SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1997 Commission File Number 33-16122
------------------ --------
ILX INCORPORATED
----------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016
------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-957-2777
------------
---------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
----- ---------------------------------
Common Stock, without par value 13,431,662 shares
Preferred Stock, $10 par value 380,468 shares
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,218,261 $ 3,523,047
Notes receivable, net 16,058,418 11,745,720
Resort property held for timeshare sales 14,064,827 15,247,587
Resort property under development 1,727,833 1,209,706
Land held for sale 1,551,065 1,547,493
Deferred assets 313,813 313,346
Property and equipment, net 5,182,104 4,877,467
Deferred income taxes 438,449 1,178,653
Minority interests 318,711 --
Other assets 2,082,751 1,631,886
------------ ------------
$ 43,956,232 $ 41,274,905
------------ ------------
Liabilities and Shareholders' Equity
Accounts payable $ 1,919,757 $ 2,310,600
Accrued and other liabilities 1,727,533 3,476,135
Genesis funds certificates 1,164,913 1,182,087
Due to affiliates 41,336 139,715
Notes payable 19,250,677 14,867,096
Notes payable to affiliates 3,110,106 1,567,287
------------ ------------
27,214,322 23,542,920
------------ ------------
Minority Interests -- 2,556,865
------------ ------------
Shareholders' Equity
Preferred stock, $10 par value; 10,000,000 shares authorized;
380,468 and 392,109 shares issued and outstanding; liquidation
preference of $3,804,680 and $3,921,090, respectively 1,384,891 1,419,243
Common stock, no par value; 40,000,000 shares authorized;
13,462,162 and 13,024,290 shares issued and outstanding 10,275,111 9,788,738
Treasury stock, at cost, 30,500 and 30,000 shares, respectively (37,099) (36,536)
Additional paid in capital 79,450 78,300
Retained earnings 5,039,557 3,925,375
------------ ------------
16,741,910 15,175,120
------------ ------------
$ 43,956,232 $ 41,274,905
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Sales of timeshare interests $ 7,017,548 $ 5,480,153 $ 17,955,423 $ 15,270,596
Resort operating revenue 2,636,829 2,713,317 7,866,593 7,996,778
Sales of land and other 12,982 30,017 67,563 331,615
Interest income 414,482 248,532 973,236 712,628
------------ ------------ ------------ ------------
10,081,841 8,472,019 26,862,815 24,311,617
------------ ------------ ------------ ------------
Cost of sales and operating expenses
Cost of timeshare interests sold 2,538,146 1,566,106 6,286,509 4,960,098
Cost of resort operations 2,672,365 2,598,017 7,938,745 7,924,836
Cost of land sold and other 5,981 31,160 50,978 291,017
Advertising and promotion 2,629,237 1,980,278 6,539,853 5,168,565
General and administrative 692,225 723,990 2,199,251 2,157,287
Provision for doubtful accounts 208,759 36,410 526,352 459,143
------------ ------------ ------------ ------------
8,746,713 6,935,961 23,541,688 20,960,946
------------ ------------ ------------ ------------
Operating income 1,335,128 1,536,058 3,321,127 3,350,671
Interest expense 564,710 478,962 1,500,472 1,406,073
------------ ------------ ------------ ------------
Income before minority interests and income taxes 770,418 1,057,096 1,820,655 1,944,598
Minority interests 290,446 (204,303) 121,693 (486,469)
Income taxes (423,845) (354,006) (776,302) (607,371)
------------ ------------ ------------ ------------
Net income $ 637,019 $ 498,787 $ 1,166,046 $ 850,758
============ ============ ============ ============
Net income per common and equivalent
share $ 0.04 $ 0.03 $ 0.08 $ 0.06
============ ============ ============ ============
Number of common and equivalent
shares 13,413,664 13,013,372 13,257,677 12,890,033
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,166,046 $ 850,758
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed minority interest (121,968) 239,258
Provision for doubtful accounts 526,352 459,143
Depreciation and amortization 345,145 543,643
Deferred income taxes 740,204 735,150
Amortization of guarantee fees 67,150 56,300
Gain on settlement of liability (98,705) --
Change in assets and liabilities:
Decrease in resort property held for timeshare sales 1,182,760 485,381
Additions to resort property under development (518,127) (65,269)
Increase in land held for sale (3,572) (2,309)
Increase in other assets (174,637) (198,852)
Decrease in accounts payable (390,843) (141,757)
Increase (decrease) in accrued and other liabilities 487,323 (15,841)
Decrease in Genesis funds certificates (17,174) (175,171)
Decrease in due to affiliates (98,379) (240,863)
----------- -----------
Net cash provided by operating activities 3,091,575 2,529,571
----------- -----------
Cash flows from investing activities:
(Increase) decrease in deferred assets (67,617) 66,050
Purchases of plant and equipment (492,988) (242,465)
Notes receivable, net (4,554,967) (3,123,123)
----------- -----------
Net cash used in investing activities (5,115,572) (3,299,538)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 6,208,386 4,181,139
Principal payments on notes payable (4,374,662) (3,826,898)
Principal payments on notes payable to affiliates (202,181) (339,350)
Distributions to minority partners (960,000) (720,000)
Proceeds from issuance of common stock 96,125 423,875
Acquisition of treasury stock (563) --
Redemption of preferred stock -- (12,000)
Preferred stock dividend payments (47,894) (47,971)
----------- -----------
Net cash provided by (used in) financing activities 719,211 (341,205)
----------- -----------
Net decrease in cash and cash equivalents (1,304,786) (1,111,172)
Cash and cash equivalents at beginning of period 3,523,047 3,746,518
----------- -----------
Cash and cash equivalents at end of period $ 2,218,261 $ 2,635,346
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
- ---------------------------------------------------
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in resort properties located in
Arizona, Colorado, Florida, Indiana and Mexico. Effective in the third quarter
of 1994, the Company expanded its operations to include marketing of skin and
hair care products which are not considered significant to resort operations.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three and nine month periods ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements.
The consolidated financial statements include the accounts of ILX Incorporated
and its wholly owned and majority-owned subsidiaries ("ILX" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition
- -------------------
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and the Company has been
released of all future obligations for the timeshare interest. Resort operating
revenue represents daily room rentals and revenues from food and other resort
services. Such revenues are recorded as the rooms are rented or the services are
performed.
Statements of Cash Flows
- ------------------------
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the three and nine month periods ended September
30, 1997 and 1996, the Company paid interest and income taxes and capitalized
interest to resort property under development as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Interest $ 627,079 $ 497,975 $1,546,751 $1,376,891
Income Taxes $ -- $ 2,000 $ -- $ 2,000
Interest Capitalized $ 54,020 $ 19,859 $ 140,006 $ 53,958
5
<PAGE>
Reclassifications
- -----------------
The financial statements for prior periods have been reclassified to be
consistent with the 1997 financial statement presentation.
Note 2 - Notes Payable
In June 1997, the Company negotiated a settlement agreement for the 1996 breach
by a timeshare lender of a 1995 management agreement between the lender and the
Company. Under the management agreement, the lender committed to advance $3.5
million, but failed to fund $1.1 million of this amount. The settlement
agreement provides for repayment of the outstanding advances through a note
payable in the amount of $2.4 million. The note bears interest commencing July
1, 1997, at 12% per annum, payable monthly. Commencing July 1, 1998, principal
is payable through release payments upon the sale of certain timeshare
intervals. Any outstanding principal and interest is due in full on December 31,
2002. The note is secured by one million shares of ILX stock pledged by an
affiliate of the Company, for which the affiliate will receive a guarantee fee.
The settlement agreement also includes the termination of the management
agreement (which included a profit sharing arrangement), the commitment by the
lender to advance an additional $550,000, bringing the total commitment to
$6,550,000, for the construction of Varsity Clubs of America - Tucson, as well
as a reduction in interest rate to 12% (from 13%) on the Varsity Clubs of
America - Tucson construction note, and the addition of a fee of $100 per annual
Varsity Clubs of America - Tucson timeshare interest sold. The settlement was
recorded as follows:
Increase in notes payable $ 2,400,000
Decrease in accrued liabilities (2,214,622)
Increase in notes receivable (284,083)
Gain on settlement 98,705
-----------
$ 0
===========
In June 1997, the Company entered into an agreement with one of its timeshare
lenders whereby the Company may borrow up to $5 million against consumer notes
from sales of timeshare interests in Kohl's Ranch Lodge and, in addition,
whereby the Company in July 1997 borrowed $1.5 million, secured by a first
position deed of trust on Kohl's Ranch Lodge. The existing first deed of trust
on Kohl's Ranch Lodge of $444,500 was repaid in full in conjunction with the new
financing. The $1.5 million borrowing bears interest at prime plus 4%, interest
payable monthly and principal payable through release payments as timeshare
interests are sold, with a minimum principal payment of $80,000 due per quarter,
and the balance due in full June 27, 2000. Borrowings against the $5 million
commitment for timeshare paper bear interest at prime plus 3.25% and are secured
by the consumer notes.
In July 1997, the Company borrowed $598,500 from one of its timeshare lenders to
purchase 285 timeshare interests in Los Abrigados Resort & Spa. The interests
were acquired for approximately $567,000, including closing costs, under an
option agreement whereby the Company had both the option and under certain
circumstances the obligation to purchase up to 667 intervals at a cost of $2,100
per interval. The July purchase was made at a negotiated rate that was less than
the amount specified in the option agreement. Following this transaction, 107
intervals remain subject to the option. The borrowing is secured by the 285
intervals and bears interest at prime plus 4%, with a 13% maximum rate. Interest
is payable monthly and principal is payable in quarterly installments of $25,000
through September 2000.
6
<PAGE>
In September 1997, the Company borrowed an additional $800,000 from the first
mortgage holder on the Los Abrigados Resort & Spa and extended the maturity date
of the borrowing to April 1999.
During the third quarter of 1997, the Company borrowed $1,309,269 on its
$6,550,000 construction financing commitment for the Varsity Clubs of America -
Tucson facility, bringing the balance outstanding on the loan to $1,609,269 at
September 30, 1997.
During the first nine months of 1997, the Company borrowed $1,651,427 against
consumer notes receivable and also borrowed on its lines of credit, of which
$200,000 was outstanding at September 30, 1997.
During the second quarter of 1997, property and equipment of $97,181 was leased
and a vehicle was financed for $29,450.
Note 3 - Notes Payable to Affiliates
In July 1997, the Company issued 184,000 shares of its restricted common stock,
which were subsequently registered with the Securities and Exchange Commission,
in exchange for a $230,000 note payable to an affiliate. In conjunction with the
exchange, 100 timeshare intervals in Los Abrigados Resort & Spa, which secured
the note, were released.
In August 1997, the Company acquired the Class B Limited Partnership Interest in
LAP, effective as of January 1, 1997, for a purchase price of $2,920,000,
consisting of cash payments of $820,000, the issuance of 100,000 shares of the
Company's common stock valued at $1.25 per share and the issuance of promissory
notes in the amount of $1,300,000 and $675,000. The $1,300,000 note payable,
secured by the Company's 10% Class B Limited Partnership Interest in Los
Abrigados, bears interest at 8%, with principal of $100,000 payable on or before
January 1, 1998 and principal and interest payable in annual installments of
$200,000 commencing July 31, 1998, with any unpaid principal and interest due
July 31, 2002. Interest from August 8, 1997 through January 1, 1998 will be
added to principal on December 31, 1997. The $675,000 note payable, secured by
the Company's 11.5% Class B Limited Partnership Interest in Los Abrigados, bears
interest at 8%, with principal and interest payable in annual installments of
$100,000 commencing July 31, 1998, with any unpaid principal and interest due
July 31, 2002. The purchase was recorded as follows:
Increase in notes payable to affiliates $ 1,975,000
Issuance of common stock 125,000
Increase in other assets (306,392)
Decrease in minority interest (2,613,608)
-----------
Issuance of cash payments $ (820,000)
===========
Note 4 - Shareholders' Equity
During the first nine months of 1997, holders of 11,334 shares of Series C
Preferred Stock exchanged their shares for 18,890 shares of common stock. The
exchanges were recorded as a reduction in preferred stock and an increase in
common stock of $31,282. Shares of stock valued at $3,966 and cash of $16 were
issued in the first nine months of 1997 for the Dividend Arrearage due to the
holders of Series C Preferred Stock who converted their shares in the first nine
months of 1997.
7
<PAGE>
During the second quarter of 1997, holders of 307 shares of Series A Preferred
Stock exchanged their shares for lodging certificates at Kohl's Ranch. Preferred
stock was reduced by $3,070, which is the liquidation and par value of the
shares surrendered and additional paid in capital was increased by $1,150, which
is the difference between the par value of the preferred stock and the liability
recorded related to the lodging certificates.
During the first six months of 1997, the Company issued to employees in exchange
for services provided 71,000 shares of restricted common stock, valued at
$39,875.
Effective January 1, 1997, the Company entered into a one-year consulting
agreement for financial and business advisory services, subject to extension on
a month-to-month basis at the option of the Company. In exchange for the
services to be provided, the Company granted options for up to 500,000 shares of
common stock exercisable over a one-year period, provided that certain options
were exercised prior to June 30, 1997. Also effective January 1, 1997, the
Company entered into a separate consulting agreement through June 1997. In
exchange for the services to be provided under this agreement, the Company
granted options for 500,000 shares of common stock at $1.25 per share,
exercisable through June 1997. The obligations to fulfill such options under
both agreements were assumed by an affiliate of the Company effective January 1,
1997. All such options expired without exercise on June 30, 1997.
In June 1997, the Company entered into an agreement with EVEREN Securities, Inc.
("ESI") for ESI to act as ILX's exclusive financial advisor, investment banker
and agent with respect to evaluation of alternatives to position ILX for
long-term growth and to enhance shareholder value. In exchange for the services,
ILX issued 60,000 shares of ILX common stock on August 1, 1997 and will issue an
additional 60,000 shares on February 1, 1998. The shares issued and to be issued
have been valued at $112,500, and are being amortized over a twelve-month
period. $28,125 has been expensed through September 30, 1997. In accordance with
the terms of the agreement, ILX has registered with the Securities and Exchange
Commission the shares issued in August and will likewise cause the shares to be
issued in February to be so registered. The parties intend for the agreement to
remain in effect for a minimum of one year.
Note 5 - Subsequent Events
In October 1997, the Company made a bid to acquire an approximate 5/8 undivided
interest in the common areas of and all of the undeveloped and unsold portions
of the Roundhouse Resort, an existing 59-unit resort with five acres of
developable land located in Pinetop/Lakeside, Arizona. The Company's bid has
been approved by the United States Bankruptcy Court for the District of Arizona,
with the closing expected in mid-November. The bid price is $700,000, to consist
of $525,000 in cash and $175,000 in stock valued at the market price on the
closing date.
8
<PAGE>
ILX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Sales of timeshare interests were 28.1% and 17.6% greater for the three and nine
months ended September 30, 1997, respectively, than for the same periods in
1996. The increases reflect greater sales from the Sedona and South Bend Sales
Offices, sales to customers already owning interests in ILX resorts, and the
opening of sales offices in Tucson and the Phoenix metropolitan area, net of
reduced sales from the Kohl's Ranch Sales Office for the first six months of
1997.
The increase in sales to existing ILX owners in 1997 reflects an expanded
marketing program whereby owners are offered the opportunity to upgrade their
ownership to a larger size unit, to exchange their ownership to a different
resort, and/or to purchase additional time. As a result of the increased
marketing efforts to existing customers, revenue increased to approximately
$528,000 in 1997 from $202,000 in 1996 for the third quarter, and to $2,232,000
from $703,000 for the nine months ended September 30, 1997 and 1996,
respectively.
Sales of timeshare interests from the Sedona Sales Office increased
approximately $395,000 and $659,000 for the three and nine months ended
September 30, 1997 from the same periods in 1996 due to increases in prices and
a greater number of timeshare tours, and in the first and third quarters of
1997, increased closing rates (number of timeshare sales divided by number of
timeshare tours).
Sales of timeshare interests in Varsity Clubs of America - Notre Dame were
$2,507,980 and $1,823,887 and $5,726,925 and $3,879,491 for the three and nine
months ended September 30, 1997 and 1996, respectively. In 1997, approximately
$3,904,000 in Varsity Clubs of America - Notre Dame sales were generated from
the South Bend Sales Office, $1,779,000 from the Sedona Sales Office, which
commenced offering interests in Varsity Clubs of America - Notre Dame in June
1996 and $44,000 from the Tucson Sales Office, which opened in August 1997.
Sales of Varsity Clubs of America - Notre Dame in the first six months of 1996
were primarily from the South Bend Sales Office. The increase in 1997 sales from
the South Bend Sales Office reflects higher closing rates and increased prices.
Sales of timeshare interests in Kohl's Ranch increased approximately $112,000 in
the third quarter of 1997 from the third quarter of 1996, reflecting increased
prices, net of a reduced closing rate. Sales decreased approximately $306,000
for the nine months ended September 30, 1997 from the same period in 1996 as a
result of lower closing rates and a lower number of timeshare tours, which in
part were offset by increased prices. Second and third quarter 1997 sales
include $109,395 in sales of Kohl's Ranch interests from a sales office opened
on a trial basis in the Phoenix metropolitan area in late April 1997. The office
was not retained beyond the trial period (April - July 1997) due to high
marketing costs and low closing rates.
In late August 1997, the Tucson Sales Office opened and began selling timeshare
interests in Los Abrigados Resort & Spa, Varsity Clubs of America - Notre Dame
and Kohl's Ranch Lodge. Sales from this office were $240,730 for the third
quarter of 1997.
The increase in cost of timeshare interests sold as a percentage of sales
between years reflects an adjustment to the estimated cost of Los Abrigados
interests in 1996.
9
<PAGE>
The decreases in resort operating revenue for both the third quarter and the
nine months ended September 30, 1997 from the same periods in 1996 reflect: at
Los Abrigados Resort & Spa, increased occupancy by timeshare owners and exchange
guests, who pay substantially lower rates than resort guests, reduced food and
beverage revenue from these guests, net of increased average daily rates;
increased occupancy and average daily rates for both Varsity Clubs of America -
Notre Dame and Kohl's Ranch; and revenue from Lomacasi Cottages, which was
acquired on March 1, 1996. The increased usage of Los Abrigados Resort & Spa by
timeshare owners and exchange guests in 1997 reflects in part differences in
timing of usage as well as the increasing number of timeshare owners. The
increased occupancy at Varsity Clubs of America - Notre Dame and Kohl's Ranch
reflects the maturing of operations at these properties, both of which opened
during 1995.
Cost of resort operations as a percentage of resort operating revenue is
comparable between periods for the nine months ended September 30, 1997. The
increase in cost of resort operations as a percentage of resort operating
revenue for the third quarter of 1997 from the same period in 1996 reflects a
change in estimated depreciation expense in 1996. 1997 costs for Varsity Clubs
of America - Notre Dame and Kohl's Ranch as a percentage of revenue are lower
than 1996 due to increased occupancy and average daily rate. 1997 Los Abrigados
costs as a percentage of revenue are higher than 1996 due to increased occupancy
by timeshare owners, who pay a lower rate for their usage.
The decrease in sales of land and other and the related cost of sales for the
nine months ended September 30, 1997 reflects the sale of a parcel of land held
by Genesis in the second quarter of 1996. Sales are comparable for the three
months ended September 30, 1997 and 1996.
The increase in interest income from 1996 to 1997 is a result of the increased
consumer paper retained by the Company and an increase in interest rates charged
by the Company effective July 1997. The Company hypothecates (borrows against)
the majority of its retained paper.
Advertising and promotion as a percentage of sales has increased for both the
third quarter and nine months ended September 30, 1997 from the same periods in
1996 due to increased costs of generating tours to the Arizona sales offices in
1997, a low closing rate in the trial Phoenix office in 1997, a lower closing
rate at the Kohl's Ranch Sales Office in 1997 than 1996, the opening of the
Tucson Sales Office in 1997, and due to the recognition in 1996 of benefits from
premiums issued to potential customers in prior periods which expired without
redemption. Increases in costs of generating tours in 1997 is due in part to the
trial of several new marketing strategies which were determined not to be cost
effective and therefore terminated in July and August 1997.
General and administrative expenses are comparable between years for the nine
months ended September 30, 1997 and 1996. General and administrative expenses
are lower as a percentage of revenue in the third quarter of 1997 than for the
same period in 1996 due to the recognition in 1997 of a $114,929 gain resulting
from the settlement of accrued liabilities and the purchase of assets from an
affiliate at less than the recorded amount.
The increase in the provision for doubtful accounts for the third quarter of
1997 from same period in 1996 reflects an adjustment to the provision in 1996
based on the expected performance of the portfolio of consumer paper, both sold
and unsold. The provision for doubtful accounts is comparable as a percentage of
sales of timeshare interests for the nine months ended September 30, 1997 and
1996.
Interest expense is comparable between periods and reflects increased borrowings
against consumer paper retained by the Company, borrowings against resort
property held for sale and debt issued in exchange for the purchase of LAP
minority interest, net of payments.
10
<PAGE>
The decrease in minority interests from 1996 to 1997 reflects the purchase by
the Company of the minority interest in LAP effective January 1, 1997. 1997
minority interest consists of operating losses of Lomacasi Cottages, which was
acquired March 1, 1996 and the minority interest in operating losses of Sedona
Worldwide Incorporated commencing January 1, 1997.
ILX Incorporated intends from time to time to utilize the trade names and/or
marks "ILX Resorts" and "ILX Resorts Incorporated."
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs principally arise because it finances consumer
purchases of timeshare interests. The Company addresses such liquidity needs
through the sale and/or hypothecation of the consumer notes it generates. In
that regard, the Company has $5 million of credit issued by a financing company
under which conforming notes from sales of interval interests in Los Abrigados
Resort & Spa can be sold on a recourse basis through March 1998. In addition,
the Company has an open ended arrangement with a finance company which is
expected to provide financing of notes from sales of interests in Los Abrigados
Resort & Spa of at least $5 million through 1997. At September 30, 1997,
approximately $2.2 million is available under the fixed commitment line and a
minimum of $2.4 million is expected to be available on the open-ended line. The
Company also has financing commitments whereby the Company may borrow up to $2
million against non-conforming notes from sales of interval interests in Los
Abrigados Resort & Spa, Golden Eagle Resort, Kohl's Ranch and Varsity Clubs of
America - Notre Dame, and $2.2 million against conforming notes from sales of
interval interests in Golden Eagle Resort through March 1998. Approximately
$900,000 was available under these commitments at September 30, 1997.
The Company has a $10 million open ended financing arrangement whereby the
Company may sell eligible notes received from sales of timeshare interests in
Varsity Clubs of America - Notre Dame on a recourse basis. Approximately $3.5
million was available under this commitment at September 30, 1997.
The Company has financing commitments whereby it may borrow up to $5 million
against conforming notes received from sales of timeshare interests in Kohl's
Ranch through March 1998 and $5 million through June 2000. Approximately $2.2
million was available on the first commitment and $5 million on the second
commitment at September 30, 1997.
The Company will continue to retain certain non-conforming notes which have one
to two year terms or which do not otherwise meet existing financing criteria,
and finance these notes through internal funds. The Company will pursue
additional credit facilities to finance conforming and non-conforming notes as
the need for such financing arises.
The Company has a $500,000 line of credit each from two financial institutions.
At September 30, 1997, $800,000 was available for working capital.
In June 1997, the Company negotiated a settlement agreement for the 1996 breach
by a timeshare lender of a 1995 management agreement between the lender and the
Company. Under the management agreement, the lender committed to advance $3.5
million, but failed to fund $1.1 million of this amount. The settlement
agreement provides for repayment of the outstanding advances through a note
payable in the amount of $2.4 million.
11
<PAGE>
In July 1997, the Company borrowed $1.5 million, secured by a first position
deed of trust on Kohl's Ranch Lodge. The funds were used to repay the prior
first deed of trust of $444,500, and the balance for working capital.
In July 1997, the Company acquired 285 timeshare interests in Los Abrigados
Resort & Spa for approximately $567,000. The purchase of the intervals was
financed by a $598,500 borrowing from one of the Company's timeshare lenders,
and is secured by the intervals acquired.
In August and September 1997, the Company acquired the Class B Limited
Partnership Interests in Los Abrigados for $820,000 cash, 100,000 shares of the
Company's common stock valued at $1.25 per share and notes payable totaling
$1,975,000 secured by the Company's interest in LAP. The Company borrowed an
additional $800,000 from the first mortgage holder on Los Abrigados to finance
the acquisition.
During the third quarter of 1997, the Company borrowed $1,309,268 on its
construction financing commitment for the Varsity Clubs of America - Tucson
facility.
Cash provided by operating activities increased from $2,529,571 in 1996 to
$3,091,575 in 1997 due to greater net income and an increase in accrued
liabilities, offset by additions to resort property under development in 1997
and greater additions to resort property held for timeshare sales in 1996.
The increase in cash used in investing activities from $3,299,538 in 1996 to
$5,115,572 in 1997 reflects primarily an increase in consumer notes retained by
the Company and an increase in purchases of plant and equipment.
The change from cash used in financing activities in 1996 of $341,205 to cash
provided by financing activities in 1997 of $719,211 reflects greater borrowings
in 1997.
Although no assurances can be made, based on the prior success of the Company in
obtaining necessary financings for operations and for expansion, the Company
believes that with its existing financing commitments, its cash flow from
operations and the contemplated financings discussed above, the Company will
have adequate capital resources for at least the next twelve to twenty-four
months.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
(a) The Exhibit Index attached to this report is hereby incorporated by
reference.
Reports on Form 8-K
- -------------------
(b)
(i) The Company filed with the Securities and Exchange Commission a report
on Form 8-K dated August 22, 1997, which disclosed the following:
Item 5. Other Events.
On August 29, 1997, ILX Incorporated ("ILX") and Alan R. Mishkin
("Mishkin") entered into an Agreement for Transfer of Limited Partnership
Interest (the "Mishkin Agreement").
12
<PAGE>
Under the terms of the Mishkin Agreement, ILX is to purchase from
Mishkin all of Mishkin's Class B Limited Partnership Interest (the "Mishkin
LAP Interest") in Los Abrigados Limited Partners Partnership, an Arizona
limited partnership ("LAP"). For accounting certainty, the parties have
agreed that the transfer of the Mishkin LAP Interest shall have an
effective date of January 1, 1997. In consideration for the transfer of the
Mishkin LAP Interest, ILX shall pay to Mishkin $720,000 upon closing, and
shall deliver a promissory note in the amount of $675,000 (the "Mishkin
Note"). In addition, ILX shall issue to Mishkin 100,000 shares of common
stock of ILX. Closing under the Mishkin Agreement is scheduled to occur on
or before September 28, 1997.
When issued, the Mishkin Note will be payable in annual installments of
$100,000 (inclusive of principal and interest), payable on July 31 of each
year beginning July 31, 1998. The entire unpaid principal balance of the
Mishkin Note and accrued and unpaid interest, if any, is payable on July
31, 2002. ILX's obligations under the Mishkin Note are secured by a
Security Agreement covering the Mishkin LAP Interest (the "Mishkin Security
Agreement").
The above descriptions are qualified in their entirety by reference to
the Mishkin Agreement, Mishkin Note and Mishkin Security Agreement attached
as Exhibits 10A, 10B and 10C, respectively, of this Form 8-K.
On August 22, 1997, ILX purchased from Martori Enterprises Incorporated
("MEI"), all of MEI's Class B Limited Partnership Interest in LAP (the "MEI
LAP Interest"). The purchase was consummated pursuant to an Agreement for
Transfer of Limited Partnership Interest (the "MEI Agreement"). In
consideration for transfer of the MEI LAP Interest, ILX paid to MEI
$100,000, and issued a promissory note in the amount of $1,300,000 (the
"MEI Note"). The MEI Note is payable by an installment of $100,000
(inclusive of principal and interest) on January 1, 1998, and by equal
annual installments of $200,000 (inclusive of principal and interest)
payable on July 31 of each year, beginning July 31, 1998. The entire unpaid
principal balance of the MEI Note and accrued and unpaid interest, if any,
is payable on July 31, 2002. ILX's obligations under the MEI Note are
secured by a Security Agreement covering the MEI LAP Interest (the "MEI
Security Agreement").
The MEI Agreement and the transactions contemplated thereby are subject
to rescission by ILX at any time prior to the close of business on October
15, 1997, if ILX has not acquired the Mishkin LAP Interest by that date.
ILX anticipates that it will not exercise this rescission right.
The above descriptions are qualified in their entirety by reference to
the MEI Agreement, the MEI Note and the MEI Security Agreement attached as
Exhibits 10D, 10E and 10F, respectively, of this Form 8-K.
(ii)The Company filed with the Securities and Exchange Commission a report
on Form 8-K dated September 22, 1997, which disclosed the following:
Item 5. Other Events.
On September 22, 1997, ILX Incorporated ("ILX") filed a No Action
Letter Request (the "Request") with the Securities and Exchange Commission
(the "SEC"). ILX seeks an opinion from the SEC regarding ILX's proposal to
transfer common stock of its subsidiary, Sedona Worldwide incorporated,
formerly Red Rock Collection Incorporated, ("Sedona") to the holders of
ILX's common stock on a prorata basis. ILX seeks to conduct the transfer as
a taxable dividend without registration of the Sedona common stock under
the Securities Act of 1933.
13
<PAGE>
Prior to conducting the payment of the stock dividend to ILX's
shareholders, ILX would cause Sedona to undertake a stock split so that
Sedona would have 4,000,000 issued and outstanding shares of common stock.
Thereafter, ILX would transfer a total of twenty percent of the Sedona
common stock to Todd Fisher and to a trust held by celebrity Debbie
Reynolds in connection with Personal Services Agreements that Mr. Fisher
and Ms. Reynolds entered with ILX and Sedona. Under those Agreements, Mr.
Fisher and Ms. Reynolds have agreed, among other things, that Ms. Reynolds
will endorse the Red Rock Collection line of face, body, bath and hair care
products. (ILX contemplated merging Red Rock Collection with another wholly
owned subsidiary, which then was named Sedona Worldwide Incorporated, with
the intention that the resulting corporation would fulfill the obligations
under the Personal Service Agreements. Instead, on September 19, 1997, ILX
elected to and did change Red Rock Collection's name to Sedona Worldwide
Incorporated and changed the name of the original Sedona Worldwide
Incorporated to SW Resorts Incorporated. Accordingly, Sedona will continue
to benefit from and be subject to the obligations contained in the Personal
Service Agreements and Sedona holds all the assets and liabilities of Red
Rock Collection. ILX will continue to hold SW Resorts Incorporated as a
wholly owned subsidiary.)
In connection with the dividend payment of Sedona common stock to ILX's
common shareholders, ILX's board of directors will establish a record date
when and as the board deems appropriate. The record date will determine the
identity of the ILX common shareholders who will be entitled to receive the
dividend of Sedona's common stock when the subject shares are transferred.
In connection with the stock transfer, ILX proposes to place the Sedona
common stock in escrow until the stock may be transferred to the identified
ILX shareholders pursuant to the state laws of the states in which the such
ILX shareholders reside. The determination of when such transfers may be
undertaken in compliance with any applicable state law will be made by
ILX's board of directors on advice of ILX's counsel. The transfers are
proposed to take place on a state-by-state basis when and as ILX's board on
advice of counsel determines that an exemption from registration is
available under such state laws or ILX otherwise qualifies the shares for
transfer to the appropriate ILX shareholders.
The above description of the Request and the proposed transfer of
Sedona common stock is qualified in its entirety by reference to the
Request, which is attached as Exhibit 10A.
Item 7. Financial Statements and 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>
10A Mishkin Agreement 4
10B Form of Mishkin Note 14
10C Form of Mishkin Security Agreement 16
10D MEI Agreement 21
10E MEI Note 29
10F MEI Security Agreement 31
10A No Action Letter Request 4
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ILX INCORPORATED
(Registrant)
/S/ Joseph P. Martori
-------------------------------
Joseph P. Martori
Chief Executive Officer
/S/ Nancy J. Stone
-------------------------------
Nancy J. Stone
President/
Chief Financial Officer
/S/ Denise L. Janda
-------------------------------
Denise L. Janda
Vice President and Controller
Date: As of October 31, 1997
15
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
10-1 Third Amendment to Loan and Security Agreement between Tammac Financial
Corp. and ILX Incorporated dated as of August 25, 1997 (Kohl's Ranch).
10-2 Fourth Modification Agreement ($5,000,000) between Bank One, Arizona,
NA and Los Abrigados Partners Limited Partnership dated September 3,
1997 (additional advance).
16
EXHIBIT 10-1
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This Third Amendment to Loan and Security Agreement (hereinafter
referred to as the "Third Modification Agreement") is made as of the 25th day of
August, 1997, by and among TAMMAC FINANCIAL CORP., a Delaware Corporation,
having its principal office located at 100 Commerce Boulevard, Wilkes-Barre,
Pennsylvania 18702 (hereinafter referred to as the "Lender"), and ILX
INCORPORATED, an Arizona Corporation, having its principal place of business
located at 2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016
(hereinafter referred to as the "Borrower").
RECITALS:
---------
A. On or about August 25, 1995, Borrower entered into a certain Loan
and Security Agreement dated as of that date providing for Lender to advance
certain sums to Borrower on a secured basis up to a maximum principal sum of Ten
Million ($10,000,000) Dollars (the "Loan Agreement").
B. The obligations of the Borrower as more particularly set forth in
the Loan Agreement, are evidenced by, among other documents, that certain
Promissory Note, dated as of August 25, 1995, executed and delivered by Borrower
to Lender in the principal sum of up to TEN MILLION ($10,000,000) DOLLARS (the
"Note").
C. To secure the payment and performance of the Borrower's obligations
pursuant to the Loan Agreement and the Note, the Borrower executed and delivered
to Lender: (i) that certain Deed of Trust, Assignment of Rents and Security
Agreement, made as of August 25, 1995, designating the Borrower as "Trustor,"
First American Title Insurance Company as "Trustee," for the benefit of Lender,
as "Beneficiary," which Deed of Trust was recorded in the Official Records of
Gila County, Arizona on September 13, 1995, as Fee No. 95-671002, covering the
"Premises" and "Trust Property" more particularly described therein. The
aforesaid Deed of Trust was thereafter modified and amended by: (i) that certain
Deed of Trust Spreader and Amendment Agreement and Amendment to Loan Documents,
made as of April 12, 1996, by and between Borrower and Lender, which was
recorded in the Official Records of Gila County, Arizona on June 24, 1996 as Fee
No. 96-009607 (the "Spreader Agreement"); and (ii) that certain Modification to
Deed of Trust and Amendment to Loan Documents, made as of December 31, 1996, by
and between Borrower and Lender, which was recorded in the Official Records of
Gila County, Arizona on February 27, 1997, as Fee No. 97-702708 (the
"Modification to Deed of Trust", which together with the Deed of Trust and the
Spreader Agreement, as same may be modified, amended or supplemented, are
hereinafter collectively referred to as the "Deed of Trust").
D. In conjunction with the Loan, and to perfect the security interests
granted by the Borrower to Lender in and to the Collateral described in the Loan
Agreement, the Borrower executed and delivered to Lender certain Uniform
Commercial Code Financing Statements, which
<PAGE>
were amended (herein, the "UCCs"), which UCCs were filed or recorded in the
Offices of the Secretary of State of Arizona and the Official Records of Gila
County, Arizona.
E. In conjunction with the Loan, the Borrower executed and delivered or
caused to be executed and delivered to Lender an Environmental Indemnity
Agreement with respect to the Premises, Incumbency Certificates, Corporate
Resolutions, an Estoppel Certificate, a Governmental Regulation Compliance
Affidavit, Agency Agreement, an Intercreditor Agreement and related documents
(collectively, the "Other Loan Documents").
F. The Loan Agreement, the Note, the Deed of Trust, the UCC's and the
Other Loan Documents, all as amended, modified, renewed, substituted or
replaced, whether contemporaneously herewith or at any time hereafter, are
hereinafter sometimes collectively referred to as the "Loan Documents."
G. Pursuant to the terms of the Loan Agreement, the Draw Period expires
on August 24, 1997.
H. The Borrower has requested that Lender extend the Draw Period until
March 7, 1998, reduce the Advance Limit and amend and modify certain additional
terms and conditions of the Loan Agreement.
I. The Lender has agreed, subject to the terms and conditions
hereinafter provided, to enter into this Third Modification Agreement.
NOW, THEREFORE, in consideration of Lender's present agreement to
modify the Loan Documents as set forth herein, Borrower has agreed to execute
and deliver this Third Modification Agreement and in consideration of the mutual
covenants, promises and agreements herein contained, it is agreed as follows:
1. Definitions:
Unless otherwise defined herein, all capitalized and defined terms used
herein shall have the same meaning set forth in the Loan Documents.
2. Recitals:
The recitals set forth above are hereby incorporated herein as if set
forth at length. The Borrower acknowledges and confirms that all of the
aforesaid recitals are true, accurate and correct in all respects.
3. Estoppel with Regard to Present Principal Balance Due.
Borrower acknowledges and agrees that the outstanding unpaid principal
balance remaining due to Lender under the Loan, without offset, defense or
counterclaim, as of August 15, 1997, is: $1,905,326.71.
2
<PAGE>
4. Continued Validity of Loan Documents:
Borrower hereby acknowledges, ratifies, confirms and affirms: (i) the
extent and validity of the Loan Documents; (ii) that said Loan Documents are and
remain valid, enforceable in accordance with their respective terms and are and
remain in full force and effect as of the date hereof, (iii) that the Loan
Documents are not subject to any real or personal defenses whatsoever; (iv) that
pursuant to the security interests granted to Lender pursuant to the Loan
Documents, the Loan Documents constitute a valid third mortgage lien upon the
Premises and Trust Property and a continuing valid first perfected lien upon the
other collateral therein described which security interests and liens secure the
payment and performance of the Obligations now or hereafter due and owing under
the Loan Documents. The Borrower warrants and represents that all
representations contained in the Loan Documents are true and complete as of the
date hereof, no warranty therein contained has been breached as of the date
hereof and it is in full compliance with all the terms and conditions thereof
and has performed all obligations on its part to be performed therein.
5. Representations, Warrants and Covenants:
The Borrower hereby represents, warrants and covenants as follows:
A. The Borrower has disclosed its current financial condition and
circumstances to Lender. Any and all substantial and/or material or adverse
changes in its financial condition and circumstances which shall occur after the
date of the disclosure of its financial condition shall be immediately brought
to the attention of Lender by Borrower and Lender shall be promptly notified in
writing of same by Borrower.
B. To the best of Borrower's knowledge, information and reasonable
belief, its execution, delivery and performance in accordance with the terms of
this Third Modification Agreement do not violate any applicable law, rule,
regulation or order of any governmental authority or in any way conflict with or
result in a breach of any of the terms, conditions or provisions of any other
agreement or instrument to which it may be bound.
C. The financial disclosures made by the Borrower accurately and fairly
presents its financial condition and circumstances as of the date of this Third
Modification Agreement and there had been no further substantial and/or material
adverse changes in its financial condition and circumstances as of the date of
this Third Modification Agreement.
D. There are no actions, suits or proceedings pending (nor to the
Borrower's knowledge any actions, suits or proceedings threatened, nor is there
any basis therefore), against or in any way relating adversely to its properties
in any court or before any arbitrator of any kind or before any governmental or
non-government body which, if adversely determined, would singularly or in the
aggregate have a material adverse affect on its financial condition.
E. The Borrower has no knowledge of any material violations of and has
not received written notice from any governmental authority concerning any
environmental, health, fire, safety, building, engineering, or zoning or code
violations with respect to the Premises or any portion thereof.
3
<PAGE>
6. Modifications to All of the Loan Documents:
From and after the date of this Third Modification Agreement, the Loan
Agreement is hereby modified as follows:
A. Wherever the sum of TEN MILLION ($10,000,000.00) DOLLARS appears in
the Loan Documents, same shall be deleted and the sum of FIVE MILLION
($5,000,000.00) DOLLARS shall be inserted in lieu thereof.
B. Wherever the word or words "Note" or "Promissory Note" shall appear,
said term or terms shall be deemed to mean the Amended and Restated Promissory
Note executed contemporaneously with this Third Modification Agreement.
7. Modifications to the Loan Agreement. From and after the date of this
Third Modification Agreement, the Loan Agreement is hereby modified as follows:
A. Subsection (xiii) of Section I.1 is deleted and replaced with the
following:
1. Acceptable Contract: For purposes of this Agreement, an
"Acceptable Contract" shall be a consumer contract or agreement and all related
documents entered into between the Borrower as seller and/or lender and a
Consumer as the purchaser and/or borrower of (or relating to) a timeshare
interest defined in and created by the Project Documents, which satisfy the
following requirements, and which are in all other respects acceptable to
Lender: . . . (xiii) an Acceptable Contract shall not include a contract where
the Consumer shall have filed for protection under any bankruptcy or insolvency
laws or shall have been the subject of a prior or existing judgment,
repossession, attachment, garnishment, tax lien, foreclosure or any charge-off
relating to any account; and . . . .
B. Section I.4 is deleted and replaced with the following:
4. Advance Limit: The term "Advance Limit" shall mean the
loans or Advances which the Lender may, from time to time when requested by
Borrower make to Borrower, and which shall not in the aggregate at any time
exceed the lesser: (i) $5,000,000.00; or (ii) the product of eighty-five (85%)
percent multiplied by the aggregate remaining principal balance of the
Acceptable Contracts in which Lender is granted a security interest hereunder.
C. Section 1.25 is deleted and replaced with the following:
25. Related Documents: "Related Documents" means, as
applicable to each Contract, the credit package, which shall include, but not be
limited to, a credit report relating to each of the Consumers executing said
Contract issued by a nationally recognized credit reporting agency or service,
security agreements, mortgages, mortgage deeds, deeds of trust securing the
Contracts and encumbering the Timeshare Estates, guaranty agreements, all
records pertaining to the Contracts, including, but not limited to, all files,
closing or settlement statements, title insurance reports and policies, copies
of deeds, contracts, prospectuses delivered to Consumers, public offering
statements, receipt of said prospectuses and public offering statements,
truth-in-
4
<PAGE>
lending disclosure statements, information, documents, records and other
writings or documents of every kind and nature submitted and/or executed by or
on behalf of a Consumer and relating to the Contracts and the Consumer's
financing thereof.
D. Section 2.2(a) is deleted and replaced with the following:
2. Advances:
(a) At Borrower's request, Advances will be made by
Lender during the period commencing from the date of this Agreement and ending
on March 7, 1998 (the "Draw Period"), provided, however, that no Advances will
be made to Borrower if an Event of Default exists, or if the aggregate amount of
all Advances (including the Advance requested), exceeds or would exceed the
Advance Limit.
E. Section II.7 is deleted in its entirety and replaced with the
following:
7. Maturity Date: The unpaid principal, the accrued interest
and all costs and expenses relating to the Loan shall be payable on March 7,
2004, unless sooner demanded in accordance with the terms and provisions set
forth herein.
F. Section II.8 is modified by inserting the following at the end of
this Section:
Without in any way limiting the obligations of Borrower
pursuant to this Agreement, upon the occurrence of an Excess Borrowing
situation, Borrower shall, within five (5) business days after receiving notice
of the existence of a Delinquent Contract, at Borrower's option, repurchase or
replace same with an Acceptable Contract if the Contract became delinquent
during the Draw Period, or repurchase said Delinquent Contract if the Contract
became delinquent after the Draw Period.
G. Section II.9(a) is deleted and replaced with the following:
9. Mandatory Payments: (a) Unless accelerated pursuant to the
terms and conditions of this Agreement, or paid before the scheduled Maturity
Date of the Loan, the Borrower shall pay to Lender seventy-seven (77)
consecutive minimum monthly payments each in an amount equal to ninety-four
(94%) percent of the scheduled monthly payments of principal and interest due on
the Acceptable Contracts comprising the Collateral for the Loan ("Mandatory
Payments"). All Mandatory Payments as herein above provided shall be applied
first to the payment of accrued and unpaid interest and the balance, if any,
shall be applied to the payment of the installments of principal then remaining
unpaid. The aforesaid payments shall be payable in arrears on the first day of
each calendar month commencing on the first day of October, 1997 and shall
continue until such time as the full principal sum, together with all amounts
owing under the Loan have been paid in full. The aforesaid payments shall be
made payable out of the monthly collections received under the Acceptable
Contracts. In the event the monthly collections are in excess of the applicable
monthly Mandatory Payments as aforesaid, said excess shall be applied as a
prepayment of the principal balance remaining due under the Loan. In the event
the monthly collections from the Acceptable Contracts are insufficient to pay
the aforesaid monthly principal
5
<PAGE>
and/or interest on the Loan the Borrower shall pay the interest and/or principal
insufficiency on the first of each month as aforesaid.
H. The Second sentence of Section IV.4 is deleted and replaced with the
following:
. . . No other person has or will have any right, title,
interest, claim or lien therein, thereon of thereto, other than: (a) the
existing first lien on the Premises maintained by Litchfield Financial
Corporation ("Litchfield"), as assignee of Bank One, Arizona, NA, formerly known
as The Valley National Bank, with a principal balance due thereunder of no more
than $1,500,000.00; (b) the existing second lien on the Premises maintained by
Kohl's Ranch Associates, securing an original principal balance of $367,750.00;
(c) the authorized borrowings as hereinafter provided; (d) customary equipment
lease agreements or purchase money financing of equipment entered into by
Borrower and relating to the Project, which unpaid lease or financing
obligations thereunder do not exceed, at any time, in the aggregate, the sum of
$200,000.00; (e) the fourth mortgage lien on the Premises maintained by
Litchfield, with a maximum principal balance of $5,000,000.00; (items 4.(a),
(b), (c), (d) and (e) above being hereinafter sometimes referred to as the
"Permitted Lien(s)") and (f) the rights, if any, of the Consumers.
I. The first sentence of Section IV.12 is deleted and replaced with the
following:
The Borrower's Chief Executive Office, principal place of
business and books and records relating to the Collateral pledged hereunder are
located at 2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016 and at
the Premises.
J. The following Affirmative Covenant is added at the end of Section V:
27. Conversion and Upgrades of Contracts: Borrower agrees to
pay to Lender a conversion or upgrade fee equal to one hundred and twenty-five
dollars ($125.00) for each Contract constituting an Acceptable Contract
hereunder and pledged to Lender as security for the Borrower's Obligations,
which Contract is upgraded, converted, transferred or exchanged to, for, or with
an interest in any timeshare condominium project now or hereafter owned by, or
under the direct or indirect control of Borrower, or any subsidiary or affiliate
of Borrower, including, but not limited to the Golden Eagle Resort at the Crags
Lodge, located in Estes Park, Colorado, being developed by the Borrower, the
Varsity Clubs of America-South Bend Chapter, located in South Bend, Indiana,
being developed by VCA South Bend Incorporated, or Sedona Vacation Club at Los
Abrigados, located in Sedona, Arizona, being developed by Los Abrigados Partners
Limited Partnership (a "Conversion[Upgrade Contract"). Said fee shall be due and
payable contemporaneously with the acceptance of the Conversion/Upgrade Contract
by the Borrower or any such subsidiary, affiliate or controlled person or
entity.
8. Documentation to be furnished to Lender: Lender's Agreement to enter into
this Third Modification Agreement as herein set forth is expressly conditioned
upon Lender's and its counsel's receipt, review and acceptance, prior to the
execution and delivery of this Third Modification Agreement (unless otherwise
noted), of the following documentation and information:
6
<PAGE>
A. True copies of the existing Consumer documentation, if same differs
from the Consumer documentation previously approved by Lender and its counsel or
a statement to the effect that the existing Consumer Documentation has not
changed.
B. The filed Certificate or Articles of Incorporation and By-Laws, as
amended to date, for the Borrower. This requirement may be satisfied by a
written certification that the Certificate or Articles of Incorporation and
By-Laws of the Borrower, which are currently in Lender's possession, have not
been amended or modified in any respect.
C. The names and titles of all current officers and directors of the
Borrower.
D. A certificate of good standing for the Borrower, or such other
documentation as is reasonably satisfactory to Lender, in all jurisdictions in
which Borrower is authorized or licensed to do business.
E. Corporate franchise tax searches and/or certificate from the
Director of Revenue, or such other documentation as is reasonably satisfactory
to Lender, that no taxes are due to the taxing authorities having jurisdiction
over the Borrower.
F. Continuation Uniform Commercial Code financing searches for the
Borrower in all applicable jurisdictions where the Borrower is conducting
business.
G. An updated, completed and signed Environmental Questionnaire
relating to the Resort.
H. Federal tax lien, state tax lien, and judgment searches for the
Borrower.
I. Evidence of continuing compliance with all applicable federal, state
and local environmental laws, rules, regulations and ordinances relating to the
Resort and the Borrower.
J. An updated listing and copy of all certificates, permits and
licenses required in connection with the use and operation of the Resort and the
sale and financing of Timeshare Estates.
K. A listing and description of all pending lawsuits or similar
proceedings involving the Borrower or the Resort, in which the Borrower or the
Resort is a defendant or otherwise defending any claim which is in excess of ten
thousand ($10,000.00) dollars.
L. Intentionally Omitted.
M. An endorsement to the title insurance policies previously issued to
Lender by First American Title Insurance Company which confirms that the
modification to the Deed of Trust, being executed contemporaneously herewith,
has been properly indexed and recorded in the Official Records of Gila County,
Arizona and that there are no exceptions, liens, mortgages, encumbrances,
restrictions or similar or dissimilar clouds on title, except for Permitted
Liens or other exceptions that are approved by the Lender and its counsel.
7
<PAGE>
N. Written authorizations and/or waivers from any creditors authorizing
the transactions contemplated herein if so required pursuant to said lender's
loan documents or satisfactory evidence that no such authorizations or waivers
are required.
O. Evidence that all fees, dues, charges, assessments and the like
relating to the Timeshare Estates are current and that there are no liens or
encumbrances relating thereto, and if not current, Borrower shall furnish a
current list of all delinquencies.
P. A true copy of the current and proposed budget of the homeowners or
property owners association managing and administering the affairs of the
Resort.
Q. Evidence that all Project Documents and all amendments thereto have
been properly registered with or approved by the appropriate authorities having
jurisdiction over the Resort, or evidence that all Project Documents and any
amendments thereto do not require registration or approval, as aforesaid.
R. A true copy of any and all agreements relating to the use and/or
operation of the Resort, which have not previously been delivered to Lender.
S. Execution and delivery of this Third Modification Agreement, the
Amended and Restated Note, the Third Modification of Deed of Trust, an
Incumbency Certificate, authorizing resolutions, estoppel certificate and all
other documentation or information required or requested by Lender, in such form
and substance as is satisfactory to Lender.
9. Further Assurances: Borrower agrees that it shall execute and/or deliver to
Lender any documents, information or agreements as may be reasonably requested
by Lender or its counsel at any time so long as any sums due or obligations to
be performed under the Loan Documents remain unpaid or unperformed.
10. Release and Discharge of Lender: Borrower hereby releases and discharges
Lender of and from all claims, causes of action, demands, damages or suits, at
law or in equity, which it may, as of the date of this Third Modification
Agreement, have or claim to have against the Lender relating to, rising out of
or resulting from its lending relationship with Lender, or with respect to the
Obligations due to Lender as evidenced by the Loan Documents or the Premises or
the other Collateral.
11. Governing Law: This Third Modification Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the principles of conflicts of laws.
12. Binding Effect: This Third Modification Agreement is binding upon, inures to
the benefit of and is enforceable by the successor and assigns of the parties
hereto. This Third Modification Agreement is not assignable by Borrower.
13. Non-Waiver: No failure or delay on the part of Lender, or its successors and
assigns, in the exercise of any right, power or privilege pursuant to the Loan
Documents or this Third Modification Agreement is to be construed to be or
operate as a waiver. Partial exercise of any
8
<PAGE>
right, power or privilege by Lender is not to preclude any further right, or
power or privilege nor be deemed a waiver. Any waiver or modification of this
Third Modification Agreement or any other document, instrument or agreement
executed by Borrower is to be in writing signed by the Borrower and Lender.
Lender may, in its sole discretion, release, impair or surrender all or any of
the interest granted hereunder or any other agreement executed by the Borrower
without waiving, exhausting or impairing any of Lender's rights and remedies
available pursuant to the Loan Documents, including this Third Modification
Agreement.
14. Inconsistent Rights or Remedies: In the event that any of the Loan
Documents, including this Third Modification Agreement, contain any inconsistent
rights or remedies otherwise available to Lender, the rights and/or remedies
accorded to Lender giving the Lender the greatest protection and/or affording
Lender the greater rights and remedies shall control, the determination of which
shall be left to the sole and exclusive discretion of Lender.
15. Representation by Counsel; Drafting of Agreement: Borrower acknowledges that
it has had the opportunity to consult independent counsel of its own selection
in connection with the matters covered by this Third Modification Agreement and
that it has executed and delivered this Third Modification Agreement (and any
other documents referred to herein or in connection herewith) with the benefit
of counsel and of its own free will and volition. Borrower also acknowledges and
agrees that the terms of this Third Modification Agreement have been negotiated
in good faith by the parties and that said terms shall be construed in a neutral
fashion without regard to the draftsmanship of this Third Modification
Agreement.
16. Severability: In the event that any portion of this Third Modification
Agreement is deemed unenforceable by a court of competent jurisdiction, such
provision declared to be unenforceable is to be deemed to have been omitted from
this Third Modification Agreement and all such remaining terms and conditions of
this Third Modification Agreement are to continue in full force and affect.
17. Continued Effectiveness of Loan Documents: Except as specifically modified
herein, all of the other terms and conditions of the Loan Documents shall remain
in full force and effect and the parties hereto expressly confirm and ratify all
of their respective liabilities, obligations, duties and responsibilities under
and pursuant to said Loan Documents, as modified. It is the intention of the
parties hereto that this Third Modification Agreement shall not constitute a
novation and shall in no way adversely affect or impair the lien priority of the
Deed of Trust, as modified, and the security interests granted pursuant to the
Loan Documents.
IN WITNESS WHEREOF, the parties have executed and delivered this Third
Modification Agreement or caused this Third Modification Agreement to be duly
executed and delivered by
9
<PAGE>
their proper and duly authorized officers or representatives as of the day and
year first above written.
ATTEST: ILX INCORPORATED,
an Arizona Corporation, Borrower
By:
- ------------------------------------- -------------------------------------
Stephanie D. Castronova, Secretary Nancy J. Stone, President
WITNESS/ATTEST: TAMMAC FINANCIAL CORP.,
a Delaware corporation, Lender
By:
- ------------------------------------- -------------------------------------
Edmund P. Levandoski, Vice President Andy G. Roosa, President
10
EXHIBIT 10-2
FOURTH MODIFICATION AGREEMENT
FOURTH MODIFICATION AGREEMENT
-----------------------------
DATE: September 3, 1997
- -----
PARTIES: Borrower: LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP,
- -------- an Arizona limited partnership
Borrower 2111 East Highland Avenue, Suite 210
Address: Phoenix, Arizona 85016
Bank: BANK ONE, ARIZONA, NA, a national banking association
Bank Western Region Real Estate (AZ1-1328)
Address: P.0. Box 29542
Phoenix, Arizona 85038
RECITALS:
- ---------
A. Bank has extended to Borrower credit ("Loan") in the
original principal amount of Five Million and No/100 Dollars ($5,000,000.00)
pursuant to that certain Loan Agreement dated September 9, 1991 ("Loan
Agreement"), and evidenced by that certain Secured Promissory Note, dated
September 9, 1991, which Note was subsequently amended and restated by the terms
of that certain Secured Promissory Note, dated October 4, 1994, and that certain
Secured Promissory Note, dated January 25, 1996 (collectively, the "Note"). The
unpaid principal of the Loan as of the date hereof is $908,166.67.
B. The Loan is secured by, among other things, (i) the Deed of
Trust (With Assignment of Rents and Security Agreement (Variable Rate), dated
September 9, 1991 ("Deed of Trust"), by Borrower, as trustor, for the benefit of
Bank, as beneficiary, recorded on September 10, 1991, in Docket 1421, Page 705,
as Instrument Number 91-19146, records of Coconino County, Arizona, as amended
by that certain First Amendment to Deed of Trust and Collateral Assignment,
dated October 4, 1994, recorded on October 7, 1994, at Docket 1714, Page 561, as
Instrument No. 94-33675, and that certain Second Amendment to Deed of Trust and
Collateral Assignment, dated January 25, 1996, recorded on February 12, 1996, at
Docket 1846, Page 091, as Instrument No. 96-04225, records of Coconino County,
Arizona, (ii) the Collateral Assignment, dated September 9, 1991 (the
"Collateral Assignment"), by Borrower for the benefit of Bank, recorded on
September 10, 1991, in Docket 1421, Page 758, as Instrument No. 91-19147,
records of Coconino County, Arizona, as amended by that certain First Amendment
to Deed of Trust and Collateral Assignment, dated October 4, 1994, recorded on
October 7, 1994, at Docket 1714, Page 561, as Instrument No. 94-33675, and that
certain Second Amendment to Deed of Trust and Collateral Assignment, dated
January 25, 1996, recorded on February 12,
1
<PAGE>
1996, at Docket 1846, Page 091, as Instrument No. 96-04225, records of Coconino
County, Arizona, (iii) the Repayment Guaranty of ILX Incorporated, an Arizona
corporation, dated January 25, 1996 (the "Repayment Guaranty"), and (iv) the
Security Agreement, dated September 9, 1991, by Borrower for the benefit of Bank
(the "Security Agreement") (the agreements, documents, and instruments securing
the Loan and the Note are referred to individually and collectively as the
"Security Documents").
C. Bank and Borrower have executed and delivered previously
the following agreements ("Modifications") modifying the terms of the Loan, the
Note, the Loan Agreement, and/or the Security Documents: (i) the Modification
Agreement dated October 22, 1993, (ii) the Letter Agreement dated April 18,
1994, (iii) the Modification Agreement dated June 28, 1994, (iv) the Second
Modification Agreement dated October 4, 1994, pursuant to which Bank advanced
additional Loan funds to Borrower, thereby increasing the outstanding unpaid
principal balance of the Loan to $2,000,000.00, (v) the Letter Agreement dated
December 30, 1994, and (vi) the Third Modification Agreement dated January 25,
1996, pursuant to which Bank advanced additional Loan funds to Borrower, thereby
increasing the outstanding unpaid principal balance of the Loan to
$2,485,000.00. (The Note, the Loan Agreement, the Security Documents, any
arbitration resolution, any environmental certification and indemnity agreement,
and all other agreements, documents, and instruments evidencing, securing, or
otherwise relating to the Loan, as modified in the Modifications, are sometimes
referred to individually and collectively as the "Loan Documents". Hereinafter,
"Note", "Loan Agreement", "Deed of Trust", "Repayment Guaranty", "Collateral
Assignment", "Security Agreement", and "Security Documents" shall mean such
documents as modified in the Modifications.)
D. Borrower has requested that Bank modify the Loan and the
Loan Documents as provided herein. Bank is willing to so modify the Loan and the
Loan Documents, subject to the terms and conditions herein.
AGREEMENT:
- ----------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
---------------------
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
-------------------------------
2.1 The Loan Documents are modified as follows:
2.1.1 Upon the execution of this Agreement and the full and
complete satisfaction by Borrower of all conditions precedent required by Bank,
Borrower may obtain and Bank shall be obligated to make, one (1) additional
advance to Borrower in the amount of Eight Hundred Thousand and No/100 Dollars
($800,000.00), which funds shall be used for the purpose
2
<PAGE>
of acquiring Alan Mishkin's ownership interest in Borrower. Upon the
disbursement of the additional Eight Hundred Thousand and No/100 Dollars
($800,000.00) to Borrower, the outstanding unpaid principal balance of the Loan
shall be One Million Seven Hundred Eight Thousand One Hundred Sixty-Six and
67/100 Dollars ($1,708,166.67).
2.1.2 The maturity date of the Loan and the Note is changed
from June 5, 1998, to April 5, 1999. On the maturity date Borrower shall pay to
Bank the unpaid principal, accrued and unpaid interest, and all other amounts
payable by Borrower under the Loan Documents as modified herein.
2.1.3 The term "Timeshare Documents" as used in the Loan
Documents shall include all amendments, modifications, renewals, restatements
and supplements with respect to such Timeshare Documents. Borrower and Bank
acknowledge that the definition of "Timeshare Interval" currently contained in
the Loan Agreement refers to a "1/9325 fractional interest in the fee title of
the Premises" and that as a result of certain amendments and modifications of
the Timeshare Documents, the fractional interest in the fee title to the
Premises with respect to Timeshare Intervals sold on and after August 31, 1997
is a 1/9325 interest in and to the Premises with respect to each "Every Year
Membership" (as defined in the Timeshare Documents) and a 1/18650 interest in
and to the Premises with respect to each "Every Other Year Membership" (as
defined in the Timeshare Documents).
2.1.4 Section 2.7 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:
" 2.7 Servicing Fee. On September 1, 1997, Borrower shall pay
to Lender the sum of $12,000 for the Servicing Fee due for the
succeeding year. On September 1, 1998, Borrower shall pay to Lender the
sum of $7,000 for the Servicing Fee due for the succeeding year (which
fee represents the full annual Servicing Fee of $12,000 prorated for
the number of months, or portions thereof, from September 1, 1998 to
the Maturity Date). The Servicing Fee represents compensation to Lender
for its administration and servicing of the Loan, including, without
limitation, preparation of Releases pursuant to Article VIII below. If
the Loan is fully paid prior to the Maturity Date (other than by reason
of Lender's exercise of any rights and remedies upon an Event of
Default), any Servicing Fee paid by Borrower for the then current year
will be prorated and the portion of the Servicing Fee for the remainder
of such year will be refunded to Borrower."
2.1.5 Section 5.16 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:
" 5.16 Loan-to-Value. At all times during the term of the
Loan, the unpaid principal balance of the Loan shall not exceed sixty
percent (60%) of the value of the Project, as determined by Lender in
its sole discretion based on (i) the Appraisals obtained pursuant to
Section 5.15 hereof or (ii) evaluations of the value of the Project
prepared or obtained by Lender's appraisal department in connection
with any modifications of the Loan Documents. If for any reason the
loan-to-value ratio exceeds said percentage, then
3
<PAGE>
Borrower shall, within thirty (30) days of receiving written notice of
such noncompliance from Lender, reduce the unpaid principal balance of
the Loan, or deposit sufficient sums with Lender to reduce the
loan-to-value ratio to at or below said percentage. For the purposes of
determining the loan-to-value ratio, the value of the Project as
determined pursuant to any Appraisal or evaluation shall represent the
fractional interest in the Project encumbered by the Deed of Trust
(which may be adjusted by Lender from time to time in its sole
discretion as fractional interests are sold and released) and, unless
otherwise agreed or elected by Lender in its sole and absolute
discretion, shall not include the value of Timeshare Intervals that
have been sold or any amounts received, or to be received with respect
to the sale of such Timeshare Intervals. Borrower acknowledges that in
connection with the Fourth Modification Agreement, dated as of
September 3, 1997, Lender, through its appraisal department has ordered
and will obtain an Appraisal or evaluation of the value of the Project
and Borrower agrees, without limiting this Section 5.16, that if the
results of such Appraisal/ evaluation reflect a loan-to-value ratio of
greater than sixty percent (60%), Borrower will comply with this
Section 5.16."
2.1.6 Section 5.6 of the Loan Agreement is hereby amended to
include the following subsections 5.6(vi) and 5.6(vii):
" (vi) as soon as the same are available, and in any event
within one hundred twenty (120) days after the end of each fiscal year
of Guarantor, Borrower shall furnish to Lender a copy of (A) the
balance sheet of Guarantor as of the end of such fiscal year, (B)
statements of income and expenses of Guarantor for such fiscal year,
and a statement of changes in financial position of Guarantor from the
previous fiscal year (together with comparable figures for the previous
fiscal year), and (C) a cash flow statement of Guarantor, all of which
shall have been audited by an independent Certified Public Accountant,
satisfactory to Lender in its sole discretion, who shall deliver an
unqualified opinion as to such financial statements to Lender. Borrower
shall also provide Lender with such other information with respect to
the condition of Guarantor as Lender may from time to time reasonably
request; and
" (vii) as soon as the same are available, and in any event
within sixty (60) days after the end of each fiscal quarter of
Guarantor, Borrower shall furnish to Lender a copy of all 1OQ reports
of Guarantor filed with the Securities and Exchange Commission."
2.1.7 Paragraph 17(b) of the Repayment Guaranty is hereby
deleted in its entirety and replaced with the following:
" (b) As of the end of each fiscal quarter, a Debt to Equity
Percentage equal to or less than 4.25 to 1.00. "Debt to Equity
Percentage" means the result obtained by dividing (i) Debt of Guarantor
by (ii) Tangible Net Worth. "Debt" means, without limitation, (a) any
indebtedness for borrowed money, (b) all indebtedness evidenced by
bonds, debentures, notes, letters of credit, drafts or similar
instruments, (c) all indebtedness to pay the deferred purchase price of
property or services, but not including accounts payable and accrued
expenses arising in the ordinary course of business, (d) all
4
<PAGE>
capitalized lease obligations, (e) all Debt of others secured by a lien
on any asset, whether or not such Debt is assumed by Guarantor or
guaranteed by Guarantor, and (f) all Debt of others guaranteed by
Guarantor and all other indebtedness that would appear as a liability
upon a balance sheet of Guarantor prepared in accordance with GAAP."
2.2 Each of the Loan Documents is modified to provide that it shall be
a default or an event of default thereunder if Borrower shall fail to comply
with any of the covenants of Borrower herein or if any representation or
warranty by Borrower herein or by any guarantor in any related Consent and
Agreement of Guarantors is materially incomplete, incorrect, or misleading as of
the date hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents
shall be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
----------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
----------------------------------------
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial
condition of Borrower or any other person whose financial statement has been
delivered to Bank in connection with the Loan from the most recent financial
statement received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and
5
<PAGE>
to perform the Loan Documents as modified herein. The execution and delivery of
this Agreement and the performance of the Loan Documents as modified herein have
been duly authorized by all requisite action by or on behalf of Borrower. This
Agreement has been duly executed and delivered on behalf of Borrower.
4.7 All Timeshare Documents (as defined in the Loan Agreement) remain
in full force and effect and no amendments, modifications, restatements or
supplements have been entered into since the execution of the Loan Agreement,
except as disclosed to Bank in writing concurrently herewith.
4.8 The Fractional Interest in the Project owned by Borrower and
encumbered by the Deed of Trust as of the date hereof is not less than
1800/9325.
5. BORROWER COVENANTS.
-------------------
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such
additional agreements, documents, and instruments as reasonably required by Bank
to effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank
and its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity, that Borrower has or in the future may have, whether known or
unknown, (i) in respect of the Loan, the Loan Documents, or the actions or
omissions of Bank in respect of the Loan or the Loan Documents and (ii) arising
from events occurring prior to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this
Agreement, Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all
amounts, other than interest and principal, due and payable by Borrower under
the Loan Documents as of the date hereof,
5.3.2 All internal and external costs and expenses incurred by
Bank in connection with this Agreement (including, without limitation, inside
and outside attorneys, appraisal, appraisal review, processing, title, filing,
recording and costs, expenses, and fees); and
5.3.3 A Modification Fee in the amount of Eight Thousand and
No/100 Dollars ($8,000.00).
5.4 Contemporaneously with the execution and delivery of this
Agreement, Borrower has caused to be executed and delivered to Bank the
Memorandum of Modification, dated of even
6
<PAGE>
date herewith, amending the Deed of Trust to secure repayment of the promissory
note as amended hereunder.
5.5 Contemporaneously with the execution and delivery of this
Agreement, Bank shall obtain at Borrower's sole cost and expense, an LTAA
Endorsement Number 10 (Bringdown) and Endorsement Number 7 (Coverage Increase),
to the title insurance policy insuring the Deed of Trust, which policy is policy
number 65025782-M1 dated September 10, 1991, issued by Transamerica Title
Insurance Company. Such endorsement recognizes the modification of the Loan
Documents herein and is subject only to the exceptions in Schedule B, Part I, of
such policy.
5.6 Contemporaneously with the execution and delivery of this
Agreement, Borrower has delivered to Bank all amendments, modifications,
restatements, or supplements to any or all of the Timeshare Documents (as
defined in the Loan Agreement). All such amendments or supplements shall be in
form satisfactory to Bank in its sole discretion.
5.7 Contemporaneously with the execution and delivery of this
Agreement, Borrower has delivered to Bank a partnership certificate authorizing
Borrower's execution of this Agreement and all other documents and instruments
referred to herein and required by Bank in connection with the transaction
contemplated hereby.
5.8 Contemporaneously with the execution and delivery of this
Agreement, Borrower has caused Guarantor to deliver to Bank a resolution of
Guarantor's Board of Directors authorizing Guarantor's execution of the Consent
and Agreement of Guarantors attached hereto.
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
--------------------------------------------
Bank shall not be bound by this Agreement until each of the following shall have
occurred: (i) Bank has executed and delivered this Agreement, (ii) Borrower has
performed all of the obligations of Borrower under this Agreement to be
performed contemporaneously with the execution and delivery of this Agreement,
(iii) each guarantor of the Loan, if any, has executed and delivered to Bank a
Consent and Agreement of Guarantors, and (iv) if required by Bank, Borrower and
any guarantors have executed and delivered to Bank an arbitration resolution, an
environmental questionnaire, and an environmental certification and indemnity
agreement.
7. ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
------------------------------------------------------------
The Loan Documents as modified herein contain the entire understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, and understandings. No
provision of the Loan Documents as modified herein may be changed, discharged,
supplemented, terminated, or waived except in a writing signed by Bank and
Borrower.
8. BINDING EFFECT.
---------------
7
<PAGE>
The Loan Documents as modified herein shall be binding upon, and inure to the
benefit of, Borrower and Bank and their respective successors and assigns.
9. CHOICE OF LAW.
--------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.
10. COUNTERPART EXECUTION.
----------------------
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
11. ARBITRATION.
------------
11.1 Binding Arbitration. Bank, Borrower and each guarantor executing a
consent and Agreement of Guarantors with respect to this Agreement hereby agree
that all controversies and claims arising directly or indirectly out of this
Agreement and the Loan Documents, shall at the written request of any party be
arbitrated pursuant to the applicable rules of the American Arbitration
Association. The arbitration shall occur in the State of Arizona. Judgment upon
any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The Federal Arbitration Act shall apply to the construction and
interpretation of this arbitration agreement.
11.2 Arbitration Panel. A single arbitrator shall have the power to
render a maximum award of one hundred thousand dollars. When any party files a
claim in excess of this amount, the arbitration decision shall be made by the
majority vote of three arbitrators. No arbitrator shall have the power to
restrain any act of any party.
11.3 Provisional Remedies; Self Help; and Foreclosure. No provision of
Section 11.1 shall limit the right of any party to exercise self help remedies,
to foreclose against any real or personal property collateral, or to obtain any
provisional or ancillary remedies (including but not limited to injunctive
relief or the appointment of a receiver) from a court of competent jurisdiction.
At Bank's option, it may enforce its right under a mortgage by judicial
foreclosure, and under a deed of trust either by exercise of power of sale or by
judicial foreclosure. The institution and maintenance of any remedy permitted
above shall not constitute a waiver of the rights to submit any controversy or
claim to arbitration. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding.
DATED as of the date first above stated.
8
<PAGE>
LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited
partnership
By: ILE Sedona Incorporated, an Arizona
corporation, General Partner
By:
--------------------------------
Nancy J. Stone
Vice President
"BORROWER"
BANK ONE, ARIZONA, NA, a national
banking association
By:
--------------------------------
Donna Morris
Assistant Vice President
"BANK"
9
<PAGE>
MODIFICATION OF GUARANTY AND
----------------------------
CONSENT AND AGREEMENT OF GUARANTORS
-----------------------------------
With respect to the Fourth Modification Agreement, dated September 3, 1997
("Agreement"), between LOS ABRIGADOS PARTNERS LIMITED PARTNERSHIP, an Arizona
limited partnership ("Borrower") and BANK ONE, ARIZONA, NA, a national banking
association ("Bank"), the undersigned (individually and, if more than one,
collectively "Guarantor") agrees for the benefit of Bank as follows:
1. Guarantor acknowledges (i) receiving a copy of and reading
the Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the
effectiveness of (A) the Repayment Guaranty, dated January 25, 1996
("Guaranty"), by the undersigned for the benefit of Bank, as modified herein,
and (B) any other agreements, documents, or instruments securing or otherwise
relating to the Guaranty (including, without limitation, any arbitration
resolution and any environmental certification and indemnity agreement
previously executed and delivered by the undersigned), as modified herein. The
Guaranty and such other agreements, documents, and instruments, as modified
herein, are referred to individually and collectively as the "Guarantor
Documents". All capitalized terms used herein and not otherwise defined shall
have the meaning given to such terms in the Agreement.
2. Guarantor consents to the modification of the Loan
Documents and all other matters in the Agreement. Guarantor agrees to the
arbitration provisions set forth in Section 11.1 of the Agreement.
3. Guarantor fully, finally, and forever releases and
discharges Bank and its successors, assigns, directors, officers, employees,
agents, and representatives from any and all actions, causes of action, claims,
debts, demands, liabilities, obligations, and suits of whatever kind or nature,
in law or equity, that Guarantor has or in the future may have, whether known or
unknown, (i) in respect of the Loan, the Loan Documents, the Guarantor
Documents, or the actions or omissions of Bank in respect of the Loan, the Loan
Documents, or the Guarantor Documents and (ii) arising from events occurring
prior to the date hereof.
4. Guarantor agrees that all references, if any, to the Note,
the Loan Agreement, the Deed of Trust, the Collateral Assignment, the Security
Agreement, the Security Documents, and the Loan Documents in the Guarantor
Documents shall be deemed to refer to such agreements, documents, and
instruments as modified by the Agreement. Accordingly, the Guarantor Documents
are modified to, among other things, (i) increase the outstanding unpaid
principal amount of indebtedness of Borrower to Bank from $908,166.67 to
$1,708,166.67, (ii) amend the Financial Statement provisions set forth in
Section 5.6 of the Loan Agreement, and (iii) amend the Financial Covenants set
forth in Paragraph 17(b) and 18 of the Guaranty.
1
<PAGE>
5. Guarantor reaffirms the Guarantor Documents and agrees that
the Guarantor Documents continue in full force and effect and remain unchanged,
except as specifically modified by this Consent and Agreement of Guarantors. Any
property or rights to or interests in property granted as security in the
Guarantor Documents shall remain as security for the Guaranty and the
obligations of Guarantor in the Guaranty.
6. Guarantor represents and warrants that the Loan Documents,
as modified by the Agreement, and the Guarantor Documents, as modified by this
Consent and Agreement of Guarantors, are the legal, valid, and binding
obligations of Borrower and the undersigned, respectively, enforceable in
accordance with their terms against Borrower and the undersigned, respectively.
7. Guarantor represents and warrants that Guarantor has no
claims, counterclaims, defenses, or off sets with respect to the enforcement
against Guarantor of the Guarantor Documents.
8. Guarantor represents and warrants that there has been no
material adverse change in the financial condition of any Guarantor from the
most recent financial statement received by Bank.
9. Guarantor agrees that this Consent and Agreement of
Guarantors may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
document. Signature and acknowledgment pages may be detached from the
counterparts and attached to a single copy of this Consent and Agreement of
Guarantors to physically form one document.
DATED as of the date of the Agreement.
ILX INCORPORATED, an Arizona corporation
By:
-------------------------------------
Nancy J. Stone
President
"GUARANTOR"
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
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0
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