As filed with the Securities and Exchange Commission on July 16, 1997
Registration No. 333-22509
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
AMENDMENT NO. 2
FORM S-3
Registration Statement
Under The
Securities Act of 1933
ILX INCORPORATED
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 East Highland, Suite 210
Phoenix, Arizona 85016
(602) 957-2777
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOSEPH P. MARTORI
Chief Executive Officer
ILX Incorporated
2111 East Highland, Suite 210
Phoenix, Arizona 85016
(602) 957-2777
(Name, address, and telephone number, of agent for service)
Copy to:
HUGH L. HALLMAN, ESQ.
Colombo & Bonacci, P.C.
2525 East Camelback Rd., Ste. 840
Phoenix, Arizona 85016
(602) 956-5800
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ] __________________________.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.[ ] __________________________.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Title of Each Class Amount Average of Bid & Ask Price of Amount
of Securities to Be Registered to be Common Stock of
Registered as of July 14, 1997 Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, no par value per share 6,204,554* shares $1.046875 $ 263.31*
========================================================================================================
</TABLE>
* Pursuant to Rule 429(a) of the Securities Act, this Registration Statement
relates to Registrations No. 33-75382 and No. 333-03151 filed on Form S-3 and
concerning 7,838,462 and an additional 2,058,046 shares, respectively, and with
respect to which a fee of $4,388.60 and $907.06 respectively already has been
paid. Of those shares that were registered under both Registrations No. 33-75382
and 333-03151, 3,304,232 have previously been disposed of, expired or are no
longer subject to registration, 25,702 are not registered hereunder but remain
registered pursuant to Registration No. 333-03151, and
<PAGE>
5,374,554 continue to be held by the Selling Shareholders. Accordingly, a
registration fee of only $263.31 need be paid for the 830,000 shares newly
registered hereunder. A fee of $498.12 already was paid with respect to the
original filing of Registration No. 333-22509 and a fee of $30.24 was paid with
respect to the filing of Amendment No.1 to that Registration Statement, bringing
fees paid to date to a total of $528.36. Accordingly, this Amendment No. 2 is
not accompanied by any additional fees.
The Registrant hereby amends this Registration Statement, on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
ILX INCORPORATED
6,204,554 Shares of Common Stock, No Par Value
This Prospectus relates to 6,204,554 shares of common stock, no par
value per share (the "Selling Shareholders' Common Stock") of ILX Incorporated
("ILX") that are owned by Alan R. Mishkin, Joseph P. Martori, Edward J. Martori,
Martori Enterprises Incorporated, Nancy J. Stone^ and EVEREN Securities, Inc.
(collectively, the "Selling Shareholders"). The Selling Shareholders' Common
Stock is being offered for the accounts of the Selling Shareholders.
ILX will not receive any part of the proceeds from the offering of the
Selling Shareholders' Common Stock.
See "RISK FACTORS" for certain considerations relevant to an investment
in the Selling Shareholders' Common Stock.
ILX's Common Stock (the "ILX Common Stock") is quoted on the National
Association of Securities Dealers Automated Quotation Small Cap Market System
under the symbol "ILEX."
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Proceeds to
Price to Public* Commissions* Selling Shareholders*
- --------------------------------------------------------------------------------
Per Unit $ 1.046875 $ 0.041875 $ 1.005
Total $ 6,495,392.47 $ 259,815.70 $ 6,235,576.77
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
------------------
The date of this Prospectus is July __, 1997
- --------
*Estimated based on the average of the bid and ask price of ILX Common
Stock of $1.046875 as of July 14, 1997 and on an assumed average rate of
commissions (as defined in the Securities Act of 1933 and the rules and
regulations under it) of 4% applied to all sales. However, see "PLAN OF
DISTRIBUTION." The sales price received for, and the commissions paid on, the
sale of the Selling Shareholders' Common Stock may vary from the above assumed
sales price and commission rate. Further, ILX rather than the Selling
Shareholders will pay the following estimated expenses of issuance and
distribution (see "USE OF PROCEEDS," "SELLING SHAREHOLDERS" and "PLAN OF
DISTRIBUTION"):
Registration Fees $512.41; Legal Fees $15,000.00; Printing & Engraving
$2,500.00; Accounting Fees $5,000.00; Transfer Agent's Fees $1,000.00.
<PAGE>
2
AVAILABLE INFORMATION
ILX is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by ILX can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located in Room 3190, Kluczynski Federal
Building, 230 South Dearborn Street, Chicago, Illinois 60604, and at 7 World
Trade Center, New York, New York 10007. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
The ILX Common Stock is listed on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") Small Cap Market System under
the symbol "ILEX." Reports, proxy statements and other information concerning
ILX can be inspected at the National Association of Securities Dealers, Report
Section, 1735 "K" Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The following documents are hereby incorporated by reference: (i) ILX's
annual report on Form 10-K for the fiscal year ended December 31, 1996 ("ILX's
10-K") and the exhibits attached thereto or incorporated therein; (ii) ILX's
Proxy Statement dated April 18, 1997, which was filed with the Commission on
April 29, 1997 ("ILX's Proxy Statement"); (iii) ILX's quarterly report on Form
10-Q for the quarter ended March 31, 1997, which was filed with the commission
on May 14, 1997 ("ILX's 10-Q"); (iv) ILX's current reports on Form 8-K dated
January 1, 1997 , January 7, 1997, May 2, 1997, May 15, 1997 and June 23, 1997
("ILX's Forms 8-K"); and (v) the description of the ILX Common Stock set forth
in ILX's Registration Statement filed with the Commission on July 29, 1987, and
any and all amendments thereto filed for the purpose of updating such
description.
All documents filed by ILX pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
filing of a post-effective amendment (which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold) shall be deemed to be incorporated by reference into this Prospectus and
to be a part of it from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference that are not
presented herein or delivered herewith. Documents relating to ILX (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) are
available, and will be provided without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered upon a written or oral
request to ILX Incorporated, Attention: George C. Wallach, 2111 East Highland,
Suite 210, Phoenix, Arizona 85016, telephone number (602) 957-2777.
RISK FACTORS
An investment in ILX Common Stock involves certain risks. In addition
to other information contained in or incorporated by reference into this
Prospectus, prospective purchasers carefully should consider the following risk
factors before purchasing ILX Common Stock.
Nature of Business; Business Plan. Resort development, operation and
sales to owner-users, through interval ownership, including timesharing or
vacation club membership, present certain financial and operational risks that
should be considered by each prospective purchaser. These risks include, but are
not limited to, the following:
Unfavorable Publicity; Remarketing Difficulty. The timeshare
or interval ownership industry has been the subject of unfavorable
publicity, particularly with respect to difficulties
<PAGE>
3
faced by purchasers in remarketing their timeshare interests. Negative
publicity might reduce sales and adversely affect the value of ILX's
securities, including ILX Common Stock.
Marketing Expenses High Compared to Sales Prices. The cost of
marketing timeshare interests is a high percentage of the selling price
of the timeshare interests. Although ILX has set the sales prices of
timeshare interests at levels that are believed to be sufficiently high
to cover such costs, there can be no assurance that the timeshare
interests of the projects currently involved or other timeshare
interests of any other given project will continue to be saleable at
such prices. Higher costs could reduce or eliminate profit margins.
Buyer Defaults. Generally, buyers of vacation ownership
interests present a greater risk of default than home mortgagors, even
if they meet credit qualification standards. Private mortgage insurance
or its equivalent is not readily available to cover defaults with
respect to buyers' purchases of vacation ownership interests. If a
buyer defaults, the costs ILX expended to make the associated sale are
not recoverable and such costs must be incurred again after the
timeshare interest has been returned to ILX's inventory for resale.
Lack of Diverse Locations. The attractiveness of interval
ownership in resorts may be enhanced by the availability of exchange
networks allowing owners to "trade" the time they have purchased for
time at another resort. Several companies, including Resort
Condominiums International ("RCI") and Interval International ("II"),
provide broad-based exchange networks. All intervals currently offered
by ILX are qualified for inclusion in either the RCI or II exchange
network. Neither ILX's ability to qualify additional properties nor the
continued availability of such exchange networks to ILX intervals,
however, can be assured. If ILX is unable to respond to consumer demand
for greater choices of locations, it may be at a competitive
disadvantage with companies that can offer such choices.
Potential Competition. Resort development, operation, and
timesharing, is a highly competitive industry. ILX anticipates that it
will continue to face keen competition in all aspects of its operations
from organizations that are larger, better financed and more
experienced, such as the Walt Disney Company, Hilton Hotels
Corporation, Hyatt Hotels Corporation , Marriott International
Corporation, Four Seasons Hotels & Resorts, Inc., Inter-Continental
Hotels and Resorts, Inc., Westin Hotels and Resorts and others. There
can be no assurance that ILX will be able to compete successfully with
such companies.
Regulation. ILX's timeshare sales are subject to regulation by
the states in which properties are located and states in which
timeshare interests are marketed or sold. ILX or its subsidiary
companies presently are permitted to market and sell timeshare
interests in all states in which ILX properties are located and all
states in which it is marketing and selling timeshare interests. ILX
anticipates that ILX and its subsidiaries will apply for the right to
conduct additional sales operations in various other states throughout
the United States. There can be no assurance that each or any such
state will grant, or continue to grant, ILX the right to sell its
timeshare interests in such states or that, if such right to conduct
sales operations is granted, it will be granted on terms and conditions
acceptable to ILX. Further, if agents or employees of ILX violate such
regulations or licensing requirements, such acts or omissions might
cause the revocation or non-renewal of such licenses required for the
sale by ILX and its subsidiary companies of timeshare interests in such
states. ILX's marketing and sales of timeshare interests are subject to
extensive regulation by the federal government as well. Federal
legislation to which ILX may be subject includes the Federal Trade
Commission Act, the Fair Housing Act, the Truth-in-Lending Act, the
Real Estate Settlement Procedures Act, the Equal Credit Opportunity
Act, the Interstate Land Sales Full Disclosure Act, the Telephone
Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse
Prevention Act
<PAGE>
4
and the Civil Rights Acts of 1964 and 1968. Under certain conditions,
timeshare interests may be considered "securities" under state or
federal law, with consequent time-consuming and expensive requirements
for registration of such interests, licensing of salespeople and
compliance with other regulations. There is no assurance that ILX's
interval ownership plans can be designed definitely to avoid regulation
as "securities" under federal law or the state law in the states where
ILX desires to or does conduct sales or in which its properties are
located. If ILX's timeshare interests are deemed to be securities,
there can be no assurance that ILX will be able to comply with the
applicable state and federal securities requirements and if ILX's
timeshare interests are deemed to be securities, such a determination
may create liabilities or contingencies that may impact ILX's ability
to perform its obligations and may undermine the value of ILX's
securities, including ILX Common Stock. ILX believes that it is in
material compliance with all applicable federal, state, local and
foreign laws and regulations to which it currently is subject. However,
there can be no assurance that the cost of compliance with such laws
and regulations will not be significant or that ILX is in fact in
compliance with such laws and regulations. In addition, there can be no
assurance that laws and regulations applicable to ILX in any specific
jurisdiction will not be amended or that other laws or regulations will
not be adopted that could increase ILX's cost of compliance or prevent
ILX from selling timeshare interests or conducting other operations in
such jurisdiction. Any failure to comply with any applicable law or
regulation, or any increase in the costs of compliance could have a
materially adverse effect on ILX.
Failure to Achieve Business Plan. Although ILX intends to
expand its marketing of timeshare interests, no assurance can be given
that ILX will be able to achieve this objective or that, if this
objective is achieved, ILX will be profitable.
Potential Lack of Development Financing. ILX's ability to
expand its business to new resort projects will in large part depend
upon the availability of financing for the acquisition and development
of such projects. There can be no assurance that adequate additional
financing will continue to be available or that, if it is available, it
will be available on terms and conditions favorable to ILX.
Possibility of Downturn in General Economic Conditions. Any substantial
downturn in economic conditions or any significant increase in the cost of fuel
or transportation in general could significantly depress discretionary consumer
spending and, therefore, have a material adverse effect on ILX's sales of
vacation timeshare interests and collection of accounts receivable. In addition,
the future unavailability of attractive financing rates and favorable tax
treatments (e.g. deductibility of interest payments for "second homes,"
including interval ownership weeks) could adversely affect ILX's business.
Potential Lack of Consumer Receivable Financing. A substantial majority
of ILX's timeshare sales are made on an installment basis. At such time as an
installment sale is made, ILX is required to pay commissions and other costs
that typically exceed cash received from the installment purchaser's down
payment. Written arrangements presently exist for both the sale and financing of
consumer receivables created by such installment sales. The financing is on a
recourse basis and thus requires ILX to bear the risk of consumer default. ILX's
ability to sell interval ownership weeks will depend upon the continued
availability of consumer receivable financing. There can be no assurance that
such financing will continue to be available or that, if it is available, it
will be available on terms and conditions favorable to ILX. If such financing
becomes unavailable upon expiration of existing written arrangements or
otherwise, ILX will have to rely upon other methods that could severely limit
ILX's ability to fund future operations. In that regard, an affiliate of one of
ILX's several primary lenders filed for bankruptcy protection in 1996. ILX has
been informed that said proceedings do not involve the lender with which ILX
conducts business. ILX management is of the opinion that
<PAGE>
5
such bankruptcy should have no material impact on ILX's ability to obtain
financing, either from that lender or alternate sources. (See "The Company--
General.")
Risks Associated with Interest Rates. ILX historically has derived net
interest income from its financing activities as a result of the difference
between the interest rates it charges its customers who finance their purchase
of a timeshare interest and the interest rates it pays its lenders. There can be
no assurance of a continued positive difference between fixed rates of interest
applicable to ILX's customer mortgages receivable and the rates on ILX's
existing indebtedness. Because certain of ILX's indebtedness bears interest at
variable rates and ILX's customer mortgages receivable bear interest at fixed
rates, ILX bears the risk of increases in interest rates with respect to certain
of its indebtedness. Also, to the extent that interest rates decrease, ILX faces
an increased risk that customers will prepay their mortgage loans, an event that
would decrease ILX's income from financing activities.
Dividends. ILX has paid no cash dividends on ILX Common Stock and it
does not contemplate paying cash dividends on ILX Common Stock in the
foreseeable future. It is the present intention of ILX's management to retain
future earnings, if any, for use in ILX's business, subject to the Series A
Stock dividend requirement and the mandatory sinking fund requirement. Failure
to pay dividends on the Series C Stock will entitle the holders thereof to
receive additional ILX Common Stock upon conversion and the increased
liquidation preference attributable to the Cumulation Shares (see "Description
of ILX Securities and Pertinent Arizona Statutes -- Description of Series C
Stock"); however, dividends on the Series C Stock are not otherwise cumulative.
Further, dividends cannot be paid on Series C Stock unless mandatory sinking
fund requirements are met and dividends are paid with respect to ILX's Series A
Stock. The Series B Stock has no dividend preference.
Arizona Anti-takeover Provisions. ILX does not have any provisions in
its Articles of Incorporation or Bylaws that directly prohibit the takeover or
change in control of ILX. However, Sections 10-2701 et seq. of the Arizona
Revised Statutes, as amended, restrict a security holder or acquiror from
affecting changes in control of corporations such as ILX or from exercising
voting rights without shareholder approval when shareholdings exceed certain
thresholds. See "Description of ILX Securities and Pertinent Arizona Statutes --
Arizona Anti-takeover Legislation and Anti-takeover Devices." Such statutory
restrictions may adversely hamper future transactions involving a change in
control or potential change in control of ILX or transactions with persons with
shareholdings over specified percentages, thereby depressing the price of ILX
Common Stock or the price of other ILX securities. Further, such restrictions
may adversely affect the ability of one or more holders of ILX securities,
including ILX Common Stock, to effect a change in control of ILX.
Reliance on Key Personnel. ILX relies upon certain key management
employees, including but not limited to its Chairman and Chief Executive
Officer, Joseph P. Martori, and the loss of any such individual could adversely
affect ILX. ILX believes that its future success will depend upon its ability to
attract and retain key personnel as well as qualified marketing, sales,
hospitality, development, acquisition, finance, management and administrative
personnel. There can be no assurance that ILX will be able to retain key members
of its current management team or that it will be able to attract and retain
qualified personnel in the future. ILX currently does not have employment
agreements with its key management employees.
Voting Control by Existing ILX Shareholders. ILX is required by Arizona
law to elect directors utilizing cumulative voting. By exercising his or her
right to vote cumulatively, a common shareholder would be able to elect a
percentage of directors corresponding to the percentage of the ILX Common Stock
held by such shareholder assuming the existence of a sufficient number of
directorships. ILX's Bylaws authorize a Board of no less than one nor more than
15 directors. ILX currently has nine directorships (seven of which are filled
and two of which are vacant). Consequently, a purchaser must hold ten percent
(10%) plus one share of the ILX Common Stock to be able independently to elect a
<PAGE>
6
director. Martori Enterprises Incorporated, an Arizona corporation ("MEI"),
Joseph P. Martori and Edward J. Martori, collectively, own or have the power to
vote approximately 42.2% of the outstanding ILX Common Stock, and thereby have
the power to elect at least 4 members of the 9 member Board of Directors and to
influence substantially ILX's business and affairs. If the interests of MEI,
Joseph P. Martori and Edward J. Martori, as shareholders, differ from the
interests of the other shareholders, such other shareholders may be adversely
affected by such control. Joseph P. Martori and Edward J. Martori also are
directors of ILX and Joseph P. Martori is Chairman of the Board and Chief
Executive Officer of ILX. Joseph P. Martori and Edward J. Martori also are
controlling shareholders of MEI. Accordingly, MEI, Joseph P. Martori and Edward
J. Martori are able to exert substantial influence over and in most cases
control essentially all of ILX's business and affairs.
Effect of Shares Eligible for Future Sale on Market Price of ILX
Securities. Certain ILX shareholders hold commercially significant amounts of
ILX Common Stock. Such stock is (i) freely tradeable, (ii) may become available
for resale in the open market pursuant to Rule 144 promulgated under the
Securities Act, or (iii) may become freely tradeable pursuant to a registration
of such shares. The sale of commercially significant amounts of ILX Common Stock
under or subsequent to this offering could adversely affect the prevailing
market price of ILX Common Stock. Such sales also could impair ILX's ability to
raise additional capital through the sale of its securities. ILX filed a Form
S-3 Registration Statement on May 9, 1994 and supplemented it on August 19,
1994. That Registration Statement was amended under a Registration Statement
filed on May 3, 1996, which itself was amended by Amendment No. 1 to it filed on
May 16, 1996. Those statements further are amended by the Registration Statement
of which this Prospectus is a part. A total of 6,230,256 shares of ILX Common
Stock are registered federally pursuant to these Form S-3 Registration
Statements. The market price for the ILX Common Stock may be adversely affected
if all of the Selling Shareholders attempt to sell the Selling Shareholders'
Common Stock at the same time or over a short period of time.
Liquidation. ILX has non-voting Series A Preferred Stock, $10.00 par
value, ("Series A Stock") that is entitled to an annual dividend of $.80 per
share commencing July 1, 1996 provided that the funds are legally available
therefor. The Series A Stock has a liquidation preference that is superior to
the liquidation rights of all other classes of ILX securities. ILX has
non-voting Series B Convertible Preferred Stock, $10.00 par value, ("Series B
Stock") that has a liquidation preference of $10.00 that is junior to the
liquidation preference of the Series A Stock but senior to that of all other
classes of ILX securities. Further, commencing July 1, 1996, each share of the
Series B Stock may be converted into two shares of ILX Common Stock (and the
rate shall be adjusted for dividends paid in ILX Common Stock, stock splits,
reverse splits and stock reclassifications). The Series C Stock is entitled to
an annual dividend of $.60 per share when and as declared by ILX's Board of
Directors. (It can not and may not be paid unless the dividend and certain
sinking fund payments are made with respect to the Series A Stock.) If ILX does
not pay some or all of the annual dividend, any unpaid amount that accrues
before the fifth anniversary date of the Merger (defined below) is deemed the
"Dividend Arrearage" and a shareholder's Dividend Arrearage, when divided by
$6.00, is the shareholder's "Cumulation Shares." The Series C Stock has a
liquidation preference of $10.00 per share (plus $6.00 per Cumulation Share to
which a shareholder is entitled). The liquidation preference is junior to the
liquidation preference on the Series A Stock and Series B Stock but is senior to
the liquidation rights of the ILX Common Stock. This description of liquidation
provisions of the Series A, Series B and Series C Stock is qualified in its
entirety by the discussion of such provisions contained in "Description of ILX
Securities and Pertinent Arizona Statutes," below.
<PAGE>
7
THE COMPANY
General.
ILX is an Arizona corporation formed in October, 1986. It is engaged
primarily in the business of developing, operating, financing and marketing
interval ownership interests, often referred to as "timeshare" interests, in
resort properties. ILX also operates certain of those resort properties as
hotels, including unused or unsold timeshare inventory. ILX's principal
executive offices are located at 2111 East Highland, Suite 210, Phoenix, Arizona
85016, telephone number (602) 957-2777.
ILX sells timeshare interests in resorts located in Arizona, Colorado,
Florida, Indiana, Hawaii and Mexico. Generally, ILX either owns all or a
controlling 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. See "Risk Factors -- Nature of Business;
Business Plan."
ILX owns all or a controlling interest in the following resorts: Los
Abrigados Resort & Spa in Sedona, Arizona, Golden Eagle Resort in Estes Park,
Colorado, Kohl's Ranch Lodge in Gila County, Arizona, Lomacasi Cottages in
Sedona, Arizona and Varsity Clubs of America -- South Bend Chapter in Mishawaka,
Indiana.
====================================================================
RESORT OWNERSHIP INTEREST
--------------------------------------------------------------------
1. Los Abrigados Resort & Spa 78.5% Fee Simple
through Subsidiary*
--------------------------------------------------------------------
2. Golden Eagle Resort 100% Fee Simple
--------------------------------------------------------------------
3. Kohl's Ranch Lodge 100% Fee Simple
--------------------------------------------------------------------
4. Lomacasi Cottages 75% Fee Simple
through Subsidiary**
--------------------------------------------------------------------
5. Varsity Clubs of America -- South 100% Fee Simple
Bend Chapter through Subsidiary***
====================================================================
*The Los Abrigados Resort & Spa is owned by Los Abrigados
Partners Limited Partnership ("LAP"). ILE Sedona Incorporated,
a wholly owned subsidiary of ILX, is the general partner of
LAP and owns 71% thereof. ILX is the Class A Limited Partner
of LAP and owns 7.5% thereof. The remaining 21.5% of LAP, held
as Class B Limited Partnership interests, are owned by two of
the Selling Shareholders, MEI and Alan R.
Mishkin.
**Lomacasi Cottages is owned by The Sedona Real Estate Limited
Partnership #1 ("SRELP"). Lomacasi Resort Incorporated, a
wholly owned subsidiary of Genesis Investment Group, Inc.,
which in turn is a wholly-owned subsidiary of ILX, is the
general partner of SRELP and
owns 75% thereof.
***Varsity Clubs of America -- South Bend Chapter is owned by
VCASB Partners General Partnership, which is owned 50% by ILX
and 50% by VCA South Bend Incorporated, which is a wholly
owned
<PAGE>
8
subsidiary of Varsity Clubs of America Incorporated, which in
turn is a wholly owned subsidiary of ILX.
The properties owned or controlled by ILX or its subsidiaries are operated as
hotels, including 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.
=================================================================
RESORT LOCATION
-----------------------------------------------------------------
1. Ventura Resort Boca Raton, Florida
-----------------------------------------------------------------
2. Costa Vida Vallarta Resort Puerto Vallarta,
Mexico
=================================================================
ILX also has a marketing agreement with Pahio Resorts, which owns and
operates, on the island of Kauai, Hawaii, the Pahio at Kauai Beach Villas, Pahio
at Bali Hai Villas, Pahio at The Shearwater and Pahio at Ka'Eo Kai. Under the
marketing agreement, ILX may market and sell, subject to regulatory approval,
timeshare interests in Pahio's four Hawaii resorts. ILX intends to begin
marketing the timeshare interests for Pahio at Kauai Beach Villas in Arizona,
which currently have been approved for sale in Arizona. Thereafter, ILX may then
expand its marketing effort to include the timeshare interests in other Pahio
resorts and to expand such marketing to other states.
Except for the Costa Vida Vallarta Resort, described below, purchasers
of timeshare interests from ILX acquire deed and title to an undivided
fractional interest in the entire resort or to a particular 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. On occasion, ILX
reacquires a timeshare interest through a variety of circumstances including,
but not limited to, customers' defaults on their obligations to pay for their
timeshare interests. In those instances, the reacquired timeshare interests are
restored to ILX's inventory for resale.
Each of the above referenced resorts is affiliated with a
not-for-profit organization, the members of which are the owners (including ILX
and its subsidiaries) 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 and that retain
certain benefits for ILX and its subsidiaries.
With respect to certain of the resort properties owned by ILX or its
subsidiaries (Los Abrigados Resort & Spa; Kohl's Ranch Lodge and Varsity Clubs
of America -- South Bend Chapter), 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 title to his or her timeshare
interest free from monetary encumbrances of ILX or its subsidiaries.
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, 1996.
<PAGE>
9
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. The Golden Eagle Resort, including a
four-story wood-frame main lodge, is situated on approximately 4 acres of land
and is bounded generally by undeveloped forested mountainside land. 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
on the property. ILX also owns one unit in a residential duplex adjacent to the
property, which is not currently subject to timesharing.
Marketing of timeshare interests in the Golden Eagle Resort began in
1987. 1,683 timeshare weeks presently exist at the Golden Eagle Resort and an
additional 102 timeshare weeks will be available upon construction of an
additional two units. Arizona, Colorado and Indiana [IS THIS TRUE?] have
authorized ILX to sell timeshare interests in Golden Eagle Resort in those
states. ILX had approximately 575 weeks available for sale in completed suites
at December 31, 1996. The Golden Eagle Resort is, as of December 31, 1996,
encumbered by (i) a note and first deed of trust in the principal amount of
$1,449,990, which is payable in monthly installments of interest at the rate of
12% per annum and annual installments of principal in the amount of $100,000,
and matures in December, 1998, and (ii) a second deed of trust securing
repurchase obligations relating to borrowings against consumer notes receivable
in the principal amount of $1,068,541 and sales of consumer notes receivable
sold with recourse in the approximate amount of $707,000 at December 31, 1996.
In September, 1988 ILX acquired an ownership interest in the Los
Abrigados Resort & Spa 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 "The Company --
Other Wholly Owned Subsidiaries -- ILE Sedona Incorporated." The Los Abrigados
Resort & Spa is located on the northwest bank of Oak Creek in Sedona, Arizona,
approximately 110 miles northwest of Phoenix. The resort consists of a main
building (which houses the lobby, registration area, executive offices, meeting
space, a health spa and athletic club, food and beverage facilities and support
areas) and 174 suites in 22 one and two story free-standing structures. In
addition, a two bedroom historic homesite that has been renovated to include a
spa and other luxury features is also on the property and is being marketed by
ILX. The resort has two outdoor swimming ^ pools, tennis courts and other
recreational amenities and is situated on approximately 19 acres of land.
Marketing of timeshare interests in the Los Abrigados Resort & Spa
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. 9,100 timeshare weeks exist at Los
Abrigados Resort & Spa. Arizona, Colorado, Indiana, Iowa and Nevada have
authorized ILX to sell timeshare interests in Los Abrigados Resort & Spa in
those states. At December 31, 1996, ILX had approximately 2,790 weeks available
for sale. ILX intends to construct an additional 20 units, thereby adding 1,040
timeshare weeks to its inventory, and options to purchase 641 weeks have been
extended to owners of Golden Eagle Resort, Kohl's Ranch Lodge and Varsity Clubs
of America-Notre Dame 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 that allow the owners to
increase their ownership to every year usage. (Such options are at prices in
excess of the current prices for such usage.) Also, as of July, 1997, Genesis
Investment Group, Inc., a wholly owned subsidiary of ILX, is subject to a put
and call option requiring and allowing it to purchase 107 additional timeshare
interests (for $2,100 each) from independent third parties, which timeshare
weeks are intended to be made available for sale upon exercise of the option.
See "The Company -- Other Wholly Owned Subsidiaries -- Genesis Investment Group,
Inc." The Los Abrigados Resort & Spa is, as of December 31, 1996, encumbered by
(i) a deed of trust, securing a note in the principal amount of $1,572,167,
which is payable in monthly installments of $82,833 principal and interest at
the rate
<PAGE>
10
of prime plus 1.25% and matures in June, 1998, and (ii) two subordinate deeds of
trust of equal priority securing repurchase obligations relating to borrowings
against consumer notes receivable in the principal amount of $141,000 and sales
of consumer notes receivable with recourse in the amount of approximately $17
million. In addition, 220 interests that are not encumbered by the first and
second deeds of trust secure two notes payable to affiliates totaling $430,000
at December 31, 1996.
On March 1, 1996, ILX indirectly became the 75% general partner of The
Sedona Real Estate Limited Partnership #1, an Arizona limited partnership,
("SRELP") that owns the Lomacasi Cottages in Sedona, Arizona, a 19 unit, 5.27
acre property approximately one mile from the Los Abrigados Resort & Spa and
bordered by Oak Creek. The property is encumbered by nonrecourse deeds of trust
totaling approximately $2,171,000 at December 31, 1996. ILX has intended since
inception to offer timeshare interests in the property. Currently, ILX uses the
resort to provide lodging accommodations to prospective timeshare purchasers at
ILX's Sedona sales office.
Effective as of November 21, 1995, ILX, ILES and LAP (collectively
"Developer") entered into a Management Agreement with Resort Funding, Inc.
("RFI"), a timeshare lender of ILX, with respect to the Los Abrigados Resort &
Spa. RFI committed to advance $3.5 million and was to provide general
supervision, strategic planning and consultation with respect to LAP and Los
Abrigados Resort & Spa, and with respect to the marketing and sale of 3,500
timeshare intervals at Los Abrigados Resort & Spa. The term of the Management
Agreement commenced on December 1, 1995 and was to continue for 5 years or such
longer time as may have been required to complete the sale of the subject 3,500
timeshare interests. RFI would have the right to purchase timeshare receivables
of LAP on the same terms and conditions as have been historically available from
RFI to Developer, except that "holdback" requirements would be adjusted to terms
more favorable to Developer. At December 31, 1996, approximately $1.1 million
had not yet been advanced under this Management Agreement; RFI had failed to
fund advances requested by ILX. (See "Risk Factors -- Potential Lack of Consumer
Receivable Financing.") On June 15, 1997, ILX, ILES, LAP and RFI entered into a
Settlement Agreement under which they settled their dispute regarding RFI's
obligations to provide financing to Developers (the "Settlement Agreement").
Pursuant to the Settlement Agreement, the parties terminated the Management
Agreement and ILX executed, in its stead, a promissory note (the "RFI Note") in
the principal amount of $2,400,000, due and payable on December 31, 2002 and
that bears interest, payable monthly, at a rate of 12% per annum. ILX also paid
a financing charge of $144,000 in connection with the transaction. To secure
ILX's payment of the RFI Note, MEI pledged 1,000,000 shares of its ILX Common
Stock until the principal balance of the RFI Note is reduced to $1,000,000, at
which time the pledge is to be released. Further, the Developers covenanted to
make certain payments with respect to certain unsold interval units in Sedona
Vacation Club, Kohl's Ranch Lodge, Golden Eagle Resort and Varsity Clubs of
America-Notre Dame Chapter that are sold after July 1998, and ILX, LAP and ILES
each executed a guaranty and subordination agreement (the "Guaranties")
guarantying ILX's obligations under the RFI Note. In addition, under a First
Amendment to the Acquisition and Development Loan Agreement, First Amendment to
the Acquisition and Development Promissory Note and associated instruments (the
"Amended Loan Agreement and Note"), RFI agreed to and did advance the further
amount of $550,000 for use in connection with the development of a facility in
Tucson, Arizona. (See "The Company -- Wholly Owned Subsidiaries of ILX --
Varsity Clubs of America Incorporated.") The description of the Settlement
Agreement, the RFI Note, the Guaranties and the Amended Loan Agreement and Note
is qualified in its entirety by reference to those documents, which are attached
to the Registration Statement as Exhibits 10b to 10j of which this Prospectus is
a part.
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
<PAGE>
11
authorized ILX to sell timeshare interests in the Costa Vida Vallarta Resort in
those states. ILX had approximately 49 timeshare interests available for sale as
of December 31, 1996.
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 including a pool, outdoor
spa, exercise room, putting green and sport court. Kohl's Ranch also includes
eight 1- and 2-bedroom cabins along Tonto Creek, a triplex cabin with two
1-bedroom units and one efficiency unit, a pet resort, and a free standing
building that contains food and beverage facilities and space for additional
retail operations. ILX is refurbishing Kohl's Ranch, maintaining its authentic
ranch atmosphere and decor, and may add additional units in the future.
2,704 timeshare weeks currently exist at Kohl's Ranch. Kohl's Ranch
timeshare interests have been approved for sale in Arizona. Timeshare sales
commenced in July, 1995. As of December 31, 1996, ILX had approximately 2,175
timeshare weeks available for sale. Kohl's Ranch is, as of December 31, 1996,
encumbered by (i) a first position note and deed of trust in the amount of
$584,500, payable in equal installments of principal and interest through
December 1998, (ii) a second position note and deed of trust in the amount of
$190,450, which is payable in monthly installments of $7,500 principal plus
interest at the rate of 8% per annum, and matures on June 1, 2000, and (iii) a
third position note and deed of trust in the principal amount of $1,787,228,
which secures ILX's repurchase obligations relating to borrowings against
consumer notes receivable. In July, 1997, the first position note was paid and
replaced with a new debt in the principal amount of $1,500,000.
In September, 1996, ILX acquired approximately one-half acre of
improved property adjacent to the Los Abrigados resort for a purchase price of
$750,000, consisting of a $185,862 cash down payment and a $564,138 first deed
of trust. ILX intends to make improvements to the property, to be known as the
Inn at Los Abrigados, in the amount of approximately $300,000 and to offer 520
timeshare interests in the property commencing in 1997. The first deed of trust
bears interest at prime plus 4% with interest payable monthly and principal
payable through release fees as intervals are sold.
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 the areas near its
properties and 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
timeshare weeks, the value received for the price and the availability of a
variety of destination locations. ILX and its subsidiaries employ approximately
700 people. ILX plans to continue exploring options for the acquisition or
development and marketing of new resort facilities.
ILX will comply with the requirements of Rules 13e-4 and 14e-1 under
the Securities Exchange Act of 1934 and any other applicable securities laws in
connection with such provisions and any related offers by ILX.
Wholly Owned Subsidiaries of ILX
Los Abrigados Partners Limited Partnership. Los Abrigados Resort & Spa
is owned by Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"). ILX, directly and through ILE Sedona Incorporated ("ILES"),
owns a total of 78.5% of LAP. LAP's other partners are Alan Mishkin (11.5%) and
MEI (10%), both of whom are Selling Shareholders. ILES serves as LAP's 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.
<PAGE>
12
The management contract between ILX and LAP automatically will renew for
consecutive five year terms, commencing March 31, 2001, unless sooner terminated
by 90% of the owners of timeshare interests in the Sedona Vacation Club. It is
the opinion of ILX's management that the management contract will be renewed on
equal or more favorable terms to ILX.
Sedona Worldwide Incorporated and Red Rock Collection Incorporated. Red
Rock Collection Incorporated, an Arizona corporation ("Red Rock Collection"),
was a wholly and directly owned subsidiary of ILX. It has, since July, 1994,
been engaged in the manufacture and distribution of personal care products. The
complete product line consists of spa and salon formulated products for face,
body, bath and hair care. The Red Rock Collection corporate headquarters are
located at 3840 North 16th Street, Phoenix, Arizona. This 8400 square foot
building is leased by Red Rock Collection from Edward J. Martori, a Selling
Shareholder, and houses the executive offices, customer service, accounting,
warehouse and shipping operations, as well as telemarketing offices for ILX's
timeshare sales operations. (A copy of the lease is attached to ILX's 1995 10-K
and is incorporated herein by this reference.)
Effective January 1, 1997, ILX and Red Rock Collection entered into
personal service agreements (the "Personal Service Agreements") with celebrity
Debbie Reynolds and her son, Todd Fisher. The Personal Service Agreements
provide, among other things, that Ms. Reynolds will endorse the Red Rock
Collection line of face, body, bath and hair care products. Pursuant to the
Personal Service Agreements and related documents, each of Ms. Reynolds and Mr.
Fisher are to receive from ILX 70,000 shares of the 700,000 issued and
outstanding shares of Red Rock Collection common stock as partial consideration
thereunder.
Also under the Personal Service Agreements, ILX agreed that, within
sixty (60) days from the issuance of such stock to Ms. Reynolds and Mr. Fisher,
which issuance has not yet occurred, ILX would distribute to the existing ILX
shareholders the common stock of Red Rock Collection equal to not less than
thirty percent (30%) of the then issued and outstanding Red Rock Collection
common stock. The Personal Service Agreements further provide that (i) ILX shall
undertake promptly to register the common stock of Red Rock Collection with the
Securities and Exchange Commission with a view to listing the stock on the
National Association of Securities Dealers Automatic Quotation System (NASDAQ)
and (ii) either concurrently with such registration or by separate registration,
and upon the advice of its underwriters, Red Rock Collection would undertake a
public offering of between $2 million and $5 million.
In November, 1996, ILX activated a wholly owned subsidiary, Sedona
Worldwide Incorporated ("SWW") (formerly "Red Rock Worldwide Incorporated").
Pursuant to a Contribution Agreement to be effective as of January 1, 1997, all
of the issued and outstanding shares of Red Rock Collection are to be exchanged
for shares of SWW, at a rate of four shares of SWW for each share of Red Rock
Collection. As a part of that agreement, SWW is to assume Red Rock Collection's
obligations under the Personal Service Agreements and ILX is to undertake the
various Red Rock Collection stock transfers and registrations using SWW stock
rather than Red Rock Collection stock. On July 8, 1997, Debbie Reynolds and
Debbie Reynolds Hotel and Casino, Inc., each filed for bankruptcy protection.
Mr. Fisher has indicated to ILX that both he and Ms. Reynolds intend to perform
fully under the Personal Service Agreements.
Red Rock Collection products primarily have been marketed through
resort properties owned and operated by ILX. This resort-based sales program
includes an upscale amenities line, an in-room gift basket promotion and retail
product sales at ILX resort venues. Red Rock Collection products are also used
by ILX and its subsidiaries as tour promotion incentives. The products are given
as gifts to individuals who attend timeshare tours and presentations. Red Rock
Collection then markets by direct mail to the resort and tour customers who have
received and/or used the Red Rock Collection products.
<PAGE>
13
SWW is considering other marketing opportunities, including promotional
activities utilizing Ms. Reynolds for Red Rock Collection products. ILX and SWW
may offer additional product lines through SWW, including jewelry, artwork and
apparel.
Varsity Clubs of America Incorporated. In 1988, ILX formed VCA to
participate in a joint venture with a wholly owned subsidiary of Coachman
Incorporated, a publicly traded corporation. In March, 1992, VCA acquired all of
Coachman Incorporated's subsidiary's interest in the Varsity Clubs joint
venture, giving VCA 100% ownership of the venture.
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 ticketholders,
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 or unused timeshare inventory. See "Risk Factors -- Nature of Business;
Business Plan."
The prototype Varsity Clubs facility is an all-suite, 62 unit lodging
facility that features amenities such as The Stadium (a sports-theme atrium
lounge), a private Member's Lounge, exercise facilities, a swimming pool and
whirlpool spa, complete business services and other facilities popular with the
target market of likely purchasers. The prototype Varsity Clubs facility is
expandable to approximately 90 units, without the need to acquire additional
real property, and can be built in smaller configurations if warranted by a
particular market.
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. The Indiana facility is owned, to the full extent of unsold
timeshare interests, by VCASB Partners General Partnership ("VCASB"), which is
owned 50% by ILX and 50% by VCA South Bend Incorporated, a wholly owned
subsidiary of VCA. VCASB is affiliated with Varsity Clubs of America -- South
Bend Chapter, a not-for-profit corporation whose members are the owners of
timeshare interests in the Indiana facility. Indiana, Arizona, Illinois, Florida
and Pennsylvania have authorized VCASB to sell timeshare interests in the
Indiana facility in those states. 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. A total of 22,568 one night intervals have been constructed and, at
December 31, 1996, approximately 16,147 one night intervals were available for
sale. ILX anticipates expanding the facility by constructing an additional 30
suites, thus adding 10,920 one night intervals. To ILX's knowledge, no other
timeshare properties exist proximate to the University of Notre Dame. To date,
Varsity Clubs of America - Notre Dame has been able to compete favorably for
commercial guests because of its superior facilities and amenities relative to
other lodging accommodations in the area. The Indiana Varsity Clubs facility is,
as of December 31, 1996, encumbered by a first position mortgage securing
construction financing in the amount of $2,797,733, the principal of which is
payable through release fees, with interest payable monthly at the rate of 13%.
The note matures in November 1998. The mortgage further secures ILX's repurchase
obligation with respect to the sales of consumer notes receivable in the amount
of approximately $4.7 million at December 31, 1996.
The site for the second Varsity Clubs facility is located in Tucson,
Arizona, approximately 2.3 miles from the University of Arizona. VCA Tucson
Incorporated, a wholly owned subsidiary of VCA,
<PAGE>
14
acquired the property. VCA Tucson Incorporated has received a commitment from
Resort Funding, Inc. for construction financing for the Arizona facility in the
amount of $6,550,000 at a 12% per annum interest rate, which is expected to be
sufficient to build and furnish the property. $1,145,000 has been borrowed
against this commitment as of July, 1997 and is secured by a first position
mortgage. 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. Construction of the Arizona facility is expected to commence in
August, 1997, and the facility is expected to open in January of 1998.
VCA is considering various other sites for development of Varsity Clubs
facilities in the next five to seven years, in addition to the Varsity Clubs
facility in Indiana and the proposed facility in Tucson, Arizona.
Genesis Investment Group, Inc. Genesis Investment Group, Inc. is an
Arizona corporation, ("Genesis") and, as of November 1, 1993, a wholly owned
subsidiary of ILX. Genesis' business is the holding and liquidating of ownership
interests in real estate (both fee and liens), most of which is unimproved, and
the developing and selling of timeshare interests. Lomacasi Resort Incorporated,
an Arizona corporation and the general partner of SRELP, is a wholly owned
subsidiary of Genesis.
ILX acquired Genesis through the merger of Genesis into ILX's wholly
owned subsidiary, ILE Acquisition Corporation, an Arizona corporation, ("ILEAC")
that was effective on November 1, 1993 (the "Merger"). Pursuant to the Merger,
holders of Genesis common stock received the right to receive five shares of ILX
Common Stock and three shares of Series C 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 Series C Stock and 509,940 shares
of ILX Common Stock.) Since the Merger, Genesis has continued to liquidate its
real estate holdings and is subject to a put and call option allowing and
requiring Genesis to purchase 667 timeshare interests at Los Abrigados Resort &
Spa. Pursuant to such option, Genesis has acquired 560 timeshare interests for
resale as of July, 1997, and Genesis has engaged LAP to market these timeshare
interests. Accordingly, Genesis continues to hold and be subject to put and call
options with respect to an additional 107 timeshare interests.
Golden Eagle Resort, Inc. Golden Eagle Resort, Inc. was formed in 1987
to serve as the management company for the Golden Eagle Resort in Estes Park,
Colorado. The management contract between ILX and Golden Eagle Resort, Inc. was
renewed as of June 1, 1997 for a five-year term pursuant to the terms of the
contract.
ILE Florida, Inc. ILE Florida, Inc. was formed in 1987 for the purpose
of holding 100% of the issued and outstanding stock of Southern Vacations, Inc.
Southern Vacations, Inc. owns timeshare interests in the Ventura Resort in Boca
Raton, Florida. At the present time, all timeshare interests in the Ventura
Resort are being marketed and sold by ILX in Arizona and Indiana.
Kohl's Ranch Water Company. Kohl's Ranch Water Company ("KRWC") was
acquired in January 1996. KRWC owns various assets associated with providing
water service to Kohl's Ranch Lodge and various other properties in the
vicinity.
In addition to the above mentioned wholly owned subsidiaries, ILX also
owns three corporations, AVC Development Incorporated, SHI Health Institute
Incorporated, and Golden Eagle Realty, Inc., none of which has any assets or
liabilities or is conducting any business at the present time.
Consulting Arrangements
<PAGE>
15
ILX entered a Letter Agreement with EVEREN Securities, Inc. ("ESI")
under which ESI is to supply certain financial and business advisory services
commencing July 1, 1997. Under the terms of the Letter Agreement, ESI is to act
as ILX's exclusive financial advisor, investment banker and agent with respect
to the evaluation of various alternatives to position ILX for long-term growth
and evaluation of various strategic alternatives that may enhance shareholder
value. The services, which are more fully described in the Letter Agreement, may
include: evaluating third party entities that ILX may seek to acquire or with
which ILX may seek to merge; evaluating capital raising strategies and providing
access to capital markets; and other investment banking and related services on
which ESI and ILX may agree. The Letter Agreement has no fixed term, although
the parties have expressed their intentions that the Letter Agreement remain in
effect for at least one year. However, 30 days after ILX executed the Letter
Agreement, it may be terminated by either party on 10-days' written notice to
the other party, although ILX would have certain ongoing obligations to ESI,
including to compensate ESI for previously earned fees, to reimburse ESI for
accrued expenses, to honor a right of first refusal held by ESI, and to
indemnify ESI for certain matters.
In exchange for the above services under the Letter Agreement, in
addition to other compensation that may be payable to ESI as "success fees," ILX
agreed to transfer to ESI 60,000 shares of ILX's common stock on each of August
1, 1997 and February 1, 1998 and to cause those shares to be registered under an
appropriate registration statement. The above description of the Letter
Agreement is qualified in its entirety by reference to the Letter Agreement,
attached as Exhibit 10a to ILX's Form 8-K dated June 23, 1997. Pursuant to the
terms of a Share Transfer Agreement, ESI is to hold any of the 120,000 shares of
stock it receives under the Letter Agreement until such stock is registered and
ESI has demonstrated the requisite investment intent with respect to such stock.
The above description of the Share Transfer Agreement is qualified in its
entirety by reference to it, attached as Exhibit 10a to Amendment No. 2 to
Registration Statement of which this prospectus is a part.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for ILX were as follows for the
respective periods indicated:
================================================================================
Year Ended For 3 Months Ending
December 31 March 31, 1997
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 2.40 3.48 3.08 1.05 1.79 1.34
================================================================================
Fixed charges consist of interest, the amortization of debt issuance
costs and an estimated interest factor in rentals. Earnings for the years ended
December 31, 1996, December 31, 1995, December 31, 1994, December 31, 1993,
December 31, 1992, and for the quarter ended March 31, 1997 were sufficient to
cover the combined fixed charges.
USE OF PROCEEDS
ILX will not receive any proceeds from the sale of the Selling
Shareholders' Common Stock pursuant to this Prospectus. The Selling
Shareholders' Common Stock offered hereby is offered by the Selling Shareholders
for their own accounts. See "SELLING SHAREHOLDERS." Pursuant to an agreement
among BIS-ILE, ILX, Arthur J. Martori and Alan R. Mishkin dated March 28, 1991
(the "Agreement"), Mr. Mishkin acquired 2,000,000 shares of ILX Common Stock and
concurrently Mr.
<PAGE>
16
Mishkin exercised warrants and acquired an additional 1,500,000 shares of ILX
Common Stock (collectively, the "Mishkin Shares"). Under that Agreement, ILX
agreed to register the Mishkin Shares within six months of the date of Mr.
Mishkin's payment for the Mishkin Shares, which occurred on September 9, 1991.
Since the date of that purchase, Mr. Mishkin contributed 1,166,655 shares of his
to ILX pursuant to a Contribution of Capital Agreement dated February 20, 1992
among ILX, Arthur J. Martori, Wm. Robert Burns, MEI and Mr. Mishkin. In
addition, since the date of his original purchase and payment for the Mishkin
Shares, Mr. Mishkin allowed ILX to postpone the date of registration of those
shares. At Mr. Mishkin's request, ILX registered certain of Mr. Mishkin's
shares, as well as the other shares of ILX Common Stock held by the Selling
Shareholders in May, 1994 and revised that registration in May, 1996 to include,
among other shares, all of the Mishkin Shares. The Registration Statement of
which this Prospectus is a part was prepared to update certain information in
that original registration. Pursuant to the Agreement with Mr. Mishkin, ILX
bears all expenses associated with the registration and the amendments.
SELLING SHAREHOLDERS
The Selling Shareholders' Common Stock is being offered for the account
of the Selling Shareholders. The table below sets forth certain information as
of July 11, 1997, including the name of each Selling Shareholder, his position,
office or material relationships to ILX or its affiliates within the past three
year period, the number of shares of the Selling Shareholders' Common Stock
owned by each Selling Shareholder prior to the initiation of the original
offering in May 1994, the number of shares of the Selling Shareholders' Common
Stock held by such Selling Shareholder as of July 11, 1997 and the number of
shares of the Selling Shareholders' Common Stock to be owned by each such
Selling Shareholder upon completion of this Offering, assuming all shares of the
Selling Shareholders' Common Stock offered hereby are sold pursuant to this
Offering. ILX has no knowledge that any Selling Shareholder plans to dispose of
any shares of the Selling Shareholders' Common Stock, except that ILX
understands that Mr. Mishkin has disposed of a substantial number of shares
recently as disclosed in various public filings made by Mr. Mishkin or on his
behalf.
<TABLE>
<CAPTION>
POSITION, OFFICE
OR COMMON COMMON COMMON
MATERIAL STOCK COMMON STOCK STOCK
RELATIONSHIP OWNED STOCK OFFERED BENEFICIALLY
WITH ILX OR AS OF OWNED AS HEREUNDER BY OWNED
SELLING AFFILIATES WITHIN MARCH 31, OF JULY SELLING AFTER
SHAREHOLDER THREE-YEAR PERIOD 1996(1) 11, 1997 SHAREHOLDER OFFERING
----------- ----------------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Joseph P. Martori(2) Chairman, Director, 22,069(3) 108,069(4) 108,069(4) 0
Chief Executive
Officer & Former
President
Edward J. Martori(5) Director 46,5396 291,539(6) 291,539(6) 0
Alan R. Mishkin(7) Former Director 2,012,045 298,813 291,813 0
Nancy J. Stone President, Chief 139,586(8) 214,586(8) 214,586(8) 0
Financial Officer,
Director & Former
Executive Vice
President
Martori Enterprises ** 5,658,547 5,171,547(11) 5,171,547(11) 0
Incorporated(9)
</TABLE>
<PAGE>
17
<TABLE>
<S> <C> <C> <C> <C> <C>
EVEREN Securities, Consultant 0 120,000(10) 120,000(10) 0
Inc.
</TABLE>
1. This combined Prospectus relates to the Registration Statement filed on
Form S-3 at No. 333-03151 as well as the Registration Statement filed on
Form S-3 at No. 33-75382. Accordingly, for clarification, this column
sets forth the shares owned by the Selling Shareholders as of the date of
the offering of shares as of March 31, 1996 under Registration No.
333-03151.
2. Joseph P. Martori also is a controlling shareholder, officer and director
of Martori Enterprises Incorporated.
3. Includes 11,010 shares of ILX Common Stock held by Joseph P. Martori as
custodian and trustee under a trust dated February 20, 1978 for the
benefit of Christina Ann Martori, and 10,000 shares of ILX Common Stock
held by Joseph P. Martori as custodian for his daughter, Arianne Terres
Martori, and 1,059 shares held by Joseph P. Martori as trustee under a
trust dated January 30, 1976. Shareholdings shown do not include Martori
Enterprises Incorporated's shares of ILX Common Stock.
4. Includes 23,010 shares of ILX Common Stock held by Joseph P. Martori as
custodian and trustee under a trust dated February 20, 1978 for the
benefit of Christina Ann Martori, and 1059 shares held by Joseph P.
Martori as trustee under a trust dated January 30, 1976. Shareholdings
shown do not include Martori Enterprises Incorporated's shares of ILX
Common Stock.
5. Edward J. Martori also is a controlling shareholder, officer and director
of Martori Enterprises Incorporated.
6. Includes 707 shares of ILX Common Stock owned by the Estate of Edward
Joseph Martori of which Edward J. Martori is beneficiary and Joseph P.
Martori is personal representative. Shareholdings shown do not include
Martori Enterprises Incorporated's shares of ILX Common Stock.
7. Alan R. Mishkin is a limited partner in the Los Abrigados Partners
Limited Partnership.
8. Includes 10,000 shares owned by Michael Stone, husband to Nancy J. Stone.
9. Martori Enterprises Incorporated is a limited partner in the Los
Abrigados Partners Limited Partnership.
10. Includes 31,000 shares of ILX Common Stock held by the Martori
Enterprises Incorporated Defined Benefit Pension Plan.
11. Effective July 1, 1997, ILX entered into a Letter Agreement with EVEREN
Securities, Inc. ("ESI") under which ESI agreed to provide certain
financial and business advisory services. Under the terms of the Letter
Agreement, ESI is to receive 60,000 shares of ILX common stock on each of
August 1, 1997 and February 1, 1998. (See "The Company -- Consulting
Arrangements" above.) Pursuant to the terms of a Share Transfer
Agreement, ESI is to hold any of the 120,000 shares of ILX common stock
it receives under the Letter Agreement until such stock is registered and
ESI has demonstrated the requisite investment intent with respect to such
stock, or ESI provides an opinion of counsel acceptable to ILX and its
counsel that an exemption from registration is available.
PLAN OF DISTRIBUTION
ILX will not receive any proceeds from the sale of the Selling
Shareholders' Common Stock pursuant to this Prospectus. The shares of the
Selling Shareholders' Common Stock offered hereby may be sold from time to time
directly by or for the account of the Selling Shareholders. The Selling
Shareholders' Common Stock may be sold in one or more transactions (which may
include block transactions) on the NASDAQ Small Cap Market System, in negotiated
transactions, or in a combination of those and other methods of sale, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices or at prices otherwise negotiated. The Selling Shareholders may effect
transactions by selling the Selling Shareholders' Common Stock to or through
broker-dealers, and those broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Selling Shareholders' Common Stock for whom such
broker-dealers may act as agent (which compensation may be less than or in
excess of customary commissions). The Selling Shareholders and any
broker-dealers that participate in the distribution of the Selling Shareholders'
Common Stock may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commissions received by them and any profit
on the resale of the Selling Shareholders' Common Stock sold by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
<PAGE>
18
Upon ILX being notified by the Selling Shareholders, or any of them,
that any material arrangement has been entered into with a broker-dealer for the
sale of the Selling Shareholders' Common Stock through a block trade, special
offering, exchange distribution or other secondary distribution, or a purchase
by a broker or a dealer, a supplemental prospectus will be filed, if required,
pursuant to Rule 424(b) of the Securities Act.
ILX has agreed to bear the expenses of the registration of the Selling
Shareholders' Common Stock, including legal and accounting fees.
DESCRIPTION OF ILX SECURITIES AND PERTINENT ARIZONA STATUTES
Description of ILX Common Stock
Each share of ILX Common Stock entitles the holder thereof to one vote
in all matters submitted to a vote of ILX's shareholders, except that election
of directors shall be by cumulative voting to the extent and in the manner
provided by Arizona law. Cumulative voting requires that in any election for
board members, each share of stock is entitled to a total number of votes equal
to the total number of board members to be elected. Such votes may be cast for
one or more directors as the shareholder desires. No holder of ILX Common Stock
has any preemptive right to subscribe for or purchase additional shares of ILX's
stock. Holders of ILX Common Stock are entitled to share ratably in all
dividends not attributable to the Series A or Series C Stock that are declared
by the Board of Directors and in all assets available for distribution upon
liquidation after giving effect to the liquidation preferences of the Series A,
Series B and Series C Stock.
Description of Series A Stock
Pursuant to the plan of reorganization of BIS-ILE Associates dated
September 10, 1991 (see "The Company--Other Wholly Owned Subsidiaries--Los
Abrigados Partners Limited Partnership), the unsecured trade creditors of
BIS-ILE Associates agreed to accept 82,540 shares of ILX's non-voting Series A
Preferred Stock, $10.00 par value ("Series A Stock"), in full satisfaction of a
debt to such trade creditors in the amount of $825,400. Accordingly, ILX
authorized 110,000 shares of Series A Stock, 60,152 shares of which remain
issued and outstanding at December 31, 1996. Beginning July 1, 1996, the Series
A Stock is entitled to an annual dividend of $.80 per share out of funds legally
available therefor. Dividends may not be paid on ILX Common, Series B or Series
C Stock until the Series A Stock sinking fund requirements and dividends
payments are satisfied.
The Series A Stock has a liquidation preference of $10.00 per share
that is superior to the liquidation preferences of the Series B Stock and Series
C Stock and the liquidation rights on the ILX Common Stock. Beginning January 1,
1993, ILX, through LAP, is required quarterly to make provision for a dividend
sinking fund in an amount equal to $100 for each unrescinded sale of a Sedona
Vacation Club annual timeshare interest made during the preceding calendar
quarter. The foregoing discussion of the Series A Stock is qualified in its
entirety by reference to the Certificate of Designation of the Series A Stock, a
copy of which may be obtained from ILX.
Description of Series B Stock
Pursuant to the plan of reorganization of BIS-ILE Associates, ILX
authorized and issued 275,000 shares of non-voting Series B Convertible
Preferred Stock, $10.00 par value ("Series B Stock"), in full satisfaction of a
debt to B.I. Sedona, Inc., in the amount of $2,750,000, 55,000 shares of which
remain issued and outstanding at December 31, 1996.
<PAGE>
19
The Series B Stock has a liquidation preference of $10.00 per share
that is junior to the liquidation preference of the Series A Stock but senior to
the liquidation preference of the Series C Stock and the liquidation rights on
the ILX Common Stock. From and after July 1, 1996, each share of Series B Stock
may be converted into two shares of ILX Common Stock. The conversion rate shall
be adjusted for dividends paid in ILX Common Stock, stock splits, reverse stock
splits and stock re- classifications. The foregoing discussion of the Series B
Stock is qualified in its entirety by reference to the Certificate of
Designation for the Series B Stock, a copy of which may be obtained from ILX.
Description of Series C Stock
In connection with the Merger of Genesis into ILX's wholly-owned
subsidiary, ILX authorized 309,000 shares of non-voting Series C Convertible
Preferred Stock, $10.00 par value ("Series C Stock"). ILX issued 305,652 shares
of Series C Stock, of which 276,957 shares remain issued and outstanding at
December 31, 1996. The Series C Stock has been issued, along with certain shares
of ILX Common Stock, to former Genesis Shareholders in exchange for their
Genesis common stock.
The Series C Stock is entitled to receive dividends, when and as
declared by ILX's Board of Directors, out of any funds legally available
therefore at the rate of $.60 per share per annum (the "Dividend Preference"),
payable in preference and priority to any payment of any dividend on ILX Common
Stock but subordinate and subject to the dividend rights of the Series A Stock.
Except for Cumulation Shares (as hereafter defined) issuable on conversion or
liquidation of the Series C Stock, the right to the Dividend Preference is not
cumulative. If, during any year prior to the fifth anniversary (November 1,
1998) of the effective date of the Merger between ILX's wholly owned subsidiary,
ILEAC, and Genesis (see "The Company - Other Wholly Owned Subsidiaries --
Genesis Investment Group, Inc."), the Dividend Preference is not paid in full,
the unpaid portion thereof will accumulate through November 1, 1998 (the total
amount of such cumulation expressed in dollars is referred to herein as the
"Dividend Arrearage"). ILX is not required to pay the Dividend Preference in
cash except upon liquidation. "Cumulation Shares" means the total Dividend
Arrearage (as of the date of calculation thereof) owed to any holder of Series C
Stock with respect to all shares of Series C Stock owned of record by such
holder divided by $6.00. Partial fiscal years are to be equitably prorated. The
Series C Stock has a liquidation preference of $10.00 per share plus any
Dividend Arrearage allocable to such shares. Such liquidation preference is
subordinate to the liquidation preferences of ILX's Series A Stock and Series B
Stock. The Series C Stock may be redeemed by ILX at any time on or after
November 1, 1996 at a price of $10.00 per share plus payment of all declared but
unpaid dividends. At the option of the holder, shares of Series C Stock may be
converted into shares of ILX Common Stock after November 1, 1994 but prior to
November 1, 2003 at a rate of five shares of ILX Common Stock for every three
shares of Series C Stock. Upon conversion of a holder's Series C Stock, a holder
of Series C Stock also shall convert the applicable Dividend Arrearage with
respect to such shares into ILX Common Stock at the rate of one share of ILX
Common Stock for every $6.00 of Dividend Arrearage. This summary of the terms of
the Series C Stock is qualified in its entirety by the Certificate of
Designation of the Series C Stock, a copy of which may be obtained from ILX.
Arizona Anti-takeover Legislation and Anti-takeover Devices
Arizona Revised Statutes Sections 10-2701 et seq. were adopted by the
Arizona legislature in an attempt to prevent corporate "greenmail" and to
restrict the ability to acquire domestic corporations. These statutes generally
apply to business combinations or control share acquisitions of "issuing public
corporations," which are defined as corporations having a class of equity
securities registered pursuant to Section 12 of the Exchange Act or subject to
Section 15(d) of the Exchange Act and either (i) incorporated under the laws of
Arizona or (ii) having a principal place of business or principal executive
office in Arizona, owning or controlling assets in Arizona that have a fair
market value of at least $1,000,000 and having more than 500 employees residing
in Arizona. ILX has
<PAGE>
20
securities registered pursuant to Section 12 of the Exchange Act and is subject
to Section 15(d) of the Exchange Act, and therefore is subject to these
statutes. These statutes could impede an acquisition of ILX and its affiliates.
Arizona Revised Statutes Section 10-2704 limits the ability of a
corporation to repurchase stock from a beneficial owner of more than 5% of the
voting power of an issuing public corporation unless certain conditions are
satisfied. ARS Section 10-2705 limits the ability of the issuing public
corporation to enter into or amend any agreements containing provisions that
increase the current or future compensation of any officer or director of the
issuing public corporation during any tender offer or request or invitation for
tenders of any class or series of shares of the issuing public corporation
(other than an offer, request or invitation by the issuing public corporation).
ARS Section 10-2721 regulates control share acquisitions, defined as a direct or
indirect acquisition of beneficial ownership of shares of an issuing public
corporation that would, when added to all other shares of the issuing public
corporation beneficially owned by the acquiring person, entitle the acquiring
person immediately after the acquisition to exercise either (a) more than 20%
but less than 33-1/3% or (b) at least 33- 1/3% but less than 50% or (c) more
than 50% of the voting power. Among other things, control share acquisitions
exclude statutory mergers and acquisitions, and acquisitions pursuant to
security agreements. Within ten days after engaging in a control share
acquisition, the acquiring person must deliver to the issuing public corporation
an information statement setting forth the identity of the acquiring person and
all of its affiliates, the number and class of securities of the issuing public
corporation beneficially owned before, and to be acquired in, the control share
acquisition, and the terms of the control share acquisition. The shares acquired
in a control share acquisition have all the same voting rights as other shares
in elections for directors, but do not have the right to vote on other matters
unless approved by a resolution of shareholders of the issuing public
corporation other than the acquiring person and any officer or director. If the
shareholders vote not to accord voting rights to the shares acquired by the
acquiring person, the issuing public corporation may redeem the control shares
at their then current market price. Finally, in certain circumstances, ARS
Section 10-2741 prohibits an issuing public corporation or a subsidiary thereof
from engaging in a business combination with any interested shareholder of the
issuing public corporation or any affiliate or associate of the interested
shareholder for three years after the interested shareholder's share acquisition
date.
The constitutionality of these provisions of Arizona law has not been
tested under Arizona or federal law. No assurance can be given that such
statutes would withstand any such constitutional challenge. The existence of
these statutes may make ILX a less attractive merger or acquisition candidate.
Except as described above with respect to the statutory provisions of
the Arizona anti-takeover laws, ILX has not adopted any anti-takeover devices
with respect to its equity or debt securities. See "Risk Factors -- Arizona
Anti-takeover Provisions."
SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Articles 13 and 14 of ILX's Articles of Incorporation, under certain
circumstances, provide for the indemnification of ILX's officers and directors
against liabilities they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided is contained herein, but
that description is qualified in its entirety by reference to Articles 13 and 14
of ILX's Articles of Incorporation.
In general, any director or officer of ILX is eligible to be
indemnified against all expenses, including attorneys' fees, judgments, fines,
punitive damages and amounts paid in settlement, that were incurred in
connection with a proceeding to which the director or officer was a party as a
result
<PAGE>
21
of his or her relationship with ILX, unless (1) the individual breached his or
her duty of loyalty to ILX, (2) the individual's acts or omissions are not in
good faith, (3) the individual engaged in intentional misconduct or knowing
violation of law, or (4) indemnification is expressly prohibited by applicable
law. In addition, ILX will not indemnify a director or officer for any liability
incurred in a proceeding initiated (or participated in as an intervenor or
amicus curiae) by the officer or director seeking indemnification unless such
initiation or participation is authorized by the affirmative vote of a majority
of the directors in office.
ILX shall advance funds to pay the expenses of any officer or director
involved in a proceeding provided ILX receives an undertaking that the
individual will repay the funds if it is ultimately determined that he or she is
not entitled to indemnification. The indemnification rights granted to ILX's
officers and directors are deemed to be a legally binding contract between ILX
and each such officer and director. Any repeal, amendment or modification of
Articles 13 or 14 of ILX's Articles of Incorporation shall be effective
prospectively and shall not affect any prior rights or obligations concerning
the indemnification of ILX's officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
LEGAL OPINION
The validity, under Arizona corporate law, of the Selling Shareholders'
Common Stock being offered hereby may be passed upon by the law firm of Colombo
& Bonacci, P.C., 2525 East Camelback Road, Suite 840, Phoenix, Arizona.
<PAGE>
================================================================================
No person is authorized to give any information or to make any representation
not contained in this Prospectus and, if given or made, such information or
representation should not be relied upon as having been authorized. This
Prospectus does not constitute an offer to exchange or sell, or a solicitation
of an offer to exchange or purchase, the securities offered by this Prospectus
in any jurisdiction to or from any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any distribution of the securities to which this Prospectus
relates shall, under any circumstances, create any implication that there has
been no change in the affairs of ILX since the date of this Prospectus.
-----------------------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION ..................................................... 2
INCORPORATION BY REFERENCE ................................................ 2
RISK FACTORS .............................................................. 2
THE COMPANY ............................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES ........................................ 15
USE OF PROCEEDS ........................................................... 15
SELLING SHAREHOLDERS ...................................................... 16
PLAN OF DISTRIBUTION ...................................................... 17
DESCRIPTION OF ILX SECURITIES AND PERTINENT
ARIZONA STATUTES ................................................. 18
SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES ............................................ 20
LEGAL OPINION ............................................................. 21
--------------------------------
6,204,554 Shares
----------
ILX INCORPORATED
Common Stock
----------
PROSPECTUS
----------
================================================================================
<PAGE>
23
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of expenses incurred in
connection with this Registration Statement. All such expenses will be paid by
ILX.
Registration Fee....................................... $ 512.41
Public accountants' fees............................... $ 5,000.00
Legal fees and expenses................................ $ 15,000.00
Printing and engraving expenses........................ $ 1,800.00
Transfer agent's fees.................................. $ 1,000.00
TOTAL........................................ $ 23,312.41
All of the above items, except the Registration Fee, are estimates.
Item 15. Indemnity of the Officers and Directors and Commission Position on Such
Indemnity.
Articles 13 and 14 of ILX's Articles of Incorporation, under certain
circumstances, provide for the indemnification of ILX's officers and directors
against liabilities they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided for is contained herein,
but that description is qualified in its entirety by reference to Articles 13
and 14 of ILX's Articles of Incorporation.
In general, any director or officer of ILX is eligible to be
indemnified against all expenses, including attorneys' fees, judgments, fines,
punitive damages and amounts paid in settlement, that were incurred in
connection with a proceeding to which the director or officer was a party as a
result of his or her relationship with ILX, unless (1) the individual breached
his or her duty of loyalty to ILX, (2) the individual's acts or omissions are
not in good faith, (3) the individual engaged in intentional misconduct or
knowing violation of law, or (4) indemnification is expressly prohibited by
applicable law. In addition, ILX will not indemnify a director or officer for
any liability incurred in a proceeding initiated (or participated in as an
intervenor or amicus curiae) by the officer or director seeking indemnification
unless such initiation or participation is authorized by the affirmative vote of
a majority of the directors in office.
ILX shall advance funds to pay the expenses of any officer or director
involved in a proceeding provided ILX receives an undertaking that the
individual will repay the funds if it is ultimately determined that he or she is
not entitled to indemnification. The indemnification rights granted to ILX's
officers and directors are deemed to be a legally binding contract between ILX
and each such officer and director. Any repeal, amendment or modification of
Articles 13 or 14 of ILX's Articles of Incorporation shall be effective
prospectively and shall not affect any prior rights or obligations concerning
the indemnification of ILX's officers and directors.
<PAGE>
24
Item 16. Exhibits.
The Exhibits required by Item 601 of Regulation S-K have been supplied
as follows:
<TABLE>
<CAPTION>
Exhibit
Numbers Description of Exhibit Page No.
------- ---------------------- --------
<S> <C> <C>
05 Legal Opinion of Colombo & Bonacci, P.C. *
10a Share Transfer Agreement
10b Settlement Agreement
10c RFI Note
10d ILX Guaranty
10e ILES Guaranty
10f LAP Guaranty
10g Amended Loan Agreement
10h Amended Note
10i Amended UCC Financing Statement
10j Amended Timeshare Sale Agreement
12 Statement Regarding Computation of Ratios
23.1 Consent of Colombo & Bonacci, P.C.
23.2 Consent of Deloitte & Touche LLP
* Previously filed
</TABLE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or
events arising after the effective date of
this Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in this Registration
Statement;
<PAGE>
25
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
Provided, however, that the undertakings set forth in paragraphs 1(i) and 1(ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To deliver or cause to be delivered with the Prospectus, to
each person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the Prospectus, to deliver, or cause to be delivered to each person to
whom the Prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the Prospectus to provide such interim
financial information.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(7) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director,
<PAGE>
26
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on July 15, 1997.
ILX INCORPORATED
By /s/ Joseph P. Martori
--------------------------------------
Joseph P. Martori, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joseph P. Martori Chairman/Chief Executive July 15, 1997
- ------------------------------------ Officer/Director -------------
Joseph P. Martori
/s/ Nancy J. Stone President/Chief Financial July 15, 1997
- ----------------------------------- Officer/Director -------------
Nancy J. Stone
/s/ Denise Janda Vice-President/Controller July 15, 1997
- ----------------------------------- -------------
Denise Janda
/s/ Edward J. Martori Director July 15, 1997
- ----------------------------------- -------------
Edward J. Martori
/s/ James W. Myers Director July 15, 1997
- ----------------------------------- -------------
James W. Myers
/s/ Steven R. Chanen Director July 15, 1997
- ------------------------------------ -------------
Steven R. Chanen
/s/ Michael W. Stone Director July 15, 1997
- ------------------------------------ -------------
Michael W. Stone
/s/ Edward S. Zielinski Executive Vice President/ July 15, 1997
- -------------------------------------- Director -------------
Edward S. Zielinski
</TABLE>
STOCK TRANSFER AGREEMENT
between EVEREN Securities, Inc.
("EVEREN") and ILX Incorporated
(the "Company").
R E C I T A L S:
A. EVEREN and the Company have entered a letter agreement effective July
1st, 1997 (the "Letter Agreement"). Pursuant to the Letter Agreement, the
Company is to transfer to EVEREN 60,000 shares of the Company's common stock on
each of August 1st, 1997 and February 1, 1998 (collectively, the "Stock").
B. EVEREN and the Company intend that the transfer of the stock from the
Company to EVEREN qualify as a transaction by an issuer not involving any public
offering pursuant to Section 4(2) of the Securities Act of 1933 as amended (the
"Act") and, at the Company's election, Rule 506 promulgated under the Act.
In consideration of the above premises, the promises contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge, the parties agree as follows:
A G R E E M E N T:
1. Representations.
(i) EVEREN has been provided with or has full and complete access
and opportunity to obtain (i) all available information concerning the Company,
and to evaluate the merits and risks of an investment in the stock and (ii) to
ask questions of, and receive satisfactory answers from, the Company concerning
the terms and conditions of the stock and the Company. Any questions raised by
EVEREN concerning the stock and the Company have been answered to the
satisfaction of EVEREN. Consequently, EVEREN has reached EVERN's own conclusions
as to the viability of the Company. EVEREN's decision to acquire the Stock is
based solely on the representations of the Company contained herein and on the
answers to such questions as EVEREN has raised with the Company concerning the
transaction.
(ii) EVERN is relying on its business and financial knowledge and
experience in making a decision to enter into and execute the Letter Agreement.
EVEREN has such knowledge and experience in business and financial matters that
EVEREN is capable of utilizing the information made available to EVEREN in
connection with the transactions contemplated hereby, of evaluating the merits
and risks of the investment in the Stock, and of making an informed investment
decision.
(iii) EVEREN represents, warrants, understands and agrees that: The
Stock cannot be offered, sold, pledged, transferred or otherwise disposed of by
EVEREN (and EVEREN will not offer, sell, pledge, transfer or otherwise dispose
of the Stock or attempt
<PAGE>
to do so), except as provided here in and except in compliance with applicable
securities laws; An appropriate " stop transfer" with respect to the Stock will
be noted in the Companies records; EVEREN will not sell, offer, transfer, assign
or otherwise dispose of the Stock unless (i) the Stock is registered under the
Act and applicable state securities laws, and EVEREN has held the Stock for
investment purposes pursuant to federal and state law or (ii) an exemption from
such registration is available.
(iv) EVEREN is acquiring the Stock solely for EVEREN's own account,
as principal, for investment, and not with a view to the distribution or resale
of, nor with any present intention of selling or otherwise transferring, the
Stock or any interest in the Stock. No other person has a direct or indirect
beneficial interest in the Stock. To evidence EVEREN's agreement to hold the
Stock being issued to EVEREN consistent with such investment intention, EVEREN
agrees to the following legend being placed on any certificate or other
instrument evidencing the Stock (and agrees to the terms thereof):
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE. SUCH SHARES HAVE BEEN
ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR HIS OWN ACCOUNT AND
NOT WITH ANY VIEW TO DISTRIBUTION AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE
SECURITIES LAWS OR THE RECEIPT BY THE COMPANY OF AN OPINION OF THE
REGISTERED HOLDER'S COUNSEL (REASONABLLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL), THAT SUCH SALE, OFFER, TRANSFER OR
DISPOSITION IS EXEMPT FROM THE REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
Such a legend may be removed from a certificate and the Company may issue a
certificate without such legend if the Stock is registered and sold under the
Securities Act and applicable state securities laws following demonstration of
EVEREN's intent to hold for investment, or if the registered holder thereof
provides the Company with an opinion of counsel (reasonably satisfactory to the
Company and its counsel), or an opinion of the Company's counsel, to the effect
that such sale, offer, transfer or other disposition of such the Stock maybe
made without registration. Such certificates also will be endorsed with any
other legend that counsel for the Company concludes is necessary to comply with
the applicable state securities laws.
(v) EVEREN represents, warrants, understands and agrees that the Stock is
being transferred by the Company in reliance on the exemption provided by
Section 4(2) of the Securities Act and provided by applicable state securities
acts, on the grounds that the transfer does not involve a public offering.
Accordingly, EVEREN represents and warrants that EVEREN (i) has adequate means
of providing for EVEREN's current needs and possible contingencies; (ii)
believes EVEREN's financial condition and investment portfolio are such that
<PAGE>
the transaction contemplated herein is a suitable investment; (iii) is not under
any present necessity or constraint to dispose of EVEREN's investment to satisfy
any existing or contemplated debt or undertaking, and has no need for liquidity
in this investment; (iv) is capable of bearing the substantial economic risks of
the investment in the Stock for an indefinite period of time; and (v) at the
present time could afford to complete loss of the investment.
2. No Other Modifications; Integration. Except as expressly stated
herein, the Letter Agreement is not amended or modified by this Agreement and
the Letter Agreement remains in full force and effect. If any provisions of this
Agreement and the Letter Agreement are deemed to contradict one another, the
terms of the Letter Agreement shall control. All of the terms of the Letter
Agreement are incorporated in this Agreement by this reference.
3. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same agreement.
Dated: As of July 1st, 1997.
EVEREN Securities, Inc.
/s/ Jon K. Haahr
- ----------------
Jon K. Haahr
Managing Director
ILX Incorporated
/s/ Joseph P. Martori
- -----------------
Joseph P. Martori
Chairman of the Board
SETTLEMENT AGREEMENT
THE SETTLEMENT AGREEMENT is made as of the fifteenth (15th) day of
June, 1997 by and between Resort Funding, Inc., a Delaware Corporation, with
offices located at Two Clinton Square, Syracuse, New York 13202 ("RFI"), Los
Abrigados Partners Limited Partnership, an Arizona Limited Partnership, ("LAP")
ILE Sedona Incorporated, an Arizona corporation ("ILES"), ILX Incorporated, an
Arizona corporation ("ILX") and Martori Enterprises Incorporated, an Arizona
corporation (collectively the "Developers"), all with offices located at 2111
East Highland, Suite 210, Phoenix, Arizona 85016. ("Agreement")
WHEREAS, RFI, LAP, ILES and ILX entered into a certain Management
Agreement, dated November 21, 1995, (the "Management Agreement") pursuant to the
terms of which RFI advanced to Developers the sum of Three Million Five Hundred
Thousand Dollars ($3,500,000.00) and Developers agreed to repay such advance to
RFI along with an annual twelve percent (12.0%) cost of funds factor in
thirty-six (36) equal monthly payments ("Indebtedness");
WHEREAS, the parties to the Management Agreement desire to
terminate said Management Agreement and to have ILX execute a promissory note
evidencing the outstanding indebtedness under the Management Agreement, which,
as of the date hereof, is Two Million Four Hundred Thousand Dollars
($2,400,000.00) and, by separate agreement, the additional sum to be advanced to
Developers in the amount of Five Hundred Fifty Thousand Dollars ($550,000.00)
and by affirmative covenant to pledge as security for the payment thereof
certain unsold interval units in Sedona Vacation Club, Kohl's Ranch Lodge,
Varsity Clubs of America: Notre Dame Chapter and Golden Eagle Report to RFI;
WHEREAS, to further secure payment of the Indebtedness, LAP desires
to execute a guaranty and subordination agreement absolutely and unconditionally
guarantying the obligation of ILX under the note;
WHEREAS, to further secure payment of the Indebtedness Martori
Enterprises Incorporated desires to covenant and deliver to RFI One Million
(1,000,000) shares of currently issued ILX Incorporated common stock to RFI
until such times as the outstanding principle balance under the Note is One
Million Dollars ($1,000,000.00) or less;
NOW, THEREFORE, in consideration of the mutual covenants made
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, each of the parties hereto hereby agrees as follows:
1. The Management Agreement and all Collateral Assignments thereof are, as of
the date hereof, hereby terminated. Not withstanding the forgoing, the parties
acknowledge and affirm the continued existence and enforceability of the
Declaration of Trust referenced in Paragraph 3.4(d) of the Management Agreement,
which shall survive the termination of the Management Agreement as set forth
above.
2. ILX as executed a Promissory Note, dated June 15th, 1997, in the amount of
Two Million Four Hundred Thousand Dollars ($2,400,000.00) ("Note").
1
<PAGE>
(a) ILX shall pay to RFI One Hundred Forty Four Thousand Dollars
($144,000.00) as a financing charge in connection with the Note, such amount to
be paid upon execution of the Note by ILX, or within five (5) business days
thereafter.
(b) Interest shall accrue at the rate of twelve percent (12.0%) per annum
and shall be payable on the first day of each month commencing on July 1st,
1997.
(c) All outstanding amounts shall be due and payable on December 31th,
2002.
3. The Developers have executed an Assignment and Security Agreement, of even
date herewith, that pursuant to the terms of which:
(a) Martori Enterprises Incorporated has pledged one million (1,000,000)
shares of currently issued common stock ("ILX Stock") to RFI and has delivered
stock certificates evidencing such shares to RFI. Such pledge shall remain in
full force and effect and RFI shall retain possession of such stock certificates
until such time as the outstanding principal balance under the Note is One
Million Dollars ($1,000,000.00) or less. Upon such reduction of the principle
balance of the Note RFI shall return to Martori Enterprises Incorporated the
certificates for the ILX Stock.
(b) The Developers have covenanted to RFI as collateral for the Note the
following unsold interval unit inventory ("Unsold Inventory") and, beginning
July 1, 1998, shall pay to RFI to reduce the principle balance of the Note the
corresponding release fees upon the sale of each interval unit:
Property Number of Interval Units Release Fee per Interval Unit
-------- ------------------------ -----------------------------
Full Bi-Annual
---- ---------
Golden Eagle Resort 400 $ 500 250
Kohl's Ranch Lodge 1,250 500 250
Sedona Vacation Club 2,100 1,000 500
VCA: Notre Dame Chapter 1,650 1,000(1) 500(1)
1. Commencing after an additional 1,200 full Interval Units (or the equivalent
thereof) have been sold.
(i) The Developers warrant that, except for the interest granted
to RFI pursuant to the terms of the Assignment and Security Agreement and
those specifically disclosed in writing to RFI by Developers ("Disclosed
Liens"), the Developers are the owners of the Unsold Inventory free from
any adverse liens, security interests or encumbrances and the Developers
have the right and authority to give, grant, bargain, sell, assign,
transfer, convey and set over the same as aforesaid. The Developers agree
that they will provide RFI, by the last day of each month, a report of
all completed and pending sales from the immediately preceding month for
each of the Properties listed above.
(ii) The Developers further agree that they will warrant and defend
the Unsold Inventory against claims and demands of all persons at any
time claiming the same or any interest therein, and shall keep such
Unsold Inventory free from all claims, liens, security interest and other
encumbrances other than the Disclosed Liens.
2
<PAGE>
(iii) The Developers have assigned, effective June 15, 1997, all
reserves applicable to any receivables purchased by RFI generated from
the sale of timeshare interval units in Los Abrigados Report and Spa,
located in Sedona, Arizona. Such reserve amounts shall be applied toward
the reduction of the principle balance of the Note as such reserves
become available pursuant to the terms of the Contract of Sale of
Membership Agreement and Installment Purchase Agreements with recourse by
and between the Developers and RFI dated September 14th, 1993. Not
withstanding the termination of the Management Agreement, the advance
rate with respect to Eligible Receivables purchased by RFI generated from
the sale of Interval Units in Los Abrigados Resort and Spa shall be
ninety percent (90%).
4. Except for those rights the Developers may have upon the occurrence of any
default by RFI under the previous and current documentation executed in
connection with a certain project known as Varsity Clubs of America: Tucson
Chapter, the Developers on behalf of each of them, their successors and assigns,
together with their past, present and future officers, directors, agents,
representatives, partners, joint ventures, affiliates and the successors and
assigns of any and all of them, for good and sufficient consideration, the
receipt and sufficiency of which is hereby acknowledged, do hereby forever
waive, release and discharge RFI, its successors and assigns, from any and all
action, causes of action, suits, debts, covenants, contracts, controversies,
agreements, promises, damages, judgments, claims and demands whatsoever, at law
or in equity, which it ever had, now has, or hereafter can, shall or may have
against them for, upon, or by reason of any matter, cause or thing whatsoever
arising from or relating to any loan between the Developers or any of its
affiliates, successors, and/or assigns and RFI, its successors and assigns,
under the loan documents executed in connection therewith, the transactions and
interests contemplated or created thereby or pursuant to any provision of law,
or the interests conveyed, transferred or assigned pursuant to this Agreement,
whether known or unknown, asserted or unasserted, ("Released Claims") and hereby
further irrevocably agrees not to make any claim in respect thereof or commence
or join any suit, action or proceeding, at law or equity, in respect of any such
Released Claims.
5. The Developers hereby agree that until such time as all amounts are paid in
full pursuant to the terms of the Note they jointly and severally agree not to
mortgage, pledge, hypothecate, sell or otherwise encumber any of the assets of
the Developers covenanted or pledged pursuant to the terms hereof or the
assignment and Security Agreement, without the express written consent of RFI,
which shall not be unreasonably withheld.
6. The parties hereto agree that the Developers may conduct its business in the
ordinary course but may not do anything which shall materially affect its assets
or business or in anyway reduce, compromise or affect the covenants to or the
interests of RFI created herein and in the documents executed in connection
herewith, without the express written consent of RFI, which shall not be
unreasonably withheld.
7. None of the terms or provisions of this agreement maybe waived, amended,
supplemented or otherwise modified except by a written instrument executed by
all the parties to this Agreement. This Agreement is binding upon and for the
benefit of the parties hereto and their respective successors and assigns.
3
<PAGE>
8. This Agreement and the rights and obligations of the parties under this
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York without regard to the principles of
conflict of laws.
9. In any action to enforce the provisions of this Agreement, personal
jurisdiction and venue shall be, at the option of RFI, in the Supreme Court of
the State of New York, County of ONONDAGA or the United States District Court
for the Northern District of New York.
10. This Agreement may be executed by one or more of the parties hereto on any
number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the date first above written.
RESORT FUNDING, INC. LOS ABRIGADOS, PARTNERS, LIMITED
PARTNERSHIP
By: ILE Sedona Incorporated
Its: General Partner
By: /s/ Thomas J. Hamel By: /s/ Joseph P. Martori
------------------------------ ------------------------------
Thomas J. Hamel, President Joseph P. Martori, Chairman
ILE SEDONA INCORPORATED ILX INCORPORATED
By: /s/ Joseph P. Martori By: /s/ Joseph P. Martori
------------------------------ ------------------------------
Joseph P. Martori, Chairman Joseph P. Martori, Chairman
MARTOR ENTERPRISES INCORPORATED
By: /s/ Joseph P. Martori
------------------------------
Joseph P. Martori, Chairman
4
PROMISSORY NOTE
Amount: $2,400,000.00 Date: June 15th, 1997
For value received Los Abrigados Partners Limited Partnership, an
Arizona limited partnership, ILE Sedona Incorporated, an Arizona corporation,
ILX Incorporated, an Arizona corporation, all with offices located at 2111 East
Highland, Suite 210, Phoenix, Arizona 85016 (collectively "Maker"), promises to
pay to Resort Funding, Inc., a Delaware corporation ("Lender"), or order, at Two
Clinton Square, Syracuse, New York 13202, or at such other place as the holder
of this promissory note ("Holder") may from time to time designate in writing,
in lawful money of the United States of America, the principle sum of Two
Million Four Hundred Thousand Dollars ($2,400,000.00) or so much thereof as has
been disbursed and not repaid, together with interest on the unpaid principle
balance from time to time outstanding until paid, as more fully provided for
below ("Note").
Concurrently with the execution and delivery of this Note, Maker
and Lender executed and entered into a settlement agreement ("Agreement"). As a
condition precedent to entering into the Agreement, and in consideration
therefore, Maker agreed to execute and deliver this Note with respect to the
method and manner in which the loan made pursuant to the terms of the Agreement
is to be repaid from and after the date hereof.
All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement, the applicable provisions of which
are incorporated herein by reference.
1. Interest rate; Default interest rate.
(a) Interest shall accrue daily commencing on July 1, 1997 on the basis of a
Three Hundred Sixty (360) day year and actual days elapsed and shall accrue from
the date of an advance until the final payment thereof, pursuant to the terms of
the Agreement. During the term of this Note, interest shall accrue at the rate
of twelve percent (12.0%) per annum.
(b) Upon the occurrence and during the continuation of an Event of Default, as
defined herein, Maker shall pay, upon demand by Holder, a default interest rate
of five percent (5.0%) above the interest rate then in effect from the first day
of the month in which such Event of Default occurs.
(c) In no event shall any interest rate to be charged exceed the maximum
contract rate permitted under the applicable Usury Law.
2. Interest payments; Maturity Date.
(a) Payment of interest ("Interest Payments"), shall be due and payable monthly
in arrears immediately available funds commencing on the first business day
after the date of this Note and continuing on the first business day of each
subsequent month until the Maturity Date, as defined
1
<PAGE>
herein. The outstanding principal balance under this Note shall be determined on
a monthly basis and payments due under this Note shall be applied in the
following manner:
(i) First, to any outstanding cost or fees including, but not limited to,
service fees, wire fees and collection costs;
(ii) Second, to any outstanding late fees;
(iii) Third, to accrued interest due; and
(iv) Fourth, to the outstanding principle balance.
(b) On December 31, 2002, (the "Maturity Date"), the entire unpaid principle
balance plus all accrued and unpaid interest and other charges due hereunder or
under the mortgage shall be due and payable in full.
3. Release Fees; Principle Payments.
(a) The Developers have covenanted to RFI as collateral for this Note the
following unsold interval unit inventory ("Unsold Inventory") and, beginning
July 1, 1998, shall pay to RFI to reduce the principle balance of the Note the
corresponding release fees upon the sale of each interval unit;
Property Number of Inverval Units Release Fee per Interval Unit
-------- ------------------------ -----------------------------
Full Bi-Annual
---- ---------
Golden Eagle Resort 400 $ 500 $ 250
Kohl's Ranch Lodge 1,250 500 250
Sedona Vacation Club 2,100 1,000 500
VCA: Notre Dame Chaper 1,650 1,000(1) 500(1)
1. Commencing after an additional 1,200 full interval units (or the
equivalent thereof) have been sold.
(b) Release fees shall be applied by Holder to pay the principle balance due
hereunder.
(c) The Developers warrant that, except for the interest granted to RFI pursuant
to the terms of the Settlement Agreement and those specifically disclosed in
writing to RFI by Developers ("Disclosed Liens"), the Developers are the owners
of the Unsold Inventory free from any adverse liens, security interests or
encumbrances and the Developers have the right and authority to give, grant,
bargain, sell, assign, transfer, convey and set over the same as aforesaid.
(d) The Developers further agreed that they will warrant and defend the Unsold
Inventory against claims and demands of all persons at any time claiming the
same or any interest therein, and shall keep such Unsold Inventory free from all
claims, liens, security interest and other encumbrances other than the Disclosed
Liens.
2
<PAGE>
4. Security. Pursuant to the terms of a Settlement Agreement of even date
herewith, this Note is secured by the following:
(a) A covenant by the Developers to RFI of the above referenced Unsold
Inventory, encumbered only to the extent of the Disclosed Liens.
(b) The covenant and delivery to RFI by Martori Enterprises Incorporated of One
Million (1,000,000) shares of currently issued ILX common stock ("ILX Stock") to
RFI. Such covenant and possession by RFI shall remain in full force and effect
until such time as the outstanding principle balance under this Note is One
Million Dollars ($1,000,000.00) or less. Upon such reduction of the principle
balance of this Note RFI shall return the ILX Stock to Martori Enterprises
Incorporated.
(c) All reserves applicable to any receivables purchased by RFI generated in
connection with the sale of timeshare interval units in Los Abrigados Resort and
Spa, located in Sedona, Arizona. Such reserve amounts shall be applied toward
the reduction of the principle balance of this note as such reserves become
available pursuant to the terms of the Contract of Sale of Membership Agreement
and Installment Purchase Agreement with Recourse by and between the Developers
and RFI dated September 14th, 1993. Not withstanding the termination of the
Management Agreement, the advance rate with respect to the eligible receivables
purchased by RFI generated from the sale of Interval Units in Los Abrigados
Resort and Spa shall be ninety percent (90%).
5. Prepayment. Prepayment of this Note, in whole or in part, without premium or
penalty, shall be permitted at anytime, or pursuant to the payment of release
fees as described in Section 3 hereof.
6. Waivers; Restrictions on Assignment; et cetera.
(a) Every person or entity at anytime liable for the payment of the indebtedness
or any other amounts due under this Note, hereby waives: diligence, presentment
for payment, protest and demand and notice of protest, demand, dishonor or
nonpayment of this Note. Every such person or entity further consents that
Holder may renew or extend the time of payment of any part or the whole of
indebtedness at anytime and from time to time at the request of any other person
or entity liable therefore. Any such renewals or extensions may be made without
notice to any person or entity liable for the payment of the indebtedness
evidenced hereby.
(b) This Note is given and accepted as evidence of indebtedness only and not in
payment or satisfaction of any indebtedness or obligation.
(c) Time is of the essence with respect to all of Maker's obligations and
agreements under this Note.
3
<PAGE>
(d) This Note and all its provisions, conditions, promises and covenants shall
be binding in accordance with the terms hereof upon Maker and the guarantors
hereof, their successors and assigns, provided nothing herein shall be deemed
consent to any assignment restricted or prohibited by the terms of the Agreement
or the terms hereof.
(e) If more than one person or other entity has executed this Note as Maker, the
obligations of such persons and entities shall be joint and several.
7. Events of Default and Remedies.
(a) The following shall be an "Event of Default" hereunder if any one or more of
the following events shall have occurred and be continuing for any reason
whatsoever, voluntarily or involuntarily, by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body:
(i) The failure to make the due and punctual payment of interest
or principle under this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(ii) Failure in the performance or observance of any the other
covenants, agreements or conditions of Maker contained in this note;
(iii) If Maker shall:
(1) Admit in writing its inability to pay its debts generally as they
become due;
(2) File a petition in bankruptcy or a petition or an answer seeking
reorganization or to take advantage of any insolvency act or, on a
petition in bankruptcy filed against it, be adjudicated a bankrupt;
(3) Make any assignment for the benefit of creditors; or
(4) Consent to the appointment of a receiver of itself or of the whole or
any substantial part of its property; or
(iv) The occurrence of an Event of Default, under the Agreement, the
Settlement Agreement, or any related documents thereto, as such term is defined
therein;
(b) Upon the occurrence of an Event of Default, Holder may, at its option, do
any or all of the following:
4
<PAGE>
(i) Declare the entire unpaid principle amount of this Note,
together with all accrued interest thereon, at the option of Holder,
exercised by written notice to the Maker, immediately due and payable;
(ii) Proceed to protect and enforce its rights either by suit in
equity and/or by action of law for the specific performance of any
covenant or agreement contained in this Note, in aid of the exercise of
any power granted in this Note, to enforce the payment of all sums due
upon this Note or to enforce any other legal or equitable right of
Holder.
(c) No remedy herein conferred upon Holder is intended to limit or restrict any
other remedy available to Holder. Each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law, in equity, by statute or otherwise.
(d) No course of dealing between Maker and Holder or any delay on the part of
Holder in exercising any rights hereunder shall operate as a waiver of any
rights of any Holder hereof.
(e) Should any proceedings be instituted by Holder to recover any moneys due
hereunder, Maker agrees to pay all reasonable attorneys fees and costs.
8. Severability. In the event that one or more of the provisions of this Note
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained herein.
9. Governing Law.
(a) This Note shall be deemed to have been made and executed in the County of
Onondaga, State of New York, and this Note shall be interpreted, construed and
enforced in accordance with the laws and public policies of the State of New
York without regard to the principles of conflict of laws.
(b) In any action to enforce this Note, personal jurisdiction and venue shall
be, at the option of RFI, in the Supreme Court of the State of New York, County
of Onondaga or the United States District Court for the Northern District of New
York.
10. Modifications. This Note shall not be modified, amended, changed,
terminated, supplemented or any term or condition thereof waived except in
writing signed by Maker and Holder.
5
<PAGE>
11. Assignment. Maker shall not assign its obligation under this Note without
the expression written consent of Maker. Holder, however, may assign, transfer,
pledge or sell its interest in this Note. Upon notification of such assignment,
Seller shall remit any payments due hereunder from the Seller directly to the
address set forth on the notification thereof.
IN WITNESS WHEREOF, the undersigned sets its hand the date above first written.
LOS ABRIGADOS PARTNERS LIMITED ILX INCORPORATED
PARTNERSHIP
By: ILE Sedona Incorporated
Its: General partner
By: /s/ Joseph P. Martori By: /s/ Joseph P. Martori
---------------------------- ----------------------------
Joseph P. Martori, Chairman Joseph P. Martori, Chairman
ILE SEDONA INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Joseph P. Martori, Chairman
6
GUARANTY
THIS GUARANTY by ILX Incorporated, an Arizona corporation, with offices
located at 2111 East Highland, Suite 210, Phoenix, AZ 85016 ("Guarantor") for
the benefit of Resort Funding, Inc., a Delaware corporation, with offices
located at Two Clinton Square, Syracuse, New York 13202 ("RFI") is made as of
the fifteenth (15th) day of June, 1997 ("Guaranty").
WHEREAS, RFI is entering into a Settlement Agreement ("Agreement") and a
Promissory Note ("Note") with Los Abrigados Partners Limited Partnership, an
Arizona limited partnership, ILE Sedona Incorporated, an Arizona corporation,
and ILX Incorporated, an Arizona corporation (collectively "Developers") bearing
even date herewith; and
WHEREAS, RFI is willing to enter into the Agreement and the Note with
Developers only if Guarantor agrees to guaranty the full, timely, faithful
performance of, payment under and compliance with the Agreement, the Note and
all other documents and agreements called for thereunder (collectively the
"Documents").
NOW, THEREFORE, in order to induce RFI to enter into the Agreement and
the Note with the Developers and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Guarantor hereby
unconditionally covenants and agrees with RFI as follows:
1. The Guarantor hereby unconditionally guaranties to RFI:
(a) The full, complete and punctual performance by Developers of
all the terms, covenants, obligations and conditions contained in the
documents ("Obligations") and
(b) The payment of all sums at any time owed by Developers under
the Documents as and when the same shall become due and payable, whether
at maturity by acceleration or otherwise, according to the terms of the
Documents and all losses, cost, expenses and reasonable attorneys' fees
incurred by reason of the occurrence of an Event of Default under the
Documents (collectively, the "Indebtedness"). In the case of any failure
by Developers to pay the Indebtedness when due, the Guarantor hereby
unconditionally agrees to immediately make such payment as and when the
same shall become due and payable, whether at maturity, by acceleration
or otherwise.
2. Guarantor hereby agrees that its Obligations hereunder shall be
unconditional, irrespective of:
(a) The absence of any attempt to collect from Developers or any
other Guarantor;
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(b) Whether any other action has been instituted or taken to
enforce the same;
(c) The waiver or consent by RFI with respect to any provisions of
the Documents;
(d) The validity or enforceability of the Guaranty against one or
more of any other Guarantor;
(e) The validity or enforceability of the Agreement or the
Documents; or
(f) Any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor.
3. Guarantor hereby waives diligence, presentment, demand for payment, filing of
claims with a court in the event of receivership or bankruptcy of Developers,
protest or notice with respect to the Indebtedness and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the Obligations of Developers contained in the Documents.
4. Upon the occurrence of an Event of Default by Developers, RFI may, at its
option, proceed directly and at once, without notice, against the Guarantor to
collect and recover the full amount of its liability hereunder, or any portion
thereof, without proceeding against Developers, or any other person, or
foreclosing upon, selling, or otherwise disposing of or collecting or applying
any property, real or personal, RFI may then hold as security for such
Indebtedness.
5. Guarantor authorizes RFI without notice or demand and without affecting the
liability of the Guarantor hereunder, from time to time to:
(a) Renew, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of the Indebtedness or any part
thereof;
(b) Accept partial payment on the Indebtedness;
(c) Take and hold security for the payment under this Guarantee or
of the Indebtedness and exchange, enforce, waive and release any such
security;
(d) Apply such security and direct the order or manner of sale
thereof as RFI in its discretion may determine;
(e) Settle, release, compromise, collect or otherwise liquidate any
Indebtedness and/or any security therefore in any manner, without
affecting or impairing the Obligations of Guarantor hereunder; and
2
<PAGE>
(f) RFI may, without notice, assign this Guarantee in whole or in
part.
6. Guarantor shall have no right of subrogation and Guarantor waives any right
to enforce any remedy which RFI now has or may hereafter have against Developers
and any benefit of, and any right to participate in, any security at any time
held by RFI. Guarantor waives set-off, counterclaim, presentment, demand for
performance, notice of non-performance, protest, notice of protest, notice of
dishonor and notice of acceptance of the Guaranty and of the existence, creation
or incurring of new or additional Indebtedness.
7. Guarantor will not take any action which will either:
(a) Force the sale of Developers' Property in order to satisfy the
Indebtedness; or
(b) Affect in any manner any and all of RFI's liens, security
interests, claims or rights of any kind that RFI may now have or
hereafter acquire against Developers of Developers's Property.
8. Guarantor will refrain from taking any action which is in any way
inconsistent with or in derogation of the rights of RFI hereunder.
9. This Guarantee constitutes the entire understanding of the parties with
respect to the subject matter hereof and this Guaranty or any provision hereof
may be amended, terminated, changed, waived or discharged only by an instrument
in writing signed by RFI and the Guarantor hereunder.
10. No failure or delay by RFI or the holder or assignee of any agreement in
exercising any right, power or privilege hereunder or thereunder shall operate
as a waiver thereof; nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any right, power or
privilege.
11. In the event that one or more of the provisions of this Guaranty shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Guaranty, but this Guaranty shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. This Guaranty and the rights of the parties hereunder shall be interpreted,
construed and enforced in accordance with the laws and public policies of the
State of New York, without regard to the principles of conflict of laws.
3
<PAGE>
13. In any action to enforce the provisions of this Guaranty, personal
jurisdiction and venue shall be, at the option of RFI, in the Supreme Court of
the State of New York, County of Onondaga or the United States District Court
for the Northern District of New York.
IN WITNESS WHEREOF, this Guaranty has been executed by the undersigned on
the date above first written.
GUARANTOR
ILX INCORPORATED
By: /s/ Joseph P. Martori
----------------------------
Joseph P. Martori, Chairman
4
GUARANTY
THIS GUARANTY by ILE Sedona Incorporated, an Arizona corporation, with
offices located at 2111 East Highland, Suite 210, Phoenix, AZ 85016
("Guarantor") for the benefit of Resort Funding, Inc; a Delaware corporation,
with offices located at Two Clinton Square, Syracuse, New York 13202 ("RFI") is
made as of the fifteenth (15th) day of June, 1997 ("Guaranty").
WHEREAS RFI is entering into a Settlement Agreement ("Agreement") and a
Promissory Note (Note) with Los Abrigados Partners Limited Partnership, an
Arizona limited partnership, ILE Sedona Incorporated, an Arizona corporation,
and ILX Incorporated, an Arizona corporation (collectively "Developers") bearing
even date herewith; and
WHEREAS, RFI is willing to enter into the Agreement and the Note with
Developers only if Guarantor agrees to guaranty the full, timely, faithful
performance of, payment under and compliance with the Agreement, the Note and
all other documents and agreements called for thereunder (collectively the
"Documents").
NOW, THEREFORE, in order to induce RFI to enter into the Agreement and
the Note with the Developers and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Guarantor hereby
unconditionally covenants and agrees with RFI as follows:
1. The Guarantor hereby unconditionally guaranties to RFI:
(a) The full, complete and punctual performance by Developers of
all the terms, covenants, obligations and conditions contained in the
documents ("Obligations") and
(b) The payment of all sums at any time owed by Developers under
the Documents as and when the same shall become due and payable, whether
at maturity by acceleration or otherwise, according to the terms of the
Documents and all losses, cost, expenses and reasonable attorneys fees
incurred by reason of the occurrence of an event of default under the
Documents (collectively, the "Indebtedness"). In the case of any failure
by Developers to pay the Indebtedness when due, the Guarantor hereby
unconditionally agrees to immediately make such payment as and when the
same shall become due and payable, whether at maturity, by acceleration
or otherwise.
2. Guarantor hereby agrees that its Obligations hereunder shall be
unconditional, irrespective of:
(a) The absence of any attempt to collect from Developers or any
other Guarantor;
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(b) Whether any other action has been instituted or taken to
enforce the same;
(c) The waiver or consent by RFI with respect to any provisions of
the Documents;
(d) The validity or enforceability of the Guaranty against one or
more of any other guarantors;
(e) The validity or enforceability of the Agreement or the
Documents; or
(f) Any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of a Guarantor.
3. Guarantor hereby waives diligence, presentment, demand for payment, filing of
claims with a court in the event of receivership or bankruptcy of Developers,
protest or notice with respect to the Indebtedness and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the Obligations of Developers contained in the Documents.
4. Upon the occurrence of an Event of Default by Developers, RFI may, at its
option, proceed directly and at once, without notice, against the Guarantor to
collect and recover the full amount of its liability hereunder, or any portion
thereof, without proceeding against Developers or any other person, or
foreclosing upon, selling, or otherwise disposing of or collecting or applying
any property, real or personal, RFI may then hold as security for such
Indebtedness.
5. Guarantor authorizes RFI without notice or demand and without affecting the
liability of the Guarantor hereunder, from time to time to:
(a) Renew, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of the Indebtedness or any part
thereof;
(b) Accept partial payment on the Indebtedness;
(c) Take and hold security for the payment under this Guarantee or
of the Indebtedness and exchange, enforce, waive and release any such
security;
(d) Apply such security and direct the order or manner of sale
thereof as RFI in its discretion may determine;
(e) Settle, release, compromise, collect or otherwise liquidate any
Indebtedness and/or any security therefore in any manner, without
affecting or impairing the Obligations of Guarantor hereunder; and
2
<PAGE>
(f) RFI may, without notice, assign this Guarantee in whole or in
part.
6. Guarantor shall have no right of subrogation and Guarantor waives any right
to enforce any remedy which RFI now has or may hereafter have against Developers
and any benefit of, and any right to participate in, any security at any time
held by RFI. Guarantor waives set-off, counterclaim, presentment, demand for
performance, notice of non-performance, protest, notice of protest, notice of
dishonor and notice of acceptance of the Guaranty and of the existence, creation
or incurring of new or additional indebtedness.
7. Guarantor will not take any action which will either:
(a) Force the sale of Developers' Property in order to satisfy the
Indebtedness; or
(b) Affect in any manner any and all of RFI's liens, security
interests, claims or rights of any kind that RFI may now have or
hereafter acquire against Developers of Developers's Property.
8. Guarantor will refrain from taking any action which is in any way
inconsistent with or in derogation of the rights of RFI hereunder.
9. This Guarantee constitutes the entire understanding of the parties with
respect to the subject matter hereof and this Guaranty or any provision hereof
may be amended, terminated, changed, waived or discharged only by an instrument
in writing signed by RFI and the Guarantor hereunder.
10. No failure or delay by RFI or the holder or assignee of any agreement in
exercising any right, power or privilege hereunder or thereunder shall operate
as a waiver thereof; nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any right, power or
privilege.
11. In the event that one or more of the provisions of this Guaranty shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Guaranty, but this Guaranty shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. This Guaranty and the rights of the parties hereunder shall be interpreted,
construed and enforced in accordance with the laws and public policies of the
State of New York, without regard to the principles of conflict of laws.
3
<PAGE>
13. In any action to enforce the provisions of this Guaranty, personal
jurisdiction and venue shall be, at the option of RFI, in the Supreme Court of
the State of New York, County of Onondaga or the United States District Court
for the Northern District of New York.
IN WITNESS WHEREOF, this guaranty has been executed by the undersigned on
the date above first written.
GUARANTOR
ILE SEDONA INCORPORATED
By: /s/ Joseph P. Martori
------------------------------
Joseph P. Martori, Chairman
4
GUARANTY
This guaranty by Los Abrigados Partners Limited Partnership, an Arizona
limited partnership, with offices located at 2111 East Highland, Suite 210,
Phoenix, AZ 85016 ("Guarantor") for the benefit of Resort Funding, Inc; a
Delaware corporation, with offices located at Two Clinton Square, Syracuse, New
York 13202 ("RFI") is made as of the fifteenth (15th) day of June, 1997
("Guaranty").
WHEREAS RFI is entering into a Settlement Agreement ("Agreement") and a
promissory note ("Note") with Los Abrigados Partners Limited Partnership, an
Arizona limited partnership, ILE Sedona Incorporated, an Arizona corporation,
and ILX Incorporated, an Arizona corporation (collectively "Developers") bearing
even date herewith; and
WHEREAS, RFI is willing to enter into the Agreement and the Note with
Developers only if Guarantor agrees to guaranty the full, timely, faithful
performance of, payment under and compliance with the Agreement, the Note and
all other documents and agreements called for thereunder (collectively the
"Documents").
NOW, THEREFORE, in order to induce RFI to enter into the Agreement and
the Note with the Developers and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Guarantor hereby
unconditionally covenants and agrees with RFI as follows:
1. The guarantor hereby unconditionally guaranties to RFI:
(a) The full, complete and punctual performance by Developers of all
the terms, covenants, obligations and conditions contained in the
documents ("Obligations") and
(b) The payment of all sums at any time owed by Developers under the
Documents as and when the same shall become due and payable, whether at
maturity by acceleration or otherwise, according to the terms of the
Documents and all losses, cost, expenses and reasonable attorneys fees
incurred by reason of the occurrence of an event of default under the
Documents (collectively, the "Indebtedness"). In the case of any
failure by Developers to pay the Indebtedness when due, the Guarantor
hereby unconditionally agrees to immediately make such payment as and
when the same shall become due and payable, whether at maturity, by
acceleration or otherwise.
2. Guarantor hereby agrees that its Obligations hereunder shall be
unconditional, irrespective of:
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(a) The absence of any attempt to collect from Developers or any other
Guarantor;
(b) Whether any other action has been instituted or taken to enforce
the same;
(c) The waiver or consent by RFI with respect to any provisions of the
Documents;
(d) The validity or enforceability of the guaranty against one or more
of any other Guarantors;
(e) The validity or enforceability of the Agreement or the Documents;
or
(f) Any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor.
3. Guarantor hereby waives diligence, presentment, demand for payment,
filing of claims with a court in the event of receivership or bankruptcy of
Developers, protest or notice with respect to the Indebtedness and all demands
whatsoever and covenants that its guarantee will not be discharged except by
complete performance of the Obligations of Developers contained in the
Documents.
4. Upon the occurrence of an Event of Default by Developers, RFI may, at its
option, proceed directly and at once, without notice, against the Guarantor to
collect and recover the full amount of its liability hereunder, or any portion
thereof, without proceeding against Developers or any other person, or
foreclosing upon, selling, or otherwise disposing of or collecting or applying
any property, real or personal, RFI may then hold as security for such
Indebtedness.
5. Guarantor authorizes RFI without notice or demand and without affecting
the liability of the Guarantor hereunder, from time to time to:
(a) Renew, extend, accelerate or otherwise change the time for payment
of, or otherwise change the terms of the Indebtedness or any part
thereof;
(b) Accept partial payment on the Indebtedness;
(c) Take and hold security for the payment under this Guarantee or of
the Indebtedness and exchange, enforce, waive and release any such
security;
(d) Apply such security and direct the order or manner of
2
<PAGE>
sale thereof as RFI in its discretion may determine;
(e) Settle, release, compromise, collect or otherwise liquidate any
indebtedness and/or any security therefore in any manner, without
affecting or impairing the Obligations of Guarantor hereunder; and
(f) RFI may, without notice, assign this Guarantee in whole or in
part.
6. Guarantor shall have no right of subrogation and Guarantor waives any right
to enforce any remedy which RFI now has or may hereafter have against Developers
and any benefit of, and any right to participate in, any security at any time
held by RFI. Guarantor waives set-off, counterclaim, presentment, demand for
performance, notice of non-performance, protest, notice of protest, notice of
dishonor and notice of acceptance of the Guaranty and of the existence, creation
or incurring of new or additional Indebtedness.
7. Guarantor will not take any action which will either:
(a) Force the sale of Developers' property in order to satisfy the
indebtedness; or
(b) Affect in any manner any and all of RFI's liens, Security
Interests, claims or rights of any kind that RFI may now have or
hereafter acquire against Developers of Developers property.
8. Guarantor will refrain from taking any action which is in any way
inconsistent with or in derogation of the rights of RFI hereunder.
9. This Guarantee constitutes the entire understanding of the parties with
respect to the subject matter hereof and this Guaranty or any provision hereof
may be amended, terminated, changed, waived or discharged only by an instrument
in writing signed by RFI and the Guarantor hereunder.
10. No failure or delay by RFI or the holder or assignee of any agreement
in exercising any right, power or privilege hereunder or thereunder shall
operate as a waiver thereof; nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege.
11. In the event that one or more of the provisions of this Guaranty shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Guaranty, but this Guaranty shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
12. This Guaranty and the rights of the parties hereunder shall be
interpreted, construed and enforced in accordance with the laws and public
policies of the State of New York, without regard to the principles of conflict
of laws.
3
<PAGE>
13. In any action to enforce the provisions of this Guaranty, personal
jurisdiction and venue shall be, at the option of RFI, in the Supreme Court of
the State of New York, County of Onondaga or the United States District Court
for the Northern District of New York.
IN WITNESS WHEREOF, this guaranty has been executed by the
undersigned on the date above first written.
GUARANTOR
LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP
By: ILE Sedona Incorporated
Its: General Partner
By: /s/ Joseph P. Martori
---------------------------
Joseph P. Martori, Chairman
FIRST AMENDMENT TO THE
ACQUISITION AND DEVELOPEMENT LOAN AGREEMENT
THIS FIRST AMENDMENT to the Acquisition and Development Loan Agreement
("First Amendment") is made as of the fifteenth (15th) day of June, 1997, by and
between VCA Tucson Incorporated, an Arizona corporation, with offices located at
2111 East Highland, Suite 210, Phoenix, Arizona 85016 ("VCA-Tucson"), ILX
Incorporated, an Arizona corporation, with offices located at 2111 East
Highland, Suite 210, Phoenix, Arizona 85016 and Resort Funding Inc.; a Delaware
corporation, with offices located at Two Clinton Square, Syracuse, New York
13202 ("RFI").
WHEREAS, VCA-Tucson and RFI entered into an Acquisition & Development
Loan Agreement dated October 20, 1995 ("Loan Agreement") pursuant to the terms
of which and evidenced by an Acquisition & Development Promissory Note of even
date therewith ("Note") RFI agreed to lend to VCA-Tucson and VCA-Tucson agreed
to pay to RFI the principal sum of Six Million Dollars ($6,000,000.00 or so much
thereof as has been disbursed and not repaid, together with interest on the
unpaid principal balance from time to time outstanding until paid for the
acquisition and development of a project known as Varsity Clubs of America:
Tucson Chapter ("Project"). Such loan is secured by a Mortgage and Security
Agreement and UCC-1 Financing Statement dated October 20th, 1995 and recorded in
the Recorder's Office of Pima County, State of Arizona, on July 15, 1996 in Book
10336 at page 380 ("Mortgage").
WHEREAS, VCA-Tucson desires to borrow an additional Five Hundred Fifty
Thousand Dollars ($550,000.00) for the development of the Project;
WHEREAS, in the event that a penalty is imposed upon VCA-Tucson by the
City of Tucson, which penalty VCA-Tucson disputes the validity of, for failure
to complete construction of the Project on a timely basis as defined in an
agreement between VCA-Tucson and the City of Tucson dated April 26th, 1995, a
copy of which has been attached hereto as Exhibit "B", VCA-Tucson desires to
borrow the amount of such penalty pursuant to the terms of the Note in an amount
not to exceed an additional Two Hundred Thousand Dollars ($200,000.00).
WHEREAS, VCA-Tucson and RFI have agreed to amend the terms of the Loan
Agreement, the Note and the Mortgage to evidence and secured such additional
borrowing.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. The initial paragraph of the Loan Agreement is hereby amended as
follows:
The term "Six Million Dollars ($6,000,000.00)" is hereby replaced with the term
"Six Million Five Hundred Fifty Thousand Dollars ($6,550,000.00.)
1
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2. Section 1.4 is hereby deleted in its entirety and replaced with the
following:
"Approved Budget. The term "Approved Budget" shall mean an updated budget which
shall be supplied by the Borrower, and attached to this First Amendment as
Exhibit "A" and incorporated herein by reference."
3. Section 2.3(d) is hereby deleted in its entirety and in its place shall
be inserted the following:
"(d) Each Application for Advance is submitted by Borrower to Lender
by the twenty-fifth (25th) day of the month preceding the month in which the
Borrower desires the Advance. Provided all documentation for an Advance is
received by the twenty-fifth (25th) day of the month Lender shall make the
requested Advance on the tenth day (10th)of the following month."
4. Section 2.9 is hereby added to the Loan Agreement and reads as follows:
"In the event that a penalty is imposed upon VCA-Tucson by the City of Tucson
for failure to complete construction of the Project on a timely basis as defined
in an agreement between VCA-Tucson and the City of Tucson dated April 26th,
1995, a copy of which is attached hereto as Exhibit "B", RFI agrees to lend
VCA-Tucson the amount of such penalty pursuant to the terms of the Note in that
amount not to exceed Two Hundred Thousand Dollars ($200,000.00). The parties
hereto agree that in no way shall the lending of any amounts to be used in
connection with the payment of any penalty imposed on VCA-Tucson be construed to
be an admission by or against RFI of any liability for the imposition of such
penalty. VCA-Tucson hereby agreed to defend and indemnify RFI, its successors
and assigns, against any allegation, suit, action, cause of action, penalty,
fine or any other liability which may arise, be brought or alleged against RFI
in connection with any penalty imposed upon VCA-Tucson by any party or
governmental unit for any reason. The amount of the annual Interval Release Fees
as set forth in Paragraph 10 of the Note shall be adjusted to Two Thousand Four
Hundred Dollars as of the date RFI advances VCA-Tucson the additional amount set
forth above."
5. All provisions of the Loan Agreement are hereby confirmed and ratified
except as specifically set forth herein, in which event the provisions of the of
this First Amendment shall prevail.
RESORT FUNDING, INC. VCA TUCSON INCORPORATED
By: /s/ Thomas J. Hamel By: /s/ Joseph P. Martori
------------------------------ -------------------------------
Thomas J. Hamel, President Joseph P. Martori, Chariman
ILX INCORPORATED
By: /s/ Joseph P. Martori
-------------------------------
Joseph P. Martori, Chairman
2
<PAGE>
EXHIBIT A
Updated Approved Budget
3
<PAGE>
EXHIBIT B
Agreement Between VCA-Tucson And The City Of Tucson
4
<PAGE>
EXHIBIT "A"
UPDATED APPROVED BUDGET
Reference is made Approved Budget dated April 4th, 1996, previously submitted to
you, which is incorporated herein by reference with respect to specifics.
General Contract and General Conditions $4,000,000
Land and Carrying Costs 1,100,000
Architecture, Interior Design and Procurement 200,000
Interest Reserve 450,000
Furniture, Fixtures, Equipment and Amenities 800,000
----------
Total $6,550,000
==========
Dated this 3rd day of June, 1997
VCA TUCSON INCORPORATED ILX INCORPORATED
BY: /s/ Joseph P. Martori BY: /s/ Joseph P. Martori
------------------------------- -------------------------------
Joseph P. Martori, Chairman Joseph P. Martori, Chairman
<PAGE>
EXHIBIT "B"
OFFER TO PURCHASE
To: City of Tucson
Real Estate Division
201 N. Stone/6th floor
Tucson, Arizona 85626-7210.
ILX Incorporated, an Arizona corporation, having a notice address of 2777 East
Camelback Road, Phoenix, Arizona 85016 hereinafter called the BUYER(S), hereby
offers and agrees to purchase from CITY OF TUCSON a municipal corporation,
hereinafter called the CITY, at the price and subject to their terms, conditions
and covenants herein stated, the following described property:
See Attached EXHIBIT A.
SUBJECT TO all provisions, conditions, easements, restrictions, covenants,
encumbrances and other matters of record, and to all zoning, building or other
laws or ordinances.
The purchase price shall be One Million Two Thousand Dollars ($1,002,000.00)
which includes the deposit tendered with this offer.
The BUYER(S) hereby tenders as a deposit the sum of Fifty Thousand One Hundred
DOLLARS ($50,100.00), representing the minimum five percent (5%) of the gross
amount of the offer on the following conditions:
** DELETE IF PURCHASING ALL CASH.
**On or before close of escrow, the Buyer(s) will tender the sum of Three
Hundred Thousand Six Hundred DOLLARS ($300,600.00) representing the minimum
thirty percent (30%) down payment of the gross amount of the offer, which
includes the deposit provided for in this offer.
**The balance of the purchase price in the amount of Sevem Hundred One Thousand
Four Hundred DOLLARS ($701,400.00) shall be in form of a promissory note
security by a Land Contract executed by the Buyer(s) as Vendee, and the City of
Tucson as Vendor.
EX. 2 TO ORDINANCE NO. 8503
Page 1 of 5
<PAGE>
The balance of the principle sum of Seven Hundred and One Thousand Four Hundred
DOLLARS ($701,420.00) together with the interest from the date of said closing
on the unpaid principle balance at the rate of Nine and Three quarters Percent
(9.75%) per annum, shall be payable in three equal annual amortized payments.
The first of which installment shall be due and payable one year after the date
of closing (1 year). Succeeding installments shall be due and payable on the
same day of each and every calendar year thereafter for a period of two (2)
years, at which time the entire amount of principal and interest shall be due
and payable. No interest only payment proposals will be accepted.
** Each payment shall be credited first on the interest then due and remainder
on principal.
** The principal balance of said Note maybe prepaid in whole or in part at any
time or times without penalty.
** Assignment of the Note and Land Contract by the buyer shall be subject to the
City's prior review and approval, which approval shall not be unreasonably
withheld.
The closing date shall be within forty-five (45) days from date of acceptance of
this offer by Mayor and Council. If the Buyer(s) fail to fulfill their part of
this instrument within forty five-days (45) from the date of acceptance of this
offer by Mayor and Council, the deposit tendered with this offer shall be
forfeited to the City, except as otherwise noted herein. Buyer(s) are granted a
right to enter the property described herein during the before mentioned 45 day
period for purpose of performing any environmental (soils) analysis deemed
necessary by the Buyer, consistent upon Buyer providing to City any and all
testing information generated as a result of said analysis. Should said
environmental analysis results not be satisfactory to Buyer, Buyer shall be
allowed to withdraw this Offer to Purchase and receive the deposit tendered
through thereto so long as all other conditions of said Offer to Purchase are
met.
This sale is subject to approval by the City Manager, and if forwarded for
review, subject to approval of the Mayor and Council. The city reserves the
right to reject any and all offers either at City Manager or Mayor or Council
level authority.
Thirty (30) days from the date of the bid opening are hereby given to the City
to obtain official Mayor and Council acceptance of this offer. If accepted, the
acceptance portion of this instrument shall be signed by the City and delivered
to the Buyer(s) within ten (10) business days following the date of acceptance.
If this offer is not accepted, the amount of the deposit will be returned to the
Buyer(s) with reasonable promptness. The escrow closing agent shall be Old
Republic Title Agency.
City shall provide standard form of title insurance policy in the amount of the
purchase price. If Buyer(s) require(s) an extended ALTA title policy, Buyers
shall pay for cost of ALTA survey and all costs exceeding standard form of title
insurance policy. Title insurance policy to be issued by Old Republic Title
Agency. All other title and escrow costs and expense incidental to this
transaction shall be charged to the parties in the customary manner. There shall
be no adjustment in the sales price as a result of the ALTA survey.
Page 2 of 5
<PAGE>
Possession of the property shall be given to Buyer(s) on closing.
If applicable, the Buyer(s) acknowledge(s) N/A as his/their Broker/Agent. As a
result of this sale, the City agrees to pay a commission fee on closing to said
Broker/Agent. If the deposit is forfeited and/or this transaction does not
close, no commission will be paid. No commission fee will be paid if
Broker/Agent is also a Principal/Buyer. Commission fee shall be 5 percent, under
the terms and conditions noted herein.
Commissions will be paid only to qualified Arizona Licensed Brokers.
The Buyer(s) understand(s) and acknowledge(s) that the utility locations and/or
dimensions shown herein and in the sales brochure are based on information
believed to be reliable; however, the City does not guarantee or warrant this
information. Building and occupancy permits are subject to availability of
water/sewer capacity at time of actual application.
To the best of the Seller's knowledge, without independent investigation or
inquiry for purposes of this transaction, no contamination exists on the subject
property at the time of sale which would constitute a threat to environmental or
human health or safety, which is in violation of applicable state, federal, or
local environmental laws, regulations or standards, or which could have a
material adverse affect on the ownership or operation of the subject property
subsequent to Closing. Sellers' knowledge of the condition of the subject
property is based upon a review of the readily ascertainable history of uses and
occupancies on the subject property and upon visual inspection of the surface of
the property by City staff, and is not based on any formal, full-scale
environmental audit performed either by in-house experts or by outside
environmental consultants. Except as specifically set forth in this Agreement,
Seller has not made, or authorized anyone to make, any warranty or
representation about the present or future physical or environmental condition
of the subject property and no such representation or warranty shall be implied.
Buyer expressly acknowledges that no such warranty or representation has been
made and that Buyer is not relying upon any warranty or representation
whatsoever, except as may be expressly set forth in this agreement. Buyer
acknowledges and agrees that, having been given the opportunity to inspect the
property, Buyer is relying solely upon its own investigation of the property and
not on any information provided or to be provided by the Seller. Buyer further
acknowledges that any information provided or to be provided by or on behalf of
Seller with respect to the property was obtained from a variety of sources, and
that Seller has not made any independent investigation or verification of such
information, and makes no representation or warranties as to the accuracy or
completeness of such information. Buyer further acknowledges that, to the
maximum extent allowed by law, the sale of the subject property is made in an
"as is" condition and with all faults. Buyer shall accept the subject property
"as is" and in its condition on the date of the closing, subject only to the
express provisions, if any, of this agreement. Buyer, for and on behalf of
itself, and its heirs, successors, and/or assigns, hereby releases and agrees to
hold harmless Seller, its Mayor and Council, Boards, Committees, and
Commissions, officers and employees, from and against any and all claims that it
may now or hereafter have against Seller for any cost, loss, liability, damage,
expense, demand, claim, or cause of action arising or alleged to have arisen
from or relating to any defect or condition, including environmental matters,
affecting the property or any portion thereof. The hold-harmless provisions of
this section shall survive the closing.
Page 3 of 5
<PAGE>
Transfer of property, if sold, shall be by City of Tucson form of Special
Warranty Deed. If sold on terms, a Contract for Sale will be recorded with a
Special Warranty Deed recorded upon full payment.
All terms, covenants, conditions and provisions herein contained shall extend to
and be binding upon the parties, their assignees, heirs, devisees, personal
representatives, or other successors in interest, irrespective of how said
interest was acquired.
Buyer, and their heirs, successors and/or assigns, agrees to complete the
development of the property herein described in the manner substantially as
shown an Exhibit "B" attached hereto and made a part hereof no later than thirty
(30) months from the date of closing of escrow. This condition shall be
satisfied upon activation of all utilities necessary for occupancy of the above-
described development. Should no such activation occur for said described
development within the prescribed time period, Buyer shall pay to City an
additional sum of money in cash totaling twenty percent of the entire Offer to
Purchase amount bid herein. Said payment must be made to City no later than
thirty one (31) months from the date of closing of escrow, and upon receipt of
said payment by City, said development condition shall expire. Failure to tender
the sum so stated to the City shall be deemed a breach of contract. Said payment
may not be made to City prior to thirty (30) months from the date of closing of
escrow in an effort to satisfy the development condition note herein.
In the event of any material breach of the provisions of this contract,
including without limitation to the development and payment obligations in the
preceding paragraph, the City shall have the right to collect any and all
damages flowing from such breach in an action at law or equity, including all
attorneys fees, costs and other expenses incurred in the enforcement of such
obligations by the City.
Amendments/Additional Conditions or Contingencies: See attached Addendum "A".
This instrument contains the entire agreement between the City and the Buyer(s).
All understandings, conversations and communications, oral or written, between
the parties hereto, or on behalf of either of them, are merged into and
superseded by this instrument and shall be of no further force or effect.
Dated this 26th day of April 1995.
/s/ Joseph P. Martori Chairman
------------------------------------
Buyer(s) SIGNATURE Joseph P. Martori
Chairman of the Board
- --------------------------
BUYER(S) SIGNATURE
2777 East Camelback Road
Phoenix, Arizona 85016 (602)957-2777
- -------------------------- --------------------------
ADDRES OF BUYER(S) TELEPHONE NUMBER
Page 4 of 5
<PAGE>
ACCEPTANCE
The hereinabove offer to purchase City property at the price and according to
the terms, covenants, conditions and provisions above stated is hereby accepted
pursuant to approval by the Mayor and Council. The City agrees to pay applicable
brokerage fee upon close of escrow to
Dated this 22 Day of May 1995.
City of Tucson, a municipal corporation.
By /s/ George Miller
--------------------
Mayor
ATTEST:
By: /s/ Kathleen S. Ditrich
---------------------------
City Clerk
APPROVED AS TO FORM:
By:
---------------------------
City Attorney
Page 5 of 5
<PAGE>
BIDDER'S ACKNOWLEDGMENT
Buyer hereby acknowledges receipt of the following items:
1. Offer to Purchase;
2. Bidding Procedures with Real Estate Brokers Commission Schedule;
3. Map;
4. Deed;
5. Preliminary Title Report;
6. Contact for Sale; and
7. Rating Schedule.
X /s/ Joseph P. Martori, Chairman Date April 26, 1995
------------------------------- --------------
Joseph P. Martori
Chairman of the Board
Please sign and return this acknowledgement with the proposal documents.
FIRST AMENDMENT TO THE
ACQUISITION & DEVELOPMENT PROMISSORY NOTE
THIS FIRST AMENDMENT to the Acquisition & Development Promissory Note
is made as of the fifteenth (15th) day of June, 1997, by and between VCA Tucson
Incorporated, an Arizona corporation (VCA-Tucson), ILX Incorporated, an Arizona
corporation, ("ILX") both with offices located at 2111 East Highland, Suite 210,
Phoenix, Arizona 85016 and Resort Funding, Inc., a Delaware corporation, with
offices located at Two Clinton Square, Syracuse, New York 13202 ("RFI"). ("First
Amendment").
WHEREAS, VCA-Tucson and ILX executed an Acquisition & Development
Promissory Note in favor of RFI ("Note") pursuant to the terms thereof and
pursuant to an Acquisition & Development Loan Agreement of even date therewith
("Loan Agreement") RFI agreed to lend to VCA-Tucson and VCA-Tucson agreed to pay
to RFI the principle sum of Six Million Dollars ($6,000,000.00) or so much
thereof as has been disbursed and not repaid, together with interest on the
unpaid principal balance from time to time outstanding until paid. Such loan is
secured by a Mortgage and Security Agreement and UCC-1 Financing Statement dated
October 20th, 1995 and recorded in the Recorder's Office of Pima County, State
of Arizona, on July 15th, 1996 in Docket 10336 at page 380 ("Mortgage").
WHEREAS, VCA-Tucson desires to borrow on additional Five Hundred Fifty
Thousand Dollars ($550,000.00), Four Hundred Fifty Thousand Dollars
($450,000.00) of which shall be an interest reserve in connection with the
amounts borrowed for the development of the Project;
WHEREAS, VCA-Tucson and RFI have agreed to amend the terms of the Loan
Agreement, the Note and the Mortgage to evidence the secured sum additional
borrowing.
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The initial paragraph of the Note is hereby amended as follows:
The term "Six Million Dollars ($6,000,000.00)" is hereby replaced with the term
"Six Million Five Hundred Fifty Thousand Dollars ($6,550,000.00)".
2. Section 1. Interest: The second and third sentence of the first
paragraph of the Note are deleted in their entirety and replaced with the
following:
"Interest shall accrue at a rate per annum equal to twelve percent
(12.0%).
1
<PAGE>
3. Section 2. Installment Payment; Maturity: The first sentence of this
section is hereby deleted in its entirety and replaced with the following:
"Installment of interest only ("Interest Installment") shall be due and payable
monthly in arrears immediately available funds commencing thirty (30) days from
the date of this Note and subsequent Interest Installments shall be due on the
first business day of each month for a period of forty eight (48) months after
the date of this First Amendment."
4. Section 10. Release Fees: This section is hereby amended to include the
following sentence:
"In addition to the release fees Maker shall pay to holder an equity kicker for
each annual Interval Unit sold in the Project in the amount of One Hundred
Dollars ($100.00) and for each bi-annual Interval Unit sold in the Project in
the amount of Fifty Dollars ($50.00). The payment of such equity kicker shall
survive and continue after this Note is satisfied and all amounts due under this
note have been paid in full. The equity kicker shall be paid only with respect
to the sales of Interval Units in Varsity Clubs of America: Tucson Chapter, and
not with respect to any other timeshare intervals sold at the project."
5. All provisions of the Note are hereby confirmed and ratified except as
specifically set forth herein, in which event the provision of this First
Amendment shall prevail.
RESORT FUNDING, INC. VCI-TUCSON INC.
By: /s/ Thomas J. Hamel By: /s/ Joseph P. Martori
-------------------------- ---------------------------
Thomas J. Hamel, President Joseph P. Martori, Chairman
ILX INCORPORATED
By: /s/ Joseph P. Martori
---------------------------
Joseph P. Martori, Chairman
2
FIRST AMENDMENT TO THE MORTGAGE AND SECURITY AGREEMENT
and UCC-1 FINANCING STATEMENT
THIS FIRST AMENDMENT to the Mortgage and Security Agreement and UCC-1
Financing Statement is made as of the fifteenth (15) day of June, 1997, by and
between VCA-Tucson Incorporated, an Arizona corporation, with offices located at
2111 East Highland, Suite 210, Phoenix, Arizona 85016, as Grantor thereunder,
("VCA-Tucson") and Resort Funding, Inc., a Delaware corporation, with offices
located at Two Clinton Square, Syracuse, NY 13202, as Grantee thereunder
("RFI"). ("First Amendment").
WHEREAS, VCA-Tucson and RFI entered into an Acquisition & Development
Loan Agreement dated October 20th, 1995 ("Loan Agreement") pursuant to the terms
of which and evidenced by an Acquisition & Development Promissory Note of even
date therewith ("Note") RFI agreed to lend to VCA-Tucson and VCA-Tucson agreed
to pay to RFI the principal sum of Six Million Dollars ($6,000,000.00) or so
much thereof as had been disbursed and not repaid, together with interest on the
unpaid principle balance from time to time outstanding until paid for the
acquisition and development of a project known as Varsity Clubs of America:
Tucson Chapter ("Project"). Such loan is secured by a Mortgage and Security
Agreement and UCC-1 Financing Statement dated October 20, 1995 and recorded in
the Recorder's Office of Pima County, State of Arizona, on July 15th, 1996 in
Docket 10336 at Page 380 ("Mortgage").
WHEREAS, VCA-Tucson desires to borrow an additional Five Hundred Fifty
Thousand Dollars ($550,000.00) as an interest reserve in connection with the
amount borrowed for the development of the Project;
WHEREAS, VCA-Tucson and RFI have agreed to amend the terms of the Loan
Agreement, the Note and the Mortgage to evidence and secured such additional
borrowing.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. The initial paragraph of the Mortgage is hereby amended as follows:
The term "Six Million Dollars ($6,000,000.00)" is hereby replaced with the term
"Six Million Five Hundred Fifty Thousand Dollars ($6,550,000.00)."
1
<PAGE>
2. Section 30(b)(iv) is hereby amended to include the following sentence:
"In addition to the release fees Grantor shall pay to Grantee an equity kicker
for each annual Interval Unit sold in the amount of One Hundred Dollars
($100.00) and for each bi-annual Interval Unit sold in the Project in the amount
of Fifty Dollars ($50.00). The payment of such equity kicker shall survive and
continue after the Note is satisfied and all amounts due under the Note have
been paid in full. The equity kicker shall be paid only with respect to the
sales of Interval Units in Varsity Clubs of America: Tucson Chapter and not with
respect to any other timeshare intervals sold at the Project.
3. All provisions of the mortgage are hereby confirmed and ratified except
as specifically set forth herein, in this event the provisions of this First
Amendment shall prevail.
RESORT FUNDING, IC.
By: /s/ Thomas J. Hamel
--------------------------
Thomas J. Hamel, President
VCA TUCSON INCORPORATED
/s/ Denise L. Janda
- -------------------------
Witness
By: /s/ Joseph P. Martori
--------------------------
Joseph P. Martori
Veronica Madrid
- -------------------------
Witness
STATE OF ARIZONA )
COUNTY OF MARICOPA ) ss.:
On this 30th day of June, 1997, before me personally came Joseph P. Martori, to
me personally known, who by me being duly sworn, did depose and say that he is
the chairman of the VCA-Tucson Inc, and he acknowledged to me that he executed
the same on behalf of and in the name of the corporation.
/s/ Stephanie D. Castronova
- ---------------------------
Notary Public
My Commission Expires March 20, 1998
2
FIRST AMENDMENT TO THE
CONTRACT OF SALE OF TIMESHARE RECEIVABLES WITH RECOURSE
THIS FIRST AMENDMENT to the Contract of Sale of Timeshare Receivables
With Recourse is made as of the fifteenth (15th) day of June, 1997, by and
between VCA-Tucson Incorporated, an Arizona corporation, with offices located at
2111 East Highland, Suite 210, Phoenix, Arizona 85016 ("VCA-Tucson"), ILX
Incorporated, an Arizona corporation, with offices located at 2111 East
Highland, Suite 210, Phoenix, Arizona 85016 and Resort Funding, Inc, a Delaware
corporation, with offices located at Two Clinton Square, Syracuse, New York,
13202 ("RFI"). First ("Amendment").
WHEREAS, VCA-Tucson and RFI entered into a Contract of Sale of
Timeshare Receivables with Recourse dated October 20, 1995 ("Contract of Sale")
pursuant to the terms of which RFI agreed to purchase from VCA-Tucson and
VCA-Tucson agreed sell to RFI Eligible Receiveables, as that term is defined
therein, generated from the sale of timeshare interval units in a project known
as Varsity Clubs of America: Tucson Chapter ("Project").
WHEREAS, pursuant to the terms of an Acquisition and Development Loan
Agreement and a First Amendment thereto of even dated herewith, (collectively
the "A&D Loan Agreement") VCA-Tucson desires to borrow an additional Five
Hundred Fifty Thousand Dollars ($550,000.00) for the development of the Project;
WHEREAS, in order to obtain such additional borrowing and a reduction
in the interest rate applicable to the Acquisition and Development Loan
Agreement VCA-Tucson has agreed to pay to RFI an equity kicker for each interval
unit sold in the Project, as more fully described below;
WHEREAS, VCA-Tucson and RFI have agreed to amend the terms of the
Contract of Sale and the A&D Loan Agreement to evidence and secured such
additional borrowing.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. The third sentence of Section 2.9 is hereby deleted and replaced with
the following:
"In addition to the release fees Maker shall pay to Holder an equity kicker for
each Annual Interval Unit sold in the Project in the amount of One Hundred
Dollars ($100.00) and for each bi-annual interval unit sold in the project in
the amount of Fifty Dollars ($50.00). The equity kicker shall be paid only with
respect to the sales of Interval Units in Varsity Clubs of America: Tucson
Chapter and not with respect to any other timeshare intervals sold at the
Project. The Loan shall be evidenced by a promissory note ("Note") in a
principal amount not to exceed Six Million Five Hundred Fifty Thousand Dollars
($6,550,000.00). The payment of such equity kicker shall survive and continue
after the Note is satisfied and all amounts due under the Note have been paid in
full."
1
<PAGE>
2. All provisions of the Contract of Sale are hereby confirmed and
ratified except as specifically set forth herein, in this event the provisions
of this First Amendment shall prevail.
RESORT FUNDING, INC. VCA TUCSON INCORPORATED
By: /s/ Thomas J. Hamel By: /s/ Joseph P. Martori
-------------------------- ---------------------------
Thomas J. Hamel, President Joseph P. Martori, Chairman
ILX INCORPORATED
By: /s/ Joseph P. Martori
---------------------------
Joseph P. Martori, Chairman
2
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Ended March 31 Years Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes and after
minority interest 176,777 1,729,938
========== ==========
$ 77,447 $1,986,488 $1,976,231 $1,225,874
Add fixed charges:
Interest expense 463,585 1,975,110 1,265,227 666,141 599,238 643,023
========== ==========
Amortization of debt
service 13,900 72,100 100,200 140,600 93,150 185,209
==========
Rental expense 36,917 147,667 163,333 149,667 105,333 46,000
==========
------------------------------------------------------------------------------
Total fixed charges 514,402 2,194,877 1,528,760 956,408 797,721 874,232
========== ==========
------------------------------------------------------------------------------
Income (loss) as adjusted $ 691,179 $3,924,815 $1,606,207 $2,942,896 $2,773,952 $2,100,106
========== ==========
------------------------------------------------------------------------------
Fixed charges in
excess of earnings
Ratio of earnings 1.34 1.79 1.05 3.08 3.48 2.40
to fixed charge ==== ====
</TABLE>
COLOMBO & BONACCI, P.C.
ATTORNEYS AT LAW
2525 EAST CAMELBACK ROAD MAIN OFFICE: (602) 956-5800
SUITE 840 FACSIMILE: (602) 956-3322
PHOENIX, ARIZONA 85016
July 16, 1997
ILX Incorporated: S-3 Registration Statement
--------------------------------------------
Gentlemen:
We have acted as counsel to ILX Incorporated, an Arizona
corporation, (the "Company") in connection with the registration by the Company
of Common Stock pursuant to a registration statement filed by the Company on
Form S-3 with respect to the above described securities (the "Registration
Statement").
We hereby consent to the filing of our opinion (in the form of
Exhibit 5 of the Registration Statement), or copies thereof, as an exhibit to
the Registration Statement and all amendments to it. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the SEC thereunder.
Very truly yours,
/s/ COLOMBO & BONACCI, P.C.
COLOMBO & BONACCI, P.C.
ILX Incorporated
2111 East Highland, Suite 210
Phoenix, Arizona 85016
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
ILX Incorporated on Form S-3 of our report dated March 25, 1997, appearing in
the Annual Report on Form 10-K of ILX Incorporated for the year ended December
31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
July 15, 1997
Exhibit 23.2
