners and because
increased traditional hotel demand is expected as a result of the hotel
marketing program implemented in the fourth quarter of 1995.
Sales of land and other and the associated cost of land sold and other in both
1994 and 1995 reflect the sale of unimproved real property held by Genesis and
sales of Red Rock Collection products. 1994 Genesis sales include the sale of
subdivided lots and a large, unimproved parcel. 1995 Genesis sales include sales
of three large, unimproved parcels. The land held by Genesis was recorded in the
November 1993 acquisition at its estimated fair market value. The spread between
sales of land and the cost of land sold reflects the appreciation of the
particular parcels sold. Cost of land sold as a percentage of sales of land
increased from 1994 to 1995 due to variations in appreciation due to the unique
attributes of each parcel.
Sales of Red Rock Collection consumer products increased from $234,975 in 1994
to $621,878 in 1995, including $402,042 in intercompany sales in 1995 which are
eliminated in consolidation, due to a full year of sales in 1995 and due to
increased use of Red Rock Collection products for incentives for prospective
timeshare purchasers. Sales of Red Rock Collection products commenced July 1,
1994.
Advertising and promotion as a percentage of revenue is comparable between years
after excluding sales of land each year and the recognition of the 1992 bulk
timeshare sale in 1994 which have no associated advertising and promotion
expenses.
General and administrative expenses increased from $3,198,604 in 1994 to
$4,106,180 in 1995 because 1995 reflects the expense of approximately $400,000
in bond offering costs, and also the write-off of approximately $320,000 in
costs for Varsity Clubs of America sites and associated development costs. The
Company abandoned its plans for a $10 million convertible bond offering in
December 1995 because of the underwriter's inability to timely place the bonds.
The proceeds of the bond offering were intended to be used for expansion of
Varsity Clubs of America. The Company canceled its options on its Varsity Clubs
of America sites near the University of Iowa and Oklahoma because it no longer
expects to construct at these sites within the option period. The Company also
canceled its options for sites near Penn State and Auburn University in the
first quarter of 1996. The Company believes these sites, or other suitable
sites, may be available at such time as it desires to construct at these
locations and at prices and terms no less favorable than under the forfeited
options, including costs to extend the options beyond their original expiration
date. 1995 general and administrative expenses also reflect the start up of
Varsity Clubs of America-Notre Dame. 1994 general and administrative expenses
include the amortization of deferred Red Rock Collection costs as described
below.
The provision for doubtful accounts relates primarily to sales of timeshare
interests. The Company recognizes a bad debt provision of 6% of most timeshare
sales, based on industry averages. The 1994 provision of only 4.1% of timeshare
sales reflects the 6% accrual, net of a reduction to reflect collection
experience on prior years' sales more favorable than expected.
The increase in interest expense from $666,141 in 1994 to $1,265,227 in 1995
reflects an increase in notes payable, including the note payable for the
construction of Varsity Clubs of America-Notre Dame, the Kohl's Ranch
acquisition notes, a full year of interest on the notes arising from the 1994
acquisition of the Los Abrigados Limited Partners Class A partnership interest
and increased borrowings against consumer notes receivable. The Company has
elected to finance its Kohl's Ranch consumer notes and a portion of its Golden
Eagle consumer notes by borrowing against (hypothecating) the notes, rather than
selling the notes, because of the favorable installment sales tax treatment
available for hypothecated notes.
The increase in interest income from $402,596 in 1994 to $627,081 in 1995
reflects the increase in consumer paper retained by the Company. The Company
hypothecates the majority of its retained paper.
Income tax benefits increased from $161,799 in 1994 to $547,216 in 1995. In
1994, tax benefits resulted from decreases in the valuation allowance as a
result of the ability to utilize loss carryforwards and built in losses arising
from the Los Abrigados resort and from Genesis loss carryforwards. 1995 tax
benefits reflect the elimination of the remaining valuation allowance on the
Genesis net operating loss carryforwards. The elimination was based on the
development of tax strategies from which management concluded the loss
carryforwards would more likely than not be utilized. A valuation allowance had
been established to reflect the uncertainty of the utilization of the Los
Abrigados resort deferred tax assets and the Genesis net operating loss
carryforwards.
The decrease in minority interests from $1,440,034 in 1994 to $501,246 in 1995
reflects the acquisition of the LAP Class A limited partnership interests
effective July 1994, the decrease in LAP net income in 1995 and differences in
minority interest ownership of the Genesis parcels sold in 1994 and 1995. The
decrease in LAP net income between years is a result of closure of the Phoenix
Sales Office and reduced profitability of Los Abrigados hotel operations due to
decreased availability of rooms for resort guests.
Fiscal Year 1993 to 1994
Sales of timeshare interests of $18,713,970 in 1994 were 52.6% higher than sales
of $12,263,619 in 1993. The increase in sales from 1993 to 1994 reflects
improved closing rates in the Sedona Sales Office and, in the 3rd quarter of
1994, the expansion of the Sedona Sales Office to accommodate a greater number
of tours. In addition, sales from the Phoenix Sales Office increased following
the Company's assumption of this operation, as discussed below.
Included in 1994 sales of timeshare interests is $428,100 in revenue from a bulk
sale of 667 weekly intervals in Los Abrigados resort which occurred in 1992. The
1994 revenue had been deferred pending collection of the $900,000 note
receivable arising from the sale which was collected in March 1994.
Advertising and promotion as a percentage of sales increased from 15.5% in 1993
to 19.8% in 1994 due to the acquisition of the Phoenix Sales Office, net of
increased closing rates at the Sedona Sales Office. Effective January 31, 1994,
the Company acquired the assets of the organization which had performed the
sales and marketing for the Phoenix Sales Office and the Company assumed those
sales and marketing operations. Prior to that date, the Company paid a flat
percentage of sales to the outside organization which operated in facilities it
leased from the Company and that percentage of sales was included in cost of
timeshare interests sold. After the acquisition, the Company began recording the
costs of generating tours to and operations of the Phoenix Sales Office as
advertising and promotion expenses. Commissions and other compensation paid to
sales staff are recorded as costs of timeshare interests sold. The effect was an
increase in advertising and promotion expense and a corresponding decrease in
cost of timeshare interests sold as a percentage of sales of timeshare interests
in 1994. Costs of timeshare interests sold as a percentage of sales of timeshare
interests decreased from 40.8% in 1993 to 35.2% in 1994.
The increase in resort operating revenue from $8,072,260 in 1993 to $8,764,558
in 1994 reflects increased total resort occupancy and average daily rate from
resort guests, and increased utilization of food and beverage outlets. The
improvements in resort occupancy are a result of the increasing usage of the
resort by prospective timeshare purchasers and timeshare owners, net of the
decreasing availability of rooms for resort guests. The cost of resort
operations as a percentage of resort operating revenue increased to 89.1% in
1994 from 86.3% in 1993 because prospective purchasers and timeshare owners (an
increasing portion of occupancy) pay substantially reduced rates for their room
usage and because the variable cost of providing food and beverage is greater as
a percentage of corresponding revenue than the variable cost as a percentage of
revenue of providing rooms to resort guests.
Sales of land and other and the associated cost of land sold and other reflect
sales of unimproved real property acquired in the November 1993 Genesis
acquisition and, in 1994, sales of Red Rock Collection products. 1993 sales of
$123,500 and the associated cost of sales of $113,618 reflect Genesis sales of
subdivided lots. Included in 1994 activity are sales of land of $2,237,166 and
the associated cost of sales of $1,796,974, representing Genesis sales of the
remainder of the subdivided lots and the sale of a large, unimproved parcel.
Red Rock Collection sales of $234,975 are included in 1994 sales of land and
other. Red Rock Collection sales commenced July 1, 1994. Amortization of
approximately $929,000 in deferred Red Rock Collection costs is included in
general and administrative expense in 1994.
General and administrative expenses increased as a percentage of revenue from
7.4% in 1993 to 10.7% in 1994 because of the amortization of deferred Red Rock
Collection costs described above and because of the recognition of other Red
Rock general and administrative costs. Excluding both Red Rock Collection
revenues and expenses, general and administrative expenses as a percentage of
revenue declined to 5.8% in 1994 from 7.4% in 1993.
The decrease in the 1994 doubtful accounts provision to 4.1% as compared to 5.4%
in 1993, as a percentage of sales of timeshare interests, reflects collection
experience more favorable than expectations.
The increase in interest income from $359,908 in 1993 to $402,596 in 1994
reflects increased consumer paper retained by the Company.
The increase in interest expense from $599,238 in 1993 to $666,141 in 1994
reflects greater balances outstanding on notes payable and differences in
interest rates and terms among notes.
Income tax benefits increased from $100,000 in 1993 to $161,799 in 1994. In both
1993 and 1994, tax benefits resulted from decreases in the valuation allowance
as a result of the ability to utilize loss carryforwards and built in losses
arising principally from the Los Abrigados resort. The valuation allowance had
been established to reflect the uncertainty of the utilization of the deferred
tax assets.
In 1993 an additional tax asset was recorded to reflect the future tax benefit
of the Genesis net operating loss carryforwards and a valuation allowance was
recorded to offset the full amount of the asset. This valuation allowance was
reduced in 1994 due to improvements in the Arizona real estate market and the
development of tax strategies from which management concluded that a portion of
the net operating loss carryforwards would more likely than not be utilized.
The increase in minority interests from $814,520 in 1993 to $1,440,034 in 1994
reflects continued increased profitability of LAP, net of a decrease in the
minority interest ownership of LAP effective July 1, 1994, of 7.5%. In addition,
1994 minority interests include approximately $236,000 in partnerships in which
the Company's Genesis subsidiary is a partner.
During the third quarter of 1994, the Company opened a sales office adjacent to
the site of its first Varsity Clubs of America near the University of Notre Dame
in Indiana. Construction commenced in the fourth quarter of 1994 and was
completed in August 1995. Sales and marketing expenses of approximately $283,000
for promoting sales of Varsity Clubs of America-Notre Dame were expended during
1994 and are included in advertising and promotion. Revenue generated by these
marketing efforts, however, was deferred pending substantial completion of the
facility. Deferred revenue of $513,000, net of associated costs of sales of
$148,000, is included in deferred revenue at December 31, 1994. The Notre Dame
Sales Office also offers timeshare interests in the Company's other resorts.
Sales of intervals in other resorts of approximately $319,000 are included in
1994 sales of timeshare interests.
Liquidity and Capital Resources
The Company's liquidity needs principally arise from the necessity of financing
notes received from sales of timeshare interests. In that regard, the Company
has $13 million in lines of credit issued by a financing company under which
conforming notes (notes that meet the credit criteria, term and interest rate
specified by the lender) from sales of interval interests in Los Abrigados and
the Golden Eagle Resort can be sold on a recourse basis through September 1996.
In addition, the Company has an open ended arrangement with a finance company
which is expected to provide financing of at least $5 million through 1996. At
December 31, 1995, approximately $7.7 million is available under the fixed
commitment lines and approximately $3 million is expected to be available on the
open ended line. The Company also has a financing commitment whereby the Company
may borrow up to $2.5 million against non-conforming notes from sales of
interval interests in Los Abrigados and the Golden Eagle Resort through
September 1998. Approximately $500,000 was available under this commitment at
December 31, 1995.
The Company has a $10 million financing commitment whereby the Company may sell
eligible notes received from sales of timeshare interests in Varsity Clubs of
America - Notre Dame on a recourse basis through March 1996. The commitment may
be extended for an additional eighteen month period and an additional $10
million at the option of the financing company. In March 1996, the financing
company verbally approved the extension and commenced preparation of written
documentation.Approximately $7.6 million was available under this commitment at
December 31, 1995.
The Company has a financing commitment whereby it may borrow up to $10 million
against conforming notes received from sales of timeshare interests in Kohl's
Ranch through August 1997. Approximately $9.6 million was available on this
commitment at December 31, 1995.
The Company will continue to retain certain non-conforming notes which have one
to two year terms or which do not otherwise meet existing financing criteria,
and finance these notes either through internal funds or through borrowings
secured by the non-conforming notes. The Company will pursue additional credit
facilities to finance conforming and non-conforming notes as the need for such
financing arises.
The Company has a $500,000 line of credit from one financial institution and a
$400,000 line of credit from another, both available for working capital. At
December 31, 1995, $755,000 was available on the lines.
In March 1995, the Company borrowed an additional $1,010,000 from the Steele
Foundation, Inc., the first mortgage holder on the Golden Eagle Resort. The
Company has used these funds for further expansion of food and beverage
facilities, refurbishment of suites and the construction of additional
administrative facilities at Los Abrigados resort.
In June 1995, the Company acquired Kohl's Ranch, a ten acre rustic resort near
Payson, Arizona for $1,590,000, consisting of a $50,000 cash down payment,
assumption of the existing deed of trust of $932,250, seller financing of
$367,750, and the issuance of 120,000 shares of ILX restricted common stock
valued at $2 per share. As described above, the Company has $10 million in
receivables financing for sales of timeshare interests in Kohl's Ranch through
August 1997.
In June 1995, the Company signed a letter of intent to offer to the public, on a
firm underwriting basis, $10,000,000 in convertible secured bonds with a
$1,500,000 overallotment option through Brookstreet Securities Corporation
("Brookstreet"). In October 1995, the terms of the offering were reduced to
provide for $3,000,000 in convertible secured bonds with a $450,000
overallotment option. The offering was abandoned in December 1995 because
Brookstreet was unable to timely place the bonds.
In July 1995, the Company acquired land near the University of Arizona to be the
site of its second Varsity Clubs of America. The Company made a down payment of
$300,600 and the seller is carrying the balance of $701,400. The Company has
received a commitment for construction financing for the facility in the amount
of $6 million, which is expected to be sufficient to build and furnish the
property, and a commitment for up to $20 million in financing for eligible notes
received from sales of timeshare interests in the property.
In July 1995, the Company borrowed $900,000 from Joseph P. Martori and Cynthia
J. Polich, as Trustees for Cynthia J. Polich, and from Edward John Martori (an
affiliate), secured by 320 timeshare interests (reduced to 220 in January 1996)
in the Los Abrigados resort. The Company used these funds for refurbishment at
Los Abrigados.
In September 1995, the Company, through a subsidiary, entered into an agreement
to acquire a portion of the Hotel Syracuse in Syracuse, New York and to develop
and market timeshare interests in the property. The Company has a financing
commitment for $5 million in acquisition and development non-recourse financing,
which is expected to be sufficient to acquire and construct the suites, and $30
million in receivables financing through September 1998.
During 1995, the Company borrowed $4,599,216, the remaining balance on its $5
million Varsity Clubs of America-Notre Dame construction financing commitment,
to complete the construction of the hotel facility. The hotel opened in August
1995. Under the terms of the financing commitment, the principal is repaid via
release payments as timeshare interests are sold.
In November 1995, the Company entered into a management agreement with one of
its timeshare lenders, with respect to the Los Abrigados resort. Under the
agreement the lender committed to advance $3.5 million, provide strategic
planning and consultation with respect to timeshare sales of 3,500 Los Abrigados
intervals and reduce the holdback requirements on timeshare paper purchased by
the lender. The advance, plus a 12% cost of funds on the outstanding balance of
the advance, will be repaid in cash and in kind from one-half the monthly cash
flows from the sale of the 3,500 timeshare intervals. At December 31, 1995, the
lender had advanced $1.5 million on its commitment.
In February 1996, the Company borrowed an additional $1,760,000 from the first
mortgage holder on the Los Abrigados resort. The Company intends to use these
funds for improvements to the Los Abrigados resort and Kohl's Ranch and for
working capital.
Effective March 1, 1996, the Company, through a subsidiary, became the managing
general partner of the partnership which owns the Lomacasi Resort in Sedona,
Arizona, a 5.27 acre property approximately one mile from the Los Abrigados
resort. The Company acquired its partnership interest for a $25,000 capital
contribution. The resort is encumbered by non-recourse deeds of trust on the
property totaling approximately $2.2 million. The Company intends to initially
use the resort to provide lodging accommodations to prospective timeshare
purchasers at the Company's Sedona Sales Office, thereby creating more
availability of rooms for resort guests at the Los Abrigados resort. The Company
may offer timeshare interests in the resort in the future.
Cash provided by operating activities increased from $2,307,986 in 1993 to
$3,169,370 in 1994 due to greater proceeds from sales of notes receivable, net
of increased additions to resort property under development for Varsity Clubs of
America-Notre Dame. The change from cash provided by operating activities of
$3,169,370 in 1994 to cash used in operating activities of $5,496,092 in 1995
reflects reduced net income in 1995, improvements to Los Abrigados and the
completion of construction of the Varsity Clubs of America-Notre Dame facility
in 1995, and increased notes receivable retained by the Company.
Cash used in investing activities of $1,301,986 and $1,305,936 in 1994 are
comparable but reflect the acquisition of the minority interest in LAP in 1994
and greater increases in Red Rock Collection deferred assets in 1993 than 1994.
Cash flows from investing activities changed from cash used in investing
activities of $1,305,936 in 1994 to cash provided by investing activities of
$137,188 in 1995 due to the acquisition of the minority interest in LAP in 1994,
addition of Red Rock Collection plant and equipment in 1994 and the write-off of
Varsity land deposits in 1995.
The change from cash provided by financing activities of $338,185 in 1993 to
cash used in financing activities of $287,954 in 1994 reflects greater principal
payments on notes payable in 1994, net of increased borrowings. Cash flows from
financing activities changed from cash used in financing activities of $287,954
in 1994 to cash provided by financing activities of $5,469,835 in 1995 due to
increased borrowings, including borrowings for the construction of Varsity Clubs
of America-Notre Dame and the acquisition of Kohl's Ranch.
Although no assurances can be made, based on the prior success of the Company in
obtaining necessary financings for operations and for expansion, the Company
believes that with its existing financing commitments, its cash flow from
operations and the contemplated financings discussed above the Company will have
adequate capital resources for at least the next twelve to twenty-four months.
Accounting Matters
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning
after December 15, 1995. The Company does not believe the adoption of SFAS 121
will have a significant impact on the Company's financial position, results of
operations, or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company intends to continue to apply APB Opinion No. 25
to its stock based compensation awards to employees and to disclose the required
pro forma effect on net income and earnings per share.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data required by Item 8
are set forth in Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 13. Certain Relationships and Related Transactions
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Consolidated Financial Statements Page or Method of Filing
--------------------------------- ------------------------
(i) Consolidated Financial Statements and Pages 20 through 40
Notes to Consolidated Statements of
the Registrant, including Consolidated
Balance Sheets as of December 31, 1995
and 1994 and Consolidated Statements
of Operations, Shareholders' Equity
and Cash Flows for each of the three
years ended December 31, 1995, 1994
and 1993.
(ii) Report of Deloitte & Touche LLP Page 19
(a) (2) Consolidated Financial Statement Schedules
------------------------------------------
Reserve for possible credit losses Page 42
Schedules other than those mentioned
above are omitted because the
conditions requiring their filing do
not exist or because the required
information is given in the financial
statements, including the notes
thereto.
(a) (3) Exhibits
--------
The Exhibit Index attached to this
report is hereby incorporated by
reference.
(b) Reports on Form 8-K
-------------------
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ILX Incorporated
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of ILX Incorporated
and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therin.
Deloitte & Touche LLP
Phoenix, Arizona
March 27, 1996
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1995 1994
------------ ------------
Assets
Cash and cash equivalents $ 3,746,518 $ 3,635,587
Notes receivable, net (Notes 2, 7, 10, 11 and 14) 8,785,487 6,750,896
Resort property held for timeshare sales
(Notes 3, 10, and 11) 17,191,791 9,407,733
Resort property under development (Notes 6 and 10) 1,119,080 1,735,592
Land held for sale (Note 4) 1,545,184 1,673,168
Deferred assets (Notes 5, 6 and 7) 451,496 749,999
Property and equipment , net (Note 8) 835,485 1,437,227
Deferred income taxes (Note 9) 1,887,021 1,283,179
Other assets 2,190,451 1,730,023
------------ ------------
$ 37,752,513 $ 28,403,404
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 2,313,638 $ 1,581,659
Accrued and other liabilities 1,793,160 1,039,000
Genesis funds certificates (Note 4) 1,366,843 1,612,457
Due to affiliates (Notes 7, 12, and 16) 440,629 984,534
Deferred income (Note 6) 2,869 365,195
Notes payable (Note 10) 13,189,945 5,331,677
Notes payable to affiliates (Note 11) 1,837,912 2,000,584
------------ ------------
20,944,996 12,915,106
------------ ------------
Minority Interests (Note 12) 3,032,415 2,531,169
------------ ------------
Commitments (Note 13)
Shareholders' Equity (Notes 14 and 15)
Preferred stock, $10 par value;
10,000,000 shares authorized;
411,483 and 430,313 shares issued and
outstanding; liquidation preference of $4,114,830
and $4,303,130, respectively 1,515,134 1,648,755
Common stock, no par value;
40,000,000 shares authorized; 12,625,757
and 12,405,325 shares issued and outstanding 9,322,375 8,972,969
Treasury stock, at cost 20,000 shares (25,032) --
Additional paid in capital 35,190 30,000
Retained earnings 2,927,435 2,305,405
------------ ------------
13,775,102 12,957,129
------------ ------------
$ 37,752,513 $ 28,403,404
============ ============
See notes to consolidated financial statements
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Revenues: 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Sales of timeshare interests $ 21,353,758 $ 18,713,970 $ 12,263,619
Resort operating revenue 8,868,344 8,764,558 8,072,260
Sales of land and other 1,856,947 2,472,141 123,500
------------ ------------ ------------
32,079,049 29,950,669 20,459,379
------------ ------------ ------------
Cost of sales and operating expenses:
Cost of timeshare interests sold 7,825,662 6,592,684 5,007,131
Cost of resort operations 9,354,382 7,807,857 6,962,849
Cost of land sold and other 1,664,971 1,955,631 113,618
Advertising and promotion 6,675,598 5,941,761 3,168,562
General and administrative 4,106,180 3,198,604 1,510,448
Provision for doubtful accounts 1,235,417 764,065 666,690
------------ ------------ ------------
30,862,210 26,260,602 17,429,298
------------ ------------ ------------
Operating income 1,216,839 3,690,067 3,030,081
Other income (expense):
Interest expense (Notes 10 and 11) (1,265,227) (666,141) (599,238)
Interest income 627,081 402,596 359,908
------------ ------------ ------------
(638,146) (263,545) (239,330)
------------ ------------ ------------
Income before income taxes 578,693 3,426,522 2,790,751
Income tax benefit 547,216 161,799 100,000
------------ ------------ ------------
Income before minority interests 1,125,909 3,588,321 2,890,751
Minority interests (Note 12) (501,246) (1,440,034) (814,520)
------------ ------------ ------------
Net income $ 624,663 $ 2,148,287 $ 2,076,231
============ ============ ============
Net income per common and
equivalent share $ 0.05 $ 0.17 $ 0.18
============ ============ ============
Number of common and equivalent shares 12,710,837 12,463,246 11,791,786
============ ============ ============
Net income per share assuming
full dilution $ 0.05 $ 0.17 $ 0.17
============ ============ ============
Number of fully diluted shares 13,198,287 12,971,235 12,301,206
============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common Stock Additional Preferred Stock Earnings/ Treasury Stock
---------------------- Paid In ------------------- Accumulated ---------------
Shares Amount Capital Shares Amount Deficit Shares Amount Total
---------- ---------- ------- ------- ---------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 11,268,098 $7,532,521 $30,000 132,943 $ 834,430 $(1,919,113) $ 6,477,838
Net income -- -- -- -- -- 2,076,231 2,076,231
Issuance of common stock for
acquisition 509,420 842,798 -- -- -- -- 842,798
Other issuance of common stock 306,100 306,030 -- -- -- -- 306,030
Issuance of preferred stock
for acquisition -- -- -- 305,652 842,798 -- 842,798
Exchange of preferred stock
for lodging certificates -- -- -- (420) (4,200) -- (4,200)
---------- ---------- ------- ------- ---------- ----------- ------ -------- -----------
Balances, December 31, 1993 12,083,618 8,681,349 30,000 438,175 1,673,028 157,118 10,541,495
Net income -- -- -- -- -- 2,148,287 2,148,287
Issuance of common stock for
acquisition 123,000 123,000 -- -- -- -- 123,000
Other issuance of common stock 24,616 29,232 -- -- -- -- 29,232
Exchange of preferred stock
for common stock 12,100 20,038 -- (7,260) (20,038) -- --
Exercise of options 162,586 121,135 -- -- -- -- 121,135
Exchange of preferred stock
for lodging certificates -- -- -- (245) (2,450) -- (2,450)
Exercise of cash options (595) (1,785) -- (357) (1,785) -- (3,570)
---------- ---------- ------- ------- ---------- ----------- ------ -------- -----------
Balances, December 31, 1994 12,405,325 8,972,969 30,000 430,313 1,648,755 2,305,405 12,957,129
Net income -- -- -- -- -- 624,663 624,663
Issuance of common stock for
acquisition 120,000 240,000 -- -- -- -- 240,000
Other issuance of common stock 86,100 86,212 -- -- -- -- 86,212
Exchange of preferred stock
for common stock 12,540 20,766 -- (7,524) (20,766) --
Issuance of cumulative shares for
dividend arrearage 1,857 2,613 -- -- -- (2,633) (20)
Exercise of options
Exchange of preferred stock
for lodging certificates -- -- 5,190 (11,267) (112,670) -- (107,480)
Exercise of cash options (65) (185) -- (39) (185) -- (370)
Acquisition of treasury shares -- -- -- -- -- -- (20,000) (25,032) (25,032)
---------- ---------- ------- ------- ---------- ----------- ------ -------- -----------
Balances, December 31, 1995 12,625,757 $9,322,375 $35,190 411,483 $1,515,134 $ 2,927,435(20,000)$(25,032) $13,775,102
================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, 1993
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 624,663 $ 2,148,287 $ 2,076,231
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed minority interest 501,246 760,306 651,205
Deferred income taxes (603,842) (885,408) (297,771)
Additions to notes receivable (12,727,015) (10,333,377) (8,182,286)
Proceeds from sale of notes receivable 9,457,007 9,490,042 6,406,437
Provision for doubtful accounts 1,235,417 764,065 666,690
Depreciation and amortization 696,062 1,425,792 352,877
Amortization of guarantee fees 100,350 140,550 132,054
Change in assets and liabilities, net of the
effects from purchase of subsidiary:
(Increase) decrease in resort property held for timeshare sales (4,421,071) 870,858 (221,501)
Increase in resort property under development (417,680) (1,735,592) --
Decrease in land held for sale 127,984 1,440,765 --
(Increase) decrease in other assets (296,028) (862,965) 226,307
Increase (decrease) in accounts payable 731,979 (218,535) 241,931
Decrease in Genesis funds certificates (245,614) (568,559) --
Increase in accrued and other liabilities 646,681 569,187 187,762
Increase (decrease) in due to affiliates (543,905) 255,658 39,251
Increase (decrease) in deferred income (362,326) (91,704) 28,799
------------ ------------ ------------
Net cash (used in) provided by operating activities (5,496,092) 3,169,370 2,307,986
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in deferred assets 198,153 (353,251) (904,173)
Purchases of plant and equipment (60,965) (581,435) (741,323)
Net cash acquired from purchase of subsidiary -- -- 343,510
Net cash paid for Class A minority interest -- (371,250) --
------------ ------------ ------------
Net cash provided by (used in) investing activities 137,188 (1,305,936) (1,301,986)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 11,093,122 6,165,996 1,579,056
Proceeds from notes payable to affiliates 900,000 -- 850,000
Principal payments on notes payable (5,841,405) (6,006,073) (1,567,486)
Principal payments on notes payable to affiliates (742,672) (567,074) (820,265)
Proceeds from issuance of common stock 86,212 122,767 --
Proceeds from issuance of minority interest in subsidiary -- -- 300,000
Acquisition of treasury stock and other (25,422) (3,570) (3,120)
------------ ------------ ------------
Net cash provided by (used in) financing activities 5,469,835 (287,954) 338,185
------------ ------------ ------------
Net increase in cash and cash equivalents 110,931 1,575,480 1,344,185
Cash and cash equivalents at beginning of year 3,635,587 2,060,107 715,922
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,746,518 $ 3,635,587 $ 2,060,107
============ ============ ============
See notes to consolidated financial statements and supplemental schedules of noncash investing and financing activities
</TABLE>
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities
for the year ended December 31, 1995:
Acquisition of resort property held for timeshare sales:
Increase in notes payable $ 1,300,000
Issuance of common stock 240,000
Increase in other assets (10,000)
Increase in resort property held for timeshare sales (1,580,000)
-----------
Net cash paid for resort property held for timeshare sales $ 50,000
===========
Purchase of resort property held for timeshare sales:
Increase in notes payable $ 507,726
Increase in resort property held for timeshare sales $ (507,726)
-----------
$ --
===========
Acquisition of resort property under development:
Increase in notes payable $ 701,400
Increase in resort property under development (1,002,000)
-----------
Net cash paid for resort property under development $ (300,600)
===========
Sale of property and equipment:
Decrease in property and equipment $ 500,000
Increase in other assets (180,000)
Decrease in notes payable (320,000)
-----------
$ --
===========
Purchases of plant and equipment
Increase in notes payable $ 97,424
Increase in property and equipment (97,424)
-----------
$ --
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock $ 20,766
Reduction in Series C Preferred Stock (20,766)
-----------
$ --
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $ 107,480
Increase in paid in capital 5,190
Reduction in Series A Preferred Stock (112,670)
-----------
$ --
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities
for the year ended December 31, 1994:
Acquisition of Class A interest:
Increase in notes payable to affiliates $ 1,215,750
Reduction in minority interest (773,949)
Increase in resort property held for timeshare sales (813,051)
-----------
Net cash paid for Class A minority interest $ 371,250
===========
Purchases of plant and equipment
Increase in notes payable $ 364,948
Increase in plant and equipment (364,948)
-----------
--
===========
Purchase of minority interest in subsidiary:
Increase in other assets $ (123,000)
Increase in notes payable to affiliates 300,000
Issuance of common stock 123,000
Reduction in minority interest (300,000)
-----------
--
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock $ 20,038
Reduction in Series C Preferred Stock (20,038)
-----------
--
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $ 2,450
Reduction in Series A Preferred Stock (2,450)
-----------
--
===========
Tax benefit on exercise of stock options
Increase in common stock $ 27,600
Reduction in taxes payable (27,600)
-----------
--
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities
for the year ended December 31, 1993:
Purchase of subsidiary:
Acquisition of notes receivable ($2,644,310)
Acquisition of land held for sale (2,345,902)
Acquisition of other assets (261,568)
Assumption of accounts payable 838,354
Assumption of Genesis funds certificates 2,162,943
Assumption of notes payable 502,486
Assumption of minority interest 402,791
Issuance of preferred stock 844,358
Issuance of common stock 844,358
-----------
Net cash acquired from
purchase of subsidiary $343,510
===========
Exchange of note for land:
Increase in land held for sale ($768,031)
Decrease in notes receivable 768,031
-----------
--
===========
Issuance of common stock for reduction of
Class A Priority return:
Issuance of common stock $204,000
Reduction in minority interest (204,000)
-----------
--
===========
Redemption of common stock to reduce
amounts due to affiliates:
Issuance of common stock $102,000
Reduction in due to affiliates (102,000)
-----------
--
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $4,200
Reduction in Series A Preferred Stock (4,200)
-----------
--
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
The consolidated financial statements include the accounts of ILX Incorporated
and its wholly-owned and majority owned subsidiaries ("ILX" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation.
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in resort properties located in
Arizona, Colorado, Florida, Indiana and Mexico. Effective in the third quarter
of 1994, the Company expanded its operations to include marketing of skin and
hair care products which are not considered significant to resort operations.
Net Income per Share
Net income per common share and common equivalent share is based on the weighted
average number of common shares outstanding, including common stock equivalents
which have a dilutive effect. Common stock equivalents consist of Series B
Convertible Preferred Stock, warrants and shares issuable under the stock option
plan (Notes 14 and 15). Net income per common share and common equivalent share
is based on net income adjusted for undeclared dividends on Series C Preferred
Stock. Net income per share assuming full dilution is based on the weighted
average number of common shares outstanding, including common stock equivalents,
and after giving effect to the conversion of Series C Preferred Stock.
Resort Property Held for Timeshare Sales
Resort property held for timeshare sales is recorded at the lower of historical
cost less amounts charged to cost of sales for timeshare sales and depreciation
provided for on the basis of daily rental occupancy, or market. As timeshare
interests are sold, the Company amortizes to cost of sales the average carrying
value of the property plus estimated future additional costs related to
remodeling and construction.
Land Held for Sale
Land held for sale is recorded at the lower of cost or estimated realizable
value, consistent with the Company's intention to liquidate these properties
(Note 4).
Revenue Recognition
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and the Company has been
released of all future obligations for the timeshare interest. Resort operating
revenue represents daily room rentals and revenues from food and other resort
services. Such revenues are recorded as the rooms are rented or the services are
performed.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the
straight-line method over their respective estimated useful lives ranging from 3
to 30 years. Property and equipment under capitalized leases are stated at fair
value as of the date placed in service, and amortized on the straight-line
method over the term of the lease or the estimated useful life, whichever is
shorter.
Statements of Cash Flows
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the years ended December 31, 1995, 1994 and 1993,
the Company paid interest of approximately $1,271,000, $716,000, and $503,000
and income taxes of approximately $221,000, $723,000 and $193,000 respectively.
Interest of $228,000 and $30,749 was capitalized during 1995 and 1994 to resort
property under development.
Accounting Matters
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning
after December 15, 1995. The Company does not believe the adoption of SFAS 121
will have a significant impact on the Company's financial position, results of
operations, or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company intends to continue to apply APB Opinion No. 25
to its stock based compensation awards to employees and to disclose the required
pro forma effect on net income and earnings per share.
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.
Reclassifications
The financial statements for prior periods have been reclassified to be
consistent with the 1995 financial statement presentation.
Note 2 - Notes Receivable
Notes receivable consist of the following:
December 31,
------------------------------
1995 1994
----------- ----------
Timeshare receivables $7,913,111 $5,243,443
Holdbacks by financial institutions 2,736,882 1,993,965
Genesis mortgage receivables (Note 4) 546,394 776,776
Allowance for possible credit losses (2,410,900) (1,263,288)
----------- ----------
$8,785,487 $6,750,896
=========== ==========
Notes generated from the sale of timeshare interests bear interest at annual
rates ranging from 9% to 16% and have terms of five to ten years. In addition,
the Company offers 0% interest and below market interest, and one and two year
financing, to purchasers who pay 50% of the purchase price at the time of sale.
These notes are discounted to yield a consumer market rate. The notes are
collateralized by deeds of trust on the timeshare interests sold.
The Company has agreements with financial institutions under which the Company
may sell certain of its notes receivable. These agreements provide for sales on
a recourse basis with a percentage of the amount sold held back by the financial
institution as additional collateral. At December 31, 1995 and 1994, the Company
had approximately $20 million and $15 million in outstanding notes receivable
sold on a recourse basis. Portions of the notes receivable are secured by second
deeds of trust on the Los Abrigados resort, the Golden Eagle Resort and Varsity
Clubs of America-Notre Dame. Notes may be sold at discounts to yield the
consumer market rate as defined by the financial institution.
At December 31, 1995, the Company had $13,000,000 in financing commitments
through September 1996, and an open ended arrangement expected to provide at
least $5,000,000 through 1996, to sell consumer notes receivable generated from
sales of timeshare interests at the Los Abrigados resort and the Golden Eagle
Resort. At December 31, 1995, approximately $7.7 million remained available on
the fixed commitment lines and $3 million on the open ended commitment. The
Company also has financing commitments whereby it may borrow up to $2.5 million
against notes receivable generated from sales of timeshare interests at the
Golden Eagle Resort and the Los Abrigados resort through September 1998.
Approximately $500,000 remained available on this commitment at December 31,
1995.
The Company has a $10 million financing commitment whereby the Company may sell
eligible notes received from sales of timeshare interests in Varsity Clubs of
America - Notre Dame on a recourse basis through March 1996. The commitment may
be extended for an additional eighteen month period and an additional $10
million at the option of the financing company. In March 1996, the financing
company verbally approved the extension and commenced preparation of written
documentation. Approximately $7.6 million was available under this commitment at
December 31, 1995.
The Company has a financing commitment whereby it may borrow up to $10 million
against conforming notes received from sales of timeshare interests in the
Kohl's Ranch Lodge through August 1997. Approximately $9.6 million was available
on this commitment at December 31, 1995.
In January 1992, the Company sold consumer notes receivable to affiliates of the
Company for proceeds of $368,000, consisting of $156,000 cash and the assignment
of Los Abrigados Limited Partners ("LAP") Class A priority returns, LAP Class B
limited partners interest payments and loan guarantee fees totaling $212,000.
The notes were sold with recourse and the Company recognized a loss of
approximately $60,000 on the sale. At December 31, 1995 and 1994, the Company
had approximately $181,000 and $304,000, respectively, in outstanding notes
receivable sold on a recourse basis to related parties.
During 1993, the Company borrowed $550,000 from affiliates of the Company,
collateralized by notes receivable with principal balances of approximately
$760,000 at the date of the borrowings. Balances outstanding on the borrowings
totaled $266,218 and $332,724 at December 31, 1995 and 1994, respectively (Note
11).
At December 31, 1995, notes receivable in the amount of approximately $370,000
have been contributed to the Company's Series A Preferred Stock sinking fund and
therefore their use is restricted (Note 14).
The reserve for possible credit losses of approximately $2,411,000 and
$1,263,000 at December 31, 1995 and 1994, reflect reserves for both notes sold
with recourse and notes retained.
Note 3 - Resort Property Held for Timeshare Sales
Resort property held for timeshare sales consists of the following projects:
December 31,
----------------------------
1995 1994
----------- ----------
Los Abrigados Resort $ 6,175,275 $6,846,715
Golden Eagle Resort 2,029,287 2,443,818
Kohl's Ranch Lodge 1,987,603 --
Varsity Clubs of America-Notre Dame 6,915,206 --
Costa Vida Resort 18,420 68,200
Ventura Resort 66,000 49,000
----------- ----------
$17,191,791 $9,407,733
=========== ==========
Resort properties are stated net of accumulated depreciation of $1,279,000 and
$878,000 at December 31, 1995 and 1994, respectively.
In September 1994, the Company acquired for $15,000 an option from an affiliate
to purchase 667 previously sold timeshare interests in the Los Abrigados resort.
The terms of the option agreement provide that the seller may sell to the
Company or the Company may acquire from the seller up to 25 intervals per month
and, in addition, up to one half of the remainder of the 667 intervals per year,
for $2,100 per interval. The seller must provide the Company with written notice
of its intent to sell 30 days in advance of a monthly sale and 180 days in
advance of an annual sale. The Company had purchased 150 intervals under this
option as of December 31, 1995.
In June 1995, the Company acquired the Kohl's Ranch Lodge, a ten acre rustic
resort near Payson, Arizona for a purchase price of $1,590,000, consisting of a
$50,000 cash down payment, assumption of an existing deed of trust of
approximately $932,250, issuance of a $367,750 second deed of trust to the
seller and the issuance of 120,000 shares of restricted common stock valued at
$2 per share. The Company commenced timeshare sales in July 1995.
In September 1995, the Company, through a subsidiary, entered into an agreement
to acquire a portion of the Hotel Syracuse in Syracuse, New York and to develop
and market timeshare interests in the property. The Company has a financing
commitment for $5 million in acquisition and development non-recourse financing,
which is expected to be sufficient to acquire and construct the suites, and $30
million in receivables financing through September 1998.
Note 4 - Genesis Investment Group, Inc.
On November 1, 1993, a wholly owned subsidiary of ILX consummated its merger
with and into Genesis Investment Group, Inc. ("Genesis") and, as a result,
Genesis, the surviving corporation, became a wholly owned subsidiary of ILX.
Under the terms of the merger agreement, the Company issued a unit consisting of
five shares of ILX common stock and three shares of Series C Convertible
Preferred Stock, with a par value of $10 per share, for each ten shares of
Genesis common stock. Each three shares of Series C Preferred Stock are
convertible after one year, at the option of the holder, into five shares of ILX
common stock. The merger agreement also provided that Genesis shareholders would
receive $3 per share for fractional units and Genesis shareholders who hold
fewer than 100 Genesis shares had the option to select cash of $3 per Genesis
share in lieu of ILX units.
On November 1, 1993, the date of the merger, ILX issued 101,988 units, the
maximum number of whole units that Genesis shareholders are entitled to under
the terms of the merger agreement, consisting of 305,964 shares of Series C
Preferred Stock recorded at $844,358 and 509,940 shares of ILX common stock
recorded at $844,358, and recorded a liability in the amount of $17,262 for
fractional units. As Genesis shareholders who own fewer than 100 shares elect
cash in lieu of units, the ILX Series C Preferred Stock and common stock are
reduced. During 1995 and 1994, Genesis shareholders elected to receive $370 and
$3,570 in cash, and, accordingly, Series C Preferred Stock and common stock were
each reduced by $185 and $1,785 respectively (Note 14).
The acquisition has been accounted for as a purchase with the cost allocated to
preferred and common shares based on the assumption that all preferred shares
are converted to common shares.
Genesis funds certificates arise from the reorganization of Genesis and
represent non-recourse liabilities. The holders are entitled to receive 50% of
the net proceeds from the sale of certain Genesis properties. Such amounts have
been recorded based upon the estimated realizable values of the related
properties and are increased for sales of property at prices higher than their
carrying values and for collection of mortgage interest and decreased for
payments to the certificate holders and for property expenses paid by Genesis
which reduce the amount payable to the certificate holders.
If the Company and Genesis had been combined as of January 1, 1993, the proforma
results of the combined entity would be as follows:
December 31,
1993
(Unaudited)
-----------
Total revenues $21,137,079
Net income $ 1,898,500
===========
Net income per common and
equivalent share $0.16
Net income per share assuming full dilution $0.15
===========
Note 5 - Red Rock Collection
In February 1993, the Company acquired, through a stock subscription offering,
71.4% of the issued and outstanding stock of Red Rock Collection Incorporated,
an Arizona Corporation ("RRC" or "Red Rock Collection"), in exchange for
$700,000 in goods and services to be provided to RRC at Los Abrigados resort. In
February 1994, the Company acquired the $300,000 minority interest in RRC, which
was held by affiliates, in exchange for 123,000 shares of restricted ILX common
stock valued at $1 per share and $300,000 in promissory notes (Notes 11 and 14).
Goodwill of $123,000 was recorded and is included, net of amortization of
$36,900 and $12,300, in other assets at December 31, 1995 and 1994,
respectively.
RRC was formed to market an exclusive line of skin and hair care products. Costs
were deferred until July 1994, the date at which sales commenced. Deferred costs
of approximately $929,000 were expensed in 1994.
Note 6 - Resort Property Under Development
Varsity Clubs of America Incorporated ("VCA") a wholly owned subsidiary of ILX,
intends to develop lodging accommodations in areas located near major university
campuses, and to market those lodging accommodations, including interval
ownership interests, to alumni and other sport enthusiasts. During 1994 VCA
acquired its first site near the University of Notre Dame and commenced
construction. Acquisition and construction costs totaling $1,735,592 are
included in resort property under development at December 31, 1994. Construction
of the facility was complete in August 1995 and at December 31, 1995, the
unamortized cost of the Notre Dame facility is included in resort property held
for sale. Revenues of $513,400, net of related selling costs of $148,205, were
deferred at December 31, 1994 and were recognized in 1995 when construction was
substantially complete.
In July 1995, the Company acquired for $1,002,000 a two acre site in Tucson,
Arizona, near the University of Arizona, to be the site of its second Varsity
Clubs of America. The Company made a down payment of $300,600 and the seller is
carrying the balance of $701,400 (Note 10).
Note 7 - Deferred Assets
December 31,
1995 1994
-------- --------
Deferred assets consist of the following:
Varsity Clubs of America loan fees and land deposits $ 91,946 $204,383
Guarantee fees 359,550 459,900
California Department of Real Estate registration costs -- 85,716
-------- --------
$451,496 $749,999
======== ========
As part of the acquisition of Los Abrigados resort, certain affiliates of the
Company guaranteed the underlying mortgage on the resort. As partial
consideration for their guarantee, the affiliates earned a $780,000 fee. The fee
is amortized to expense and is payable to the affiliates at the rate of $100 per
Los Abrigados timeshare interest sold with approximately one half the unpaid
balance due to one affiliate in December 1996, and the balance due to the other
affiliate in 1999. The amounts payable on the guarantee fee included in due to
affiliates at December 31, 1995 and 1994, are $390,951 and $536,501,
respectively.
As additional consideration for the guarantee, the affiliates are entitled to
receive a percentage of certain amounts held back on the sale of notes
receivable by a financial institution as collateral. The amount is to be paid as
the amounts held back are collected from the financial institution. At December
31, 1995 and 1994, notes receivable are shown net of $118,000 and $122,000,
respectively, related to this amount.
Note 8 - Property and Equipment
Property and equipment consists of the following:
December 31,
1995 1994
--------- ----------
Buildings and improvements $131,942 $ 640,933
Leasehold improvements 500,148 464,141
Furniture and fixtures 417,430 317,573
Office equipment 253,444 243,960
Computer equipment 151,105 140,188
--------- ----------
1,454,069 1,806,795
Accumulated depreciation (618,584) (369,568)
--------- ----------
$ 835,485 $1,437,227
========= ==========
Note 9 - Income Taxes
Deferred income tax assets (liabilities) included in the consolidated balance
sheet consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
----------- ---------
<S> <C> <C>
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables $805,000 $588,000
Inventory costs capitalized for tax purposes 36,000 36,000
Tax basis in excess of book on resort property held for
timeshare sales 735,000 787,000
Book recognition of startup costs in excess of tax 281,000 354,000
Intangible assets capitalized for tax purposes 24,000 28,000
Minority interest allocation in excess of tax 238,000 219,000
Alternative minimum tax credit 56,000 74,000
Net operating loss carryforwards 1,439,000 1,052,000
Other 3,000 4,000
--------------------------
Total deferred tax assets 3,617,000 3,142,000
--------------------------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes (1,628,000) (1,018,000)
Tax amortization of loan fees in excess of book (102,000) (80,000)
---------------------------
Total deferred tax liabilities (1,730,000) (1,098,000)
---------------------------
Deferred Taxes 1,887,000 2,044,000
Valuation allowance -- (760,000)
--------------------------
Deferred Taxes -- Net $1,887,000 $1,284,000
==========================
</TABLE>
A reconciliation of the income tax benefit and the amount that would be computed
using statutory federal and state income tax rates for the years ended December
31, is as follows:
1995 1994 1993
--------- ---------- ---------
Federal, computed on income before
minority interest and income taxes $197,000 $1,165,000 $ 949,000
Minority interest (170,000) (490,000) (277,000)
State, computed on income after
minority interest and before income taxes 58,000 119,000 118,000
Deferred tax adjustment 128,000 -- --
Decrease in valuation allowance (760,000) (956,000) (890,000)
-------- --------- ---------
Income tax benefit $(547,000) $ (162,000) $(100,000)
========= ========== =========
Tax benefits in 1993 resulted from decreases in the valuation allowance as a
result of the accelerated profitability of the Los Abrigados resort and the
related ability to utilize a portion of the net operating loss carryforwards and
built in losses. In 1993, a deferred tax asset was recorded to reflect the
future tax benefit of the Genesis net operating loss carryforwards and a
valuation allowance was recorded to offset the full amount of the asset. In
1994, due to the continued profitability of Los Abrigados, the improvement in
the Arizona real estate market and the development of tax strategies, which
include the acquisition by Genesis of timeshare interests in resort properties
that have historically been sold by the Company on a profitable basis, it was
concluded that more likely than not a portion of the Genesis net operating loss
carryforwards and the remainder of the Los Abrigados tax benefits would be
utilized. Accordingly, the valuation allowance was reduced in 1994. In 1995, due
to the continued expansion and profitability of timeshare activity it was
determined that the balance of the Genesis NOL's would be utilized and the
remaining valuation allowance was eliminated.
At December 31, 1995, ILX, excluding Genesis, had net operating loss ("NOL")
carryforwards of approximately $1,237,000 which expire in 2001 through 2011. At
December 31, 1995, Genesis had federal NOL carryforwards of approximately
$2,644,000 which expire in 2008 and state NOL carryforwards of $752,000 which
expire in 1998. The Genesis losses are limited as to usage because they arise
from built in losses of an acquired company and can only be utilized through
earnings of Genesis.
Note 10 - Notes Payable
<TABLE>
<CAPTION>
Notes payable consist of the following: December 31,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Note payable, collateralized by deed of
trust on Los Abrigados resort, interest
at prime plus 1.25% (9.75% at
December 31, 1995), due through 1996 $ 805,000 $1,660,000
Note payable, collateralized by deed of trust
on Golden Eagle Resort, notes receivable,
and an assignment of the Company's
general partnership interest in LAP,
interest at 12%, due through 1998 1,549,990 639,916
Note payable, collateralized by notes receivable
and deed of trust on Golden Eagle Resort,
interest at prime plus 4% (12.5% at December
31, 1995), due through 1998 1,195,716 626,265
Note payable, collateralized by deed of trust on
Kohl's Ranch Lodge, interest at prime plus 1.25%
(9.75% at December 31, 1995), due through 1998 853,500 --
Note payable, collateralized by second deed of trust
on Kohl's Ranch Lodge, interest at 8%, due through 2000 334,800 --
Note payable, collateralized by notes receivable
and deed of trust on Kohl's Ranch Lodge,
interest at prime plus 4% (12.5% at December 31, 1995),
due through 2003 338,849 --
Note payable, collateralized by deed of trust on land in
Tucson, Arizona, interest at 9.75%, due through 1998 701,400 --
Note payable, collateralized by notes receivable
and deed of trust on Los Abrigados resort,
interest at prime plus 4% (12.5% at December 31, 1995),
due through 1998 246,828 423,700
$500,000 revolving line of credit, unsecured, interest at
prime plus 1.5% (10% at December 31, 1995), due 1996 -- 400,000
Construction note payable, collateralized by deed of trust
on Varsity Clubs of America - Notre Dame, interest at 13%,
due through 1998 4,186,869 400,784
$400,000 revolving line of credit, unsecured, interest
at prime plus 2% (10.5% at December 31, 1994), due 1996 145,000 350,000
Note payable, collateralized by RRC building, interest
at 8%, due through 1999 180,000 225,000
Note payable, collateralized by notes receivable, interest at
prime plus 2% (10.5% at December 31, 1995), due through 1997 160,841 --
Note payable, collateralized by deed of trust, interest
at 7.375%, due through 2001 63,701 72,272
Obligations under capital leases with interest at 9.5% to 14.7% (Note 17) 884,498 449,816
Other long-term commitment, advance rate at 12%, due through 2000 1,500,000 --
Other 42,953 38,476
Notes payable repaid during 1995 -- 45,448
----------- ----------
$13,189,945 $5,331,677
=========== ==========
</TABLE>
In November 1995, the Company entered into a management agreement with one of
its timeshare lenders, with respect to the Los Abrigados resort. Pursuant to the
terms of the agreement the Lender will advance $3.5 million, provide strategic
planning and consultation with respect to timeshare sales of 3,500 Los Abrigados
intervals and reduce the holdback requirements on timeshare paper purchased by
the lender. The advance, plus a 12% cost of funds on the outstanding balance of
the advance, will be repaid in cash and in kind from one-half the monthly cash
flows from the sale of the 3,500 timeshare intervals. At December 31, 1995, the
lender had advanced $1.5 million on its commitment.
Future maturities of notes payable are as follows:
Year ending
December 31,
------------
1996 $3,923,503
1997 2,790,648
1998 5,284,514
1999 710,097
2000 477,089
Thereafter 4,094
-----------
$13,189,945
===========
Scheduled future maturities may be prepaid to the extent that payments made of
$1,000 per Los Abrigados timeshare interest, $2,180 per Varsity Clubs of
America-Notre Dame timeshare interest and $800 per Kohl's Ranch Lodge timeshare
interest sold exceed the scheduled payments on the loans. Any prepaid amounts
will be applied to the scheduled payments in chronological order of maturity.
Note 11 - Notes Payable to Affiliates
Notes payable to affiliates consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Note payable, collateralized by LAP partnership
interest, interest at 8%, due through 1999 $927,868 $1,100,000
Note payable, collateralized by notes receivable,
interest at 14%, due through 1997 266,218 332,724
Note payable, collateralized by RRC common stock,
interest at 10%, due through 1997 63,826 225,426
Notes payable, collateralized by 320 timeshare interests
in Los Abrigados resort, interest at 10%, due
December 1999 580,000 --
Notes payable repaid during 1995 -- 342,434
---------- ----------
$1,837,912 $2,000,584
========== ==========
</TABLE>
Future maturities of notes payable to affiliates are as follows:
Year ending
December 31,
------------
1996 $229,335
1997 219,648
1998 --
1999 1,388,929
----------
$1,837,912
==========
Total interest expense on notes payable to affiliates for the years ended
December 31, 1995, 1994 and 1993 was approximately $222,000, $141,000, and
$153,000.
Note 12 - Minority Interests
Minority interests at December 31, 1995, include interests in LAP, the Arizona
limited partnership which owns and operates the Los Abrigados resort, and
Genesis of $2,814,881 and $217,534, respectively (Note 4).
LAP minority interests consist of LAP's limited partners' capital contributions,
the limited partners' interests in the results of operations and cash
distributions to the limited partners. The Company held a 71% interest in LAP
until July 1, 1994, when it acquired the 7.5% Class A minority interest for
$1,587,000, and as a result, at December 31, 1994, holds a 78.5% interest.
Certain of the Class A partners are affiliates of the Company. Non-affiliates
received $365,250 in cash for their partnership interests and affiliates
received $6,000 cash and $1,215,750 in notes (Note 11). The cost in excess of
the minority interest balance at the date of acquisition was recorded as an
increase in resort property held for timeshare sales in the amount of $813,051.
The 21.5% remaining minority interest at December 31, 1995, is held by the Class
B limited partners whose capital contributions of $500,000 bear interest at
13.5%, payable quarterly.
Income from LAP is allocated; first, to the Class A limited partners until the
cumulative net profits allocated are equal to the cumulative Class A priority
return; then, 76.76% to ILX and 23.24% to the Class B limited partners until the
amounts allocated to the Class B limited partners equal their capital
contributions and; finally, to the partners pro rata in proportion to their
interests in the partnership. Effective July 1, 1994, 21.5% of income is
allocated to the Class B limited partners and 78.5% to ILX.
Included in due to affiliates at December 31, 1995 and 1994, is approximately
$17,000 and $17,000 in Class B interest.
A reconciliation of LAP minority interests from 1993 to 1995 is as follows:
Balance December 31, 1993 $2,136,338
Income allocated to Class A
and B Partners 1,204,263
Distributions paid or accrued (126,403)
Acquisition of Class A Partner interests (773,949)
----------
Balance December 31, 1994 2,440,249
Income allocated to Class B Partners 374,632
----------
Balance December 31, 1995 $2,814,881
==========
Note 13 - Commitments
Future minimum lease payments on noncancelable operating leases are as follows:
Year ending
December 31,
------------
1996 $362,000
1997 148,000
1998 36,000
1999 26,000
2000 6,000
--------
$578,000
========
Total rent expense for the years ended December 31, 1995, 1994 and 1993, was
approximately $490,000, $449,000, and $316,000.
Note 14 - Shareholders' Equity
Preferred Stock
At December 31, 1995 and 1994, preferred stock includes 66,011 and 77,278 shares
of the Company's Series A Preferred Stock carried at $660,110 and $772,780,
respectively. The Series A Preferred Stock has a par value and liquidation
preference of $10 per share and, commencing July 1, 1996, will be entitled to
annual dividend payments of $.80 per share. Commencing January 1, 1993, on a
quarterly basis, the Company must contribute $100 per timeshare interest sold in
the Los Abrigados resort to a mandatory dividend sinking fund. At December 31,
1995, notes receivable in the amount of approximately $370,000 have been
designated for the sinking fund. Dividends on the Company's common stock are
subordinated to the Series A dividends and to the contributions required by the
sinking fund.
At December 31, 1995 and 1994, preferred stock includes 55,000 shares of the
Company's Series B Convertible Preferred Stock carried at $55,000. The Series B
Convertible Preferred Stock has a $10 par value and a liquidation preference of
$10 per share, which is subordinate to the Series A liquidation preference. The
Series B Convertible Preferred Stock is not entitled to dividends. Commencing
July 1, 1996, the Series B Convertible Preferred Stock may be converted into
common stock on the basis of two shares of common for one share of preferred
stock.
Both the Series A and Series B preferred stock may, at the holder's election, be
exchanged under certain conditions for lodging certificates or, after payment of
$2,100 each, for Los Abrigados timeshare interests. The Company estimates that
the future cash obligations in respect to these in-kind redemptions is less than
$151,000.
At December 31, 1995 and 1994, preferred stock includes 290,472 and 298,035
shares of the Company's Series C Convertible Preferred Stock carried at $800,024
and $820,975, respectively (Note 4). The Series C Convertible Preferred Stock
has a $10 par value and is entitled to dividends at the rate of $.60 per share
per annum when declared by the Board of Directors. If dividends are not declared
in any year prior to the fifth anniversary of the merger date (November 1,
1993), such undeclared dividends ("Dividend Arrearage") may be converted to
"Cumulation Shares" at the rate of $6 of Dividend Arrearage per Cumulation
Share. The Series C Preferred Stock and the Cumulation Shares have a liquidation
preference of $10 per share and $6 per share, respectively, and are subordinate
to the liquidation preferences of the Series A and Series B stock. Commencing
November 1, 1994 through October 31, 2004, the Series C Preferred Stock may be
converted to ILX common stock on the basis of five shares of common stock for
three shares of Series C Preferred Stock and one share of ILX common stock for
each $6 in Dividend Arrearages. During 1995 and 1994, 7,524 and 7,260 Series C
convertible shares were exchanged for 12,540 and 12,100 common shares,
respectively. During 1995, 1,857 common shares were issued to exchanging
shareholders for their 1994 and 1995 dividend arrearage. ILX may redeem the
Series C Preferred Stock commencing November 1, 1996, at $10 per share plus
payment of all declared but unpaid dividends.
Common Stock
In March 1993, the Company issued 204,000 shares of restricted common stock,
valued at $1 per share, which was at a premium of $.25 over the approximate
market price at the date of issuance, to two LAP Class A minority partners in
consideration for the reduction of their Class A Priority return from 22% to
13.5%. The minority partners are affiliates of ILX.
In July 1993, the Company issued 102,000 shares of restricted common stock,
valued at $1 per share, which was at a discount of $.50 under the approximate
market price at the date of issuance, to a LAP Class B minority partner in
consideration for accrued and future guarantee fees and Class B interest. The
minority partner is an affiliate of ILX.
In July 1993, the Company issued warrants for 50,000 shares of ILX restricted
common stock exercisable at a price of $1.50 per share, the approximate market
value at date of issuance, in conjunction with the financing of refurbishment at
the Golden Eagle Resort (Note 10). The warrants are exercisable through July 1,
1998.
In February 1994, the Company issued 123,000 shares of restricted common stock,
valued at $1 per share, which was at a discount of a $.56 under the approximate
market price at the date of issuance, to the minority interest shareholders of
RRC (Note 5). The minority interest shareholders are affiliates of the Company.
In March 1994, the Company issued warrants for 100,000 shares of ILX restricted
common stock exercisable at a price of $1.625 per share, the approximate market
value at date of issuance. The warrants were issued in conjunction with the
early collection in March 1994, of a note receivable with a due date of December
31, 1997, in the amount of $900,000.
During 1994, 24,616 shares of restricted common stock valued at $29,232 were
issued in exchange for services provided to the Company. The stock was valued at
the approximate market price on the date of the agreement.
During 1995, the Company acquired 20,000 shares of its common stock for $25,037.
The acquired shares have been recorded as treasury stock.
During 1995, the Company granted 36,100 shares of restricted common stock valued
at $26,837, to employees in exchange for services provided.
Effective June 1995, the Company entered into a one year consulting agreement
for investor relations, broker relations and public relations services. In
exchange for the services to be provided, the Company issued 50,000 shares of
restricted common stock and will issue an additional 50,000 shares in 1996. The
shares have been valued at $1.1875 per share and the cost is being recognized
over a one year period. In addition, the Company granted options for 400,000
shares of common stock at $1.25 per share and 100,000 shares of common stock at
$1.625 per share. The options expire in June 1997.
In June 1995, the Company issued 120,000 shares of restricted common stock,
valued at $2 per share, which was the approximate market price at the date of
issuance, in conjunction with the acquisition of the Kohl's Ranch Lodge (Note
3).
Note 15 - Employee Stock Option Plan
The Company has adopted 1987, 1992 and 1995 Stock Option Plans pursuant to which
options (which term as used herein includes both incentive stock options and
non-statutory stock options) may be granted to key employees, including
officers, whether or not they are directors, and non-employee directors and
consultants, who are determined by the Board of Directors to have contributed in
the past, or who may be expected to contribute materially in the future, to the
success of the Company. The exercise price of the options granted pursuant to
the Plan shall be not less than the fair market value of the shares on the date
of grant. All outstanding stock options require the holder to have been a
director or employee of the Company for at least one year before exercising the
option. Options are exercisable over a five year period from date of grant if
the optionee was a ten percent or more shareholder immediately prior to the
granting of the option and over a ten-year period if the optionee was not a ten
percent shareholder. The aggregate number of shares which may be issued under
the Plans shall not exceed 1,341,376 shares.
Stock option transactions are summarized as follows:
Outstanding at December 31, 1992 331,336
Options granted 56,250
Options canceled (225,000)
--------
Outstanding at December 31, 1993 162,586
Options exercised (162,586)
Options granted 508,000
Options canceled (180,000)
--------
Outstanding at December 31, 1994 328,000
Options granted 550,000
Options canceled (5,000)
--------
Outstanding at December 31, 1995 873,000
========
The exercise price on the options exercised during 1994 was $.40 per share for
62,586 shares and $.685 for 100,000 shares. The exercise price for options
granted in 1995 ranged from $1.25 to $1.625 per share, for options granted in
1994 ranged from $1.625 to $2.00 per share, and for options granted in 1993 was
$.875 per share. The exercise price for options outstanding at December 31,
1995, ranged from $1.25 to $1.625 per share. Options outstanding at December 31,
1995, have expiration dates as follows:
Year Ending Options for
December 31, Shares
----------- ----------
1996 38,000
1997 500,000
1999 62,500
2000 50,000
2004 222,500
-------
873,000
=======
Note 16 - Related Party Transactions
In addition to the related party transactions described in notes 2, 3, 5, 7, 11,
12 and 14, the Company had the following related party transactions:
The Company leases from affiliates 41 timeshare interests in the Stonehouse at
Los Abrigados at the rate of $1,000 per time share unit per year, through
October 1, 1996, payable on a quarterly basis. The Company paid $41,000 per year
in lease payments to affiliates for the years ended December 31, 1995, 1994 and
1993. In addition, in 1993, the Company made lease payments to affiliates of
$52,424 for use of the Stonehouse for periods prior to 1992. The affiliates pay
maintenance fees to the Company on an annual basis for their ownership intervals
of $650 per interval in 1995, $375 per interval in 1994 and $345 per interval in
1993.
In March 1993, the Company exchanged two Stonehouse interests and twenty
one-bedroom timeshare interests in the Los Abrigados resort in satisfaction of
$70,000 in principal and accrued and future interest due on a note payable to an
affiliate. In June 1993, the Company upgraded six of the one-bedroom interests
to two-bedroom interests in exchange for an additional $6,000 principal
reduction.
In December 1994, the Company acquired a condominium adjacent to the Golden
Eagle Resort for $104,915, consisting of cash of $32,643 and the assumption of
the underlying mortgage of $72,272. The condominium is used to house the general
manager of the resort. Timeshare intervals in the property may be marketed in
the future.
In December 1995, in exchange for modification of the terms of the note payable
to the affiliate, the Company provided the affiliate with an option to convert,
at maturity, the $927,868 note balance into shares of ILX common stock at the
price of $2 per share (Note 11).
In December 1995, in exchange for modification of the terms of note payables to
affiliates, the Company provided the affiliates the option to convert, at
maturity, the $580,000 note balances into shares of ILX common stock at the
price of $2 per share (Note 11).
In December 1995, the Company sold its Red Rock Collection 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 secured by a deed of trust on the building (Note 10). The Company has
leased back the building for a one year term, with four one year options to
renew.
Note 17 - Capital Leases
Leased assets included in resort property held for timeshare sales and property
and equipment totaled $900,150 and $454,386 (net of accumulated amortization of
$227,527 and $454,386) at December 31, 1995 and 1994, respectively. The leases
expire through 2000. Future minimum lease payments at December 31 are as
follows:
1996 $ 322,964
1997 275,925
1998 219,614
1999 188,020
2000 83,406
---------
Total 1,089,929
Less amounts representing interest 205,431
---------
Net minimum lease payments $ 884,498
=========
Note 18 - Subsequent Events
In February 1996, the Company borrowed an additional $1,760,000 from the first
mortgage holder on the Los Abrigados resort and extended the maturity date to
June 1998 (Note 10).
In March 1996, the Company, through a subsidiary, became the managing general
partner of the partnership which owns the Lomacasi Resort in Sedona, Arizona, a
5.27 acre property approximately one mile from the Los Abrigados resort. The
Company acquired its partnership interest for a $25,000 capital contribution.
The resort is encumbered by the non-recourse deeds of trust on the property
totaling approximately $2.2 million, including accrued interest. The Company
intends to initially use the resort to provide lodging accommodations to
prospective timeshare purchasers at the Company's Sedona Sales Office. The
Company may offer timeshare interests in the resort in the future.
Note 19 - Quarterly Financial Data (Unaudited)
Quarterly financial information is presented in the following summary:
1995
----
Three months ended
----------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ---------- -----------
Revenues $6,836,797 $8,096,470 $8,410,608 $8,735,174
Operating income 819,623 1,193,613 326,287 (1,122,684)
Net income 402,565 644,621 492,913 (915,436)
Net income per share .03 .05 .04 (.07)
1994
----
Three months ended
----------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ---------- -----------
Revenues $6,334,998 $8,025,982 $8,196,292 $7,393,397
Operating income 1,173,947 1,347,869 1,167,184 1,067
Net income 721,183 804,682 469,056 153,366
Net income per share .06 .06 .04 .01
The reduced operating income and net income in the fourth quarter 1995 is due
primarily to write-offs of bond offering costs and VCA land deposits and
associated costs.
The reduced net income in the third quarter 1994 is due to recognition of income
taxes of $241,818.
The reduced operating income in the fourth quarter 1994 is due to amortization
of RRC deferred costs and recognition of VCA marketing costs (Notes 5 and 6).
Note 20 - Disclosures About Fair Values of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
The carrying value of cash and cash equivalents, notes receivable, accounts
payable, notes payable and notes payable to affiliates are a reasonable estimate
of their fair value.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly authorized, on the
27th day of March, 1996.
ILX Incorporated
(Registrant)
By Joseph P. Martori
-----------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Joseph P. Martori Chairman of the Board As of March 27, 1996
- -----------------------
Joseph P. Martori
/s/ Nancy J. Stone President, Chief Financial As of March 27, 1996
- ----------------------- Officer
Nancy J. Stone and Director
/s/ Denise L. Janda Vice President and Controller As of March 27, 1996
- -----------------------
Denise L. Janda
/s/ Edward J. Martori Director As of March 27, 1996
- -----------------------
Edward J. Martori
/s/ Ronald D. Nitzberg Director As of March 27, 1996
- -----------------------
Ronald D. Nitzberg
/s/ Luis C. Acosta Director As of March 27, 1996
- -----------------------
Luis C. Acosta
/s/ Steven R. Chanen Director As of March 27, 1996
- -----------------------
Steven R. Chanen
/s/ James W. Myers Director As of March 27, 1996
- -----------------------
James W. Myers
<PAGE>
ILX INCORPORATED
SCHEDULE IX
RESERVE FOR POSSIBLE CREDIT LOSSES
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
Charged
Balance at Charged to to Other Balance at
Beginning Costs and Accounts- Deductions- End of
of Period Expenses Describe Describe(a) Period
--------- -------- -------- -------- ------
Reserve for 1995 $1,263,000 1,235,000 -- 87,000 $2,411,000
possible credit ========== ========= ====== ======= ==========
losses
Reserve for 1994 $ 816,000 764,000 28,000(b) 345,000 $1,263,000
possible credit ========== ========= ====== ======= ==========
losses
Reserve for 1993 $ 692,000 667,000 -- 543,000 $ 816,000
possible credit ========== ========= ====== ======= ==========
losses
(a) Deductions represent the write-off of notes deemed uncollectible.
(b) Recoveries of prior year write-offs.
<PAGE>
Exhibits
to
1995 Form 10-K
ILX INCORPORATED
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C>
3 (i)-1 Articles of Incorporation Incorporated by reference to
of International Leisure Exhibit 3-A of S-1
Enterprises Incorporated, No. 33-16122
filed October 8, 1986
3 (i)-2 Articles of Amendment to Incorporated by reference to
the Articles of Incorporation Exh. 3-C of 1990 10-K
of International Leisure
Enterprises Incorporated,
filed August 31, 1987
3 (i)-3 Articles of Amendment to Incorporated by reference to
the Articles of Incorporation Exh. 3 (i)-3 of 1994 10-K/A-3
of International Leisure
Enterprises Incorporated,
filed October 19, 1987
3 (i)-4 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3 (i)-4 of 1994 10-K/A-3
Enterprises Incorporated, filed May 3, 1990
3 (i)-5 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3-C(a) of 1993 10-K
Enterprises Incorporated (Changed by
this Amendment to ILX Incorporated),
filed June 28, 1993
3 (ii)-1Amended and Restated Bylaws of International Incorporated by reference to
Leisure Enterprises Incorporated, dated Exh. 3-D of 1990 10-K
October 26, 1987
4-1 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series A Preferred Stock, Exh. 10-81 of 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991
4-2 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series B Preferred Stock, Exh. 10-82 of 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991
4-3 Certificate of Designation of Series C Preferred Incorporated by reference to
Stock, filed April 30, 1993 Exh. 10-118 of 1993 10-K
10-1 1987 Stock Option Plan Incorporated by reference to
Exh. 10-1 of S-1
No. 33-16122
10-2 Form of Stock Option Agreement between Incorporated by reference to
International Leisure Enterprises Incorporated Exh. 10-2 of S-1
and Option Holder No. 33-16122
10-3 1992 Stock Option Plan Incorporated by reference to
Exh. 10-97 of 1992 10-K
10-4 1995 Stock Option Plan
10-5 Agreement to Purchase Series B Preferred Stock Incorporated by reference to
between Wm. Robert Burns and Paige Phillips Exh. 10-94 of 1992 10-K
Burns and International Leisure Enterprises
Incorporated, dated May 1, 1992
10-6 Agreement and Plan of Merger among ILE Incorporated by reference to
Acquisition Corporation, International Leisure Exh. 10-105 of 1992 10-K
Enterprises Incorporated and Genesis Investment
Group, Inc., dated March 15, 1993
10-7 First Amendment to Agreement and Plan of Incorporated by reference to
Merger between ILE Acquisition Corporation, Exh. 10-105 (a) of 1993 10-K
International Leisure Enterprises Incorporated
and Genesis Investment Group Inc., dated
April 22, 1993
10-8 Agreement among ILX Incorporated, Martori Enterprises
Incorporated, Los Abrigados Partners Limited Partnership,
Red Rock Collection Incorporated, Edward John Martori
and Joseph P. Martori as Trustee for Cynthia J. Polich
Irrevocable Trust dated June 1, 1989, dated December
29, 1995
10-9 All Inclusive Purchase Money Promissory Note Incorporated by reference to
Secured by All-Inclusive Purchase Money Deed Exh. 10-70 of 1994 10-K/A-3
of Trust to GPH Properties, Inc. from Red Rock
Collection Incorporated, dated January 18, 1994
10-10 Lease Agreement between Edward John Martori and Red
Rock Collection Incorporated, dated December 29, 1995
10-11 Stock Purchase Agreement between Martori Incorporated by reference to
Enterprises Incorporated and ILX Incorporated, Exh. 10-116 of 1993 10-K
dated December 30, 1993
(Red Rock Collection Incorporated)
10-12 Installment Promissory Note ($150,000) to Martori Incorporated by reference to
Enterprises Incorporated by ILX Incorporated, Exh. 10-15 of 1994 10-K/A-3
dated February 11, 1994
10-13 Stock Purchase Agreement between Alan R. Incorporated by reference to
Mishkin and Carol Mishkin, and ILX Incorporated, Exh. 10-117 of 1993 10-K
dated December 30, 1993
(Red Rock Collection Incorporated)
10-14 Installment Promissory Note ($150,000) to Alan Incorporated by reference to
R. Mishkin and Carol Mishkin by ILX Incorporated, Exh. 10-17 of 1994 10-K/A-3
dated February 11, 1994
10-15 First Amended Certificate of Limited Partnership Incorporated by reference to
and Amended Agreement of Los Abrigados Exh. 10-77 of 1991 10-K
Partners Limited Partnership, dated
September 9, 1991
10-16 Certificate of Amendment of Limited Partnership Incorporated by reference to
for Los Abrigados Partners Limited Partnership, Exh. 10-6 of 1994 10-K/A-3
dated November 11, 1993
10-17 Certificate of Amendment of Limited Partnership Incorporated by reference to
for Los Abrigados Partners Limited Partnership, Exh. 10-7 of 1994 10-K/A-3
dated July 1, 1994
10-18 First Amendment to Amended Agreement of
Los Abrigados Partners Limited Partnership,
dated February 9, 1996
10-19 Loan Agreement between The Steele Foundation, Incorporated by reference to
Inc., ILX Incorporated and Los Abrigados Partners Exh. 10-111 of 1993 10-K
Limited Partnership, dated July 21, 1993
10-20 Second Modification Agreement between ILX Incorporated by reference to
Incorporated, Los Abrigados Partners Limited Exh. 10-36 of 1994 10-K/A-3
Partnership, ILE Sedona Incorporated, and The
Steele Foundation, Inc., dated December 20, 1994
10-21 Assignment of Beneficial Interest under Promissory Incorporated by reference to
Note, Deed of Trust and Title Policy to Daniel Exh. 10-37 of 1994 10-K/A-3
Cracchiolo as Personal Representative of the Estate
of Ethel Steele by Genesis Investment Group,
Inc., dated June 17, 1994
10-22 Continuing Guaranty to Daniel Cracchiolo as Personal Incorporated by reference to
Representative of the Estate of Ethel Steele by ILX Exh. 10-38 of 1994 10-K/A-3
Incorporated, dated June 17, 1994
10-23 Purchase and Sale Agreement between Edward Incorporated by reference to
J. Martori, Martori Enterprises Incorporated, Exh. 10-8 of 1994 10-K/A-3
Jerome M. White, Guadalupe Iniguez (as Trustee),
Wedbush Morgan Securities (IRA), and Joseph
P. Martori (as Trustee) and ILX Incorporated,
dated July 1, 1994
10-24 Installment Promissory Note ($1,000,000) to Incorporated by reference to
Edward J. Martori by ILX Incorporated, dated Exh. 10-9 of 1994 10-K/A-3
July 1, 1994
10-25 Installment Promissory Note ($100,000) to Incorporated by reference to
Martori Enterprises Incorporated by ILX Exh. 10-10 of 1994 10-K/A-3
Incorporated, dated July 1, 1994
10-26 Amendment to Purchase and Sale Agreement Incorporated by reference to
between Edward J. Martori, Martori Enterprises Exh. 10-11 of 1994 10-K/A-3
Incorporated, Wedbush Morgan Securities
(IRA), and Joseph P. Martori (as Trustee) and
ILX Incorporated, dated January 3, 1995
10-27 Installment Promissory Note ($57,875) to Incorporated by reference to
Wedbush Morgan Securities (IRA) by ILX Exh. 10-12 of 1994 10-K/A-3
Incorporated, dated January 1, 1995
10-28 Installment Promissory Note ($57,875) to Incorporated by reference to
Joseph P. Martori (as Trustee) by ILX Exh. 10-13 of 1994 10-K/A-3
Incorporated, dated January 1, 1995
10-29 Agreement between BIS-ILE Associates, Arthur Incorporated by reference to
J. Martori and Alan R. Mishkin, dated Exh. 10-72 of 1990 10-K
March 28, 1991
10-30 Supplemental Agreement between BIS-ILE Incorporated by reference to
Associates, Arthur J. Martori and Alan R. Mishkin, Exh. 10-72 (a) of 1990 10-K
dated March 28, 1991
10-31 Guarantee Fee Agreement between Los Abrigados Incorporated by reference to
Partners Limited Partnership and Arthur J. Exh. 10-79 of 1991 10-K
Martori and Alan R. Mishkin, dated
September 9, 1991
10-32 License Agreement between Los Abrigados Incorporated by reference to
Partners Limited Partnership and those certain Exh. 10-83 of 1991 10-K
participants, dated September 1, 1991
10-33 Promissory Note ($900,000) to Cynthia J. Polich Irrevocable Incorporated by reference to
Trust and Edward John Martori by Los Abrigados Partners Exh. 10-1 9/30/95 10-Q/A
Limited Partnership and ILX Incorporated, dated July 27, 1995
10-34 Deed of Trust and Assignment of Rents to Cynthia J. Polich Incorporated by reference to
Irrevocable Trust and Edward John Martori by Los Abrigados Exh. 10-2 9/30/95 10-Q/A
Partners Limited Partnership, dated July 27, 1995
10-35 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and International Leisure Enterprises Exh. 10-91 of 1991 10-K
Incorporated, dated January 13, 1992
10-36 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and Los Abrigados Partners Limited Exh. 10-96 of 1992 10-K
Partnership, dated August 31, 1992
10-37 Financing and Security Agreement between Incorporated by reference to
Martori Enterprises Incorporated and International Exh. 10-109 of 1993 10-K
Leisure Enterprises Incorporated, dated
May 15, 1993
10-38 Secured Promissory Note and Security Agreement Incorporated by reference to
and Financing Statement between Martori Exh. 10-110 of 1993 10-K
Enterprises Incorporated and International
Leisure Enterprises Incorporated, dated
June 11, 1993
10-39 Real Estate Purchase Contract between Indian Incorporated by reference to
Wells Partners, Ltd., Los Abrigados Partners Exh. 10-98 of 1992 10-K
Limited Partnership and International Leisure
Enterprises Incorporated, dated December 18, 1992
10-40 Option Agreement between Indian Wells Partners, Incorporated by reference to
Ltd. and Martori Enterprises Incorporated, Exh. 10-29 of 1994 10-K/A-3
dated March 31, 1994
10-41 Assignment of Option by Martori Enterprises Incorporated by reference to
Incorporated to Genesis Investment Group, Inc., Exh. 10-30 of 1994 10-K/A-3
dated September 15, 1994
10-42 Lease Agreement between Indian Wells Partners, Incorporated by reference to
Ltd. and Los Abrigados Partners Limited Exh. 10-99 of 1992 10-K
Partnership, dated December 21, 1992
10-43 Second Amendment to Lease Agreement Incorporated by reference to
between Indian Wells Partners, Ltd. and Los Exh. 10-32 of 1994 10-K/A-3
Abrigados Partners Limited Partnership,
dated March 31, 1994
10-44 Warrant Agreement (50,000 Shares of Common Incorporated by reference to
Stock) between Lawrence S. Held and ILX Exh. 10-33 of 1994 10-K/A-3
Incorporated, dated March 31, 1994
10-45 Warrant Agreement (50,000 Shares of Common Incorporated by reference to
Stock) between Jerome M. White and ILX Exh. 10-34 of 1994 10-K/A-3
Incorporated, dated March 31, 1994
10-46 Loan Agreement ($5,000,000) between The Incorporated by reference to
Valley National Bank and Los Abrigados Exh. 10-76 of 1991 10-K
Partners Limited Partnership,
dated September 9, 1991
10-47 Modification Agreement ($5,000,000) between Incorporated by reference to
Bank One, Arizona, NA and Los Abrigados Exh. 10-114 of 1993 10-K
Partners Limited Partnership,
dated October 22, 1993
10-48 Second Modification Agreement ($5,000,000) Incorporated by reference to
between Bank One, Arizona, NA and Los Exh. 10-43 of 1994 10-K/A-3
Abrigados Partners Limited Partnership,
dated October 4, 1994 additional advance
including repayment of prior $750,000 loan)
10-49 Third Modification Agreement ($5,000,000)
between Bank One, Arizona, NA and Los
Abrigados Partners Limited Partnership,
dated January 25, 1996 (additional advance)
10-50 Secured Promissory Note ($2,485,000) to Bank
One, Arizona, NA by Los Abrigados Partners
Limited Partnership, dated January 25, 1996
10-51 Letter of Commitment between Tammac Financial Incorporated by reference to
Corp. and Los Abrigados Partners Limited Exh. 10-52 of 1994 10-K/A-3
Partnership, dated July 20, 1994
10-52 Financing Agreement between Tammac Financial Incorporated by reference to
Corp. and Los Abrigados Partners Limited Exh. 10-88 of 1991 10-K
Partnership, dated September 10, 1991
10-53 Amendment to Commitment Letter, Financing Incorporated by reference to
Agreement and Reaffirmation of Various Loan Exh. 10-88 (a) of 1993 10-K
Documents between Tammac Financial
Corp., Los Abrigados Partners Limited
Partnership and International Leisure Enterprises
Incorporated, dated March 31, 1993
10-54 Third Amendment to Financing Agreement between Incorporated by reference to
Tammac Financial Corp. and Los Abrigados Exh. 10-55 of 1994 10-K/A-3
Partners Limited Partnership, dated September 7, 1994
10-55 Amended and Restated Continuing Guaranty to Incorporated by reference to
Tammac Financial Corporation by ILX Incorporated, Exh. 10-56 of 1994 10-K/A-3
dated September 7, 1994
10-56 Loan and Security Agreement between Tammac Incorporated by reference to
Financial Corp. and Los Abrigados Partners Exh. 10-53 of 1994 10-K/A-3
Limited Partnership, dated September 7, 1994
10-57 Promissory Note ($499,859.15) to Tammac Financial Incorporated by reference to
Corp. by Los Abrigados Partners Limited Partnership, Exh. 10-54 of 1994 10-K/A-3
dated September 7, 1994
10-58 Contract of Sale of Membership Agreements and Incorporated by reference to
Installment Purchase Agreements with Recourse Exh. 10-112 of 1993 10-K
between Resort Funding, Inc. and Los Abrigados
Partners Limited Partnership, dated
September 14, 1993
10-59 Management Agreement between Bennett Funding Incorporated by reference to
International, Ltd. and Los Abrigados Partners Limited Exh 10 (c) S-2 No. 33-61477
Partnership, ILE Sedona Incorporated, and ILX Incorporated
dated November 21, 1995 (Los Abrigados Resort)
10-60 Promissory Note ($255,000) to Firstar Metropolitan Bank
& Trust from Los Abrigados Partners Limited Partnership
and ILX Incorporated, dated April 28, 1995
10-61 Financing Agreement ($255,000) between Firstar
Metropolitan Bank & Trust and Los Abrigados Partners
Limited Partnership and ILX Incorporated,
dated September 10, 1991
10-62 Promissory Note to Firstar Metropolitan Bank Incorporated by reference to
and Trust from Los Abrigados Partners Limited Exh. 10-115 of 1993 10-K
Partnership, dated November 8, 1993
10-63 Change in Terms Agreement ($400,000) between Incorporated by reference to
Los Abrigados Partners Limited Partnership and Exh. 10-49 of 1994 10-K/A-3
Firstar Metropolitan Bank and Trust, dated
November 8, 1994
10-64 Change in Terms Agreement ($400,000) between
Los Abrigados Partners Limited Partnership and
Firstar Metropolitan Bank and Trust, dated
November 8, 1995
10-65 Agreement for Purchase and Sale of Kohl's Incorporated by reference to
Ranch between Kohl's Ranch Associates and Exh. 10-74 of 1994 10-K/A-3
ILX Incorporated, dated March 10, 1995 Exh. 10-1 6/30/95 10-Q/A-2
(Kohl's Ranch)
10-66 Promissory Note ($367,750) to Kohl's Ranch Associates Incorporated by reference to
by ILX Incorporated, dated June 1, 1995 (Kohl's Ranch) Exh. 10-2 6/30/95 10-Q/A-2
10-67 Fourth Modification Agreement and Assumption Agreement Incorporated by reference to
between Bank One, Arizona, NA and ILX Incorporated Exh. 10-4 6/30/95 10-Q/A-2
dated June 1, 1995 (Kohl's Ranch)
10-68 Letter of Commitment between Tammac Financial Corp. Incorporated by reference to
and ILX Incorporated, dated June 19, 1995 (Kohl's Ranch) Exh. 10-5 6/30/95 10-Q/A-2
10-69 Promissory Note ($10,000,000) to Tammac Financial Corp. Incorporated by reference to
by ILX Incorporated, dated August 25, 1995 (Kohl's Ranch) Exh. 10-3 9/30/95 10-Q/A
10-70 Loan and Security Agreement between Tammac Financial Corp. Incorporated by reference to
and ILX Incorporated, dated August 25, 1995 (Kohl's Ranch) Exh. 10-4 9/30/95 10-Q/A
10-71 Letter of Commitment between Tammac Financial Incorporated by reference to
Corp. and ILX Incorporated, dated July 20, 1994 Exh. 10-57 of 1994 10-K/A-3
(Golden Eagle Resort)
10-72 Loan and Security Agreement between Tammac Incorporated by reference to
Financial Corp. and ILX Incorporated, dated Exh. 10-58 of 1994 10-K/A-3
September 7, 1994
(Golden Eagle Resort)
10-73 Promissory Note ($2,000,000) to Tammac Incorporated by reference to
Financial Corp. by ILX Incorporated, dated Exh. 10-59 of 1994 10-K/A-3
September 7, 1994
(Golden Eagle Resort)
10-74 Amended and Restated Financing Agreement Incorporated by reference to
between Tammac Financial Corp. and ILX Exh. 10-60 of 1994 10-K/A-3
Incorporated, dated September 7, 1994
(Golden Eagle Resort)
10-75 Option Agreement between Imperial Properties and Incorporated by reference to
ILX Incorporated, dated July 25, 1994 Exh. 10-71 of 1994 10-K/A-3
10-76 Joint Venture Agreement between Chanen Incorporated by reference to
Development Company, Inc. and ILE Sedona Exh. 10-72 of 1994 10-K/A-3
Incorporated, dated September 28, 1994
10-77 First Amended Certificate of Limited Partnership and
Amended Agreement of The Sedona Real Estate Limited
Partnership #1, dated March 1, 1996 (Lomacasi Resort)
10-78 Letter Agreement dated February 27, 1996 (Lomacasi Resort)
10-79 Letter of Commitment between Bennett Funding Incorporated by reference to
International, Ltd. and VCA South Bend Incorporated, Exh. 10-62 of 1994 10-K/A-3
dated August 18, 1994
10-80 Construction Loan Agreement between Bennett Funding Incorporated by reference to
International, Ltd. and VCA South Bend Incorporated, Exh. 10-63 of 1994 10-K/A-3
dated October 4, 1994
10-81 Construction Promissory Note ($5,000,000) to Bennett Incorporated by reference to
Funding International, Ltd. by VCA South Bend Exh. 10-64 of 1994 10-K/A-3
Incorporated, dated October 4, 1994
10-82 Guaranty and Subordination Agreement (Construction Incorporated by reference to
Loan) to Bennett Funding International, Ltd. by Exh. 10-65 of 1994 10-K/A-3
ILX Incorporated, dated August 18, 1994
10-83 Contract of Sale of Timeshare Receivables with Incorporated by reference to
Recourse between Bennett Funding International, Exh. 10-66 of 1994 10-K/A-3
Ltd. and VCA South Bend Incorporated, dated
August 18, 1994
10-84 Guaranty and Subordination Agreement (Receivables Incorporated by reference to
Financing) to Bennett Funding International, Ltd. by Exh. 10-67 of 1994 10-K/A-3
ILX Incorporated, dated August 18, 1994
10-85 Standard Form of Agreement between Owner and Incorporated by reference to
Contractor between Walton Constuction Company, Exh. 10-73 of 1994 10-K/A-3
Inc. and VCA South Bend Incorporated, dated
October 10, 1994
10-86 Contract for Sale between City of Tucson and ILX Incorporated by reference to
Incorporated, dated June 16, 1995 Exh. 10-6 6/30/95 10-Q/A-2
10-87 Assignment of Contract for Sale from ILX Incorporated to Incorporated by reference to
VCA Tucson Incorporated, dated July 17, 1995 Exh. 10-7 6/30/95 10-Q/A-2
10-88 Articles of Limited Partnership between Hotel Syracuse Incorporated by reference to
Timeshare Corporation and Syracuse Project Incorporated, Exh. 10-6 9/30/95 10-Q/A
dated August 15, 1995
10-89 Agreement of Purchase and Sale of Real Property, Incorporated by reference to
Improvements and Associated Personalty between Hotel Exh. 10-7 9/30/95 10-Q/A
Syracuse, Inc. and Orangemen Club Limited Partnership,
dated September 12, 1995
10-90 Letter of Commitment between Resort Service Company, Inc. Incorporated by reference to
and Orangemen Club Limited Partnership, dated August 9, 1995 Exh. 10-5 9/30/95 10-Q/A
10-91 Service Agreement between Hotel Syracuse, Inc. and Incorporated by reference to
Orangemen Club Limited Partnership, Exh. 10-8 9/30/95 10-Q/A
dated September 12, 1995
10-92 Loan Agreement ($500,000) between Bank One, Incorporated by reference to
Arizona, NA and ILX Incorporated, Exh. 10-46 of 1994 10-K/A-3
dated October 4, 1994
10-93 Modification Agreement ($500,000) between Bank One,
Arizona, NA and ILX Incorporated, dated October 4, 1995
10-94 Promissory Note ($500,000) to Bank One, Incorporated by reference to
Arizona, NA by ILX Incorporated, dated Exh. 10-47 of 1994 10-K/A-3
October 4, 1994
10-95 Consulting Agreement between Investor Resource Incorporated by reference to
Services, Inc. and ILX Incorporated Exh. 10 (a) S-2 No. 33-61477
10-96 Consulting Agreement between Universal Solutions, Inc. Incorporated by reference to
and ILX Incorporated Exh 10 (b) S-2 No. 33-61477
21-1 List of Subsidiaries of ILX Incorporated
27-1 The Registrant's 1995 Financial Data Schedule
</TABLE>
ILX INCORPORATED
1995 STOCK OPTION PLAN
1. PURPOSE
-------
This Stock Option Plan (the "Plan") is intended to advance the
interests of ILX Incorporated (the "Corporation") and its subsidiary
corporations, including subsidiaries which become such after adoption of the
Plan (the "Subsidiaries"), by inducing persons of outstanding ability and
potential to join and remain with the Corporation, by encouraging and enabling
employees and non-employee directors to acquire proprietary interests in the
Corporation and by providing the participating employees and non-employee
directors with additional incentive to promote the success of the Corporation.
This is accomplished by providing for the granting of "Options" (which term as
used herein includes both "Incentive Stock Options" and "Nonstatutory Stock
Options," as later defined) to qualified employees and non-employee directors.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"). Any action taken under this Plan shall be authorized
by a majority of the Board at a meeting in which a quorum is present, or by acts
reduced to or approved in writing by all of the members of the Board. Subject to
the provisions of the Plan, the Board shall from time to time, at its
discretion, determine the persons who shall be granted Options, whether the
Option is an Incentive Stock Option or a Nonstatutory Stock Option, the amount
of stock to be optioned to each such
1
<PAGE>
person, and the time or times Options shall be granted. No director shall be
eligible to receive an Option under the Plan unless the granting of such Option
is approved by a majority of the other Board members.
Except as herein specifically provided, the interpretation and
construction by the Board of any provisions of the Plan or of any Option granted
under it shall be final. No member of the Board shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under it.
3. ELIGIBILITY
-----------
The persons who shall be eligible to receive Options shall be (i) such
key employees (including officers, whether or not they are directors) of the
Corporation or its Subsidiaries (as such term is defined in Section 425 of the
Internal Revenue Code of 1986, as amended (the "Code")) which the Board shall
select; and (ii) any non-employee director of the Corporation or its
Subsidiaries which the Board shall select. A "key employee" shall be such person
who, in the opinion of the Board, has contributed in the past, or who may be
expected to contribute materially in the future, to the success of the
Corporation. An optionee may hold more than one Option or Options of either type
authorized under the Plan, but only on the terms and subject to the restrictions
hereafter set forth.
4. STOCK
-----
The stock subject to the Options granted under the Plan shall be shares
of the Corporation's authorized but unissued or
2
<PAGE>
reacquired no par value common stock (hereafter sometimes referred to as the
"Capital Stock"). The aggregate number of shares which may be issued under
Options authorized by the Plan shall not exceed 500,000 shares of Capital Stock.
The limitations established by each of the preceding sentences shall be subject
to adjustment as provided in Article 10 of the Plan. In the event that any
outstanding Option under the Plan for any reason expires or is terminated, the
shares of Capital Stock allocable to the unexercised portion of such Option may
again be subjected to an Option under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under the Plan shall be authorized by the Board and
shall be evidenced by a Stock Option Agreement, which shall be executed by the
Corporation and the person to whom the Option is granted. The Stock Option
Agreement shall specify the type of Option granted, the number of shares of
Capital Stock as to which any Option is granted, the periods during which the
Option is exercisable and the purchase price per share thereof.
3
<PAGE>
6. INCENTIVE STOCK OPTIONS
------------------------
The Board may grant Options under the Plan which are intended to meet
the requirements of Section 422A of the Code, and which are subject to the
following terms and conditions and any other terms and conditions as may at any
time be required by Section 422A of the Code (such Options referred to herein as
"Incentive Stock Options").
(a) Eligibility.
-----------
An Incentive Stock Option may be granted to any
person eligible to receive an Option under the Plan pursuant to Article
3 hereof, except that no Incentive Stock Option shall be granted to a
non-employee director of the Corporation or its Subsidiaries.
(b) Optionee's Agreement.
--------------------
Each optionee shall execute an Incentive Stock Option
Agreement in such form as the Board shall from time to time determine,
such agreement being consistent with the provisions of the Plan. The
form of Incentive Stock Option Agreement attached hereto as Exhibit "A"
shall be used until the Board shall adopt a different form.
(c) Number of Shares; Fair Market Value.
-----------------------------------
Prior to each grant of an Incentive Stock Option
authorized by this Plan, the Board shall determine the fair market
value of the Capital Stock. This valuation shall be made based on all
relevant factors, including: the economic outlook for the Corporation
and its Subsidiaries as of the date the Incentive Stock Option is
granted, recent sales of
4
<PAGE>
the Corporation's stock, the book value of the Corporation and the
Subsidiaries and their potential earning capacities, and the market
price of other enterprises which are engaged in similar lines of
business and which are actively traded in an organized national or
regional stock exchange. The Board may obtain and rely on the opinions
of fair market value made by independent and well-qualified experts.
If, however, the Corporation's stock is actively traded in an
established market, the Board shall determine fair market value based
on market quotations. Once the Capital Stock's fair market value has
been ascertained, the Incentive Stock Option Agreement shall be entered
into and shall state the number of shares to which it pertains.
(d) Option Price.
-------------
5
<PAGE>
If immediately prior to the granting of any Incentive
Stock Option authorized by this Plan, the employee-optionee does not
own stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Corporation or its subsidiaries
(referred to herein as a "ten percent shareholder"), then the Option
price shall be not less than one hundred percent of the fair market
value of the Capital Stock (as determined by the Board in accordance
with the guidelines set forth in Article 5(c) herein) on the date of
the granting of the Incentive Stock Option. If, however, immediately
prior to the granting of the Incentive Stock Option, the optionee is a
ten percent shareholder, then the Option price shall be not less than
one hundred and ten percent of the fair market value of the Capital
Stock as of the date the Incentive Stock Option is granted. In
determining whether an optionee is a ten percent shareholder, the stock
attribution rules of Code Section 425(d) shall apply.
(e) Exercise.
--------
An Incentive Stock Option shall be exercised by the delivery
by the holder thereof to the Corporation at its principal office
(attention of the Secretary) of written notice of the number of shares
with respect to which the Incentive Stock Option is being exercised, in
such form as the Board shall from time to time determine. The form of
Notice of Exercise of Incentive Stock Option attached hereto as
6
<PAGE>
Exhibit "B" shall be used until the Board shall adopt a different form.
The purchase price of the shares as to which an Incentive Stock Option
is exercised shall be paid in full, in cash, at the time of exercise.
(f) Term of Option and When Exercisable.
-----------------------------------
No Incentive Stock Option shall be exercisable either
in whole or in part prior to twelve months from the date it is granted.
Subject to the provisions of Articles 8 and 9, to the extent that an
Incentive Stock Option has become exercisable, it may be exercised at
any time thereafter, in whole or from time to time in part, prior to
the expiration of such Option. Not less than one hundred shares may be
purchased at any one time unless the number purchased is the total
number at the time left to be purchased under the Option. If the
optionee was a ten percent shareholder immediately prior to the
granting of the Incentive Stock Option, such Option shall expire five
years from the date on which the Option was granted. If the optionee
was not a ten percent shareholder immediately prior to the granting of
the Incentive Stock Option, such Option shall expire ten years from the
date on which it was granted. No Incentive Stock Option may be
exercised to any extent after it has expired. The aggregate fair market
value (determined at the time the Incentive Stock Option is granted) of
the Capital Stock with respect to which Incentive Stock Options are
exercisable for the first time by optionee during any calendar year
(under the
7
<PAGE>
Plan or any other Incentive Stock Option Plan of the Corporation or its
Subsidiaries) shall not exceed $100,000.
(g) Early Disposition of Stock.
--------------------------
At the time each Incentive Stock Option is granted
under this Plan, the Option Agreement shall provide that if the
optionee acquires stock pursuant to the exercise of the Option and
subsequently disposes of such stock within two years from the date on
which the Option was granted, or within one year after the exercise of
such Option with respect to such stock, the optionee will provide
written notice to the Corporation of such disposition, as well as such
additional information as the Corporation may request.
7. NONSTATUTORY STOCK OPTIONS
--------------------------
In addition to or in lieu of the Incentive Stock Options described in
Article 6, the Board may grant an Option under the Plan which is not intended to
meet the requirements of Section 422A of the Code (such Option referred to
herein as a "Nonstatutory Stock Option"). Nonstatutory Stock Options shall be
subject to the following terms and conditions:
(a) Eligibility.
------------
A Nonstatutory Stock Option may be granted to any
person eligible to receive an Option under the Plan pursuant to
Article 3 hereof.
(b) Optionee's Agreement.
---------------------
Each optionee shall execute a Nonstatutory Stock
Option Agreement in such form as the Board shall from time to time
8
<PAGE>
determine, such Agreement being consistent with the provisions of
the Plan. The form of Nonstatutory Stock Option Agreement attached
hereto as Exhibit "C" shall be used until the Board shall adopt a
different form.
(c) Number of Shares; Purchase Price.
--------------------------------
The number of shares and the purchase price of the
shares subject to a Nonstatutory Stock Option shall be determined
by the Board, in its absolute discretion, at the time of the
granting of the Nonstatutory Stock Option.
(d) Duration of Option.
------------------
A Nonstatutory Stock Option granted under the Plan
may be of such duration as shall be determined by the Board.
(e) Term of Option and When Exercisable.
------------------------------------
Unless otherwise provided in the Stock Option
Agreement, a Nonstatutory Stock Option shall be exercisable in
whole at any time, or in part from time to time, prior to
expiration, but in no case may an Option be exercised as to less
than one hundred shares at any one time (or the remaining shares
covered by the Option if less than one hundred).
(f) Exercise.
---------
A Nonstatutory Stock Option shall be exercised by the
delivery by the holder thereof to the Corporation at its principal
office (attention of the Secretary) of written notice of the
number of shares with respect to which the Nonstatutory Stock
Option is being exercised, in such form as the Board shall from
time to time determine. The form of
9
<PAGE>
Notice of Exercise of Nonstatutory Stock Option attached hereto as
Exhibit "D" shall be used until the Board shall adopt a different
form. The purchase price as to which a Nonstatutory Stock Option
is exercised shall be paid in full, in cash, at the time of the
exercise.
8. TERMINATION OF EMPLOYMENT OTHER THAN BY REASON OF DEATH OR
----------------------------------------------------------
DISABILITY
----------
If an optionee shall cease to be employed by the Corporation or its
Subsidiaries for any reason other than his death or disability (within the
meaning of Code Section 105(d)(4)), such optionee shall have the right to
exercise the Incentive Stock Option at any time within three months after such
termination of employment (subject to the condition that no Incentive Stock
Option shall be exercisable after the expiration of ten years from the date it
is granted (five years if the employee is a ten percent shareholder)), to the
extent his right to exercise such Option had not previously been exercised at
the date of such termination, and it shall thereafter terminate. If an optionee
shall die within three months after the termination of employment (for reasons
other than disability), his personal representative or persons who have acquired
the Incentive Stock Option directly from the optionee by bequest or inheritance
may exercise such Option during the remainder of such three month period, but
only to the extent that the optionee could have exercised the Option if he had
not died.
9. DEATH OR DISABILITY OF OPTIONEE
-------------------------------
10
<PAGE>
If the optionee dies while in the employ of the Corporation or a
Subsidiary, or the optionee's employment is terminated due to disability (as
described in Code Section 105(d)(4)), and such optionee shall not have fully
exercised an Option granted under this Plan, such Option may be fully exercised
notwithstanding the exercise limitations set forth in Article 5(f) and Article 8
(but subject to the condition that no Incentive Stock Option shall be
exercisable after the expiration of the applicable five or ten year period
beginning on the date on which it was granted and only to the extent such Option
had not previously been exercised) at any time within one year after the
optionee's death or the date of termination of employment due to disability. If
the provisions of this Article 9 shall become effective by reason of an
optionee's death, then the Options granted under this Plan may be exercised by
the optionee's personal representative or by any person or persons who shall
have acquired the Option directly from the optionee by bequest or inheritance.
10. RECAPITALIZATION
----------------
In the event of changes in the outstanding Capital Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations, exchanges of shares, reorganization, or
liquidation, the aggregate number of shares and class of stock available under
the Plan, and under each outstanding Option, and the per share exercise price,
shall be correspondingly adjusted by the Board consistent with such capital
adjustments, provided that no Incentive Stock Option granted pur-
11
<PAGE>
suant to this Plan shall be adjusted in a manner that causes the Incentive Stock
Option to fail to continue to qualify as an Incentive Stock Option within the
meaning of Code Section 422A or any other then applicable Code provision.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
In the event of a change in the Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Capital Stock within the meaning of the Plan. To the extent that the
foregoing adjustments relate to stock or securities of the Corporation, such
adjustments shall be made by the Board, whose determination in that respect
shall be final, provided that no Incentive Stock Option granted pursuant to this
Plan shall be adjusted in a manner that causes the Incentive Stock Option to
fail to continue to qualify as an Incentive Stock Option within the meaning of
Code Section 422A or any other than applicable Code provision.
Except as hereinbefore expressly provided in this Article 10, the
optionee shall have no rights by reason of any stock split or
12
<PAGE>
other subdivision or consolidation of shares of stock of any class, or the
payment of any stock dividend or any other increase or decrease in the number of
shares of stock of any class, or by reason of any dissolution, liquidation,
merger, or consolidation or spinoff of assets or stock of another corporation,
and any issue by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Capital Stock subject to the Option.
11. NONTRANSFERABILITY OF OPTION
----------------------------
Each Option granted under the Plan shall by its terms be
nontransferable by the optionee except by will or the laws of descent and
distribution and each Option shall be exercisable, during the optionee's
lifetime, only by him.
12. RIGHTS AS A STOCKHOLDER
-----------------------
The holder of any Option granted under the Plan shall have no rights as
a stockholder (including the right to vote or receive dividends) with respect to
any shares covered by his Option until the date of the issuance of a stock
certificate to him for such shares. Except as specifically and expressly
provided in Article 10 of the Plan, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date a
stock certificate is issued.
13. INVESTMENT PURPOSE
------------------
13
<PAGE>
Each Option under the Plan shall be granted on the condition that the
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or to distribution, and each Option is granted under the express
condition that unless the Capital Stock subject to such Option is registered
under the Securities Act of 1933, as amended, and other applicable laws and
regulations, such Capital Stock shall not be transferred or sold without such
registration, unless in the opinion of counsel for the Corporation such
condition is not required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency. Unless the
Capital Stock issued upon the exercise of an Option is registered under the
Securities Act of 1933, the certificate for such Capital Stock shall be legended
to indicate such transfer restriction.
14. OTHER PROVISIONS
----------------
The Option Agreements authorized under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the exercise
of the Option, as the Board shall deem advisable. Any Option Agreement
applicable to an Incentive Stock Option granted hereunder shall contain such
limitations and restrictions upon the exercise of the Option as shall be
necessary in order that such Option will be an "Incentive Stock Option" as
defined in Code Section 422A or to conform to any change in the law.
15. TERM OF PLAN
------------
Options may be granted pursuant to the Plan from time to time within a
period of ten years from the date the Plan is adopted, or
14
<PAGE>
the date the Plan is approved by the stockholders, whichever is earlier, but no
Option shall be granted after the expiration of such ten year period.
16. INDEMNIFICATION OF BOARD
------------------------
In addition to such other rights of indemnification as they may have as
directors, the members of the Board shall be indemnified by the Corporation
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that a Board member is liable for gross negligence or intentional
misconduct in the performance of his duties; provided that within sixty days
after institution of any such action, suit or proceeding, a Board member shall
in writing offer the Corporation the opportunity, at its own expense, to handle
and defend the same.
17. AMENDMENT OF THE PLAN
---------------------
The Board may, insofar as permitted by law, from time to time, with
respect to any shares of Capital Stock at the time not subject
15
<PAGE>
to Options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that no such revision or amendment shall change the number of
shares subject to the Plan, change the designation of the class of persons
eligible to receive Options or decrease the minimum price at which Options may
be exercised. Furthermore, the Plan may not, without the approval of the
stockholders, be amended in any manner that will cause Incentive Stock Options
issued under it to fail to meet the requirements of Incentive Stock Options as
defined in Code Section 422A.
18. OPTIONS DISCRETIONARY; NO EMPLOYMENT OBLIGATION
-----------------------------------------------
The granting of Options under the Plan shall be entirely discretionary
and nothing in the Plan shall be deemed to give any employee any right to
participate in the Plan or to receive Options. No obligation of the Corporation
as to length of employment shall be implied by the terms of the Plan. The
Corporation reserves the same rights to terminate employment of any employee as
existed prior to the addition of this Plan.
19. NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an Option shall impose no obligation upon the optionee
to exercise the Option.
20. APPROVAL OF STOCKHOLDERS
------------------------
The Plan shall be subject to approval by the holders of a majority of
the outstanding shares of Capital Stock of the Corporation, which approval must
occur within the period beginning twelve months before and ending twelve months
after the date the Plan is adopted by the Board. In the event such shareholder
approval is
16
<PAGE>
withheld or otherwise not received within the given time period, the Plan and
all Options which may have been granted thereunder shall become null and void.
Date Plan adopted by Board of Directors: July 17, 1995
Date Plan approved by Stockholders: _____________________
17
<PAGE>
Certification
I, the Secretary of ILX Incorporated, an Arizona corporation, certify
that the foregoing ILX Incorporated 1995 Stock Option Plan is the Plan adopted
by the Board of Directors and approved by the Shareholders on the above dates.
Dated: July 17, 1995.
/s/ Stephanie D. Castronova
----------------------------
Stephanie D. Castronova, Secretary
18
<PAGE>
EXHIBIT "A"
NOTICE OF GRANT OF INCENTIVE STOCK OPTION TO PURCHASE
SHARES OF ILX INCORPORATED
______________________ 199__
Dear __________:
At the direction of the Board of Directors of ILX Incorporated (the
"Corporation"), you are hereby notified that the Board has granted to you an
Incentive Stock Option, pursuant to the 1995 Stock Option Plan (the "Plan")
adopted by the Corporation on ____________________, and ratified and approved by
the stockholders of the Corporation on ____________________.
The Incentive Stock Option granted to you is to purchase _____ shares
of the _____ par value common stock of the Corporation at the price of $_______
per share. The date of grant of this Incentive Stock Option is the date of this
notice, and it is the determination of the Board of Directors that on this date
the fair market value of the Corporation's common stock was $_____ per share.
I enclose a copy of the Plan governing the Incentive Stock Option
granted to you, and your attention is directed to all the provisions of the
Plan. You will observe that this Incentive Stock Option must be exercised, if at
all, by no later than ____ years from the date of this notice.
Your Incentive Stock Option is in all respects limited and conditioned
as provided in the Plan, including, but not limited to, the following:
1 During the applicable period during which your Incentive Stock
Option is exercisable, it may be exercised by you, but only by
you, at any time during your lifetime prior to three months
following the ter- mination of your employment unless such
termination occurred as a result of your becoming disabled (as
defined in the Plan), in which case the Options may be
exercised prior to twelve months following such termination;
2 In the event of your death while you are an employee, or
within three months from the date of termination of your
employment, your Incentive Stock Option may be exercised by
your estate, or by the person to whom such right devolves from
you by reason of your death, at any time prior to one year
after the date of your death or ______ years after the date of
this notice,
1
<PAGE>
whichever date first arrives;
3 Your Incentive Stock Option is nontransferable, otherwise than
as may be occasioned by your death, and then only to your
estate or according to the terms of your Will or the provision
of applicable laws of descent and distribution;
4 In the event that the right to exercise your Incentive Stock
Option is passed to your estate, or to a person to whom such
right devolves by reason of your death, then your Incentive
Stock Option shall be nontransferable in the hands of your
executor or administrator or of such person, except that your
Incentive Stock Option may be distributed by your executor or
administrator to the distributees of your estate.
5 In the event you wish to dispose of any stock received as a
result of the exercise of any Incentive Stock Option received
under the Plan within two years of the grant of such Incentive
Stock Option or one year following the exercise of such
Incentive Stock Option, you must notify the Corporation of and
provide the Corporation with information about such
disposition, including an opinion of counsel that such
disposition will not result in the Corporation being deemed an
issuer or underwriter or otherwise receiving negative
securities laws consequences. Further, you should be aware
that such dispositions may cause adverse tax consequences to
arise.
6 Your right to exercise this Incentive Stock Option vests after
you have been an employee of the Corporation for one year
after the date of the granting of the Incentive Stock Option.
This means that you cannot exercise the Option until that
time, and if you leave the Corporation's employ before then,
you have no rights hereunder. There may be limits on the
number of shares of common stock with respect to which you may
exercise your Incentive Stock Option in any calendar year.
The foregoing statements are qualified in their entirety by reference
to the Plan. At the time or times when you wish to exercise this Incentive Stock
Option, in whole or in part, please refer to the provisions of the Plan dealing
with methods and formalities of exercising your Incentive Stock Option.
If you wish to accept the Incentive Stock Option, please so indicate by
signing the enclosed extra copy of this letter and returning it to the
undersigned by _________ . Your timely
2
<PAGE>
signing and return of such extra copy is a condition to the grant of the
Incentive Stock Option, and will constitute your agreement to be bound by the
terms of the Plan with respect to the Incentive Stock Option.
We suggest that you consult your own tax advisor about the tax
consequences of the Incentive Stock Option, its exercise and sales or other
disposition of stock you purchase under the Incentive Stock Option.
ILX Incorporated
By:
-----------------------------
Its:
-----------------------------
I accept the Incentive Stock Option referred to above and agree to be
bound by the terms of the Plan with respect to the Incentive Stock Option.
Further, I represent to you and agree with you that any shares of stock acquired
upon exercise of the Incentive Stock Option will be acquired for investment
purposes, and not with a view towards resale or distribution thereof.
I ACKNOWLEDGE THAT I HAVE RECEIVED, AND HAVE READ AND UNDERSTAND, THE
ILX INCORPORATED 1995 STOCK OPTION PLAN. I FURTHER ACKNOWLEDGE THAT I HAVE OR
HAVE BEEN GIVEN ACCESS TO ALL INFORMATION CONCERNING THE CORPORATION AND ITS
PROSPECTS AS IS NECESSARY TO ALLOW ME TO MAKE A DECISION AS TO THE VALUE OF THE
INCENTIVE STOCK OPTION AND INVESTMENT IN THE CORPORATION'S STOCK, AND THAT I
HAVE THE SKILL AND EXPERIENCE NECESSARY TO MAKE SUCH DECISIONS.
Date of Signing:
-------------------------
Employee's Signature
3
<PAGE>
EXHIBIT "B"
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION TO PURCHASE
SHARES OF ILX INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Incentive Stock Option granted by The ILX
Incorporated 1995 Stock Option Plan subject to all the terms and provisions
referred to in the Plan, and notify you of my desire to purchase ________ shares
of Common Stock of ILX Incorporated (the "Corporation") which were offered to me
pursuant to said Incentive Stock Option. Enclosed is my check in the sum of
$______ in full payment for such shares.
I hereby represent that the _____________ shares of the Corporation's
Common Stock to be delivered to me pursuant to the above-mentioned exercise of
the Incentive Stock Option granted to me on _________ are being acquired by me
as an investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I further represent that I have or have been
given access to all information necessary to allow me to make a decision as to
the advisability of an investment in the Corporation's stock and the value of
such stock, and that I have the skill and experience necessary to make such
decision.
DATED: _________________, 19__
-------------------------
Employee's Signature
1
<PAGE>
Receipt is hereby acknowledged of the delivery to me by
________________________ on _____________ of stock certificates for _______
shares of Common Stock purchased by me pursuant to the terms and conditions of
The ILX Incorporated 1995 Stock Option Plan referred to above, which shares were
transferred to me on ILX Incorporated's stock record books on _____________.
-------------------------
Employee
2
<PAGE>
EXHIBIT "C"
NOTICE OF GRANT OF NONSTATUTORY STOCK OPTION TO PURCHASE
SHARES OF ILX INCORPORATED
______________________ 199__
Dear __________:
At the direction of the Board of Directors of ILX Incorporated (the
"Corporation"), you are hereby notified that the Board has granted to you a
Nonstatutory Stock Option (the "Option"), pursuant to the 1995 Stock Option Plan
(the "Plan") adopted by the Corporation on _____________________, and ratified
and approved by the stockholders of the Corporation on __________________,
199__.
The Option granted to you is to purchase _____ shares of the _____ par
value common stock of the Corporation at the price of $_____ per share. The date
of grant of this Option is the date of this notice.
I enclose a copy of the Plan governing the Option granted to you, and
your attention is directed to all the provisions of the Plan. You will observe
that this Option must be exercised, if at all, by no later than _____ years and
one day from the date of this notice.
Your Option is in all respects limited and conditioned as provided in
the Plan, including, but not limited to, the following:
1 During the applicable period during which your Option is
exercisable, it may be exercised by you (to the extent such
exercise right is vested), but only by you, at any time during
your lifetime prior to three months following the termination
of your employment unless such termination occurred as a
result of your becoming disabled (as defined in the Plan), in
which case the Options may be exercised prior to twelve months
following such termination;
2 In the event of your death while you are an employee, or
within three months from the date of termination of your
employment, your Option may be exercised by your estate, or by
the person to whom such right devolves from you by reason of
your death, at any time prior to one year after the date of
your death or _____ years and one day after the date of this
notice, whichever date first arrives;
3 Your Option is nontransferable, otherwise than as may be
occasioned by your death, and then only to your estate or
according to the terms of your Will or the provision of
applicable laws of descent and distribution;
1
<PAGE>
4 In the event that the right to exercise your Option is passed
to your estate, or to a person to whom such right devolves by
reason of your death, then your Option shall be
nontransferable in the hands of your executor or administrator
or of such person, except that your Option may be distributed
by your executor or administrator to the distributees of your
estate.
5 In the event you wish to dispose of any stock received as a
result of the exercise of any Option received under the Plan
within two years of the grant of such Option or one year
following the exercise of such Option, you must notify the
Corporation of and provide the Corporation with information
about such disposition, including an opinion of counsel that
such disposition will not result in the Corporation being
deemed an issuer or underwriter or otherwise receiving
negative securities laws consequences. Further, you should be
aware that such dispositions may cause adverse tax
consequences to arise.
6 Your right to exercise the Option vests after you have been an
employee or a non-employee director for one year after the
date of the granting of the Option. This means that you cannot
exercise the Option until that date, and you will have no
rights hereunder if you leave the Corporation's employ or
cease to be a director before then.
The foregoing statements are qualified in their entirety by reference
to the Plan. At the time or times when you wish to exercise this Option, in
whole or in part, please refer to the provisions of the Plan dealing with
methods and formalities of exercising your Option.
If you wish to accept the Option, please so indicate by signing the
enclosed extra copy of this letter and returning it to the undersigned by
_______________. Your timely signing and return of such extra copy is a
condition to the grant of the Option, and will constitute your agreement to be
bound by the terms of the Plan with respect to the Option.
We suggest that you consult your own tax advisor about the tax
consequences of the Option, its exercise and sales or other disposition of stock
you purchase under the Option.
ILX Incorporated
By: _______________________
Its: _______________________
2
<PAGE>
I accept the Nonstatutory Stock Option referred to above and agree to
be bound by the terms of the Plan with respect to the Option. Further, I
represent to you and agree with you that any shares of stock acquired upon
exercise of the Option will be acquired for investment purposes, and not with a
view towards resale or distribution thereof.
I ACKNOWLEDGE THAT I HAVE RECEIVED, AND HAVE READ AND UNDERSTAND, THE
ILX INCORPORATED 1995 STOCK OPTION PLAN. I FURTHER ACKNOWLEDGE THAT I HAVE OR
HAVE BEEN GIVEN ACCESS TO ALL INFORMATION CONCERNING THE CORPORATION AND ITS
PROSPECTS AS IS NECESSARY TO ALLOW ME TO MAKE A DECISION AS TO THE VALUE OF THE
OPTION AND INVESTMENT IN THE CORPORATION'S STOCK, AND THAT I HAVE THE SKILL AND
EXPERIENCE NECESSARY TO MAKE SUCH DECISIONS.
Date of Signing:
- ------------------------------- -------------------------
Employee's Signature
3
<PAGE>
EXHIBIT "D"
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION TO PURCHASE
SHARES OF ILX INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Nonstatutory Stock Option granted by The ILX
Incorporated 1995 Stock Option Plan subject to all the terms and provisions
referred to in the Plan, and notify you of my desire to purchase ________ shares
of Common Stock of ILX Incorporated (the "Corporation") which were offered to me
pursuant to said Nonstatutory Stock Option. Enclosed is my check in the sum of
$_______ in full payment for such shares.
I hereby represent that the _____________ shares of the Corporation's
Common Stock to be delivered to me pursuant to the above-mentioned exercise of
the Nonstatutory Stock Option granted to me on _________ are being acquired by
me as an investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I further represent that I have or have been
given access to all information necessary to allow me to make a decision as to
the advisability of an investment in the Corporation's stock and the value of
such stock, and that I have the skill and experience necessary to make such
decision.
DATED: _________________, 19__
--------------------------
Employee's Signature
1
<PAGE>
Receipt is hereby acknowledged of the delivery to me by
____________________ on _______________ of stock certificates for __________
shares of Common Stock purchased by me pursuant to the terms and conditions of
The ILX Incorporated 1995 Stock Option Plan referred to above, which shares were
transferred to me on ILX Incorporated's stock record books on _______________.
--------------------------
Employee
2
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.
1
<PAGE>
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
2
<PAGE>
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 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
3
<PAGE>
"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 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
4
<PAGE>
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.
5
<PAGE>
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
6
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
1
<PAGE>
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 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.
2
<PAGE>
10. INSURANCE: Tenant, during the term hereof, at its own ex- pense, 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, 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
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
3
<PAGE>
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.
(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.
4
<PAGE>
(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.
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.
5
<PAGE>
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.
6
<PAGE>
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 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.
7
<PAGE>
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: Michael Stone
-----------------------
2777 E. Camelback Road
Phoenix, AZ 85016 Its: President
-----------------------
2777 E. Camelback Road
Phoenix, AZ 85016
8
<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.
9
1
FIRST AMENDMENT TO AMENDED AGREEMENT OF
LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP
------------------------------------------
EXECUTION DATE: February 9, 1996
GENERAL PARTNER: ILE SEDONA INCORPORATED, an Arizona
corporation ("ILES")
CLASS A
LIMITED PARTNER: ILX Incorporated, an Arizona corporation ("ILX")
CLASS B
LIMITED PARTNERS: ALAN R. MISHKIN ("Mishkin"), a married man
dealing with his sole and separate property
MARTORI ENTERPRISES INCORPORATED, an Arizona
corporation ("MEI")
RECITALS:
---------
A. The General Partner, the Class A Limited Partner and the Class B Limited
Partners are all the remaining partners of an Arizona limited partnership
known as Los Abrigados Partners Limited Partnership ("LAP"), formed in 1991
to acquire the Los Abrigados Resort in Sedona, Arizona.
B. A First Amended Certificate of Limited Partnership and Amended Agreement of
Los Abrigados Partners Limited Partnership was filed with the Arizona
Secretary of State on October 16, 1991.
C. In connection with a financing with Bank One, Arizona, N.A., the partners
desire to further amend the Amended Agreement of Los Abrigados Partners
Limited Partnership (the "LAP Partnership Agreement") in the manner
hereinafter set forth.
AGREEMENT
---------
The General Partner, the Class A Limited Partner and the Class B Limited
Partners mutually agree as follows:
1. Paragraph 6.9 shall be added to the LAP Partnership Agreement and shall
read in its entirety as follows:
6.9 Primary Distribution of Partnership Funds.
-----------------------------------------
(a) Notwithstanding any provision of Section 6.1 to the
contrary, beginning October 1, 1996, and continuing until such time as
the Capital Accounts of the Class B Limited Partners are reduced to
zero, the Class B Limited Partners, shall be entitled to receive,
prorata, a monthly preferential distribution from the Partnership of an
amount of Two Hundred Dollars ($200.00) per full LAP Los Abrigados
timeshare interval sold ($100.00 per bi-annual timeshare interval
sold). All distributions hereunder shall be reflected as a reduction of
the Capital Account of the partner receiving such distribution.
(b) Until such time as the Capital Accounts of the Class
B Limited Partners are reduced to zero, the Partnership shall (except
as otherwise may be contemplated with respect to the Bank One Loan of
January 25, 1996) make no additional loans to the General Partner or to
ILX Incorporated (or any of its affiliates or subsidiaries) unless,
first, Alan Mishkin receives a distribution equal to Eleven and
One-Half Percent (11.5%) of the amount of any such loan and, second,
MEI receives a distribution equal to Ten Percent (10%) of the amount of
any such loan, such distributions to be reflected as a reduction of the
Capital Account of the partner receiving such distribution.
(c) Commencing with the taxable year beginning January
1, 1995, and for each taxable year thereafter, each Class B Limited
Partner shall be distributed in cash, upon completion of the
Partnership tax return for such taxable year, an amount equal to Forty
Percent (40%) of the net Profits allocated to each Limited Partner,
respectively, for the current year.
(d) All distributions pursuant to sub-paragraphs (a),
(b) and (c) above shall be charged to each Limited Partner's Capital
Account in accordance with the provisions of the LAP Partnership
Agreement.
EXECUTED as of the date set forth above.
GENERAL PARTNER:
ILE SEDONA INCORPORATED, an Arizona
corporation
By: /s/ Nancy J. Stone
----------------------
Its: Vice President
CLASS A LIMITED PARTNER:
ILX Incorporated, an Arizona corporation
By: /s/ Joseph P. Martori
-------------------------
Its: Chairman
CLASS B LIMITED PARTNERS:
/s/ Alan R. Mishkin
--------------------
Alan R. Mishkin
MARTORI ENTERPRISES INCORPORATED, an Arizona
corporation
By: /s/ Joseph P. Martori
-------------------------
Its: Chairman
THIRD MODIFICATION AGREEMENT
----------------------------
DATE: January 25, 1996
- ----
PARTIES: Borrower: LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, an Arizona
- ------- limited partnership.
Bank: BANK ONE, ARIZONA, NA, a national banking association.
RECITALS:
- ---------
A. Bank has extended to Borrower credit ("Acquisition Loan") in the
principal amount of up to $5,000,000.00 pursuant to the Loan Agreement, dated
September 9, 1991 ("Acquisition Loan Agreement"), and evidenced by the Secured
Promissory Note, dated September 9, 1991 ("Acquisition Note"). The unpaid
principal of the Acquisition Loan as of the date hereof is $725,000.00. Bank and
Borrower have executed and delivered previously the Modification Agreement,
dated October 22, 1993 ("Modification") and the Second Modification Agreement,
dated October 4, 1994 ("Second Modification") modifying the terms of the
Acquisition Loan, the Acquisition Note, the Acquisition Loan Agreement, and/or
the Acquisition Security Documents (hereinafter defined).
B. The Acquisition Loan is secured by, among other things, (i) the Deed of
Trust (With Assignment of Rents and Security Agreement), dated September 9,
1991, by Borrower, as trustor, for the benefit of Bank, as beneficiary, recorded
on September 10, 1991, at Docket 1421, page 705, as Instrument No. 91-19146,
records of Coconino County, Arizona ("Deed of Trust"), as amended by that
certain First Amendment to Deed of Trust and Collateral Assignment, dated
October 4, 1994, recorded on October 7, 1994, at Docket 1714, page 561, as
Instrument No. 94-33675, (ii) the Collateral Assignment dated September 9, 1991,
by Borrower in favor of Bank, recorded on September 10, 1991 at Docket 1421,
page 758, as Instrument No. 91-19147, records of Coconino County, Arizona (the
"Collateral Assignment"), as amended by that certain First Amendment to Deed of
Trust and Collateral Assignment, dated October 4, 1994, recorded on October 7,
1994, at Docket 1714, page 561, as Instrument No. 94-33675, (iii) the Repayment
Guaranty of ILX Incorporated, an Arizona corporation, dated October 4, 1994 (the
"Acquisition Loan Guaranty"), (iv) the Security Agreement dated September 9,
1991, by Borrower in favor of Bank (the "Security Agreement"), and (v) the
Assignment of Management Agreement dated as of September 9, 1991, by and between
Borrower and Bank (the "Assignment") (the agreements, documents, and instruments
securing the Acquisition Loan and the Acquisition Note are referred to
individually and collectively as the "Acquisition Security Documents").
C. The Acquisition Note, the Acquisition Loan Agreement, the Acquisition
Security Documents, any arbitration resolution, any environmental certification
and indemnity agreement, and all other agreements, documents, and instruments
evidencing, securing, or otherwise relating to the Acquisition Loan, as modified
in the Modification, the Second Modification and the other modifications and
amendments referred to herein, are sometimes referred to individually and
collectively as the "Loan Documents". Hereinafter, "Acquisition Note",
"Acquisition Loan Agreement", "Acquisition Deed of Trust", and "Acquisition
Security Documents"
1
<PAGE>
shall mean such documents as modified in the Modification, the Second
Modification and the other modifications and amendments referred to herein.
D. Borrower has requested that Bank further modify the Acquisition Loan and
the Loan Documents as provided herein in order to, among other things, provide
for the advancing of additional sums by Bank and an extension of the Maturity
Date. Bank is willing to so modify the Acquisition Loan and the Loan Documents,
subject to the terms and conditions herein.
AGREEMENT:
- ----------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
--------------------
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
------------------------------
2.1 The Acquisition Loan Agreement is modified as follows:
2.1.1 In order to provide for an increase of $1,760,000 in the amount
of the Acquisition Loan, the definition of "Loan Amount" set forth in the
Acquisition Loan Agreement is modified in its entirety to read as follows:
"Loan Amount" shall mean the amount of Two Million Four Hundred
Eighty-Five Thousand and No/100 Dollars ($2,485,000.00), plus any
sum in addition thereto advanced by Lender at its discretion in
accordance with the Loan Documents.
2.1.2 In order to provide for an extension of the Maturity Date, the
definition of "Maturity Date" set forth in the Acquisition Loan Agreement is
modified in its entirety to read as follows:
"Maturity Date" shall mean June 5, 1998.
2.1.3 The term "Timeshare Documents" as used in the Loan Documents
shall include all amendments, modifications, renewals, restatements and
supplements with respect to such Timeshare Documents. Borrower and Bank
acknowledge that the definition of "Timeshare Interval" currently contained in
the Loan Agreement refers to a "1/8925 fractional interest in the fee title of
the Premises" and that, as a result of certain amendments and modifications of
the Timeshare Documents, the fractional interest in the fee title to the
Premises with respect to Timeshare Intervals sold on and after January 11, 1995
is a 1/9325 interest in and to the Premises with respect to each "Every Year
Membership" (as defined in the Timeshare Documents) and a 1/18650 interest in
and to the Premises with respect to each "Every Other Year Membership" (as
defined in the Timeshare Documents).
2
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2.1.4 Section 2.7 of the Acquisition Loan Agreement is modified in its
entirety to provide as follows:
2.7 Servicing Fee. On each of the Closing Date, September 1, 1992,
September 1, 1993, September 1, 1994, September 1, 1995, September 1,
1996, and September 1, 1997, Borrower shall pay to Lender the sum of
$12,000 for the Servicing Fee due for the succeeding year; provided
that the Servicing Fee due on September 1, 1997 shall be $9,000
(representing the full annual Servicing Fee prorated for the number of
months, or portions thereof, from September 1, 1997 to the Maturity
Date). The Servicing Fee represents compensation to Lender for its
administration and servicing of the Loan, including, without
limitation, preparation of Releases pursuant to Article VIII below. If
the Loan is fully paid prior to the Maturity Date (other than by reason
of Lender's exercise of any rights and remedies after an Event of
Default), any Servicing Fee paid by Borrower for the then current year
will be prorated and the portion of the Servicing Fee for the remainder
of such year will be refunded to Borrower.
2.1.5 Section 4.3(c) of the Acquisition Loan Agreement is modified in
its entirety to read as follows:
(c) Governmental and Private Approvals. All governmental or
regulatory orders, consents, permits, authorizations and approvals
required for the use, occupancy and operation of the Improvements and
the offering and sale of Timeshare Intervals pursuant to the Timeshare
Documents have been obtained and are in full force and effect. No
additional governmental or regulatory actions, filings or registrations
with respect to the Improvements, and no approvals, authorizations or
consents of any trustee or holder of any indebtedness or obligation of
Borrower or its general partner are required for the due execution,
delivery and performance by Borrower of the Loan Documents.
2.1.6 Section 5.16 of the Acquisition Loan Agreement is modified in its
entirety to read as follows:
5.16 Loan-to-Value. At all times during the term of the Loan, the
unpaid principal balance of the Loan shall not exceed fifty percent
(50%) of the value of the Project, as determined by Lender in its sole
discretion based on (i) the Appraisals obtained pursuant to Section
5.15 hereof or (ii) evaluations of the value of the Project prepared or
obtained by Lender's appraisal department in connection with any
modifications of the Loan Documents. If for any reason the
loan-to-value ratio exceeds said percentage, then Borrower shall, upon
Lender's demand, immediately reduce the unpaid principal balance of the
Loan, or deposit sufficient sums with Lender to reduce the
loan-to-value ratio to at or below said percentage. For the purposes of
determining the loan-to-value ratio, the value of the Project as
determined pursuant to any Appraisal or evaluation shall represent the
fractional interest in the Project encumbered by the Deed of Trust
(which may be adjusted by Lender from time to time in its sole
discretion as fractional interests are sold and released) and, unless
otherwise agreed or elected by Lender in its sole and absolute
discretion, shall not include the value of Timeshare Intervals that
have been sold or any amounts receivable in respect to the sale of such
Timeshare Intervals. Borrower acknowledges that in connection with the
Third Modification Agreement dated as of January 25, 1996, Lender,
through its appraisal department, has ordered and will obtain an
Appraisal or evaluation of the value of the Project and Borrower
agrees, without limiting this Section 5.16, that if the results of such
Appraisal/evaluation reflect a loan-to-value ratio of greater than 50%,
Borrower will comply with this Section 5.16.
3
<PAGE>
2.2 The securing clause of the Security Agreement is modified in its
entirety to read as follows:
To secure performance of the covenants and agreements herein set forth
and payment of Debtor's promissory note dated January 25, 1996 in the
sum of Two Million Four Hundred Eighty-Five Thousand and no/100 Dollars
($2,485,000.00), which Note restates Debtor's promissory note dated
October 4, 1994, and interest as specified therein and any and all
extensions or renewals thereof in whole or in part.
2.3 Recital B of the Assignment is modified in its entirety to read as
follows:
B. Pursuant to the Loan Agreement, Lender has agreed to lend to
Borrower up to Two Million Four Hundred Eighty-Five Thousand and no/100
Dollars ($2,485,000) (the "Loan") for the purpose of, among other
things, financing the Premises and Improvements (collectively the
"Project").
2.4 Each reference to the "Loan" in any of the Loan Documents shall be
deemed to refer to the "Loan" as amended pursuant to this Agreement. Each of the
Loan Documents is modified to provide that it shall be a default or an event of
default thereunder if either (i) Borrower shall fail to comply with any of the
covenants of Borrower herein or if any representation or warranty by Borrower
herein is materially incomplete, incorrect, or misleading as of the date hereof
or (ii) any guarantor of the Acquisition Loan shall fail to comply with any
covenant of such guarantor in any guaranty or other loan document or if any
representation or warranty by such guarantor is materially incomplete, incorrect
or misleading as of the date hereof.
2.5 Each reference in the Loan Documents to any of the Loan Documents shall
be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
---------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition of
Borrower or any other person whose financial statement has been delivered to
Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4
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4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and binding
obligation of Borrower, enforceable against Borrower in accordance with their
terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
4.7 All Timeshare Documents (as defined in the Acquisition Loan Agreement)
remain in full force and effect and no amendments, modifications, restatements
or supplements have been entered into since the execution of the Acquisition
Loan Agreement, except as disclosed to Bank in writing concurrently herewith.
4.8 Borrower's fractional interest in the Project as of the date hereof is
3380.5/9325, less any fractional interests sold, in the normal course of
business, by Borrower during the period from December 31, 1995 through January
25, 1996.
5. BORROWER COVENANTS.
------------------
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity of Borrower, whether now known or unknown to Borrower, (i) in respect
of the Loan, the Loan Documents, or the actions or omissions of Bank in respect
of the Loan or the Loan Documents and (ii) arising from events occurring prior
to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Acquisition Note and
all amounts, other than interest and principal, due and payable by Borrower
under the Loan Documents as of the date hereof.
5.3.2 All the reasonable internal and external costs and expenses
incurred by Bank in connection with this Agreement (including, without
limitation, inside and outside attorneys, appraisal, appraisal review,
processing, title, filing, and recording costs, expenses, and fees).
5.3.3 A fee for the increase in the Loan Amount in an amount equal to
Seventeen Thousand Six Hundred and No/100 Dollars ($17,600.00).
5
<PAGE>
5.4 Contemporaneously with the execution and delivery of this Agreement,
Borrower has caused to be executed and delivered to Bank the Second Amendment to
Deed of Trust, dated of even date herewith, amending the Deed of Trust to secure
repayment of the restated promissory note delivered pursuant to Section 5.6
below.
5.5 Contemporaneously with the execution and delivery of this Agreement,
Borrower has caused to be delivered to Bank, at Borrower's sole cost and
expense, a new title insurance policy insuring the Deed of Trust, issued by a
title insurance company acceptable to Bank in its sole discretion, and subject
only to such exceptions as may be acceptable to Bank in its sole discretion.
Such policy shall reflect that the interest in the property encumbered by the
Deed of Trust is not less than a 3380.5/9325 fractional interest therein.
5.6 Contemporaneously with the execution and delivery of this Agreement,
Borrower has executed and delivered to Bank a restated promissory note
evidencing Borrower's indebtedness under or pursuant to the Acquisition Loan
Agreement, as modified hereby.
5.7 Contemporaneously with the execution and delivery of this Agreement,
Borrower has caused Guarantor to execute and deliver to Bank a Repayment
Guaranty in form and substance satisfactory to Bank.
5.8 Contemporaneously with the execution and delivery of this Agreement,
Borrower shall cause to be executed and delivered to Bank by Tammac Financial
Corp., a Delaware corporation, a Subordination Agreement in favor of Bank and in
form satisfactory to Bank, subordinating the lien and encumbrance of the Tammac
Deed of Trust (as defined in the Acquisition Loan Agreement) to the lien and
encumbrance of the Deed of Trust, as amended by the Second Amendment to Deed of
Trust executed and delivered pursuant to Section 5.4 above.
5.9 Contemporaneously with the execution and delivery of this Agreement,
Borrower shall cause to be executed and delivered to Bank by Resort Funding,
Inc., a Delaware corporation, a Subordination Agreement in favor of Bank and in
form satisfactory to Bank, subordinating the lien and encumbrance of the Deed of
Trust in favor of Resort Funding, Inc. to the lien and encumbrance of the Deed
of Trust, as amended by the Second Amendment to Deed of Trust executed and
delivered pursuant to Section 5.4 above.
5.10 Contemporaneously with the execution and delivery of this Agreement,
Borrower has delivered to Bank all amendments, modifications, restatements, or
supplements to any or all of the Timeshare Documents (as defined in the
Acquisition Loan Agreement). All such amendments or supplements shall be in form
satisfactory to Bank in its sole discretion.
5.11 Contemporaneously with the execution and delivery of this Agreement,
Borrower has delivered to Bank a partnership certificate authorizing Borrower's
execution of this Agreement and all other documents and instruments referred to
herein and required by Bank in connection with the transaction contemplated
hereby.
5.12 Contemporaneously with the execution and delivery of this Agreement,
Borrower has caused Guarantor to deliver to Bank a resolution of Guarantor's
Board of Directors authorizing Guarantor's execution of the Repayment Guaranty
required pursuant to Section 5.7 above, together with copies of Guarantor's
Articles of Incorporation and Bylaws, and a good standing certificate issued by
Guarantor's state of incorporation.
6
<PAGE>
5.13 Contemporaneously with the execution and delivery of this Agreement,
Borrower has caused to be delivered to Bank an opinion of Borrower's counsel
with respect to such matters as Bank may require and in form and substance
satisfactory to Bank in its sole discretion.
5.14 Contemporaneously with the execution and delivery of this Agreement,
Borrower has executed and delivered such other documents, and provided such
opinions of counsel, as Bank may reasonably request.
5.15 Within thirty (30) days after the execution and delivery of this
Agreement, Borrower shall cause to be delivered to Bank a "Phase I"
environmental study from an environmental engineer acceptable to Bank in its
sole and absolute discretion. The contents of such study shall be subject to
approval of Bank in its sole and absolute discretion. If Bank shall identify any
contamination or other violation of environmental laws affecting the Property,
Borrower shall take all action, at the sole cost and expense of Borrower, to
cause such contamination to be remediated and corrected and to cause compliance
with all such environmental laws within not more than ninety (90) days after
written notice of such contamination or violation, as applicable, from Bank, and
Borrower shall otherwise perform all of its duties and obligations with respect
to such contamination and violation in accordance with the Loan Documents,
including, without limitation, the Environmental Indemnity.
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
-------------------------------------------
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations of
Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement and has satisfied any and all other
conditions precedent set forth herein, (iii) if requested by Bank, Borrower
shall have ordered, at its sole cost and expense, a "Phase I" Environmental
Study from an environmental engineer acceptable to Bank in its sole discretion,
and (iv) if required by Bank, Borrower and any guarantor(s) have executed and
delivered to Bank an arbitration resolution, an environmental questionnaire, and
an environmental certification and indemnity agreement. Until all of the
foregoing are satisfied, Bank shall be under no obligation to advance additional
proceeds under the Acquisition Loan or to release any collateral securing the
Acquisition Loan or the Additional Loan. If Borrower does not perform its
obligations hereunder and satisfy all conditions precedent herein as and when
required, Bank, at its option, may terminate its obligations hereunder, and the
Acquisition Loan and the Additional Loan shall continue to be payable in
accordance with their terms. If Borrower performs all obligations hereunder and
satisfies all conditions precedent herein as and when required (as determined by
Bank), the amendments to the Loan set forth herein shall become effective and
Bank shall make the disbursement of the Loan to Borrower. Borrower agrees that
the additional proceeds of the Loan shall be used by Borrower solely for the
purpose of making improvements to the Property and other permitted partnership
purposes of Borrower. Borrower represents and warrants to Bank that Borrower has
obtained all necessary consents in connection with this Agreement and the
disbursement of the Loan proceeds contemplated hereby and that Borrower is
authorized to execute, deliver and perform this Agreement and the other Loan
Documents.
7
<PAGE>
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR
-----------------------------------------------------------------
WAIVER.
-------
The Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Bank in respect of the Acquisition Loan and supersede
all prior representations, warranties, agreements, arrangements, understandings,
and negotiations. No provision of the Loan Documents as modified herein may be
changed, discharged, supplemented, terminated, or waived except in a writing
signed by the parties thereto.
8. BINDING EFFECT.
--------------
The Loan Documents as modified herein shall be binding upon and shall inure to
the benefit of Borrower and Bank and their successors and assigns and the
executors, legal administrators, personal representatives, heirs, devisees, and
beneficiaries of Borrower, provided, however, Borrower may not assign any of its
right or delegate any of its obligation under the Loan Documents and any
purported assignment or delegation shall be void.
9. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.
10. COUNTERPART EXECUTION.
---------------------
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited partnership
By: ILE Sedona Incorporated, an Arizona
corporation,
General Partner
By: /s/ Nancy J. Stone
-----------------------
Name: Nancy J. Stone
-----------------------
Title: Vice President
-----------------------
8
<PAGE>
BANK ONE, ARIZONA, NA, a national banking
association
By: /s/ Scott A. Smith
-------------------------------
Name: Scott A. Smith
-------------------------------
Title: Assistant Vice President
-------------------------------
9
SECURED PROMISSORY NOTE
-----------------------
Phoenix, Arizona
$2,485,000.00 January 25, 1996
1. FUNDAMENTAL PROVISIONS.
The following terms will be used as defined terms in this Note:
Payee and Holder: BANK ONE, ARIZONA, NA, a national banking
association.
Maker: LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP,
an Arizona limited partnership.
Principal Amount: Two Million Four Hundred Eighty-Five
Thousand and No/100 Dollars ($2,485,000).
Interest Rate: One and one-quarter percent (1.25%) per
annum above the Index Rate. The Interest
Rate shall change from time to time as and
when the Index Rate changes.
Default
Interest Rate: Four percent (4%) per annum above the
Interest Rate. The Default Interest Rate
shall change from time to time as and when
the Interest Rate changes as a result of
changes in the Index Rate.
Index Rate: The rate of interest most recently announced
by Payee, or its successors, in Phoenix,
Arizona as its "prime rate." Any change in
the "prime rate" shall become effective as
of the same date of any such change.
Maturity Date: June 5, 1998.
Business Day: Any day of the year on which banks are
neither required nor authorized to close in
Phoenix, Arizona.
Deed of Trust: That certain Deed of Trust (With Assignment
of Rents and Security Agreement), dated
September 9, 1991, between Maker, as
Trustor, and Payee, as Beneficiary, as
amended by that certain First Amendment to
Deed of Trust and Collateral Assignment
dated October 4, 1994, and by that certain
Second Amendment to
1
<PAGE>
Deed of Trust and Collateral Assignment of
even date herewith, and as further amended
from time to time.
Loan Documents: The Loan Agreement, the Note, the Deed of
Trust and any other documents securing the
repayment of the Note.
Loan: The loan from Payee to Maker in the
Principal Amount and evidenced by this Note.
Loan Agreement: That certain Loan Agreement dated September
9, 1991, between Maker, as Borrower, and
Holder, as Lender, as amended by that
certain Modification dated October 22, 1993,
that certain Second Modification, dated
October 4, 1994, and that certain Third
Modification, of even date herewith, and as
the same may be further amended, modified,
restated, renewed or supplemented from time
to time.
2. PROMISE TO PAY.
For value received, Maker promises to pay to the order of Holder, at
its office at 241 North Central Avenue, Phoenix, Arizona 85004, or at
such other place as the holder hereof may from time to time designate
in writing, the Principal Amount, together with accrued interest from
the date of disbursement on the unpaid principal balance at the
Interest Rate.
3. INTEREST; PAYMENTS.
(a) Absent an Event of Default hereunder or under any of the Loan
Documents, this Note shall bear interest at the Interest Rate
in effect from time to time. Throughout the term of this Note,
interest shall be calculated on a 360-day year with respect to
the unpaid balance of the Principal Amount and, in all cases,
shall be computed for the actual number of days in the period
for which interest is charged, which period shall consist of
365-days on an annual basis.
(b) All payments of principal and interest due hereunder shall be
made (i) without deduction of any present and future taxes,
levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Maker, and (ii) without any other set
off. Maker will pay the amounts necessary such that the gross
amount of the principal and interest received by the holder
hereof is not less than that required by this Note.
(c) Principal and accrued interest shall be payable in monthly
installments commencing on February 1, 1996 and on the first
day of each month thereafter, each in an amount equal to the
sum of (i) $82,833.33 for application to the unpaid
2
<PAGE>
principal balance hereof, plus (ii) accrued interest on the
unpaid principal balance hereof at the Interest Rate. All
remaining principal, accrued interest and other amounts
outstanding pursuant to this Note or the Loan Documents and
not otherwise paid shall be due and payable in full on the
Maturity Date.
4. PREPAYMENT.
(a) Maker may prepay the Loan, in whole or in part at any time
without penalty or premium. All prepayments shall be applied
to payments due hereunder in the reverse chronological order
of maturity; provided that release payments pursuant to
Section 8.2 of the Loan Agreement shall be applied to
principal payments due pursuant to Section 3(c) hereof in the
chronological order of maturity.
(b) In no event shall Maker be entitled to reborrow any amounts
repaid or prepaid.
5. LAWFUL MONEY.
Principal and interest are payable in lawful money of the United States
of America.
6. APPLICATION OF PAYMENTS/LATE CHARGE.
(a) Absent the occurrence of an Event of Default hereunder or
under any of the other Loan Documents, (i) any payment of a
Release Price pursuant to Article VIII of the Loan Agreement
shall be applied to the principal balance of the Note, and
(ii) any other payments received by the holder hereof pursuant
to the terms hereof shall be applied first to sums, other than
principal and interest, due the holder hereof pursuant to the
Loan Documents, next to the payment of all interest accrued to
the date of such payment, and the balance, if any, to the
payment of principal. Any payments received by the holder
hereof after the occurrence of an Event of Default hereunder
or under any of the Loan Documents, shall be applied to the
amounts specified in this Paragraph 6(a) in such order as the
holder hereof may, in its sole discretion, elect.
(b) If any payment of interest and/or principal is not received by
the holder hereof within fifteen (15) days of the date such
payment is due, then in addition to the remedies conferred
upon the holder hereof pursuant to Paragraph 9 hereof and the
other Loan Documents, (i) a late charge of four percent (4%)
of the amount of the installment due and unpaid will be added
to the delinquent amount to compensate the holder hereof for
the expense of handling the delinquency, regardless of any
notice and cure periods, and (ii) the amount due and unpaid
(including, without limitation, the late charge) shall bear
interest at the Default Interest Rate, computed from the date
on which the amount was due and payable until paid.
3
<PAGE>
7. SECURITY AND GUARANTY.
This Note is secured by, inter alia, the Deed of Trust, which Deed of
Trust creates a lien on that certain real and personal property
described therein. This Note is guaranteed by that certain Repayment
Guaranty of even date herewith wherein ILX Incorporated, an Arizona
corporation, is guarantor (the "Repayment Guaranty").
8. EVENT OF DEFAULT.
The occurrence of any of the following shall be deemed to be an event
of default ("Event of Default") hereunder:
(a) default in the payment of principal or interest when due
pursuant to the terms hereof and the expiration of ten (10)
days after notice of such default is given by the holder
hereof to Maker without such default having been cured; or
(b) the occurrence of an Event of Default under any of the other
Loan Documents.
9. REMEDIES.
Upon the occurrence of an Event of Default, then at the option of the
holder hereof, the entire balance of principal together with all
accrued interest thereon, and all other amounts payable by Maker under
the Loan Documents shall, without demand or notice, immediately become
due and payable. Upon the occurrence of an Event of Default (and so
long as such Event of Default shall continue), the entire balance of
principal hereof, together with all accrued interest thereon, all other
amounts due under the Loan Documents, and any judgment for such
principal, interest, and other amounts shall, at the option of the
holder hereof, bear interest at the Default Interest Rate, subject to
the limitations contained in Paragraph 4 hereof. No delay or omission
on the part of the holder hereof in exercising any right under this
Note or under any of the other Loan Documents hereof shall operate as a
waiver of such right.
10. WAIVER.
Maker, endorsers, guarantors, and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest, notice
of nonpayment, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, and notice of nonpayment,
and all other notices or demands of any kind (except notices
specifically provided for in the Loan Documents) and expressly agree
that, without in any way affecting the liability of Maker, endorsers,
guarantors, or sureties, the holder hereof may extend any maturity date
or the time for payment of any installment due hereunder, otherwise
modify the Loan Documents, accept additional security, release any
Person liable, and release any security or guaranty. Maker, endorsers,
guarantors, and sureties
4
<PAGE>
waive, to the full extent permitted by law, the right to plead any and
all statutes of limitations as a defense.
11. CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
No provision of this Note may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom enforcement
of the change, discharge, termination, or waiver is sought. No failure
on the part of the holder hereof to exercise and no delay by the holder
hereof in exercising any right or remedy under this Note or under the
law shall operate as a waiver thereof.
12. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs,
Maker promises to pay all costs of enforcement and collection and
preparation therefor, including but not limited to, reasonable
attorneys' fees, whether or not any action or proceeding is brought to
enforce the provisions hereof (including, without limitation, all such
costs incurred in connection with any bankruptcy, receivership, or
other court proceedings (whether at the trial or appellate level)).
13. SEVERABILITY.
If any provision of this Note is unenforceable, the enforceability of
the other provisions shall not be affected and they shall remain in
full force and effect.
14. INTEREST RATE LIMITATION.
Maker hereby agrees to pay an effective rate of interest that is the
sum of the interest rate provided for herein, together with any
additional rate of interest resulting from any other charges of
interest or in the nature of interest paid or to be paid in connection
with the Loan, including, without limitation, any commitment fee and
any other fees to be paid by Maker pursuant to the provisions of the
Loan Documents. Holder and Maker agree that none of the terms and
provisions contained herein or in any of the Loan Documents shall be
construed to create a contract for the use, forbearance or detention of
money requiring payment of interest at a rate in excess of the maximum
interest rate permitted to be charged by the laws of the State of
Arizona. In such event, if any holder of this Note shall collect monies
which are deemed to constitute interest which would otherwise increase
the effective interest rate on this Note to a rate in excess of the
maximum rate permitted to be charged by the laws of the State of
Arizona, all such sums deemed to constitute interest in excess of such
maximum rate shall, at the option of the holder, be credited to the
payment of other amounts payable under the Loan Documents or returned
to Maker.
5
<PAGE>
15. NUMBER AND GENDER.
In this Note the singular shall include the plural and the masculine
shall include the feminine and neuter gender, and vice versa.
16. HEADINGS.
Headings at the beginning of each numbered section of this Note are
intended solely for convenience and are not part of this Note.
17. CHOICE OF LAW.
This Note shall be governed by and construed in accordance with the
laws of the State of Arizona without giving effect to conflict of laws
principles.
18. LOAN FEE.
Upon execution and delivery of this Note, and as a condition precedent
to any obligation of Holder to disburse any portion of the Loan, Maker
agrees to pay Holder the loan fees provided for in the Loan Agreement,
which fees are partial compensation for Holder agreeing to extend the
Loan to Maker.
19. INTEGRATION.
The Loan Documents contain the complete understanding and agreement of
the holder hereof and Maker and supersede all prior representations,
warranties, agreements, arrangements, understandings, and negotiations.
20. BINDING EFFECT.
The Loan Documents will be binding upon, and inure to the benefit of,
the holder hereof, Maker, and their respective successors and assigns.
Maker may not delegate its obligations under the Loan Documents.
21. TIME OF THE ESSENCE.
Time is of the essence with regard to each provision of the Loan
Documents as to which time is a factor.
22. SURVIVAL.
The representations, warranties, and covenants of the Maker in the Loan
Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loan.
6
<PAGE>
23. ARBITRATION.
(a) Binding Arbitration. Payee and Maker hereby agree that all
controversies and claims of any nature between them arising
directly or indirectly out of this Note and the Loan
Documents, shall at the written request of any party be
arbitrated pursuant to the applicable rules of the American
Arbitration Association. The arbitration shall occur in the
State of Arizona. Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
The Federal Arbitration Act shall apply to the construction
and interpretation of this arbitration agreement.
(b) Arbitration Panel. A single arbitrator shall have the power to
render a maximum award of one hundred thousand dollars. When
any party files a claim in excess of this amount, the
arbitration decision shall be made by the majority vote of
three arbitrators. No arbitrator shall have the power to
restrain any act of any party.
(c) Provisional Remedies; Self-Help; and Foreclosure. No
provisions of subparagraph (a) shall limit the right of any
party to exercise self help remedies, to foreclose against any
real or personal property collateral, or to obtain any
provisional or ancillary remedies (including but not limited
to injunctive relief or the appointment of a receiver) from a
court of competent jurisdiction. At Payee's option, it may
enforce its right under a mortgage by judicial foreclosure,
and under a deed of trust either by exercise of power of sale
or by judicial foreclosure. The institution and maintenance of
any remedy permitted above shall not constitute a waiver of
the rights to submit any controversy or claim to arbitration.
The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable to any
arbitration proceeding.
7
<PAGE>
24. RESTATED PROMISSORY NOTE.
This Note is a restatement of, and supersedes and replaces, that
certain Secured Promissory Note dated October 4, 1994, of Maker in
favor of Holder.
LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited
partnership
By: ILE Sedona Incorporated, an
Arizona corporation, General Partner
By: /s/ Nancy J. Stone
----------------------
Name: Nancy J. Stone
Title: Vice President
"Maker"
8
PROMISSORY NOTE
- ----------- ---------- ---------- ------- ---- ---------- ------- ------- ------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Init.
$255,000.00 04-28-1995 05-01-1997 02836 220 61 0015204 007
- ----------- ---------- ---------- ------- ---- ---------- ------- ------- ------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: ILX, INCORPORATED and LOS ABRIGADOS Lender: FIRSTAR METROPOLITAN
PARTNERS LIMITED PARTNERSHIP BANK & TRUST
2777 E. CAMELBACK ROAD MAIN OFFICE
PHOENIX, AZ 85016 320 N. CENTRAL AVENUE
PHOENIX, AZ 85004
================================================================================
Principal Amount: $255,000.00 Initial Rate: 11.000% Date of Note: April 28,
1995
PROMISE TO PAY. ILX, INCORPORATED and LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP
("Borrower") promises to pay to FIRSTAR METROPOLITAN BANK & TRUST ("Lender"), or
order, in lawful money of the United States of America, the principal amount of
Two Hundred Fifty Five Thousand & 00/100 Dollars ($255,000.00), together with
interest on the unpaid principal balance from May 1, 1995, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the index,
Borrower will pay this loan in 24 payments of $11,908.41 each payment.
Borrower's first payment is due June 1, 1995, and all subsequent payments are
due on the same day of each month after that. Borrower's final payment will be
due on May 1, 1997, and will be for all principal and all accrued interest not
yet paid. Payments include principal and interest. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the FIRSTAR BANK
MILWAUKEE, N.A.'S PRIME RATE (the "Index"). The Index Is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute Index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. The Index currently is 9.000% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 2.000
percentage points over the Index, resulting in an initial rate of 11.000% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. Whenever increases occur
in the interest rate, Lender, at its option, may do one or more of the
following: (a) increase Borrower's payments to ensure Borrower's loan will pay
off by its original final maturity date, (b) increase Borrower's payments to
cover accruing interest, (c) increase the number of Borrower's payments, and (d)
continue Borrower's payments at the same amount and increase Borrower's final
payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note. (g) Lender in
good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, It may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) If
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount, Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Arizona. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of MARICOPA County, the State of Arizona. This Note shall be governed by
and construed in accordance with the laws of the State of Arizona.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER: BORROWER: LOS ABRIGADOS PARTNERS
ILX, INCORPORATED LIMITED PARTNERSHIP
By: /s/ JOSEPH P. MARTORI By: ILE Sedona Incorporated,
---------------------- Its General Partner
JOSEPH P. MARTORI, President
By: /s/ JOSEPH P. MARTORI
--------------------------
JOSEPH P. MARTORI, President
================================================================================
FINANCING AGREEMENT
-------------------
(SECURITY AGREEMENT)
THIS AGREEMENT is entered into by and between FIRSTAR
METROPOLITAN BANK & TRUST ("FMB"); and jointly and severally ILX INCORPORATED
(formerly INTERNATIONAL LEISURE ENTERPRISES INCORPORATED), an Arizona
corporation ("ILX") and LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, an Arizona
limited partnership ("LAP"), each with its principal office located at 2777 East
Camelback Road, Phoenix, Arizona 85016 (ILX and LAP are collectively
"Developer").
W I T N E S S E T H:
--------------------
WHEREAS, LAP is the owner of a certain timeshare project known
as Sedona Vacation Club located at the Los Abrigados Resort ("Los Abrigados") in
Sedona, Coconino County, Arizona; and
WHEREAS, LAP has sold certain interests in real estate as said
interests are defined in the Membership Documents for Sedona Vacation Club and
any additions or amendments thereto as may be made from time to time (the
"Project Documents");
WHEREAS, LAP has entered into Contracts with Consumers who
have purchased one or more Unit Weeks, which Contracts provide for the payment
of said Contracts over periods of time in installments; and
WHEREAS, Developer desires to borrow the sum of TWO HUNDRED
FIFTY FIVE THOUSAND and NO/100 DOLLARS ($255,000.00) from FMB pursuant to the
terms of a promissory note of even date herewith (the "Note"), and to offer
<PAGE>
to FMB, as collateral said Contracts and FMB is interested in lending such sum
to Developer and receiving a first priority lien and encumbrance in said
Contracts; and
WHEREAS, to that end, the parties wish to memorialize their
agreements by this writing,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which is herewith acknowledged, the parties hereby agree
as follows:
1. DEFINITIONS.
------------
When used in this Agreement, the following terms shall have
the meanings set forth below:
1.1 "Consumer" or "Consumers" shall mean those purchasers and
borrowers of LAP purchasing and financing the purchase of Unit Weeks (including
any guarantor thereof), executing an agreement, contract, a note and/or similar
documentation.
1.2 "Contract" or "Contracts" means a consumer contract or
agreement between LAP as seller and lender and a Consumer, as the purchaser and
borrower of (or relating to) a Unit Week together with all Related Documents.
1.3 "Credit Package" means the documents held by LAP with
respect to each Contract, which documents shall include a completed loan
application, credit bureau report and other information and documentation of a
similar nature to enable LAP to determine the creditworthiness of the Consumer
and the Consumer's financial ability to repay the Contract.
1.4 "Loan Documents" shall mean this Agreement, the Note, any
pledge, mortgages or deeds of trust, security agreements and the other writings
or documents of every
-2-
<PAGE>
kind and nature submitted in connection with this Agreement, and any security
agreements, whether executed contemporaneously herewith or otherwise.
1.5 "Project" means the timeshare condominium project
(including but not limited to the Unit Weeks) known as Sedona Vacation Club,
located in Sedona, Coconino County, Arizona, including the real estate
underlying same, the improvements thereon and all furnishings, fixtures and
personalty contained thereon, all common areas and/or elements appurtenant
thereto.
1.6 "Related Documents" means, as applicable to each Contract,
the Credit Package, the Contract, notes, security agreements, mortgages, deeds
of trust, deeds, information, documents and such other writings or documents of
every kind and nature submitted and/or executed by or on behalf of the Consumer
or others and relating to the Contract.
1.7 "Transaction" or "Transactions" means sale transaction
evidenced by a Contract and/or Related Documents.
1.8 "Unit Week" or "Unit Weeks" shall mean the timeshare
interests defined in and created by the Project Documents.
2. ASSIGNMENT AND RECEIPT OF CONTRACTS AND
---------------------------------------
RELATED DOCUMENTS.
-----------------
2.1 Developer hereby pledges and assigns and grants a security
interest in the Transactions, Contracts, Credit Packages and Related Documents
more particularly described on Exhibit A attached hereto and incorporated herein
by reference and all proceeds therefrom to FMB. The portion of the Credit
Package and the Related Documents constituting the Contract (e.g., the
underlying promissory notes) and the Consumer's deed of trust will be delivered
to FMB at closing.
-3-
<PAGE>
2.2 All costs and expenses relating to the negotiations and
consummation of this Agreement and the execution and delivery of the Loan
Documents, including, but not limited to, attorney's fees and costs, shall be
paid, respectively, by each party hereto.
3. DEVELOPER'S WARRANTIES AND REPRESENTATIONS.
------------------------------------------
Developer represents and warrants (and on the date each
Transaction is pledged, shall be deemed to have repeated each such
representation and warranty) as follows:
3.1 Developer is duly organized and validly existing and in
good standing under the laws of the state of its organization and is duly
qualified and authorized to do business in each state where its failure to so
qualify would materially impair its ability to perform its obligations under
this Agreement, or its ability to enforce any Contract or Related Documents.
3.2 The execution, delivery and performance of this Agreement,
the Loan Documents, the Contracts, the Related Documents and any other documents
and instruments contemplated by this Agreement to which Developer is a party,
have been duly authorized by all necessary action on the part of Developer and
do not violate or constitute a breach under any law, rule or regulation,
indenture, contract or other instruments to which Developer is a party or by
which it is bound.
3.3 Upon Developer's execution and delivery of this Agreement,
this Agreement shall be a legal, valid and binding obligation of Developer,
enforceable in accordance with its terms.
3.4 There is no suit or proceeding now pending, (nor to the
knowledge of Developer, threatened, nor is there any basis therefore) against or
affecting it, or any of its properties or rights or the Transactions, which, if
adversely determined, would materially
-4-
<PAGE>
impair its ability to carry on its business or would materially affect its
financial condition or the Transactions.
3.5 Developer has filed or caused to be filed all federal,
state and local tax returns which are required to be filed, and has paid or
caused to be paid all taxes as shown on said returns or on any assessments
received by it, to the extent such taxes have become due.
3.6 Developers' financial statements heretofore furnished to
FMB are true and complete, have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with those used by
Developer during its immediately preceding full fiscal year and fairly present
Developers' financial condition as of the dates noted therein and the results of
its operations for the interim period then ending. Developer knows of no
liability, direct or contingent, involving significant amounts, not disclosed
by, or reserved against in said financial statements. Since the date of the
financial statements referred to herein, there have been no material adverse
changes in the financial condition of Developer and no such change is expected
to the knowledge of the signatories to this Agreement in either their individual
or representative capacities.
3.7 All information, reports and other papers and data
furnished to FMB were, at the time that same were furnished to FMB, complete and
correct in all material respects, to the extent necessary to give FMB a true and
accurate knowledge of the subject matter. No fact is known to Developer which
materially and adversely affects or in the future may materially and adversely
affect the business, assets, liabilities, financial condition, results of
operations or business prospects of Developer which have not been set forth in
such information, reports or other papers or data or otherwise disclosed in
writing to FMB. No document furnished or statement made in connection with the
negotiation, preparation or
-5-
<PAGE>
execution of this Agreement contains or will contain any untrue statement of
fact material to the creditworthiness of Developer or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
3.8 No consent or approval of, giving of notice to,
registration with or taking of any other action in respect of, any governmental
authority or agency is required with respect to the execution, delivery and
performance by Developer of this Agreement.
3.9 LAP is the owner in fee of the Project and the individual
Unit Weeks therein created and no interest therein has been sold, leased,
assigned, pledged or otherwise encumbered in any manner whatsoever, except for:
(i) the sale of Unit Weeks to Consumers in the ordinary course of business and,
pursuant to the Project Documents; (ii) the first mortgage (deed of trust) on
the Project held by Bank One, Arizona, formerly The Valley National Bank of
Arizona and (iii) the second mortgages (deeds of trust) held, subject to equal
priority, by Tammac Financial Corp. and Resort Funding International, Inc., and
to the best of Developer's knowledge, no other person, company or entity claims
any interest therein. The Bank One, Arizona mortgage and the Tammac Financial
Corp. mortgage do not cover the collateral pledged in favor of FMB.
3.10 Developer has obtained prior to the sale and financing of
any Unit Weeks all necessary permits, approvals and authorizations and has
complied with all registration and qualification requirements necessary to
lawfully offer Unit Weeks for sale or lease and to finance the purchase of Unit
Weeks in the states in which said Unit Weeks shall be offered for sale or lease,
including, but not limited to, acceptance and approval from the appropriate
governmental authorities as may be required, of the Contracts and Related
Documents presently used for the sale and financing of Unit Weeks by LAP, the
Project
-6-
<PAGE>
Documents and all other documents and items required to be filed or reviewed
pursuant to applicable statutes, rules and regulations.
3.11 The Unit Weeks being offered for sale shall be offered
for the personal use and enjoyment of the Consumer and not for investment
purposes.
All representations and warranties made under this Agreement
shall survive and not be waived by the execution and delivery of the Agreement
or any investigation by FMB.
4. WARRANTIES, REPRESENTATIONS AND COVENANTS
-----------------------------------------
RELATING TO THE CONTRACTS AND RELATED
-------------------------------------
DOCUMENTS.
---------
Developer represents and warrants with respect to each
Transaction (and on the date that each Transaction is assigned shall be deemed
to have repeated each such representation and warranty) as follows:
4.1 LAP is the sole owner of and has indefeasible fee title to
each Transaction, and no interest in the Transaction or the Unit Weeks other
than as set forth in the Contract Documents, has been sold, leased, assigned,
pledged or otherwise encumbered in any manner whatsoever and to the best of
Developer's knowledge, no other person, company or entity claims to hold such an
interest.
4.2 Each Transaction and the Contracts and Related Documents
executed in furtherance thereof represents a bona fide, genuine, valid, binding
and enforceable obligation of Consumer, enforceable in accordance with its
terms, except to the extent that such enforceability may be affected by any
bankruptcy, insolvency, reorganization or similar law affecting creditor's
rights generally.
4.3 Each Transaction purchased was entered into and remains in
compliance with all applicable federal and state laws and regulations.
-7-
<PAGE>
4.4 To the best of the Developer's knowledge, Consumer had
full capacity to contract.
4.5 LAP has the right to pledge and assign the Contracts, the
Related Documents and the Unit Weeks to FMB, and to grant a security interest
hereunder in and to FMB.
4.6 Title and the right to receive all sums due or to become
due pursuant to the Transactions shall remain in LAP subject to the pledge to
FMB hereunder, notwithstanding Developers' execution and delivery of an
assignment for each Transaction (the "Assignment"). Title to the Transactions
and the right to receive proceeds are subject to security interests in favor of
FMB, and the sums due will be delivered to FMB upon notice to the Developer and
Concord Servicing.
4.7 The amounts stated in the Contracts to be due are not past
due and will in fact be due and payable at the time or times provided therein
and the Transactions and Unit Weeks are free from all liens or other outstanding
rights (except for the mortgage or deed of trust executed and delivered by the
Consumer as security for the repayment of the obligations set forth in the
Contract, if any), counterclaims, encumbrances, claims, rights of recoupment,
setoff and defenses of every kind whatsoever, except to the extent that
enforceability may be affected by any bankruptcy, insolvency, reorganization or
similar law affecting creditor's rights generally.
4.8 The Contracts and Related Documents are genuine and what
they purport to be and they have not and will not be modified or altered without
the prior written consent of FMB.
-8-
<PAGE>
4.9 No default on the part of the Consumer or Developer has
occurred or is continuing under the terms of the Transactions, or any other
agreement between the Consumer and Developer. LAP has not and will not make any
other assignment of the Unit Weeks, the Contracts, the Related Documents or the
rights, privileges, monies and benefits pursuant to the Transactions except to
FMB hereunder.
4.10 All signatures, names, addresses, amounts and other
statements of facts contained in the documents evidencing the Transactions are
genuine, true and correct, to the best of Developer's knowledge.
4.11 Developer shall comply with all of its warranties and
other obligations with respect to the Transactions.
4.12 The filing, recordation or any other action or procedure
which is permitted or required by statute or regulations to perfect LAP's title
or LAP's (and FMB's) security interest in and to the Unit Weeks, the Contracts
and/or the Related Documents have been accomplished pursuant to all applicable
laws and regulations.
4.13 There is no litigation or proceeding pending or
threatened which might, if successful, adversely affect the interest of
Developer and/or FMB with respect to any Transaction and/or the Project.
4.14 The Project is and shall be insured in such amounts and
against such risks as is satisfactory to FMB, naming FMB and its successors and
assigns as the mortgagee and/or as additional insured and/or as loss payee, as
appropriate.
4.15 Only Developer's authorized and licensed representatives
were involved with the negotiation and consummation of the Transactions.
-9-
<PAGE>
5. DEVELOPER'S COVENANTS.
---------------------
Developer agrees to perform and observe all of the following
covenants:
5.1 Developer shall preserve and maintain its existence,
rights, franchises, licenses and privileges in the jurisdiction of its formation
and qualify and remain authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization.
5.2 Developer shall pay and discharge all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or profits
and upon any properties belonging to it prior to the date on which penalties
attached thereto, and all lawful claims for labor, materials and supplies which,
if unpaid, might become a lien or charge upon any properties of Developer;
except no such tax, assessment, charge, levy or claim need be paid which is
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside.
5.3 Developer shall, at its own cost and expense, if so
required or requested by FMB, prepare, record and/or file, and deliver to FMB,
all additional documents, deeds of trusts, security agreements, assignments,
financing statements and/or assignments thereof, which additional documents and
instruments create, grant and convey to and in favor of FMB, a valid and
enforceable first and paramount lien position in and to the Transactions
assigned to FMB and/or Contracts and Related Documents.
5.4 Developer shall, within ninety (90) days after the end of
each fiscal year, furnish to FMB its balance sheet as at the end of such year,
and its income and surplus statement and statement of cash flow for such fiscal
year, all in reasonable detail, all prepared in accordance with generally
accepted accounting principles consistently applied, and all
-10-
<PAGE>
reviewed by independent certified public accountants of recognized standing
selected by Developer and satisfactory to FMB, and in addition to such
statements, any supplementary information to the financial reports as FMB shall
reasonably require.
5.5 Developer shall also deliver to FMB within sixty (60) days
after the end of each quarter-annual fiscal period of Developer, except the
fourth (4th) quarter, its balance sheet as at the end of such period, its
cumulative income and surplus statement and its statement of cash flow for the
period beginning on the first day of such fiscal year and ending on the date of
such balance sheet, all in reasonable detail, all prepared in accordance with
generally accepted accounting principles consistently applied, certified by the
chief financial officer of Developer and in addition to such statements, any
supplementary information to the financial reports as FMB shall reasonably
require.
5.6 Developer shall execute and deliver to FMB any pledge,
lien, encumbrance, security agreement, financing statement or other documents as
may reasonably be requested by FMB at any time when FMB is owed any monies
pursuant to the Transactions in order to effectuate more fully the purposes of
this Agreement.
5.7 Provided there is no default hereunder or under the Note
to FMB, Developer shall have the conditional right to receive and collect all
monies owing on the Transactions assigned hereunder subject to the terms and
provisions of the Loan Documents. Developer shall, at its expense, be
responsible for all collection activities (as hereinafter defined) relating to
any Transactions that are not more than sixty (60) days delinquent. The
collection activities Developer shall include but not be limited to: forwarding
coupon books or payment statements to Consumers, servicing the Transactions,
generating and mailing delinquency
-11-
<PAGE>
notices to the delinquent Consumers, and causing to be prepared and forwarded to
Developer trial balances and delinquency reports regarding the Transactions. At
the written request of FMB, Developer shall, at its sole cost and expense,
undertake all such collection activities relating to the Transactions on behalf
of FMB. Such Developer collection activity shall include, but not be limited to,
contacting the Consumer, instituting suit, foreclosing and selling the Contracts
and/or Unit Weeks according to applicable laws, taking judgment and enforcing
the judgment against the Consumer. Developer shall not, without FMB's prior
written consent, (a) grant any extension of time of payment, (b) compromise or
settle any Transaction for less than the full amount owing, (c) release, in any
manner, any Consumer, (d) waive any event of default under any Contract, (e)
refinance any Contract, or (f) commence any foreclosure or collection action,
provided, however, Developer shall not be so restricted on any Transaction
replaced pursuant hereto by Developer.
5.8 If so requested by FMB, Developer shall at its sole cost
and expense assist FMB in pursuing all of FMB ' s rights and remedies under and
pursuant to the Contracts and Related Documents, which assistance shall include,
but not be limited to, the collection of all sums due thereunder, the
preparation and prosecution and/or defense of any claims, suits, actions or
proceedings, relating thereto including inspections, appearances for discovery
and testimony in court or otherwise.
5.9 Developer shall observe, perform and comply with the
covenants, terms and conditions of this Agreement.
5.10 Developer shall permit FMB, or its duly authorized
representatives, at any time during Developer's regular business hours (and upon
reasonable notice to
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<PAGE>
Developer), to examine the books and records of Developer and to make copies and
excerpts thereof.
5.11 Developer shall not suffer or permit any off-set,
counterclaim, right of recoupment or other defenses to arise in favor of a
Consumer with respect to any Transaction.
5.12 Developer agrees that upon payment in full of any
Transaction pledged to FMB pursuant to the terms of this Agreement, Developer,
at its sole cost and expense, shall be responsible for and shall properly
undertake to provide the Consumer with all necessary evidence that the Contract
has been paid in full and to discharge all liens relating to that Contract, if
any.
6. POWER OF ATTORNEY.
-----------------
Developer hereby appoints FMB, and its duly authorized
officers and employees, as its true, lawful and irrevocable attorney-in-fact,
with respect to Contracts pledged and assigned to FMB and all obligations of
Developer hereunder, to: (i) demand, receive and enforce payment, endorse
Developers' name on any notes, checks, drafts or other evidences of payment
relative to Contracts pledged to FMB; (ii) give receipts, releases and
satisfactions only upon collection in full of all amounts due under the
Contracts or with the written consent of Developer, which consent shall not be
unreasonably withheld or delayed; (iii) sue, either in the name of Developer or
in the name of FMB, for all sums payable under the Transactions; (iv) execute
and deliver any financing statements or similar documents; or (v) otherwise
enforce the rights hereunder and under the Transactions. This power, being
coupled with an interest, is irrevocable while any Transactions remain
unsatisfied.
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<PAGE>
7. INDEMNIFICATION.
---------------
Developer hereby agrees to indemnify FMB and to protect,
defend and hold them harmless, from and against any and all loss, cost, damage,
liability, injury or expense, including without limitation, reasonable
attorney's fees and other reasonable legal expenses, which any of them may incur
for or by reason of the untruthfulness and/or breach of any of the agreements,
warranties, representations or covenants of Developer contained herein.
8. EVENTS OF DEFAULT.
-----------------
If any one or more of the following events shall occur or be
continuing, it shall be deemed to be an Event of Default entitling FMB to pursue
each of the remedies as set forth herein, in the Loan Documents, or any other
agreements with FMB or applicable statutes and laws:
(a) The failure of Developer to pay any principal or interest
under the Note;
(b) Developer's failure to keep, observe, perform, and/or carry
out in every particular the covenants, terms or provisions contained in the
Agreement or the Loan Documents, and such default shall have remained uncured
for a period of fifteen (15) days after notice thereof to Developer by FMB or if
the cure requires more than fifteen (15) days, Developer fails to initiate steps
to cure the default and thereafter continue and complete all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practicable;
(c) Developer's consent to the application for an appointment of
a receiver or trustee for it or for substantially all of its property, its
sufferance of any such appointment made without its consent to any proceedings
against it under any law relating
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<PAGE>
to bankruptcy, insolvency, or the reorganization or relief of debtors, which
shall have continued unstayed and in effect for a period of thirty (30)
consecutive days;
(d) Developer's admission in writing of its inability to pay its
debts as they mature, or commission of any act of bankruptcy; Developer's making
of an assignment for the benefit of creditors, or the filing of a voluntary
petition in bankruptcy by the Developer; or the application for a receiver by
the Developer;
(e) The entry of any judgment or execution or attachment order
(entered after the date hereof) against or affecting the Developer which, in the
reasonable opinion of FMB, adversely and materially affects the credit standing
of the Developer. (For purposes of this subsection "materially" shall be defined
to mean an amount in excess of five percent (5%) of Developer's net worth, as
shown on Developer's most recently available financial statements or $50,000.00,
whichever is greater.);
(f) Any statement, representation, or warranty by the Developer
contained in this Agreement, the Loan Documents, the financial statements,
applications submitted for credit or any other agreement for the payment of
money with FMB proves to be incorrect or misleading in any material respect, or
a breach in any of the terms and conditions of this Agreement, the Loan
Documents or any other agreement with FMB at any time when the Developer is
obligated to FMB hereunder;
(g) The failure of the Developer, ILX or LAP to pay any
principal or interest on any other material borrowed money obligation when due,
so that the holder of such obligation declares, or may declare, such obligation
due prior to its stated maturity because of the Developers', ILX's or LAP's
default thereunder. (For purposes of this subsection "material" shall be defined
to mean any loan with FMB or a loan not with FMB in an amount in excess of five
(5%) percent of Developers' net worth, as shown on Developer's most recently
available financial statements or $50,000.00, whichever is greater.);
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<PAGE>
(h) Any material and adverse change in the condition or affairs,
financial or otherwise, of the Developer or the liability of the Developer to
FMB, which in the reasonable opinion of FMB impairs the security of FMB or
increases its risk so as to jeopardize the replacement obligations of the
Developer hereunder:
(i) If at any time FMB reasonably determines that an
environmental claim against the Project will have a material adverse effect on
the financial condition of the Developer;
(j) The failure of the Developer to provide financial statements
and/or annual tax returns to FMB when required or requested to do so, together
with such financial information as may reasonably be requested by FMB;
(k) The passing of title, legal or equitable, to the Project
(except as to the Transactions and Unit Weeks sold by Developer in the ordinary
course of Developers' business) without the written consent of FMB;
(l) The failure to make payment of any tax, assessment, or
municipal or governmental charge against the Project or any Unit Week, when due
or the imposition of any lien thereon not paid and removed within 15 days from
the date thereof;
(m) The failure to pay any insurance premium when due on or
relating to the Project;
(n) Any material change in the partnership structure or
management of the Developer without the prior written consent of FMB, which
consent shall not be unreasonably withheld or delayed;
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<PAGE>
(o) Any suspension of the Developer's transaction of its usual
business;
(p) Liquidation and/or dissolution of the Developer;
(q) The Project is partially or totally destroyed and the owners
of the Unit Weeks elect not to rebuild the Project in substantially the same
size, quality of construction, architecture and in all other manner so as to
conform with the improvements which existed prior to such damage or destruction.
9. REPLACEMENT OF COLLATERAL.
-------------------------
9.1 If a Consumer becomes in excess of ninety (90) days
delinquent on any of the Consumer's obligations under the terms and conditions
of his or her Contract and Related Documents, then with respect to such
delinquent Contract, Developer shall immediately replace said delinquent
Contract with another Contract for an amount equal to all sums due thereunder,
including, but not limited to unpaid principal, accrued interest, plus any
expenses of collection (including, but not limited to reasonable attorney's fees
and court costs) as a result of said default by a Consumer as aforesaid.
9.2 [Intentionally Deleted]
9.3 All Transactions replaced by Developer shall be released
from FMB's liens, at Developers' sole cost and expense.
9.4 No delay on the part of FMB or its assignees in exercising
any rights hereunder or under the Contracts and Related Documents, nor in taking
any action to collect or enforce payment of any Contract and/or Related
Documents, shall operate as a waiver of any such rights or in any manner
prejudice the rights of FMB or its assignee's rights against Developer
hereunder. FMB may, without prejudice to any claim against Developer
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<PAGE>
hereunder, at any time, or from time to time, in the sole discretion of FMB and
without notice to the Developer: (a) sell any collateral held by FMB at public
or private sale and/or purchase said collateral at said sale; and (b) settle or
compromise with the Consumers any Contracts, or subordinate to the payment of
any such Contracts of the Consumers or any other person, to the payment of any
other debt which may be owing to FMB. In the event of the occurrence of 9.4 (a)
or (b), without Developer's prior written permission, which permission shall not
be unreasonably withheld or delayed, Developer shall be released from its
replacement obligations as to those Contracts.
9.5 FMB shall at all times have the right to realize upon any
collateral security relating to a defaulted Transaction and Developer's
obligation to replace any such Transaction shall survive any such sale of the
said collateral, if any.
9.6 Developer must at all times maintain a loan-to-value ratio
of no more than __%. Thus, the value of all pledged Contracts that are not more
than 90 days delinquent must always be at least ___% of the loan balance. This
restriction is in addition to the collateral replacement provisions contained in
the preceding provisions of this Article 9.
10. ADDITIONAL REQUIREMENTS.
-----------------------
In the event that any claim, counterclaim, cross-claim, or
defense is asserted against FMB by a Consumer, whether in a judicial proceeding,
bankruptcy, or by notice to FMB of nonpayment of a Transaction as a result of
such claim or defense, alleging breach of warranty, breach of contract,
violation of any federal, state or local statute, rule or regulation, or any
other claim, counterclaim, cross-claim or defense relating to the Contract, or
otherwise, Developer agrees to replace any and all Transactions so affected for
an amount equal to all of the sums due thereunder, within thirty (30) days of
written demand from FMB. Developer
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<PAGE>
shall continue to defend and indemnify FMB against any and all loss, damage,
liability, fine, penalty, cost, damage, injury or expense, including without
limitation, all reasonable attorney fees and litigation expenses, by reason of
any such claim, counterclaim, cross-claim or defense.
11. SECURITY AGREEMENT.
------------------
To secure the payment and performance of the obligations of
the Developer as set forth in the Note, this Agreement and the Loan Documents,
as well as any extensions, renewals and modifications hereof or thereof or
substitutions therefore, Developer hereby grants a security interest to FMB in
and to the Contracts and the Related Documents and all proceeds thereof.
Developer agrees to join with FMB in the execution of any financing statements
and to execute any other instruments that may be required for the perfection or
renewal of such security interest under the Uniform Commercial Code.
12. ASSIGNMENT BY FMB.
-----------------
Developer understands and agrees that in order for FMB to
induce any financial institution, person, corporation, partnership or other
entity with which FMB transacts business to acquire the Contracts and Related
Documents referred to herein from FMB all of the terms hereof and undertakings,
warranties and guarantees contained herein shall also inure to the benefit of
such financial institution, person, corporation, partnership or other entity and
shall give such financial institution, person, corporation, partnership or other
entity the same rights and remedies as are conferred upon FMB herein.
13. NOTICES.
-------
Any notice or demand in connection with this Agreement shall
be deemed sufficiently given or made immediately upon hand delivery or if mailed
upon 3 business days after said notice or demand is deposited with the United
States Postal Service by registered
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<PAGE>
mail, postage prepaid, to the other party for whom it is intended at the address
set forth in the heading of this Agreement, or such other address as shall
hereafter be given by written notice to the other party.
14. SURVIVAL OF REPRESENTATIONS. COVENANTS AND
------------------------------------------
WARRANTIES.
----------
The representations, warranties and covenants provided herein
shall survive the execution and delivery of this Agreement, the replacement of
Transactions hereunder and the termination of this Agreement.
15. SEVERABILITY.
------------
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
16. HEADINGS.
--------
The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction of or to be
taken into consideration in interpreting this Agreement.
17. ASSIGNMENT AND MODIFICATION.
---------------------------
This Agreement may not be assigned by Developer without the
express written consent of FMB. No modification or other amendment to this
Agreement shall be effective unless in writing and signed by all parties.
18. WAIVER.
------
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<PAGE>
Knowledge of any breach of any representation, warranty or
covenant hereunder shall not be deemed to constitute a consent thereto and no
provision hereof shall be deemed to be modified or amended except in writing.
19. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona.
20. COUNTERPARTS.
------------
This Agreement may be executed in counterparts, each of which
shall be deemed an original.
21. PRIORITY.
--------
In the event of any conflict, the provisions of that certain
Commercial Security Agreement of even date herewith between Developer and FMB,
the Commercial Security Agreement shall control.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement at Phoenix, Arizona, as of the _____ day of April, 1995.
FIRSTAR METROPOLITAN BANK &
TRUST
By______________________________
Its___________________________
Address:
320 N. Central Avenue
Phoenix, Arizona 85004
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<PAGE>
LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited
partnership
By ILE SEDONA INCORPORATED,
Its General Partner
/s/Stephanie D. Castronova By /s/ Joseph P. Martori
- -------------------------- ------------------------------
- -------------------------- ------------------------------
Secretary Its President
- -----------
Address:
2777 E. Camelback Road
Phoenix, Arizona 85016
ILX INCORPORATED, an Arizona
corporation
/s/ Stephanie D. Castronova By /s/ Joseph P. Martori
- --------------------------- -------------------------------
- --------------------------- -------------------------------
Secretary Its President
- ---------------
Address:
2777 E. Camelback Road
Phoenix, Arizona 85016
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CHANGE IN TERMS AGREEMENT
- ----------- --------- ---------- ------- ---- ---------- ------- ------- -------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Init.
$400,000.00 11-08-1996 02556 220 0015765 007
- ----------- --------- ---------- ------- ---- ---------- ------- ------- -------
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: LOS ABRIGADOS PARTNERS LIMITED Lender: FIRSTAR METROPOLITAN
PARTNERSHIP (LAP) BANK & TRUST
2777 E. CAMELBACK ROAD MAIN OFFICE
PHOENIX, AZ 85016 3800 N. CENTRAL AVENUE
PHOENIX, AZ 85012
================================================================================
Principal Amount: $400,000.00 Date of Agreement: November 8, 1995
DESCRIPTION OF EXISTING INDEBTEDNESS. REVOLVING CREDIT PROMISSORY NOTE DATED
NOVEMBER 8, 1993 IN THE AMOUNT OF $250,000 WITH A MATURITY DATE OF NOVEMBER 8,
1994; MODIFIED NOVEMBER 8, 1994 INCREASING THE LOAN AMOUNT TO $400,000 AND
EXTENDING THE MATURITY DATE TO NOVEMBER 8, 1995.
DESCRIPTION OF COLLATERAL. UNSECURED.
DESCRIPTION OF CHANGE IN TERMS. EXTEND MATURITY DATE OF NOTE TO NOVEMBER 8,1996.
PROMISE TO PAY. LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP (LAP) ("Borrower")
promises to pay to FIRSTAR METROPOLITAN BANK & TRUST ("Lender"), or order, in
lawful money of the United States of America, the principal amount of Four
Hundred Thousand & 00/100 Dollars ($400,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on November 8, 1996. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning December 8,
1995, and all subsequent interest payments are due on the same day of each month
after that. Interest on this Agreement is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an independent Index which is the FIRSTAR
BANK MILWAUKEE, N.A.'S PRIME RATE (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the index becomes unavailable
during the term of this loan, Lender may designate a substitute Index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. The Index currently is 8.750% per annum. The interest rate to be
applied to the unpaid principal balance of this Agreement will be at a rate of
2.000 percentage points over the Index, resulting in an initial rate of 10.750%
per annum. NOTICE: Under no circumstances will the interest rate on this
Agreement be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d) Any
partner dies or any of the partners or Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(f) Any of the events described in this default section occurs with respect to
any guarantor of this Agreement. (g) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired. (h) Lender in good faith deems
itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Agreement
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be sufficient
to cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Agreement to 6.000 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Agreement if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Agreement has been delivered to
Lender and accepted by Lender in the State of Arizona. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of MARICOPA County, the State of Arizona. This Agreement shall be
governed by and construed in accordance with the laws of the State of Arizona.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Agreement against any and all such
accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: NANCY STONE, EXEC. Vice
President. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of this
Agreement or any other loan with Lender; (d) Borrower has applied funds provided
pursuant to this Agreement for purposes other than those authorized by Lender;
or (e) Lender in good faith deems itself insecure under this Agreement or any
other agreement between Lender and Borrower.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
11-08-1995 CHANGE IN TERMS AGREEMENT Page 2
(Continued)
================================================================================
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Agreement without losing them. Borrower and any other
person who signs, guarantees or endorses this Agreement, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
EFFECTIVE RATE. Borrower agrees to an effective rate of interest that is the
rate specified in this Note plus any additional rate resulting from any other
charges in the nature of interest paid or to be paid in connection with this
Note.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
BORROWER:
LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP (LAP)
By: /s/ Nancy J. Stone
------------------
ILE SEDONA, INC., General Partner, NANCY STONE, Vice President
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.20b(c) 1995 CFI ProServices, Inc. All rights reserved. (AZ-D20 E3.20 P3.20
LAP2.LN C2.OVL)
FIRST AMENDED CERTIFICATE OF LIMITED PARTNERSHIP
AND
AMENDED AGREEMENT OF
THE SEDONA REAL ESTATE LIMITED PARTNERSHIP #1
---------------------------------------------
EFFECTIVE DATE: March 1, 1996
GENERAL PARTNER: LOMACASI RESORT INCORPORATED, an Arizona corporation,
a wholly-owned subsidiary of GENESIS INVESTMENT GROUP,
INC., an Arizona corporation, a wholly-owned subsidiary
of ILX INCORPORATED ("ILX"), an Arizona corporation
LIMITED PARTNERS: THE SEDONA LAND COMPANY, a Nevada corporation ("SLC")
CURTIS TRUST
RECITALS:
The Limited Partners, among others, have formed an Arizona limited
partnership to acquire the Lomacasi Resort in Sedona, Arizona, more specifically
described in Exhibit A (the "Property") and to own and operate the Property as a
hotel.
This First Amended Certificate of Limited Partnership and Amended
Agreement of the Sedona Real Estate Limited Partnership #1 (the "Agreement")
amends and supersedes in its entirety the Partnership Agreement recorded at the
Office of the Coconino County Recorder on January 19, 1996 in Docket 1840, Page
352 et seq.
Pursuant to this Agreement, the General Partner and Limited Partners
intend to own and operate the Property as a hotel and to sell timeshare
intervals in the Property and operate the Property as a timeshare project.
AGREEMENT
The General Partner and the Limited Partners mutually agree as follows:
SECTION 1
DEFINITIONS
When used in this Agreement, the following terms shall have the
meaning set forth in this section.
<PAGE>
"Adjusted Capital Contribution" means, as of any day, a General
Partner's or Limited Partner's Capital Contribution reduced by the amount of
cash and the Gross Asset Value of any Partnership property distributed to such
Partner pursuant to Sections 6 and 12 hereof.
"Affiliate" means (i) any person ("first person") who directly or
indirectly controls a second person or owns or controls 10% or more of the
outstanding securities of the second person; (ii) any officer, director or
partner or any member of the immediate family of the first person; and (iii) if
the second person is an officer, director or partner, any company for which the
second person acts in that capacity. Person includes any natural person,
partnership, corporation, association or other legal entity, "control" includes
the terms "controlled by" and "under common control with" and means the
possession, direct or indirect of the power to direct or cause the direction of
the management and policies of a person whether through the ownership of voting
securities by contract or otherwise.
"Capital Account" is defined in Section 6.3.
"Capital Contribution" means with respect to any Partner the amount of
money and initial Gross Asset Value of any property (other than money)
contributed to the Partnership with respect to the interest in the Partnership
held by such Partner.
"Cash Available for Distribution" means total cash revenues generated
by the Partnership from all sources, including but not limited to operations,
sales, borrowings, capital contributions, refinancing, condemnation, insurance
awards and other miscellaneous sources less cash expenditures including debt
service, operating expenses, Partnership expenses, amounts set aside for
reserves in the General Partner's sole discretion, and expenses relating to the
transaction generating such revenues.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period,
"depreciation" shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of
such asset as of the date of contribution, as determined and mutually
agreed upon by the contributing Partner and the Partnership;
<PAGE>
(ii) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Partners, as of the following times: (a) the
acquisition of an additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as consideration
for any interest in the Partnership if the Partners reasonably
determine that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
and (c) the liquidation of the Partnership within the meaning of
Regulations ss. 1.704-1(b) (2) (ii) (g);
(iii) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be the gross fair market value of such asset on
the date of distribution;
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code ss. 734 (b) or Code ss. 743(b),
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations ss. 1.704-1(b)
(2) (iv) (m) and Section 6.4 (d) hereof; provided, however that Gross
Asset Values shall not be adjusted pursuant to this subsection (iv) to
the extent the Partners determine that an adjustment pursuant to
subsection (ii) hereof is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment pursuant to
this subsection (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to (i), (ii) or (iv) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
the purposes of computing Profits and Losses.
"Interest" or "Partnership Interest" means the entire ownership
interest (which may be segmented into and/or expressed as a percentage of
various rights and/or liabilities) of a Partner in the Partnership at any
particular time, including a share in Profits, Losses and distributions of the
Partnership under this Agreement, the right of such Partner to any and all
benefits to which a Partner may be entitled as provided in this Agreement and in
the Act (as defined herein), together with the obligations of such Partner to
comply with all the terms and provisions of the Agreement and of the Act.
"Nonrecourse Deductions" shall have the meaning set forth in
Regulations ss. 1.704-2(b)(1) and shall be computed in accordance with
Regulation ss. 1.704-2(c).
"Partner" means any person named as a general or limited partner in
this Agreement and the successor or assignee of any Partner, provided that such
successor or assignee has been admitted as a Partner in compliance with this
Agreement.
"Partnership Minimum Gain" shall have the meaning set forth in
Regulations ss. 1.704-2(b) and 1.704-2(d).
<PAGE>
"Profits" and "Losses" means, with respect to any fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code ss. 703(a) (for this purpose,
all items of income, gain, loss or deductions required to be stated separately
pursuant to Code ss. 703 (a) (1) shall be included in taxable income or loss),
with the following adjustments:
(i) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this definition shall be added to such taxable
income or loss;
(ii) Any expenditures of the Partnership described in Code ss.
705 (a) (2) (B) or treated as Code ss. 705(a)(2)(B) expenditures
pursuant to Regulations ss. 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses hereunder shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to subsections (ii) or (iii) of the definition of
Gross Asset Value herein, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such asset for
purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss, if any, would be
recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the Partnership property
disposed of, notwithstanding that the adjusted tax basis of such
Partnership property may differ from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period, in accordance with the definition
set forth herein; and
(vi) Notwithstanding any other provision of this definition, any
item which is specially allocated pursuant to Sections 6.4 or 6.7 of
this Agreement shall not be taken into, account in computing Profits
or Losses,
"Property" means the real property described in Exhibit A attached
hereto and incorporated herein, including all appurtenant rights in and to
adjoining streets, rights of way and easements.
"Regulations" means the income tax regulations promulgated under the
Code, including temporary regulations, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
<PAGE>
SECTION 2
ORGANIZATION
2.1 Formation. The Partners hereby agree to restate in their entirety
the provisions with respect to a limited partnership previously formed, pursuant
to the provisions of the Arizona Uniform Limited Partnership Act (the "Act")
upon the terms and conditions set forth herein. If any conflict arises between
any provisions of this Agreement and the provisions of the Act which shall be
mandatory requirements thereunder for qualification and existence as a limited
partnership, the provisions of the Act shall control.
2.2 Certificate. All Partners shall execute, and the General Partner
shall cause to be filed with the Office of the Secretary of State of Arizona,
the Certificate of Limited Partnership in the form and manner prescribed by the
Act, along with any amendments to the Certificate of Limited Partnership as
required by the Act. The Partners waive the requirement of A.R.S. ss. 29-316
that a copy of the Certificate of Limited Partnership be delivered to them after
filing.
2.3 Name/Place of Business. The name of the Partnership is THE SEDONA
REAL ESTATE LIMITED PARTNERSHIP #1 and its initial office and principal place of
business shall be 2777 East Camelback, Phoenix, Arizona 85016 and thereafter,
such other place or places in Arizona as the General Partner may from time to
time determine with prior written notice thereof to be given to the Limited
Partners.
2.4 Agent for Service of Process. Joseph P. Martori, 2777 East
Camelback, Phoenix, Arizona 85016, shall be the initial agent for service of
process for the Partnership. The General Partner may replace the agent upon
notice to the agent then serving.
2.5 Purpose and Business of the Partnership. The purpose and business
of the Partnership shall be to develop, own and operate the Property as a hotel
and to sell timeshare intervals in the Property and operate the Property as a
timeshare project.
SECTION 3
TERM
3.1 Commencement. The Limited Partnership, as amended, shall commence
as of the date of filing of the Certificate with the Office of the Secretary of
State of Arizona pursuant to the terms and conditions set forth herein.
3.2 Dissolution. The Partnership shall dissolve upon the occurrence of
the earliest of the following:
(a) December 31, 2011;
<PAGE>
(b) The date on which the Partnership is dissolved in accordance with
the terms of this Agreement; or
(c) The date on which the Partnership is dissolved by operation of law
or judicial decree.
SECTION 4
PARTNERS
4.1 General Partner. Lomacasi Resort Incorporated shall be the General
Partner and has its principal business office at 2777 East Camelback, Phoenix,
Arizona 85016. Except as the context of this Agreement may otherwise require,
the General Partner shall initially have a seventy-five percent (75%)
Partnership Interest.
4.2 Limited Partner's Interest. The Limited Partners, collectively,
shall initially have a 25% Partnership Interest.
4.3 Admission of Additional Partners. Additional Partners shall be
admitted only with the unanimous consent of all the Partners, which consent may
be arbitrarily withheld, provided, however, that the General Partner may assign,
at any time or from time to time, all, or any part, of its Partnership Interest
to an Affiliate as defined above. Any such admission must otherwise also be
consistent with the terms and conditions of this Agreement and in compliance
with federal and state law.
SECTION 5
ACQUISITION OF INTERESTS
5.1 Acquisition of General Partner Interest. The General Partner shall
contribute cash in the amount of $25,000.00 in exchange for its Interest as
General Partner.
5.2 Acquisition of Limited Partners' Interests. The Limited Partners
have previously acquired their respective Interests in the Partnership. The
Capital Accounts of the Limited Partners on the date of this Agreement are zero.
5.3 Additional Capital Requirements. No Partner shall be required to
make any additional contribution, except upon such Partner's consent.
SECTION 6
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES
6.1 Distribution of Partnership Funds.
<PAGE>
(a) Cash Available for Distribution shall be distributed at such
times as deemed appropriate by the General Partner as follows:
(i) To the Partners pro-rata in proportion to the cumulative
Profits allocated to the Partners pursuant to Section 6.2
until each Partner has received thirty percent (30%) of the
cumulative Profits allocated to such Partner for the current
and all prior years.
(ii) To the General Partner until the Capital Account of
General Partner is equal to the Capital Account of the
Limited Partner.
(iii) Thereafter, Cash Available for Distribution shall be
distributed to the Partners proportionately in accordance
with their Partnership Interests. (b) Upon a liquidation of
the Partnership, distributions shall be made to the Partners
in accordance with their Capital Accounts.
6.2 Allocations of Profits. Profits and losses shall be allocated to
the Partners pro rata in proportion to their Interests in the Partnership.
6.3 Maintenance of Capital Accounts. The Partnership shall maintain a
Capital Account for each Partner in accordance with the following provisions:
(a) To each partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive share of
Profits and the amount of any Partnership liabilities assumed by such Partner or
which are secured by any Partnership property distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property distributed
to such Partner pursuant to any provision of this Agreement and such Partner's
distributive share of Losses.
(c) In the event that any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
(d) If the gross asset values of the Partnership's assets are
adjusted pursuant to this Agreement, the Capital Accounts of all Partners shall
be adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership had recognized gain or loss equal to the amount of such aggregate
net adjustment and the resulting gain or loss had been allocated among the
Partners in accordance with this Agreement.
(e) In determining the amount of any liability for purposes of
Subsections (a) and (b) above, there shall be taken into account Code ss. 752
(c) and any other applicable provisions of the Code and Regulations.
<PAGE>
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations ss. 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or that are assumed by the Partnership or the Partners), are computed
in order to comply with such Regulations, the General Partner shall make such
modification provided that it shall not affect the amounts distributable to any
Partner pursuant to Section 6.1 hereof upon the dissolution of the Partnership.
SECTION 7
MANAGEMENT OF PARTNERSHIP
7.1 Management. The General Partner shall manage the Partnership in
exchange for reimbursement no less frequently than monthly, for all costs and
expenses paid or incurred on behalf of the Partnership, other than indirect
costs and expenses such as general administrative costs and overhead.
7.2 Powers of the General Partner. Except as provided in Section 7.4,
the General Partner shall have the full and exclusive power to manage and
conduct the business of the Partnership, including without limitation, the
following powers, in addition to any powers now or subsequently conferred by
law:
(a) To manage, improve, control, subdivide, plan, assess project
feasibility, rezone, develop and operate the Partnership and any property, real
or personal, now or hereafter acquired by the Partnership.
(b) To enter into loans with such parties as General Partner
shall deem appropriate to finance the development of the Property, to finance
operations through the factoring of promissory notes acquired by the Partnership
through sales of timeshare intervals, or for other Partnership purposes.
(c) To sell timeshare intervals in the Property in the ordinary
course of business and to operate the Property as a timeshare project.
(d) To repay in whole or in part any Partnership obligation,
whether or not before the due date.
(e) To employ, either in its own name or in the name of the
Partnership, employees, agents and counsel, including, but not limited to, any
custodian, accountant, attorney, property manager, construction manager, project
manager, purchasing agent, corporate fiduciary, bank or other reputable
financial institution, to assist the General Partner in the management of
Partnership business, to rely on the advice given by these employees and/or
agents and to cause the Partnership to pay reasonable compensation for all such
services performed by these employees and/or agents. Limited Partners
<PAGE>
acknowledge and agree that a management fee of $10,000 per month shall be paid
to, or accrued on behalf of, an Affiliate of General Partner.
(f) To carry reasonable and adequate insurance coverage and all
Partners shall be named individually as co-insureds.
(g) To make, execute, acknowledge, and deliver on behalf of the
Partnership any document that may be necessary or appropriate to carry out any
Partnership purpose;
(h) To sell, exchange, convey title, grant options or contracts
for the sale of the Property;
(i) To encumber the Property by deed of trust and/or other
security documents as security for repayment of any construction and/or
development and/or permanent loans to the Partnership; obtain refinancing of any
debt secured by the Property; modify, consolidate or extend any deed of trust
and/or other security, or debt secured by deed of trust and/or other security,
on the Property;
(j) To commence or defend, at the Partnership's expense,
litigation that pertains to the Partnership or any Partnership asset;
(k) To confess a judgment against the Partnership; and
(l) To compromise, arbitrate, and otherwise adjust claims of any
kind in favor of or against the Partnership.
(m) To take any such other action as is deemed by the General
Partner, in its sole and exclusive discretion, to be in the best interests of
the Partnership.
7.3 Duties of the General Partner. The General Partner shall perform,
or cause to be performed at the expense of the Partnership, the following
services:
(a) Establish books of account, record and payment procedures as
provided in Section 8.1, including individual Capital Accounts of the Partners;
(b) Provide overriding management, financial and business
planning services to the Partnership;
(c) Disburse all receipts and make all necessary payments and
expenditures;
(d) Make all reports to the Partners required by this Agreement
or by law; and
(e) Open and maintain one or more separate bank accounts in the
State of Arizona in the name of the Partnership in which there shall be
deposited all of the funds of the Partnership. No
<PAGE>
other funds shall be deposited in the accounts. The funds in the accounts shall
be used solely for the business of the Partnership, and all withdrawals
therefrom are to be made only on checks signed by authorized agents of the
General Partner.
7.4 Limitations on Powers of General Partner. The General Partner,
without prior written consent or ratification of the Limited Partner, which
shall not be unreasonably withheld or delayed shall have no authority to:
(a) Do any act in contravention of this Agreement;
(b) Possess Partnership property or borrow money in the
Partnership name or secured by the Partnership property for other than a
Partnership purpose, or assign to any party any rights in specific Partnership
property, for other than a Partnership purpose;
(c) Amend this Agreement.
SECTION 8
BOOKS, REPORTS AND FISCAL MATTERS
8.1 Books.
(a) The General Partner shall maintain, at Partnership expense,
full and complete books and records for the Partnership at the Partnership's
principal office in the State of Arizona, which books and records shall include,
but not be limited to:
(i) A current list of the full name and last known business
or residence address of each Partner, together with the contribution
and share in Profits and Losses of each Partner.
(ii) A copy of the Certificate of Limited Partnership and
all Certificates of Amendment, and executed copies of any powers of
attorney pursuant to which any certificate has been executed.
(iii) Copies of the Partnership's federal, state and local
income tax or information returns and reports, if any, for the three
(3) most recent taxable years commencing on or after the date of this
Agreement.
(iv) Copies of this Agreement and all amendments to this
Agreement.
(V) Financial statements of the Partnership for the three
(3) most recent fiscal years commencing on or after the date of this
Agreement.
(vi) The Partnership's books and records for the current
fiscal year, said books and records to be maintained for three (3)
years.
<PAGE>
(b) Upon the request of a Limited Partner, the General Partner
shall promptly deliver to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information required to be maintained as described
above. The Limited Partners and their legal representatives have the right, upon
reasonable request, to: (i) inspect and copy during normal business hours any of
the Partnership records required to be maintained as described above, and (ii)
obtain from the General Partner, promptly after becoming available, a copy of
the Partnership's federal, state and local income tax or information returns for
each year.
(c) The General Partner shall use all reasonable efforts to cause
the Partnership to send to the Limited Partners within one hundred eighty (180)
days after the end of each taxable year the information necessary for the
Limited Partners to complete their federal and state income tax or information
returns, which shall include a copy of the Partnership's federal, state and
local income tax or information returns for the year.
(d) The General Partner shall cause to be entered fully and
accurately all of the business transactions of the Partnership. The books of
account shall be kept on an accrual basis for income tax purposes, and for
preparing all financial statements and reports. The Partnership shall adopt an
accounting year beginning January 1 and ending December 31 for each year, if
said books are to be kept at any place other than at the principal place of
business of the Partnership, then the other Partner shall be immediately
notified in writing.
8.2 Reports. The General Partner shall cause to be prepared, at the
expense of the Partnership, the following reports:
(a) Within forty-five (45) days after the end of each fiscal
quarter each Partner shall be sent: (i) a balance sheet as of the end of such
fiscal calendar quarter together with statements of operations, Partners' equity
and changes in financial position for such quarter, which balance sheet and such
statements (other than the cash flow statement) shall be prepared in accordance
with generally accepted accounting principles consistently applied; (ii) a
report on distributions to each Partner for such period; and (iii) summary
reports of the activities of the Partnership for such prior quarter; including
any matters which occurred during the prior quarter which adversely affected the
Partnership's business or operations.
(b) Within one hundred eighty (180) days after the end of each
calendar year, each Partner shall be sent a copy of the certified financial
statements prepared by the certified public accountants regularly employed by
the Partnership.
SECTION 9
POWERS OF THE LIMITED PARTNERS
9.1 No Control of Business or Right to Act for Partnership. A Limited
Partner shall take no part in or interfere in any manner with the conduct or
control of the business of the Partnership and shall have no right or authority
to act for or bind the Partnership.
<PAGE>
9.2 Restrictions of Power to Amend. No Partner shall have any right to
change the Partnership to a general partnership or to change the limited
liability of a Limited Partner.
9.3 Limitation of Limited Partner's Liabilities. No Limited Partner
shall be personally liable for any of the debts of the Partnership or any of the
losses thereof beyond the amount contributed by such Limited Partner to the
Partnership capital, the share of undistributed funds of the Partnership
allocable to such Limited Partner and the amount of any sums theretofore paid to
such Limited Partner and required to be returned pursuant to A.R.S. ss. 29-338.
9.4 Certain Rights, Powers or Priorities. Except as provided in
Section 6.1 above, no Limited Partner shall have the right or power to: (i)
withdraw or reduce its Capital Contribution to the Partnership except as a
result of the dissolution of the Partnership or as otherwise provided herein or
by law (ii) bring an action for partition against the Partnership, (iii) cause
the termination and dissolution of the Partnership by court decree or otherwise
except as set forth in this Agreement, (iv) demand or receive property other
than cash in return for its Capital Contribution, or (v) receive interest on
capital contributed to the Partnership. Except as provided in this Agreement, no
Limited Partner shall have priority over any other Limited Partner, if any,
either as to the return of Capital Contributions or as to allocations of the
Profits, Losses or distributions of the Partnership. Other than upon the
termination and dissolution of the Partnership as provided by this Agreement,
there has been no time agreed upon when the Capital Contribution of each Limited
Partner is to be returned other than as set forth herein.
SECTION 10
SALE, TRANSFER OR MORTGAGE
10.1 General.
(a) Required Consents. Except as expressly permitted herein, no
Partner shall directly or indirectly sell, assign, transfer, mortgage, charge or
otherwise encumber, or suffer any third party to sell, assign, transfer,
mortgage, charge or otherwise encumber, or contract to do or permit any of the
foregoing, whether voluntarily or by operation of law (collectively called a
"transfer") any part or all of its Partnership Interest without the written
consent of the Partners and any attempt to do so shall be void. The giving of
such consent in any one or more instances shall not limit or waive the need for
such consent in any other or subsequent instances. Notwithstanding the foregoing
or any other provision of this Agreement, General Partner may transfer its
Interest to any Affiliate of General Partner without restriction provided that,
without the consent of Limited Partner, General Partner shall not be relieved of
its obligations hereunder upon such transfer.
10.2 Dissolution of Limited Partner. The dissolution of a Limited
Partner shall not dissolve or terminate the Partnership; provided, however, the
General Partner shall be entitled to purchase the Interest of a Limited Partner
at the then fair market value of such Limited Partner's Interest upon the
dissolution of such Limited Partner or upon the occurrence, with respect to any
Limited Partner, of any of the following events:
<PAGE>
(a) An order for relief concerning a Limited Partner is
entered under the federal bankruptcy law, or a Limited Partner: (i) makes a
general assignment for the benefit of creditors, (ii) files a voluntary petition
under the federal bankruptcy law, (iii) files a petition or answer seeking for
that Partner any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law, or
regulation, (iv) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against that Partner in any
proceeding of this nature, or (v) seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of the Limited Partner or of
all or any substantial part of that Partner's properties;
(b) Sixty (60) days after the commencement of any proceeding
against the Limited Partner seeking reorganization, arrangement, composition,
readjustment, liquidations dissolution or similar relief under any statutes, law
or regulation, if the proceeding has not been dismissed, or if within sixty (60)
days after the appointment without said partner's consent or acquiescence of a
trustee, receiver, or liquidator of the Limited Partner or of all or any
substantial part of the Partner's properties, the appointment is not vacated or
stayed, or within sixty (60) days after the expiration of any such stay, the
appointment is not vacated.
10.3 Limited Partner's Option to Acquire General Partnership Interest.
The Limited Partner shall be granted an option by the General Partner to acquire
its Interest on the following terms and conditions.
(a) If the General Partner or ILX (i) files a voluntary petition
in bankruptcy; (ii) is adjudicated a bankrupt or insolvent; (iii) files a
petition or answer seeking for itself any reorganizations arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
statute, law or rule; (iv) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any proceeding described in item (v) of this section; or (vi) seeks, consents
to, or acquiesces in the appointment of a trustee, receiver, or liquidator of
the General Partner or ILX or of all or any substantial part of the General
Partner's or ILX's properties, the Limited Partner shall have an option to
acquire the General Partner's Interest.
(b) The commencement of any proceedings against the General
Partner or ILX seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or rule and
the proceeding has not been dismissed, or the appointment of a trustee, receiver
or liquidator of the General Partner or ILX or of all or any substantial part of
their properties, in which event the Limited Partner shall have an option to
acquire the General Partner's Interest.
(c) The Limited Partner may exercise any option granted to it
pursuant to Sections 10.3 (a) or (b) at any time within 30 days after notice of
the occurrence of the event giving rise to such option is given to the Limited
Partner.
(d) If the Limited Partner elect to exercise an option arising
under sections 10.3 (a) or (b), the purchase price for the General Partner's
Interest shall be equal to the fair market value of the General Partner's
Interest as of the date of exercise.
<PAGE>
(e) The purchase price for any Interest acquired shall be
tendered upon exercise of the option, and the General Partner shall execute any
and all documents required to assign its Interests within 10 days thereafter.
SECTION 11
DISSOLUTION AND TERMINATION
OF THE PARTNERSHIP
11.1 Dissolution. No Partner shall have the right to cause the
dissolution of the Partnership before the expiration of the term for which it is
formed, except upon the terms and conditions set forth in this Agreement.
SECTION 12
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
12.l Liquidation. On dissolution of the Partnership, the General
Partner (or, in the absence of a General Partner, a liquidating trustee
appointed by the Limited Partner) shall wind up the affairs of the Partnership,
liquidate the Partnership assets, and pay the debts of the Partnership in the
following order:
(a) Those owing to third-party creditors, in the order of
priority as provided by law;
(b) Those owing to the General Partner in respect of compensation
or expense reimbursement provided for herein; and
(c) Those owing to the General Partner other than for capital and
profits and the matters described in (b) above including but not limited to any
loans from the General Partner to the Partnership.
(d) To retire the balance of the Capital Accounts of the Partners
12.2 Compliance With Liquidation Requirements of Regulation.
(a) In the event the Partnership is "liquidated" within the
meaning of Regulations ss. 1.704-1 (b) (2) (ii) (g), (i) distributions shall be
made (if such liquidation constitutes a dissolution of the Partnership) to the
Partners who have positive Capital Accounts in compliance with Regulation ss.
1.704-1 (b) (2) (ii) (b) (2), and (ii) if any Partner's Capital Account has a
deficit balance (after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall be allocated income in the amount
necessary to restore such deficit balance to zero by the end of such taxable
year (or, if later, within 90 days after the date of such liquidation) in
compliance with Regulations ss. 1.704-1 (b) (2) (ii) (b) (3). Notwithstanding
anything to the contrary in this Agreement, upon a liquidation within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any
Partner has a negative Capital Account balance (after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all taxable years,
<PAGE>
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership,
and the negative balance of such Partner's Capital Account shall not be
considered a debt owed by such Partner to the Partnership's or to any other
person for any purpose whatsoever.
(b) Notwithstanding anything in this Section 12 to the contrary,
if the Partnership is liquidated for federal income tax purposes under Code ss.
708 (b) (1) (B) and the Partnership has not otherwise dissolved pursuant to the
terms of this Agreement, the assets of the Partnership shall be deemed to have
been distributed to the then Partners in-kind in accordance with their
respective positive Capital Accounts (as determined taking into account all
Profit or Loss deemed realized by the Partnership with respect to such in-kind
distribution) and immediately thereafter recontributed by such Partners to the
Partnership. Such termination shall be deemed to constitute a liquidation of the
Partnership for purposes of any Partner's obligation to restore any deficit
balances in their Capital Accounts.
(c) The Limited Partners shall look solely to the assets of the
Partnership for the return of their Capital Accounts and, if Partnership assets
remaining after the payment or discharge of the debts and liabilities of the
Partnership are not sufficient to return the Capital Accounts of the Limited
Partners, such Limited Partners shall have no recourse against the General
Partner or any other Limited Partner.
12.3 Time of Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the Partnership to maximize the profits
or minimize the losses attendant upon a liquidation.
12.4 Liquidation Statement. Each of the Partners shall be furnished
with a statement prepared or caused to be prepared by the General Partner, which
shall set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon the General Partner complying with the foregoing
distribution plan, the Limited Partners shall cease to be such, and the General
Partner, as the remaining Partner of the Partnership, shall execute, acknowledge
and cause to be filed a Certificate of Dissolution in the time and manner as
required by the Act.
SECTION 13
INDEMNIFICATION
13.1 Actions by Third Parties. Subject to Sections 13.2 and 13.3
below, the Partnership, its receiver or its trustee, shall indemnify, save
harmless and pay all judgments and claims against the General Partner from any
liability or damage incurred by reason of any act performed or omitted to be
performed by the General Partner in connection with the business of the
Partnership, including reasonable attorneys' fees incurred by it in connection
with the defense of any action based on any such act or omission, which
attorneys' fees may be paid as incurred, including all such liabilities under
state and federal securities laws (including the Securities Act of 1933) as
permitted by law; provided, however, that the General Partner must have
determined in good faith and for reasonable cause, that such course of conduct
was in the best interest of the Partnership. If a claim for indemnification
(other
<PAGE>
than for expenses incurred in a successful defense) is asserted is against the
Partnership by the General Partner under this Agreement or otherwise, the
Partnership will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy and
will be governed by the final adjudication of such issue.
13.2 Actions Between Partners. In the event of any action by a Partner
or the Partnership against any other Partner, including a Partnership derivative
suit, the Partnership will indemnify, save harmless and pay all expenses of the
Partner being sued, including attorneys' fees incurred in the defense of said
action, only if (i) such Partner being sued is successful in said action, or
(ii) the action is settled without any payment to the plaintiff before such
action is tried on its merits.
13.3 Liability of a Partner. Notwithstanding the provisions of
Sections 13.1 and 13.2, a Partner shall not be exonerated from or indemnified
against any other liability arising out of or by reason of such Partner's fraud,
bad faith, intentional misconduct, gross negligence, breach of this Agreement or
any other liability if such exoneration or indemnification is prohibited by law
or against public policy. All judgments against the Partnership and a Partner
wherein the Partner is entitled to indemnification, may be satisfied solely from
Partnership assets.
SECTION 14
GENERAL PROVISIONS
14.1 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given or is telecopied or telexed to the person to whom notice is to be
given, or on the second business day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, postage prepaid, and properly
addressed to the party at his address set forth in Section 4 of this Agreement,
or any other address that any party may designate by written notice to the
others.
14.2 Outside Activities. The General Partner need not devote all of
its business time to the affairs of the Partnership, but shall devote so much of
its time and attention as is necessary, in the reasonable exercise of the
General Partner's discretion, to manage the Partnership's business. Each
Partner, General or Limited, hereby acknowledges that this Partnership pertains
solely to the purposes set forth in section 2.5 above, and to the business
operations conducted in connection therewith. Each Partner expressly recognizes
that the other Partners are or may be active in other real estate investment and
development transactions. Nothing in this Agreement shall be construed so as to
grant any right, privilege or option to a Partner to participate in any manner
in any other Partnership venture or investment in which the other Partners
hereto now or hereafter may participate. Each of the Partners expressly waives
the doctrine of Partnership opportunity and consents to investment by the other
Partners, and any officer, director, stockholder, associate or employee of any
Partnership or corporation in which the other Partners shall be affiliated, in
any real estate investment, development, promotion, purchase or sale without
consulting with the other Partners or the Partnership, and without offering the
other Partners or the Partnership any, Interest in such other activity.
<PAGE>
14.3 Survival of Rights. This Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
14.4 Amendment. This Agreement may not be amended, modified or changed
except by the unanimous affirmative vote of the General and the Limited
Partners.
14.5 Headings. The captions of the Articles and Sections of this
Agreement are for convenience only and shall not be deemed part of the context
of this Agreement.
14.6 Agreement in Counterparts. This Agreement may be executed by each
of the Partners on separate counterparts, all of which, taken together, shall
constitute one (1) agreement to be effective as of the day and year first above
written.
14.7 Governing Law. This Agreement shall be governed and construed
according to the laws of the State of Arizona.
14.8 Time. Time is of the essence of this Agreement.
14.9 Additional Documents. Each Partner, upon the request of the
others, agrees to perform any further acts and execute and deliver any documents
which may be reasonably necessary to carry out the provisions of this Agreement.
14.10 Validity. If any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable from this
Agreement and shall not affect the remainder hereof.
14.11 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
14.12 Authority. Each person executing this Partnership Agreement on
behalf of a party hereto represents and warrants that he or she has the full
right and authority to do so, and that such action has been fully authorized by
all requisite corporate/Partnership action by, for and on behalf of such party.
EXECUTED as of the date set forth above.
GENERAL PARTNER:
LOMACASI RESORT INCORPORATED an
Arizona corporation
By: /s/ Joseph P. Martori
----------------------
Its: Chairman
<PAGE>
LIMITED PARTNERS:
THE SEDONA LAND COMPANY, a Nevada corporation
By: /s/ Malcolm Gentry
--------------------
Its: Agent
Limited Partner: 15.0%
THE CURTIS TRUST
By: /s/ Marth Jo Curtis 3/1/96 Trustee
----------------------------------
Its: Trustee
Limited Partner 10.0%
February 27, 1996
VIA FACSIMILE
Mr. Malcolm Gentry
Lomacasi Resort
880 N. Hwy 89A
Sedona, AZ 86336
Re: First Amended Certificate of Limited Partnership
and Amended Agreement of the Sedona
Real Estate Limited Partnership #1
Dear Malcolm:
I have previously transmitted to you via facsimile a draft of the
above-captioned agreement (the "Partnership Agreement").
The following sets forth our collateral understandings relating to the
prospective operation of the Lomacasi Resort (the "Resort") and, in due course,
its conversion to a timeshare project:
(1) You, Malcolm Gentry, will serve as project manager of the Resort and
reside at the Resort in a cottage acceptable to the General Partner. For
the time being, at least, it is understood that you will reside in the
main house. Your monthly salary shall be $2,000 per month, $800 of which
shall be payable to you in cash and the balance ($1,200) of which, in
addition to your participation in the profits of the partnership, shall
be credited to your Capital Account under the Partnership Agreement. You
shall report to Edd Zielinski, Executive Vice President of ILX
Incorporated ("ILX") or otherwise as he directs. Your Capital Account
will be debited with any amounts paid by the partnership, subsequent to
March 1, 1996, to Janette Harvey and/or any assignee arising under that
certain Promissory Note in the amount of $110,000 dated November 28,
1995.
(2) Martha Jo Curtis shall serve the Resort and ILX in an advertising,
public relations and real estate brokerage capacity as from time to time
directed by Edd Zielinski. Her monthly salary shall be $2,500 per month,
$1,000 of which shall be payable to her in cash and the balance ($1,500)
of which, in addition to its participation in the profits of the
partnership, shall be credited to the Capital Account of the Curtis
Trust under the Partnership Agreement.
(3) The General Partner will initially contribute $25,000 to the capital of
the partnership. Additionally, it will loan funds to the partnership
initially and from time to time at an interest rate of 12.5% to provide
cash flow to the partnership, if necessary, to conduct its day to day
business.
(4) You have informed me, or I have otherwise learned, that the following
sums will be due from the partnership upon execution of the Partnership
Agreement:
(a) First Trust Deed - January and February 1996 $13,800.00
payments plus late charges
(b) Third Trust Deed - January and February 1996 9,557.72
payments
(c) Other Payables:
Painting Contractor $1,850.00
Mitsubishi Television 3,000.00
Insurance 1,100.00
Legal Counsel 2,000.00 7,950.00
-------- ---------
TOTAL: $31,307.72
You have indicated that there are "merchant account funds" in the
approximate amount of $7,000 to offset a portion of the above payables. It is my
understanding that all other payables are current. Assuming that we are in a
position to close, effective March 1, 1996, we should have an accounting of
proceeds on hand and any receivables accrued and payables incurred as of
February 29, 1996. Thereafter, we will require an accounting of your results of
operations for the months of January and February 1996.
If you have any questions concerning this letter, please call me at your
earliest convenience. If you and Martha Jo are in approval, please so signify in
the space provided below.
Yours very truly,
/s/ Joseph P. Martori
----------------------
Joseph P. Martori
Duly Authorized Representative
of Lomacasi Resort Incorporated
ACCEPTED AND APPROVED:
/s/ Malcolm Gentry 3-1-96
- -------------------------
Malcolm Gentry
/s/ Martha Jo Curtis 3/1/96
- ---------------------------
Martha Jo Curtis
CLN# 4322518425/75/91
MODIFICATION AGREEMENT
----------------------
DATE: October 4, 1995
- ----
PARTIES: Borrower: ILX, INCORPORATED, an Arizona corporation
- -------
Bank: BANK ONE, ARIZONA, NA, a national banking association
RECITALS:
- --------
A. Bank has extended to Borrower credit ("Loan") in the principal amount of
$500,000.00 pursuant to the Loan Agreement, dated October 4, 1994 ("Loan
Agreement"), and evidenced by the Promissory Note, dated October 4, 1994
("Note"). The unpaid principal of the Loan as of the date hereof is $500,000.00.
B. The Loan is unsecured.
C. The Note and the Loan Agreement, any arbitration resolution, and all
other agreements, documents, and instruments evidencing, securing, or otherwise
relating to the Loan, are sometimes referred to individually and collectively as
the "Loan Documents".
D. Borrower has requested that Bank modify the Loan and the Loan Documents
as provided herein. Bank is willing to so modify the Loan and the Loan
Documents, subject to the terms and conditions herein.
AGREEMENT:
- ---------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
--------------------
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
------------------------------
2.1 The Loan Documents are modified as follows:
2.1.1 Interest on the Loan and the Note shall be due and payable
commencing on November 1, 1995, and continuing on the same day of each
successive month thereafter until the maturity date. No payments of principal of
the Loan and the Note shall be due and payable until the maturity date.
2.1.2 The Commitment expiration date of the Loan and the Note is changed
from October 4, 1995, to April 4, 1997.
2.1.3 The Maturity Date of the Loan and the Note is changed from April
4, 1996, to April 4, 1997. On the Maturity Date, Borrower shall pay to Bank the
unpaid principal, accrued and unpaid interest, and all other amounts payable by
Borrower under the Loan Documents as modified herein.
2.2 Each of the Loan Documents is modified to provide that it shall be a
default or an event of default thereunder if Borrower shall fail to comply with
any of the covenants of Borrower herein or if any representation or warranty by
Borrower herein is materially incomplete, incorrect, or misleading as of the
date hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents shall
be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
---------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition of
Borrower or any other person whose financial statement has been delivered to
Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5. The Loan Documents as modified herein are the legal, valid, and binding
obligation of Borrower, enforceable against Borrower in accordance with their
terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
5. BORROWER COVENANTS.
------------------
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity of Borrower, whether now known or unknown to Borrower, (i) in respect
of the Loan, the Loan Documents, or the actions or omissions of Bank in respect
of the Loan or the Loan Documents and (ii) arising from events occurring prior
to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to bank:
5.3.1 All accrued and unpaid interest under the Note and all amounts,
other than interest and principal, due and payable by Borrower under the Loan
Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses incurred by Bank
in connection with this Agreement (including, without limitation, inside and
outside attorneys, title, filing, and recording costs, expenses, and fees).
5.3.3 A documentation fee of $150.00.
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
-------------------------------------------
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations of
Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement, and (iii) if required by Bank,
Borrower and any guarantor(s) of the Loan have executed and delivered to Bank an
arbitration resolution.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
------------------------------------------------------------------------
The Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents as modified herein may be
changed, discharged, supplemented, terminated, or waived except in a writing
signed by the parties thereto.
8. BINDING EFFECT.
--------------
The Loan Documents as modified herein shall be binding upon and shall inure to
the benefit of Borrower and Bank and their respective successors and assigns.
9. CHOICE OF LAW
-------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.
10. COUNTERPART EXECUTION.
---------------------
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
ILX, INCORPORATED,
an Arizona corporation
By /s/ Joseph P. Martori
--------------------------
Name Joseph P. Martori
Title Chairman/President
BANK ONE, ARIZONA, NA
a national banking association
By /s/ Scott A. Smith
-----------------------
Name Scott A. Smith
Title Assistant Vice President
ILX INCORPORATED SUBSIDIARY LIST
(As of 3/13/96)
Note: All are wholly-owned unless otherwise noted *
Corporate Entities:
Genesis Investment Group, Inc., an Arizona corporation
Capital Reserve Fund, Inc.
Harbor Southwest Development, Inc., an Arizona corporation
High Income Fund, Inc., an Arizona corporation
Laveen Properties, Inc., an Arizona corporation
Lomacasi Resort Incorporated, an Arizona Corporation
Pilot Service Corp., an Arizona corporation
Short Term Fund, Inc., an Arizona corporation
Syracuse Project Incorporated, an Arizona corporation
Golden Eagle Realty, Inc., a Colorado corporation
Golden Eagle Resort, Inc., an Arizona corporation
ILE Florida, Inc., an Arizona corporation
Southern Vacations, Inc., a Florida corporation
ILE Sedona Incorporated, an Arizona corporation
Kohl's Ranch Water Company, an Arizona corporation
Red Rock Collection Incorporated, an Arizona corporation
Red Rock Worldwide Incorporated, an Arizona corporation
SHI Health Institute Incorporated, an Arizona corporation
Varsity Clubs of America Incorporated, an Arizona corporation
VCA Iowa Incorporated, an Arizona corporation
VCA Management Incorporated, an Arizona corporation
VCA South Bend Incorporated, an Arizona corporation
VCA Tucson Incorporated, an Arizona corporation
Partnerships/Joint Ventures:
*Los Abrigados Partners Limited Partnership, an Arizona limited partnership
Note: ILE Sedona Incorporated is General Partner (70%); and ILX
Incorporated is Class A Limited Partner(7.5%)
*Orangemen Club Limited Partnership, a New York limited partnership
Note: Syracuse Project Incorporated is General Partner (80%)
*The Sedona Real Estate Limited Partnership #1, an Arizona limited partnership
Note: Lomacasi Resort Incorporated is General Partner (75%)
Non-Profit Entities:
Golden Eagle Resort Condominium Association, Inc., a Colorado non-profit
corporation
Kohl's Ranch Owners Association, an Arizona non-profit corporation
Sedona Vacation Club Incorporated, an Arizona non-profit corporation
Varsity Clubs of America--Iowa Chapter, an Arizona non-profit corporation
Varsity Clubs of America--Norman, Oklahoma, an Arizona non-profit corporation
Varsity Clubs of America--South Bend Chapter, an Arizona non-profit corporation
Varsity Clubs of America--Tucson Chapter, an Arizona non-profit corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE REGISTRANTS DECEMBER 31, 1995
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 819551
<NAME> ILX INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,746,518
<SECURITIES> 0
<RECEIVABLES> 11,196,387
<ALLOWANCES> 2,410,900
<INVENTORY> 19,856,055
<CURRENT-ASSETS> 37,209,860
<PP&E> 1,454,069
<DEPRECIATION> 618,584
<TOTAL-ASSETS> 37,752,513
<CURRENT-LIABILITIES> 4,106,798
<BONDS> 15,027,857
0
1,515,134
<COMMON> 9,297,343
<OTHER-SE> 35,190
<TOTAL-LIABILITY-AND-EQUITY> 37,752,513
<SALES> 21,353,758
<TOTAL-REVENUES> 32,079,049
<CGS> 7,825,662
<TOTAL-COSTS> 25,520,613
<OTHER-EXPENSES> 4,106,180
<LOSS-PROVISION> 1,235,417
<INTEREST-EXPENSE> 1,265,227
<INCOME-PRETAX> 578,693
<INCOME-TAX> (547,216)
<INCOME-CONTINUING> 624,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 624,663
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
