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, 1998 Commission File Number 001-13855
------------------ ---------
ILX RESORTS INCORPORATED
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(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
------------------------------ ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2111 East Highland Avenue, Suite 210,
Phoenix, Arizona 85016
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-957-2777
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----------------------------------------------------
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
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1998
- ------------------------------- ---------------------------------
Common Stock, without par value 4,097,593 shares
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1997 1998
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents $ 3,226,038 $ 1,650,200
Notes receivable, net 15,861,621 18,910,291
Resort property held for Vacation
Ownership Interest sales 14,666,658 20,881,974
Resort property under development 2,943,936 147,631
Land held for sale 1,557,498 1,593,009
Deferred assets 289,009 264,048
Property and equipment, net 3,472,899 4,251,823
Deferred income taxes 304,430 --
Other assets 1,400,224 1,496,604
------------ ------------
TOTAL ASSETS $ 43,722,313 $ 49,195,580
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 2,830,375 $ 1,740,263
Accrued and other liabilities 2,220,566 1,690,413
Notes payable 19,884,479 17,508,694
Notes payable to affiliates 2,166,100 1,620,557
Income taxes payable -- 174,320
------------ ------------
Total liabilities 27,101,520 22,734,247
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value; 10,000,000
shares authorized; 380,468 shares issued
and outstanding; liquidation preference
of $3,804,680 1,384,891 1,384,891
Common stock, no par value; 30,000,000
shares authorized; 2,692,433 and
4,332,533 shares issued 10,267,667 19,819,477
Treasury stock, at cost, 103,060 and
234,940 shares (652,587) (1,040,456)
Additional paid in capital 79,450 79,450
Retained earnings 5,541,372 6,217,971
------------ ------------
Total shareholders' equity 16,620,793 26,461,333
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,722,313 $ 49,195,580
============ ============
See notes to consolidated financial statements
2
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Timeshare Revenues:
Sales of Vacation Ownership
Interests $6,812,548 $5,633,797 $17,750,423 $16,881,611
Resort operating revenue 2,770,829 3,342,697 8,000,593 8,929,975
Interest income 414,482 810,098 973,236 1,743,771
---------- ---------- ----------- -----------
Total timeshare revenues 9,997,859 9,786,592 26,724,252 27,555,357
---------- ---------- ----------- -----------
Cost of Sales and Operating Expenses:
Cost of Vacation Ownership
Interests sold 852,314 739,509 2,369,296 2,347,826
Cost of resort operations 2,672,365 3,157,149 7,938,745 8,705,876
Sales and marketing 4,095,069 4,169,458 10,237,066 10,989,279
General and administrative 703,731 842,848 2,003,106 2,120,528
Provision for doubtful accounts 208,759 168,586 526,352 498,768
Depreciation and amortization 137,494 99,706 345,145 284,216
---------- ---------- ----------- -----------
Total cost of sales and operating
expenses 8,669,732 9,177,256 23,419,710 24,946,493
---------- ---------- ----------- -----------
Timeshare operating income 1,328,127 609,336 3,304,542 2,608,864
---------- ---------- ----------- -----------
Income from land and other, net 7,001 4,435 16,585 21,975
---------- ---------- ----------- -----------
Total operating income 1,335,128 613,771 3,321,127 2,630,839
Interest expense 564,710 515,111 1,500,472 1,422,244
---------- ---------- ----------- -----------
Income before income taxes and
minority interests 770,418 98,660 1,820,655 1,208,595
Income tax expense (303,845) (39,000) (656,302) (484,000)
---------- ---------- ----------- -----------
Income before minority interests 466,573 59,660 1,164,353 724,595
---------- ---------- ----------- -----------
Minority interests (9,554) -- (178,307) --
---------- ---------- ----------- -----------
NET INCOME $ 457,019 $ 59,660 $ 986,046 $ 724,595
========== ========== =========== ===========
NET INCOME PER SHARE
Basic $ 0.16 $ 0.01 $ 0.35 $ 0.18
========== ========== =========== ===========
Diluted $ 0.16 $ 0.01 $ 0.35 $ 0.18
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 986,046 $ 724,595
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed minority interest 178,032 --
Deferred income taxes 414,204 478,750
Provision for doubtful accounts 526,352 498,768
Depreciation and amortization 345,145 284,216
Amortization of guarantee fees 67,150 39,075
Gain on early extinguishment of note payable -- (200,000)
Change in assets and liabilities:
Decrease (increase) in resort property held
for Vacation Ownership Interest sales 1,016,760 (3,419,011)
(Decrease) in resort property under development (518,127) --
Increase in land held for sale (3,572) (35,511)
Increase in other assets (11,637) (114,830)
Decrease in accounts payable (390,843) (1,090,112)
Increase (decrease) in accrued and other
liabilities 357,065 (331,032)
----------- -----------
Net cash provided by (used in) operating
activities 2,966,575 (3,165,092)
----------- -----------
Cash flows from investing activities:
Notes receivable, net (4,429,967) (3,547,438)
Increase in deferred assets (67,617) (14,114)
Purchases of property and equipment, net (492,988) (1,044,690)
Net cash paid for minority interest (820,000) --
----------- -----------
Net cash used in investing activities (5,810,572) (4,606,242)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 6,208,386 9,716,404
Principal payments on notes payable (4,374,662) 12,092,189)
Principal payments on notes payable to affiliates (202,181) (387,143)
Distributions to minority partners (140,000) --
Net proceeds from issuance of common stock 96,125 9,394,289
Acquisition of treasury stock (563) (387,869)
Preferred stock dividend payments (47,894) (47,996)
----------- -----------
Net cash (used in) provided by financing activities (1,539,211) 6,195,496
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,304,786) (1,575,838)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,523,047 3,226,038
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,218,261 $ 1,650,200
=========== ===========
See notes to consolidated financial statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BUSINESS ACTIVITIES
The consolidated financial statements include the accounts of ILX
Resorts Incorporated, formerly ILX Incorporated, and its wholly owned and
majority-owned subsidiaries (collectively referred to as "ILX" or the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
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 months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements.
The Company's significant business activities include developing,
operating, marketing and financing ownership interests ("Vacation Ownership
Interests") in resort properties located in Arizona, Colorado, Florida, Indiana
and Mexico. The Company's operations also include marketing of skin and hair
care products, which are not considered significant to resort operations.
REVERSE STOCK SPLIT
On January 9, 1998, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to effect a one-for-five reverse stock
split of the Company's issued and outstanding shares of common stock. The
reverse stock split has been retroactively reflected in the accompanying
financial statements.
REVENUE RECOGNITION
Revenue from sales of Vacation Ownership Interests is recognized in
accordance with Statement of Financial Accounting Standard No. 66, Accounting
for Sales of Real Estate ("SFAS 66"). No sales are recognized until such time as
a minimum of 10% of the purchase price has been received in cash, the statutory
rescission period has expired, the buyer is committed to continued payments of
the remaining purchase price and the Company has been released of all future
obligations for the Vacation Ownership 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash equivalents are liquid investments with an original maturity of
three months or less. The following summarizes interest paid, income taxes paid
and capitalized interest.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
Interest paid $627,000 $356,000 $1,547,000 $1,498,000
Income taxes paid $ -- $ 2,000 $ -- $ 5,000
Capitalized interest $ 54,000 $ 34,000 $ 140,000 $ 357,000
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
RESORT PROPERTY UNDER DEVELOPMENT
Resort property under development totaling $2,943,936 at December 31,
1997 was reclassified to resort property held for Vacation Ownership Interest
sales as of September 30, 1998 to reflect completion of construction. The resort
opened to revenue paying guests in July 1998.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which was effective for
financial statements for periods beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS 130 in 1998.
There were no items of other comprehensive income, as that term is defined in
SFAS 130, in the three and nine months ended September 30, 1997 or September 30,
1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company is currently evaluating what impact this statement will
have on its financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is effective for the Company in 2000. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The standard also provides
specific guidance for accounting for derivatives designated as hedging
instruments. The Company is currently evaluating what impact this standard will
have on its financial statements.
RECLASSIFICATIONS
The financial statements for 1997 have been reclassified to be
consistent with the 1998 presentation.
NOTE 2. NOTES PAYABLE
In June 1998, the Company entered into a borrowing agreement under
which it may borrow up to $40 million against eligible receivables through June
2002. The terms of the agreement provide for borrowing at prime plus 1.5% to
prime plus 1.75%, with a maturity date of June 11, 2007. A commitment fee of 1%
is payable as amounts are advanced under the line.
In June 1998, the Company acquired residential real estate in Sedona,
Arizona for $308,000 for which it paid $58,000 in cash and borrowed $250,000
secured by a deed of trust. The note bears interest at 8.5%, and matures in
2003.
In September 1998, the Company amended a borrowing agreement to
increase the amount that it may borrow against eligible receivables from
$2,000,000 to $3,500,000 through September 2001. The terms of the agreement
provide for borrowing at prime plus 3%, with a maturity date of September 2006.
In September 1998, the Company borrowed $300,000 for additional
development at Varsity Clubs of America - South Bend Chapter, including
enclosure of the outdoor swimming pool. The note is secured by furniture and
equipment, bears interest at 9.5% and matures in 2001.
6
<PAGE>
NOTE 3. NOTE PAYABLE TO AFFILIATES
In September 1998, the Company entered into an agreement to purchase at
a $200,000 discount a promissory note from an affiliate with a current principal
balance before the discount of $998,349 and accrued interest of $13,130. The
Company made a $100,000 principal payment in September 1998 and paid the
remaining balance in October 1998.
NOTE 4. NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the following
presents the computation of basic and diluted net income per share:
<TABLE>
<CAPTION>
BASIC NET INCOME PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 457,019 $ 59,660 $ 986,046 $ 724,595
Less: Series A preferred stock
dividends (12,000) (12,000) (35,947) (36,000)
Series C convertible preferred
stock cumulation share dividends $ (8,859) (4,938) (26,577) (21,775)
---------- ---------- ---------- ----------
Net income available to common
stockholders - basic $ 436,160 $ 42,722 $ 923,522 $ 666,820
========== ========== ========== ==========
Weighted average shares of common
stock outstanding - basic 2,654,633 4,165,440 2,623,502 3,612,701
========== ========== ========== ==========
Basic net income per share $ 0.16 $ 0.01 $ 0.35 $ 0.18
========== ========== ========== ==========
DILUTED NET INCOME PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
Net income $ 457,019 $ 59,660 $ 986,046 $ 724,595
Less: Series A preferred stock
dividends (12,000) (12,000) (35,947) (36,000)
--------- ---------- ---------- ----------
Net income available to common
stockholders - diluted $ 445,019 $ 47,660 $ 950,099 $ 688,595
========= ========== ========== ==========
Weighted average shares of
common stock outstanding 2,654,633 4,165,440 2,623,502 3,612,701
Add: Convertible preferred stock
(Series B and C) dilutive effect 110,541 110,541 112,320 110,541
--------- ---------- ---------- ----------
Weighted average shares of common
stock outstanding - dilutive 2,765,174 4,275,981 2,735,822 3,723,242
========= ========== ========== ==========
Diluted net income per share $ 0.16 $ 0.01 $ 0.35 $ 0.18
========= ========== ========== ==========
</TABLE>
Stock options and warrants to purchase 157,200 shares of common stock
at prices ranging from $6.75 per share to $8.125 per share were outstanding at
September 30, 1998 but were not included in the computation of diluted net
income per share because the options' and warrants' exercise prices were greater
than the average market price of the underlying common shares. These options and
warrants expire at various dates between 1998 and 2004.
NOTE 5. SHAREHOLDERS' EQUITY
During the first quarter of 1998, the Company issued 28,100 shares of
restricted common stock, valued at $82,521, to employees in exchange for
services provided. In February 1998, the Company issued 12,000 shares, valued at
$75,000, to EVEREN Securities, Inc., for investment banking and underwriting
services.
7
<PAGE>
NOTE 6. COMMON STOCK OFFERING
In April 1998, the Company sold, through a public offering, 1,400,000
shares of its common stock at a price of $6.75; EVEREN Securities, Inc., the
underwriter of the offering, also exercised its overallotment option and
purchased an additional 200,000 shares at a price of $6.75, for total proceeds
of $10,800,000. Proceeds of the offering, net of the costs of the underwriting
(including a 7% underwriting discount, professional fees, printing and
promotional costs totaling $1,405,711), were recorded as common stock.
NOTE 7. OTHER
In June 1998, the Company entered into an agreement to acquire 1,500
one-week, 25-year right-to-use Vacation Ownership Interests to be constructed on
land adjacent to a full service resort in San Carlos, Mexico. Such interests
will be contributed to the Company's Premiere Vacation Club in exchange for
participation in the profits of Premiere Vacation Club as provided in the
agreement.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS FORM
10-Q, THE WORDS "ESTIMATE," "PROJECTION," "INTEND," "ANTICIPATES" AND SIMILAR
TERMS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS THAT RELATE TO THE
COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS ARE SUBJECT TO SUBSTANTIAL
UNCERTAINTY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES NO OBLIGATION
TO PUBLICLY UPDATE OR REVISE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN.
OVERVIEW
ILX Resorts Incorporated was formed in 1986 to enter the Vacation
Ownership Interest business. The Company generates revenue primarily from the
sale and financing of Vacation Ownership Interests. The Company also generates
revenue from the rental of its unused or unsold inventory of units at the ILX
resorts and from the sale of food, beverages and other services at such resorts.
The Company currently owns five resorts in Arizona, one in Indiana and one in
Colorado. In addition, the Company has the right to market Vacation Ownership
Interests in resorts located in Florida and Mexico.
The Company recognizes revenue from the sale of Vacation Ownership
Interests at such time as a minimum of 10% of the purchase price has been
received in cash, the statutory rescission period has expired, the buyer is
committed to continued payments of the remaining purchase price and the
Company's future obligations for the Vacation Ownership Interests have been
released. Resort operating revenues are recorded as the rooms are rented or the
services are performed.
Costs associated with the acquisition and development of Vacation
Ownership Interests, including carrying costs such as interest and taxes, are
capitalized and amortized to cost of sales as the respective revenue is
recognized.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 68.2% 57.5% 66.5% 61.3%
Resort operating revenue 27.7% 34.2% 29.9% 32.4%
Interest income 4.1% 8.3% 3.6% 6.3%
----- ----- ----- -----
Total timeshare revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of sales of Vacation
Ownership Interests:
Cost of Vacation Ownership Interests sold 12.5% 13.1% 13.3% 13.9%
Sales and marketing 60.1% 74.0% 57.7% 65.1%
Provision for doubtful accounts 3.1% 3.0% 3.0% 3.0%
Contribution margin percentage from sale
of Vacation Ownership Interests (1) 24.3% 9.9% 26.0% 18.0%
As a percentage of resort operating revenue:
Cost of resort operations 96.4% 94.4% 99.2% 97.5%
As a percentage of total timeshare revenues:
General and administrative 7.0% 8.6% 7.5% 7.7%
Depreciation and amortization 1.4% 1.0% 1.3% 1.0%
Timeshare operating income 13.3% 6.2% 12.4% 9.5%
Selected operating data:
Vacation Ownership Interests sold (2) (3) 522 352 1,231 1,114
Average sales price per Vacation Ownership
Interest sold (excluding revenues from
Upgrades) (2) $12,023 $13,387 $12,598 $13,018
Average sales price per Vacation Ownership
Interest sold (including revenues from
Upgrades) (2) $13,051 $16,005 $14,420 $15,161
</TABLE>
- ----------
(1) Defined as: the sum of Vacation Ownership Interest sales less the cost of
Vacation Ownership Interests sold less sales and marketing expenses less a
provision for doubtful accounts, divided by sales of Vacation Ownership
Interests.
(2) Reflects all Vacation Ownership Interests on an annual basis.
(3) Vacation Ownership Interests consist of 241 annual and 562 biennial for the
three months ended September 30, 1997 and 143 annual and 418 biennial for
the three months ended September 30, 1998, and 582 annual and 1,298
biennial for the nine months ended September 30, 1997 and 503 annual and
1,221 biennial for the nine months ended September 30, 1998.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Sales of Vacation Ownership Interests decreased 17% or $1,178,751 to
$5,633,797 for the three months ended September 30, 1998, from $6,812,548 for
the same period in 1997 and decreased 5% or $868,812 to $16,881,611 for the nine
months ended September 30, 1998 from $17,750,423 for the same period in 1997.
The reductions in sales reflect a decline in sales from the South Bend and
Sedona sales offices as a result of fewer tours generated to those offices and a
lower closing rate in the Sedona office, net of increased upgrade sales to
existing owners and sales from the Tucson sales office, which opened in August
1997. The average sales price per Vacation Ownership Interest sold (excluding
revenues from Upgrades) increased 11% and 3% for the three and nine month
periods ended September 30, 1998, reflecting higher prices charged for Premiere
Vacation Club interests in comparison to interests in individual properties. The
Company began selling Premiere Vacation Club late in the second quarter of 1998.
The number of Vacation Ownership Interests sold decreased 32.6% to 352
for the three months ended September 30, 1998 from 522 for the same period in
1997 and decreased 9% to 1,114 for the nine months ended September 30, 1998 from
1,231 for the same period in 1997. Sales of Vacation Ownership Interests in the
three and nine months ended September 30, 1998, included 418 and 1,221 biennial
Vacation Ownership Interests (counted as 209 and 610.5 annual Vacation Ownership
Interests) compared to 562 and 1,298 biennial Vacation Ownership Interests
(counted as 281 and 649 annual Vacation Ownership Interests) for the same
periods in 1997, respectively.
The decrease in tour flow to the South Bend sales office in the first
nine months of 1998 was due to the termination of the marketing company which
had provided the majority of tours to the sales office, in favor of internal
generation of tours. Fewer tours have been generated during the transition and
start-up periods of these new programs. Improvement in tour flow as a result of
the investment in these programs is expected to be realized beginning in the
latter half of the fourth quarter in 1998. Tour flow to the Sedona sales office
has decreased due to increasing competition for tours in the Phoenix market. In
response to this trend, the Company sought approval in California to generate
tours to its Sedona sales office, and such approval was received in July 1998.
The Company began test marketing into California late in the third quarter.
Significant tour flow from this market is not expected until late in the fourth
quarter of 1998 or early 1999, following completion of test marketing. During
July and August 1998 the Sedona sales office experienced an 11% closing rate,
substantially lower than the office's historical performance. The Company
attributes the decline to management of the office and, accordingly, made a
change in management on September 1, 1998. Following the change, the September
closing rate for the office increased to 18%, consistent with historical results
from this office.
Upgrade revenue, included in Vacation Ownership Interest sales,
increased 72% to $921,722 for the three months ended September 30, 1998 from
$536,645 for the same period in 1997 and increased 6% to $2,385,830 for the nine
months ended September 30, 1998 from $2,242,596 for the same period in 1997. The
increases in Upgrade revenue in the third quarter and year-to-date reflect the
introduction of Premiere Vacation Club late in the second quarter of 1998.
Premiere Vacation Club, which offers buyers the opportunity to utilize their
time at any of the participating individual ILX Resorts, to receive day use
privileges and food and beverage discounts at all ILX Resorts and a variety of
other benefits, is currently being marketed as an Upgrade to owners of Vacation
Ownership Interests in the individual ILX Resorts (as well as to new customers).
Interests in Premiere Vacation Club are sold for higher prices than interests of
a similar size and season in the Company's individual resorts due to the greater
flexibility Premiere provides. The increase in Upgrade revenue from Premiere
Vacation Club sales in 1998 is offset in part by the greater trade-in value
recognized in 1997 on Upgrades by owners of Golden Eagle ownership interests.
Golden Eagle ownership interests have a higher trade-in value than the Company's
other properties and, in 1997, a disproportionate number of Golden Eagle owners
upgraded their ownership interests. Upgrades generally do not involve the sale
of additional Vacation Ownership Interests (merely their exchange) and,
therefore, such Upgrades increase the average sales price per Vacation Ownership
Interest sold.
The introduction of the higher priced Premiere Vacation Club interests
to both new customers and existing owners is reflected in the increased average
sales price per Vacation Ownership Interest sold. The average sale price per
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Vacation Ownership Interest sold excluding revenue from Upgrades increased from
$12,023 to $13,387 and from $12,598 to $13,018 for the three and nine month
periods in 1997 to the same periods in 1998 and the average sales price
including Upgrades increased from $13,051 to $16,005 and from $14,420 to $15,161
for the same periods.
Resort operating revenues increased 21% and 12% or $571,868 and
$929,382 to $3,342,697 and $8,929,975 for the three and nine month periods
ending September 30, 1998, respectively, reflecting increases at the Company's
Sedona properties and at Kohl's Ranch Lodge, and the opening of Varsity Clubs of
America - Tucson Chapter in July 1998.
The decreases in cost of resort operations as a percentage of resort
operating revenue for both the three and nine month periods ended September 30,
1998 reflect increased revenue at the Company's Sedona property and Kohl's Ranch
Lodge, net of the effects of recognition of start-up and initial operating costs
of Varsity Clubs of America - Tucson Chapter.
Interest income increased 95% to $810,098 for the three months ended
September 30, 1998 from $414,482 for the same period in 1997 and increased 79%
to $1,743,771 for the nine months ended September 30, 1998 from $973,236 for the
same period in 1997, primarily as a result of the increase in customer notes
retained by the Company and increases in interest rates charged by the Company
on its customer notes. The Company is retaining and borrowing against
(hypothecating) rather than selling a greater portion of its consumer notes.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales increased slightly (approximately 0.6%) for both the
three and nine month periods ended September 30, 1998, reflecting variations in
product mix. 1998 sales include a lower proportion of sales of interests in Los
Abrigados Resort & Spa, and greater sales of interests in Varsity Clubs. The
purpose built Varsity Clubs typically have a greater cost of sales than
interests in Los Abrigados. Partially offsetting this change in mix are the
greater 1998 prices as described above.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 74% and 65% for the three and nine months ended September
30, 1998 from 60% and 58% for the same periods in 1997, respectively, due to
reduced tours to the South Bend sales office as a result of the transition from
the utilization of a major outside vendor of tours to internal generation of
tours, increased costs of generating tours to the Sedona sales office and
reduced closing rates in the Sedona office in July and August, all as discussed
above. Sales and marketing expenses in the third quarter of 1998 also reflect
start-up costs associated with developing sales operations at the Roundhouse
Resort in Pinetop, Arizona, and two offsite sales offices in Mexico, which are
not expected to produce significant revenue until at least the first quarter of
1999. Sales and marketing expenses also include costs of developing an exit
program for non-purchasers which allows such customers to take advantage of the
benefits of ownership on a trial basis. Introduction of the exit program is
planned for the fourth quarter of 1998, with significant revenue not expected
until 1999.
The provision for doubtful accounts as a percentage of Vacation
Ownership Interest sales remained comparable between years.
General and administrative expenses increased 20% to $842,848 for the
three months ended September 30, 1998 from $703,731 for the same period in 1997
and increased 6% to $2,120,528 for the nine months ended September 30, 1998 from
$2,003,106 for the same period in 1997. General and administrative expenses
increased as a percentage of total timeshare revenues increased to 8.6% for the
three and 7.7% for the nine months ended September 30, 1998 compared to 7.0% and
7.5% for the same periods in 1997, respectively. The increases reflect greater
staffing (including information systems, contract and loan processing and
accounting and financial personnel) to support recent and planned expansion of
sales offices, properties and marketing programs, including the Varsity Clubs of
America - Tucson Chapter hotel and sales office, offsite sales offices in Mexico
and the Premiere Vacation Club program.
12
<PAGE>
Interest expense decreased 9% to $515,111 for the three months ended
September 30, 1998 from $564,710 for the same period in 1997 and decreased 5% to
$1,422,244 for the nine months ended September 30, 1998 from $1,500,472 for the
same period in 1997, reflecting reductions in borrowings in the second and third
quarters of 1998 from the use of proceeds of the follow-on offering of the
Company's common stock, net of an increase in borrowings against notes
receivable as the Company retains and borrows against, rather than sells, a
greater portion of its customer notes receivable.
Income tax expense as a percentage of pre-tax income net of minority
interests is comparable between years.
The elimination of minority interests in 1998 is due to the buyout by
the Company of the LAP minority interest in August 1997.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
The Company generates cash primarily from the sale of Vacation
Ownership Interests (including Upgrades), the financing of customer notes from
such sales and resort operations. During the nine months ended September 30,
1997 and 1998, cash provided by (used in) operations was $2,966,575 and
$(3,165,092), respectively. The negative cash flow for the nine months ended
September 30, 1998 was due primarily to the construction of Varsity Clubs of
America - Tucson Chapter, which was financed in large part through a
construction loan and lease financing. Because the Company uses significant
amounts of cash in the development and marketing of Vacation Ownership
Interests, but collects the cash on the customer notes receivable over a long
period of time, borrowing against and/or selling receivables is a necessary part
of its normal operations.
For regular federal income tax purposes, the Company reports
substantially all of its non-factored financed Vacation Ownership Interest sales
under the installment method. Under the installment method, the Company
recognizes income on sales of Vacation Ownership Interests only when cash is
received by the Company in the form of a down payment, as installment payments
or from proceeds from the sale of the customer note. The deferral of income tax
liability conserves cash resources on a current basis. Interest may be imposed,
however, on the amount of tax attributable to the installment payments for the
period beginning on the date of sale and ending on the date the related tax is
paid. If the Company is otherwise not subject to tax in a particular year, no
interest is imposed since the interest is based on the amount of tax paid in
that year. The consolidated financial statements do not contain an accrual for
any interest expense that would be paid on the deferred taxes related to the
installment method, as the interest expense is not estimable.
At December 31, 1997, the Company, excluding Genesis, had NOL
carryforwards of $4.8 million, which expire in 2001 through 2012. At December
31, 1997, Genesis had federal NOL carryforwards of $1.9 million, which are
limited as to usage because they arise from built-in losses of an acquired
company. In addition, such losses can only be utilized through the earnings of
Genesis and are limited to a maximum of $189,000 per year. To the extent the
entire $189,000 is not utilized in a given year, the difference may be carried
forward to future years. Any unused Genesis NOLs will expire in 2008.
In addition, Section 382 of the Code imposes additional limitations on
the utilization of NOLs by a corporation following various types of ownership
changes, which result in more than a 50% change in ownership of a corporation
within a three-year period. Such changes may result from new Common Stock
issuances by the Company or changes occurring as a result of filings with the
Securities and Exchange Commission of Schedules 13D and 13G by holders of more
than 5% of the Common Stock, whether involving the acquisition or disposition of
Common Stock. If such a subsequent change occurs, the limitations of Section 382
would apply and may limit or deny the future utilization of the NOL by the
Company, which could result in the Company paying substantial additional federal
and state taxes.
13
<PAGE>
USES OF CASH
Investing activities typically reflect a net use of cash because of
capital additions and loans to customers in connection with the Company's
Vacation Ownership Interest sales. Net cash used in investing activities for the
nine months ended September 30, 1997 and 1998 was $5,810,572 and $4,606,242,
respectively.
The Company requires funds to finance the acquisitions of property for
future resort development and to further develop the existing resorts, as well
as to make capital improvements and support current operations. During the nine
months ended September 30, 1998, the Company was constructing Varsity Clubs of
America - Tucson Chapter, which was completed in July 1998. During that period,
the Company borrowed $3,438,076 on its construction financing commitment and
$800,200 on its lease commitment for this property.
Customer defaults have a significant impact on cash available to the
Company from financing customer notes receivables in that notes which are more
than 60 to 90 days past due are not eligible as collateral. As a result, the
Company in effect must repay borrowings against such notes or buy back such
notes if they were sold with recourse.
CREDIT FACILITIES AND CAPITAL
The Company has agreements with financial institutions for total
commitments aggregating $25.0 million under which the Company may sell certain
of its customer notes. These agreements provide for sales on a recourse basis
with a percentage of the amount sold held back by the financial institution as
additional collateral. Notes may be sold at discounts or premiums to yield the
consumer market rate as defined by the financial institution. At September 30,
1998, approximately $9.1 million was available under these commitments.
The Company also has financing commitments aggregating $43.5 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus 1.5% to prime plus 3.0%
and expire at various dates from 2002 through 2003. At September 30, 1998,
approximately $39.7 million is available under these commitments. In addition,
the Company has a written commitment for an additional $10.0 million of notes
receivable financing that is subject to final documentation.
In April 1998, the Company sold, through a public offering, 1,400,000
shares of its common stock at a price of $6.75; EVEREN Securities, Inc., the
underwriter of the offering, also exercised its overallotment option and
purchased an additional 200,000 shares at a price of $6.75, for total proceeds
of $10,800,000. Proceeds of the offering, net of the costs of the underwriting
(including a 7% underwriting discount, professional fees, printing and
promotional costs totaling $1,405,711), were recorded as common stock.
In the future, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the above.
Any debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as management deems prudent. There is no assurance that the Company will
be able to secure additional corporate debt or equity at or beyond current
levels or that the Company will be able to maintain its current level of debt.
The Company believes available borrowing capacity, together with cash
generated from operations, will be sufficient to meet the Company's liquidity,
operating and capital requirements for at least the next 12 months.
OTHER
In June 1998, the Company entered into an agreement to acquire 1,500
one-week, 25-year right-to-use Vacation Ownership Interests to be constructed on
land adjacent to a full service resort in San Carlos, Mexico. Such interests
will be contributed to Premiere Vacation Club in exchange for participation in
the profits of Premiere Vacation Club as provided in the agreement.
14
<PAGE>
SEASONALITY
The Company's revenues are moderately seasonal with the volume of ILX
Owners, hotel guests and Vacation Ownership Interest exchange participants
typically greatest in the second and third fiscal quarters. As the Company
expands into new markets and geographic locations it may experience increased or
additional seasonality dynamics which may cause the Company's operating results
to fluctuate.
YEAR 2000 ISSUES
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company believes it has identified all significant
applications that will require modifications to ensure Year 2000 Compliance.
Internal and external resources are currently being used to make the required
modifications and test Year 2000 Compliance. The modification and upgrade of all
significant internal applications is currently in process. The Company plans on
completing the modification and upgrade process of all significant applications
by December 31, 1998.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000
Compliance issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. Since the Company commenced its
assessment of its Year 2000 Compliance during early 1998, it has expended
approximately $28,000 and estimates additional future costs of approximately
$40,000, consisting primarily of software purchases and associated training and
consulting services. In addition, certain employees of the Company have devoted
their time to assessing and implementing the Company's Year 2000 Compliance, the
costs of which have not been separately allocated by the Company. These costs
and the date on which the Company plans to complete the Year 2000 modification
and testing processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those plans.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years or the three or nine months ended September 30,
1998. However, to the extent inflationary trends affect short-term interest
rates, a portion of the Company's debt service costs may be affected as well as
the rates the Company charges on its customer notes.
15
<PAGE>
PART II
ITEM I. LEGAL PROCEEDINGS
A dispute has arisen between the general contractor, Summit Builders,
and the Company's wholly owned subsidiary, VCA Tucson Incorporated with respect
to amounts owing under the guaranteed maximum price contract relating to the
construction of VCA Tucson. The matter has been submitted to arbitration with
the general contractor and the Company filing claims and counterclaims,
respectively. The Company has obtained a payment bond in accordance with the
provisions of Arizona law. The Company believes its ultimate exposure will be
consistent with its expectations under the guaranteed maximum price contract and
the change orders approved by the Company during the course of construction.
Other litigation has arisen in the normal course of the Company's
business, none of which is deemed to be material.
ITEM II. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM III. DEFAULTS UPON SENIOR SECURITIES
None
ITEM IV. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM V. OTHER INFORMATION
None
ITEM VI. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
10-1 AMENDED AND RESTATED SECURED LINE OF CREDIT
LENDING AGREEMENT between ILX Resorts
Incorporated, Los Abrigados Partners Limited
Partnership, ILE Sedona Incorporated, VCA Tucson
Incorporated, VCA South Bend Incorporated,
Premiere Development Incorporated and Litchfield
Financial Corporation dated as of September 17,
1998 (filed herewith)
10-2 AGREEMENT FOR SALE AND TRANSFER OF PROMISSORY NOTE
between ILX Resorts Incorporated and Martori
Enterprises Incorporated dated as of September 29,
1998 (filed herewith)
27-1 Financial Data Schedule (filed herewith)
(ii) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused its quarterly report on Form 10-Q to be
signed on its behalf by the undersigned thereunto duly authorized.
ILX RESORTS INCORPORATED
(Registrant)
/s/ Joseph P. Martori
---------------------------
Joseph P. Martori
Chief Executive Officer
/s/ Nancy J. Stone
---------------------------
Nancy J. Stone
President
/s/ Stephen W. Morgan
---------------------------
Stephen W. Morgan
Chief Financial Officer
and Senior Vice President
Date: As of November 11, 1998
17
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
10-1 AMENDED AND RESTATED SECURED LINE OF CREDIT LENDING AGREEMENT between
ILX Resorts Incorporated, Los Abrigados Partners Limited Partnership,
ILE Sedona Incorporated, VCA Tucson Incorporated, VCA South Bend
Incorporated, Premiere Development Incorporated and Litchfield
Financial Corporation dated as of September 17, 1998 (filed herewith)
10-2 AGREEMENT FOR SALE AND TRANSFER OF PROMISSORY NOTE between ILX Resorts
Incorporated and Martori Enterprises Incorporated dated as of
September 29, 1998 (filed herewith)
27-1 Financial Data Schedule (filed herewith)
EXHIBIT 10-1
AMENDED AND RESTATED
SECURED LINE OF CREDIT
LENDING AGREEMENT
(ILX Incorporated)
THIS AMENDED AND RESTATED SECURED LINE OF CREDIT LENDING AGREEMENT
("Agreement") is dated this 17th day of September 1998, by and between ILX
RESORTS INCORPORATED, an Arizona corporation; LOS ABRIGADOS PARTNERS LIMITED
PARTNERSHIP, an Arizona limited partnership; ILE SEDONA INCORPORATED, an Arizona
corporation; VCA TUCSON INCORPORATED, an Arizona corporation; VCA SOUTH BEND
INCORPORATED, an Arizona corporation; and PREMIERE DEVELOPMENT INCORPORATED, an
Arizona corporation, all having their principal places of business at 2777 E.
Camelback Road, Phoenix, Arizona 85016 (collectively, "Borrower"), and
LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation having its western
division offices at 13701 West Jewell Avenue, Lakewood, Colorado 80228
("Lender"), under the following facts:
RECITALS:
WHEREAS, the Borrower is the owner, developer and marketer of certain
timeshare development projects located in or around Sedona, Arizona, Estes Park,
Colorado, Tucson, Arizona and South Bend, Indiana and marketed under the names
Sedona Vacation Club at Los Abrigados, The Golden Eagle Resort, The Inn at Los
Abrigados, Varsity Club -- Tucson, Varsity Club -- South Bend, and Premiere
Vacation Club, along with other timeshare development projects which Lender may
subsequently approve; and
WHEREAS, the Borrower owns and will subsequently be generating
portfolios of installment sales promissory notes and contracts originated from
its timeshare sales operations which it desires to pledge to Lender, along with
other collateral as is more fully described herein, which shall serve to secure
Borrower's repayment of a loan of even date herewith to be advanced by Lender;
and
WHEREAS, the parties hereto desire to be legally bound by the terms and
conditions of this Agreement along with all exhibits attached hereto and related
contractual agreements referenced herein, the terms and conditions of which are
incorporated herein by this reference;
NOW, THEREFORE, for and in consideration of the foregoing Recitals, and
the covenants and agreements hereinafter set forth and other good and valuable
consideration, the legal adequacy and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, hereby
agree:
1. DEFINITIONS.
In addition to the definitions set forth in the introductory
paragraphs, the following terms shall have the following meanings unless
otherwise agreed.
"Account" means that form of installment land sales contract and/or
promissory note and related deed of trust or other debt securing instrument
which is originated by Borrower in connection with its development and sale of
Timesharing Interests to Account Debtors within the Project at retail and in
Borrower's ordinary course of business.
<PAGE>
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of an Account whether as the maker thereof
or as a guarantor thereto.
"Amortization Period" means that period of time which begins after the
expiration of the Borrowing Period during which all Obligations shall be repaid
in sixty (60) equal and fully amortizing monthly installments, with the first
such installment becoming due and payable one month after the expiration of the
Borrowing Period and with successive installments becoming due and payable
monthly thereafter until all Obligations hereunder are paid in full; provided,
however, that all Obligations owing hereunder, if not paid sooner, shall
immediately become due and payable in full on or before ninety-six (96) months
from and after the date of Closing.
"Borrowing Base" means an amount equal to seventy percent (70%) of the
then unpaid total aggregate outstanding principal balance of all Qualified
Pledged Accounts. On the first day of each month, beginning the fourth month
after closing, the Borrowing Base shall be adjusted downward in accordance with
that formula described below if the total principal balance of all Accounts that
are thirty (30) through sixty (60) days contractually delinquent, based on a
three (3) month rolling average, exceeds eight percent (8%) of the total
principal balance of all Qualified Pledged Accounts pledged to Lender under this
Credit Agreement (any such status is referred to below as a "Delinquent
Percentage"). Only during that period of time when the Delinquent Percentage
exists, the Borrowing Base formula shall be amended to reflect a figure which is
equal to the product of 100% minus the sum realized by multiplying 3.75 dines
the Delinquent Percentage. In illustration of the foregoing, should the
Delinquent Percentage equal ten percent (10%), then the Borrowing Base would be
reduced to 62.5% pursuant to the following formula: Borrowing Base = 100% -
(3.75 X 10%). During all periods in which no Delinquent Percentage exists, the
Borrowing Base shall return to the seventy percent (70%) formula as first stated
above.
"Borrowing Period" means the thirty six (36) month period following the
Closing Date.
"Business Day" means any day which is not a Saturday, Sunday or other
day on which national banks are authorized or required to close.
"Closing Date" means the date of this agreement.
"Collateral" means the Pledged Accounts; the Credit Agreement;
Borrower's books and records as they pertain to the Pledged Accounts; and the
proceeds and products, whether tangible or intangible, of any of the foregoing.
"Collateral Assignment of Deeds of Trust" means that agreement executed
by Borrower in favor of Lender in which Borrower collaterally assigns to Lender
all of the Borrower's rights, title and interest in and to those deeds of trust
which secure repayment of the Pledged Accounts.
"Collateral Assignment of Promissory Notes" means that agreement
executed by Borrower in favor of Lender in which Borrower collaterally assigns
to Lender all of the Borrower's rights, title and interest in and to the Pledged
Accounts.
"Credit Agreement" collectively means all agreements pertaining to the
establishment of the lending relationship described herein, including, without
limitation, the Amended and Restated Secured Line of Credit Lending Agreement,
Amended and Restated Secured Line of Credit Promissory Note, Pledge and Security
2
<PAGE>
Agreement, Collateral Assignment of Promissory Notes, Collateral Assignment of
Deeds of Trust, Custodial Agreement, Servicing Agreement, Escrow Agreement, and
all documents referenced therein or pertaining thereto.
"Custodian" means that party designated as such in the Custodial
Agreement.
"Custodial Agreement" means that agreement of even date herewith which
has been executed by the Borrower and the Lender and the Custodian.
"Cut-Off Date" means __________________, 1998.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Delinquent Account" means any Pledged Account which is sixty (60) days
or more contractually delinquent.
"End-Loan Documents" means those documents executed by Account Obligors
in connection with their purchase of Timesharing Interests and their financing
of the purchase prices thereof as are more fully defined and described in
Paragraph 3 herein.
"Escrow Agent" means Litchfield Financial Corporation.
"Escrow Agreement" means that agreement of even date herewith executed
by and between Lender, Borrower and Escrow Agent.
"Event of Default" means the occurrence of those events as are more
fully described in Paragraph 24, hereof.
"GAAP" mean generally accepted accounting principals as in effect from
time to time in the United States, consistently applied.
"Hazardous Materials" means (a) those substances as defined as
"hazardous substances," "hazardous materials," "toxic substances," or "solid
waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et. seq., and in the regulations promulgated pursuant
thereto; (b) those substances designated as a "hazard substance' under or
pursuant to the Federal Water Pollution Control Act, 33 U.S.C. ss.1257, et.
seq., and in the regulations promulgated pursuant thereto; (c) those substances
listed in the United States Department of Transportation Table (40 CFR 172.101
and amendments thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and amendments
thereto); and (d) such other substances, materials and classified as hazardous
or toxic under any Act.
"Initial Advance" means that initial advance of principal by Lender to
Borrower after the application of the Borrowing Base to the Initially Pledged
Accounts as is more fully described in Paragraph 2(C) hereof.
"Initially Pledged Accounts" means each and every Qualified Pledged
Account along with the debt securing instruments securing the repayment of same
which when applied to the Borrowing Base serve as the
3
<PAGE>
basis for the Initial Advance and which are more specifically identified on
EXHIBIT A, attached hereto and incorporated herein by this reference.
"Lender Expenses" means costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by Borrower under the Credit Agreement that are paid or advanced by
Lender; documentation, filing, recording, publication, appraisal, lock box,
custodial, loan servicing fees paid to Servicer, costs and expenses incurred by
Lender in the disbursement of funds incurred by Lender resulting from the
dishonor of checks; costs and expenses paid or incurred by Lender to correct any
default or enforce any provision of the Credit Agreement, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising the Collateral for sale, regardless of
whether a sale is consummated; costs and expenses paid or expenses of third
party claims or any other suit paid or incurred by Lender in enforcing or
defending the Credit Agreement; and Lender's reasonable attorney's fees and
expenses incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorney's fees and expenses
incurred in connection with a "workout," a restructuring, or an insolvency
proceedings concerning Borrower or any guarantor of the Obligations), defending,
or concerning the Credit Agreement, irrespective of whether suit is brought.
Provided, however, in all instances, Lender Expenses shall be limited to
reasonable expenses which are reasonably necessitated by Lender's transactions
with Borrowers or as may otherwise be required in order to protect Lender's
rights in and to the Collateral.
"Line of Credit Note" means that promissory note in the original face
amount of Three Million Five Hundred Thousand Dollars ($3,500,000) which shall
be in substantially that form as is appended hereto as EXHIBIT B which shall
evidence certain of the Obligations associated with the Credit Agreement and
which shall provide for the manner of the repayment of the principal, interest,
fees and other sums evidenced thereby and, moreover, which shall serve to amend
and restate the terms and conditions of that promissory note executed by
Borrower and delivered to Lender on or about April 9, 1996,
"Maximum Line Amount" means the sum of Three Million Five Hundred
Thousand Dollars ($3,500,000).
"Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities (including all amounts charged to
Borrower's loan account pursuant to any agreement authorizing Lender to charge
Borrower's loan account), obligations, fees (including pre-payment
entitlements), lease payments, guarantees, covenants, and duties owing by
Borrower to Lender of any kind and description (whether pursuant to or evidenced
by the Credit Agreement, by any instrument, or pursuant to any other agreement
between Lender and Borrower, and irrespective of whether for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from Borrower to third parties that Lender may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all Lender Expenses that Borrower is required to pay or reimburse by the
Credit Agreement, by law, or otherwise.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
4
<PAGE>
"Pledge and Security Agreement" means that agreement executed by the
Borrower in favor of the Lender which is dated April 9, 1996 pursuant to which
the Borrower granted to Lender a first and priority security interest in and to
the Pledged Accounts and the Collateral.
"Pledged Accounts" means each and every Initially Pledged Account and
Subsequently Pledged Account.
"Project" collectively means the Los Abrigados Resort & Spa, The Inn at
Los Abrigados, The Golden Eagle Resort, Varsity Club -- Tucson, Varsity Club --
South Bend and Premiere Vacation Club real property developments located in or
around Sedona, Arizona, Estes Park, Colorado, Tucson, Arizona, and South Bend,
Indiana along with those other timeshare development projects which Lender may
subsequently approve in writing, from which Timesharing Interests are created
and sold to Timesharing Interest Purchasers and which generate Accounts.
"Qualified Pledged Account" means those Pledged Accounts that meet the
criteria set forth in Paragraph 8, hereof.
"Reference Rate" means that rate of interest which is designated by the
Wall Street Journal, Western Edition, as the nation's average prime interest
rate. Should the Wall Street Journal cease reporting said rate of interest, then
the Reference Rate shall be deemed that rate of interest designated by Citibank,
N.A. as its prime interest rate.
"Servicer" means Concord Servicing Corporation, or any other entity, as
Lender may designate from time to time which is also agreed to by Borrower, such
agreement not to be unreasonably withheld.
"Servicing Agreement" means any loan servicing agreement entered into
between Servicer, Borrower, and Lender respecting the agreement of Servicer to
serve as servicing agent for the Pledged Accounts.
"Subsequent Advance" means any subsequent advance of principal by
Lender to Borrower after the application of the Borrowing Base to the
Subsequently Pledged Accounts.
"Subsequently Pledged Account" means each and every Qualified Pledged
Account which may be originated by Borrower from and after the Closing Date,
each of which meets the standards set forth in Paragraph 8, hereof, along with
the security securing the repayment of same, and which are offered as
collateral, for the Obligations and pledged to secure subsequent advances.
"Timesharing Interest" means a legally identifiable parcel of real
property which is located within, or constitutes an undivided interest in, the
Project and which is sold in a fee simple manner to an Account Debtor.
"Timesharing Interest Purchaser" means the purchaser of a Timesharing
Interest at the Project.
2. THE LOAN AND TERMS OF PAYMENT.
A. Line of Credit Note. Upon Borrower's compliance with all
conditions precedent and terms and conditions as are set forth herein and in the
Credit Agreement, Lender hereby agrees to extend credit to Borrower in a
collective sum not to exceed Three Million Five Hundred Thousand Dollars
($3,500,000). Concurrently herewith, Borrower shall execute and deliver to
Lender the Line of Credit Note in the face amount
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of Three Million Five Hundred Thousand Dollars ($3,500,000). The indebtedness
evidenced by the Line of Credit Note shall be paid by a collateral assignment of
the principal, interest, late charges and all other sums payable from and on the
Pledged Accounts and shall be secured by a collateral pledge of Pledged Accounts
and that other Collateral and security as is more fully described in the Credit
Agreement.
B. Term of Credit Facility. All Obligations outstanding
hereunder shall be due and payable ninety-six (96) months from the Closing Date,
subject to earlier payment through amortization, voluntary or mandatory call
and/or acceleration as provided in the Credit Agreement and in the Line of
Credit Note. The Obligations shall bear interest at the rate and pursuant to the
terms and conditions of the Line of Credit Note.
C. Initial Advance. Subject to Borrower's compliance with the
required terms and conditions of the Credit Agreement, Lender agrees to make and
loan an Initial Advance of principal to Borrower in an amount equal to the
principal balance outstanding under that Secured Line of Credit Promissory Note
dated April 9, 1996 which is being amended and restated contemporaneously
herewith upon receipt and perfection of and the pledge to Lender of the
Initially Pledged Accounts and the other Collateral. Disbursements hereunder
shall be made through the Escrow Agent pursuant to the provisions of the Escrow
Agreement and after the Borrower's review and execution of a closing and
settlement statement.
D. Subsequent Advances. In addition to the Initial Advance,
and subject to Borrower's compliance with the required terms and conditions of
the Credit Agreement, Lender, during the Borrowing Period, agrees to make
further loans and advances of principal to Borrower upon the pledge to Lender of
Subsequently Pledged Accounts by Borrower so long as, and to the extent that,
the Obligations outstanding (inclusive of the Subsequent Advance) do not exceed
either the Borrowing Base or the Maximum Line Amount. Notwithstanding anything
herein to the contrary, Lender may reduce its advance rates if it determines, in
its reasonable discretion, that there is a material impairment of the prospect
of repayment of all or any portion of the Obligations or a material impairment
of the value or priority of Lender's security interests in the Collateral.
Advances made pursuant to this Paragraph 2 (D) shall not be made more frequently
than weekly, or in amounts less than $50,000 per advance.
E. Maximum Line Amount. At no such time shall the Initial
Advance and all Subsequent Advances collectively exceed the Maximum Line Amount.
F. Interest Rates, Payment and Calculation. All Obligations
shall bear interest, on the average Daily Balance, at a rate equal to the
Reference Rate Plus Three Percent (3%) per annum, it being understood that the
Reference Rate is variable in nature and shall be adjusted on the first day of
each calendar quarter during that period of time when the Obligations are
outstanding all as more fully described in the Line of Credit Note. Interest
shall begin to accrue on the date of any and all advances hereunder. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate of interest equal to eight hundred
(800) basis points above the otherwise applicable Reference Rate. Interest shall
be calculated based upon a 365 day calendar year,
Interest hereunder shall be due and payable on the first (1st)
day of each month during the term hereof. Lender may charge such interest, all
Lender Expenses (as and when incurred), and all installments or other payments
due hereunder or under the Credit Agreement to Borrower's loan account, which
amounts shall thereafter accrue interest at the then applicable rate of
interest. Any interest not paid when due shall be compounded by becoming a part
of the Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.
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In no event shall the interest rate or rates payable under the
Credit Agreement and the Line of Credit Note, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Lender, in executing the Credit Agreement and the Line
of Credit Note, intend to legally agree upon the rate or rates of interest and
manner of payment stated within it; provided, however, that, anything contained
herein or in the Line of Credit Note to the contrary notwithstanding, if said
rate or rates of interest or manner of payment exceeds the maximum allowable
under applicable law, then, ipso facto as of the date of the Credit Agreement
and the Line of Credit Note, Borrower is and shall be liable only for the
payment of such maximum rate of interest as allowed by law, and payment received
from Borrower in excess of such legal maximum, whenever received, shall be
applied to reduce the principal balance of the Obligations to the extent of such
excess.
G. Crediting Payments; Application of Collections. Weekly, on
Thursday, Servicer shall forward to the Lender, via wire transfer, all
collections received from the Pledged Accounts held by Servicer for the benefit
of Lender, so that the funds will be credited to Lender's account that same day.
The receipt of any wire transfer of funds, check, or other item of payment by
Lender immediately shall be applied to provisionally reduce the Obligations, but
shall not be considered a payment on an account unless such wire transfer is of
immediately available federal funds and is made to the appropriate deposit
account of Lender or unless and until such check or other item of payment is
honored when presented for payment. Any Pledged Account payments received
directly by the Borrower shall be immediately forwarded to the Servicer. Should
any check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Lender only if it is received into Lender's operating account
as identified on or before 12:00 noon, Williamstown, Massachusetts time. If any
wire transfer, check, or other item of payment is received into Lender's
operational account after 12:00 noon, Williamstown, Massachusetts time it shall
be deemed to have been received by Lender as of the opening of business on the
immediately following business day. The Lender reserves the right at any time to
require the implementation of a reasonably agreeable lock box agreement upon
reasonable notice to Borrower.
H. Advance Fee. Borrower shall pay to Lender a fee equal to
one percent (1%) of the gross amount of each subsequent advance which is to be
paid out of the proceeds of each subsequent advance. Lender will directly deduct
these fees from each Subsequent Advance-
3. CONDITIONS TO INITIAL AND SUBSEQUENT ADVANCES.
Conditions Precedent to Initial Advance. The obligation of
Lender to make the Initial Advance is subject to the fulfillment, to the
satisfaction of Lender and its counsel, of each of the following conditions on
or before the Closing Date:
(a) Assuming compliance by Borrower of all the terms and
conditions of the Credit Agreement, the Initial Advance is scheduled to be
tendered by Lender to Borrower on or before 1998 unless an alternative date is
mutually agreed to;
(b) Borrower shall have executed and delivered to Lender this
Amended and Restated Secured Line of Credit Lending Agreement, the Amended and
Restated Secured Line of Credit Promissory Note and such other documents as the
Lender and its counsel may reasonably require, it being recognized that
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Borrower has previously executed certain documents in favor of Lender on or
about June 6, 1996 which shall continue to evidence, support, secure and
collateralize the loans being advanced by Lender to Borrower notwithstanding the
modification, amendment and restatement of the Credit Agreement and the Line of
Credit Note.
(c) All conditions set forth herein to the making of the
Initial Advance shall have been satisfied within five (5) days of Lender's
submission of all of the documents which collectively constitute the Credit
Agreement to Borrower for execution.
(d) All representations and warranties contained herein shall
be true and correct as of the date of the execution of the Credit Agreement and
as of the Closing Date.
(e) Borrower shall have executed such certificates and
resolutions as are required by Lender.
(f) There shall be no Event of Default, then in existence, or
any event or occurrence which with notice, the passage of time or both, would
constitute an Event of Default.
(g) Escrow Agent shall have advised Lender that Lender has
obtained a properly perfected first and prior security interest in the Pledged
Accounts.
(h) Lender shall have reviewed and approved the existence of
sufficient Pledged Accounts complying with the requirements of Paragraph 8
herein to support the contemplated advance.
(i) Lender shall have received and approved such additional
documents and assurances as Lender may reasonably require and shall, have the
on-going right to receive all other documents from Borrower which Lender may
reasonably require and which shall be in furtherance of the intentions and goals
of this agreement.
(j) Lender has or shall have received, where applicable,
copies of articles of incorporation of Borrower and a current Certificate of
Good Standing for Borrower issued by the appropriate governmental authority as
well as copies, if any, of Borrower's licenses or qualifications to do business.
(k) Lender shall have received satisfactory evidence that the
Pledged Accounts are (a) exempt from or in compliance with applicable statutes
and regulations governing the sale of timeshare interests or operation of
timeshare projects, or that the business of Borrower fully complies with all
such statutes and regulations, (b) Borrower is in good standing with all
applicable governmental authorities, and (c) the Pledged Accounts comply with
all applicable federal, state, and local statutes, regulations and ordinances.
(l) Lender shall have received and reasonably reviewed and
approved all documents relating to the sale of Timesharing Interests in the
Project including without limitation all regime documents and amendments
thereto, applicable state timeshare registrations, forms of sales contracts,
disclosure documents and property owner association constituent documents and
budgets. Lender shall be deemed to approve the form of any such documents unless
Lender provides Borrower with Lender's objections no less than five (5) days
prior to the Closing Date.
(m) Lender or Escrow Agent shall have received the following
documents and assurances ("End-Loan Documents") with respect to each Pledged
Account:
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(i) Purchase Agreement (which includes
promissory note);
(ii) Deed of Trust executed by Account Debtor;
(iii) Owner's Understanding and Acknowledgment;
(iv) Warranty Deed (for Arizona) or special
Warranty Deed (for Colorado);
(v) Required Receipt for Public Report;
(vi) HUD-1 Uniform Settlement Statement;
(vii) Credit Application;
(viii) Credit Report
(ix) Statement showing the unpaid balance of the
Account, the amount of its periodic
installments and its present collections
status.
Any cross-outs, erasures, write-outs and modifications
regarding any of the foregoing shall be initialed by the Timeshare Purchaser.
(n) Borrower shall have provided Lender with evidence of
insurance in place in an amount sufficient to restore the improvements upon the
property constituting the Project to a usable state and in an amount sufficient
to compensate the Timeshare Purchasers for their inability to utilize the
Project during any period of reconstruction. At the time of execution hereof,
Lender acknowledges that Borrower has provided proof of insurance satisfying the
foregoing requirements.
(o) Borrower's net worth shall not collectively decrease below
$10,000,000.
(p) There shall have been no material adverse change to the
financial condition of Borrower nor shall there be any material adverse change
in Borrower's business operations or the Project.
(q) Lender shall have received verification that the Project
remains in continuing compliance with all local, state, and federal laws.
(r) Borrower shall be in material compliance with all
financial and protective covenants and warranties and representations of every
nature as may be found in Borrower's lending agreements with third party lenders
and Borrower shall not be in material default in any term or condition of any
other agreement of whatever nature to which Borrower is a party.
CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES. The obligation of
Lender to make any or all subsequent advance(s) is subject to the fulfillment,
to the satisfaction of Litchfield and its counsel, of the following items on or
before the date of the scheduled subsequent advance:
(a) All representations and warranties contained herein shall
be true and correct as of the Closing Date and the date of each and every
Subsequent Advance.
(b) There shall be no Event of Default, then in existence, or
any event or occurrence which with notice, the passage of time or both, would
constitute an Event of Default.
(c) Escrow Agent shall have advised Lender all requirements as
set forth in the Escrow Agreement and which pertain to the taking of certain
actions and the receipt and delivery of documents associated with Subsequent
Advances have been satisfied in full.
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(d) Lender shall have reviewed and approved the existence of
sufficient Pledged Accounts complying with the requirements of Paragraph 8
herein to support the contemplated advance.
(e) All End-Loan Documents shall have been received by Lender
and shall have been fully executed by all applicable Account Debtors.
(f) Borrower's net worth shall not collectively decrease below
$10,000,000.
(g) There shall have been no material adverse change to the
financial condition of Borrower, nor shall there be any material adverse change
in Borrower's business operations or the Project.
(h) Borrower shall have delivered to Lender all other
documents, certificates and instruments which Lender may reasonably require.
(i) Borrower shall be in material compliance with all
financial and protective covenants and warranties and representations of every
nature as may be found in Borrower's lending agreements with third party lenders
and Borrower shall not be in material default in any term or condition of any
other agreement of whatever nature to which Borrower is a party.
4. ADVANCES.
Subject to the terms, limitations, and conditions herein, in the Credit
Agreement and in the Line of Credit Note, Lender agrees to advance funds to
Borrower as follows:
Procedures for Advances. Subsequent Advances shall be made no
more than once per week in a minimum amount of $50,000 upon receipt by Lender of
a written request for a Subsequent Advance from Borrower received by Lender at
least five (5) Business Days prior to the requested date of the advance and
Borrower's compliance with all requirements as set forth herein and the
satisfaction of all criteria set forth herein regarding qualifying Accounts. All
advances shall be funded to Escrow Agent in accordance with the Escrow
Agreement.
Principal of Note. Upon making an advance or receiving a
repayment of principal or interest, Lender shall make such entries in its
records as Lender may deem necessary or appropriate to indicate the amount
outstanding under the Line of Credit Note and the Credit Agreement as adjusted
for all advances hereunder. In the absence of manifest error, Lender's records
shall be conclusive proof of the amount outstanding.
Reborrowing. Amounts advanced under the Line of Credit Note
and repaid may not be reborrowed during the Borrowing Period unless approved by
Lender in Lender's sole discretion.
5. SERVICER AND CUSTODIAN.
Servicer. Servicer shall act as servicer of all Pledged
Accounts. The duties of the Servicer are set forth in the Servicing Agreement,
which among other things, shall limit the amount of servicing fees and costs
which may be imposed by Servicer. In the event Servicer fails to comply with its
duties under the Servicing Agreement or if Lender reasonably and with just cause
is otherwise dissatisfied with the Servicer, in Lender's
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sole discretion, and if Servicer does not correct the items of dissatisfaction
within ten (10) days of Lender's written notice to Servicer and Borrower, then,
and in that event, Lender may terminate the Servicing Agreement and Lender or
its agent may immediately commence servicing of the Pledged Accounts. In that
event, Borrower will pay Lender or its agent its reasonable and customary
charges for servicing charges.
Custodian. Lender shall serve as custodian of the Pledged
Accounts and all books and records pertaining thereto pursuant to the terms and
conditions of the Custodial Agreement.
6. ESCROW AGENT.
An Escrow Agent will be appointed by Lender and Borrower to perform
certain duties with respect to the Pledged Accounts as set forth in the Escrow
Agreement. All advances shall be funded to Escrow Agent or as otherwise provided
in the Escrow Agreement.
7. SECURITY.
As security to collateralize the Borrower's duty to pay and perform all
Obligations hereunder, Borrower shall and does hereby give and grant to Lender a
first lien security interest in the Collateral, and the Pledged Accounts.
8. ELIGIBILITY OF ACCOUNTS.
In order to be considered Qualified Pledged Accounts and therefore
subject to having the applicable Borrowing Base applied thereto, an Account,
Pledged Account Or Subsequently Pledged Account must meet the following
underwriting standards:
(a) All Accounts must relate to sale of fee simple or
fractional share interest Timesharing Interests in the Project to a resident of
the United States or Canada;
(b) The Accounts must be fully amortizing and have an original
term of no more than eighty-four (84) months and a minimum cash (or other
immediate funds) down payment of ten percent (10%) or paid-in equity of ten
percent (10%), less closing costs;
(c) At the time of any advance, no installment on the Account
may be more than fifty-nine (59) days contractually past-due. Subsequent to any
Advance, any Account will be considered ineligible for Borrowing Base
application should any scheduled monthly installment become sixty (60) days or
more contractually past-due;
(d) The maker or guarantor of the Account shall not claim a
defense, set-off or counterclaim with respect to the Account or dispute, contest
or repudiate its purchase or a Timesharing Interests;
(e) The Account is secured by a lien or interest encumbering
the Timesharing Interest subject only to (i) the lien of real property taxes not
yet due or payable, and (ii) such other non-monetary exceptions to title as are
acceptable to the Lender;
(f) All promised Project amenities have been completed or, if
not completed, adequate financial assurance for completion are in place;
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(g) All monies to be paid under and pursuant to the Account
are to be paid in United States Dollars;
(h) Borrower shall furnish to Lender an executed credit
application with respect to each Account submitted to Lender for underwriting,
and a credit report;
(i) Lender may reject any Account which, in its sole
discretion, reasonably fails to meet Lender's underwriting criteria and
conditions.
Should any Account demonstrate any of the following characteristics,
then said Account will not be capable of being deemed a Qualified Pledged
Account:
(a) bankruptcy, foreclosure or repossession (unless said event
occurred more than three years previously and there have been no subsequent
negative credit incidents);
(b) unsatisfied judgement or charge off greater than $500;
(c) more than two (2) nonmedical or non-institutional accounts
or loans have been referred to collection agencies or similar credit reporting
entities;
(d) nonconsenual liens over $500 individually or in the
aggregate;
(e) current delinquencies of greater than $500 on any two (2)
accounts or loan installment payments;
(f) no credit history.
Notwithstanding the foregoing, Lender may consider an Account be become
deemed a Qualified Pledged Account if either of the following characteristics is
found:
(a) credit score of 600 and the Account is aged for a minimum
of one (1) timely payment with the understanding that if two or more debtors
pertain to the Account, the higher debtor credit score will be relied upon; or
(b) aged a minimum of three (3) timely payments.
Should any Account fail to meet or to continue to meet the above-noted
eligibility criteria, the cumulative principal of all Pledge Accounts to which
the Borrowing Base is applied in determining Borrower's prospective advances
hereunder shall be reduced by the principal value of the ineligible Account even
if the Account had previously qualified for inclusion in determining advance
availability.
Accounts pledged under the subject credit facility shall qualify for
relocation under that Secured Line of Credit Lending Agreement (Global Facility)
which has been entered into by and between Lender and Borrower after the debtor
has made four (4) timely payments pursuant to his Account obligations.
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9. WEIGHTED AVERAGE COUPON.
The Pledged Accounts shall at all times possess and maintain a weighted
average coupon rate ("WAC") of not less than 13.5% during the term of the Line
of Credit Note. If the WAC is less than 13.5% Borrower shall submit or
Substitute additional Pledged Accounts in order to bring the Pledged Accounts
into compliance with the WAC standard.
10. WEIGHTED AVERAGE MATURITY.
The Pledged Accounts shall, from the date of origination, have a
weighted average maturity ("WAM") as of the Closing Date of not more than 180
months and not less than 84 months, provided that the Pledged Accounts delivered
by Borrower to Lender after the Closing Date shall have a minimum average
monthly payment of at least $100 with no individual Account possessing a minimum
monthly payment of less than $85.
11. BORROWING PERIOD.
During the Borrowing Period, payments of interest only shall be due and
payable on the first (1st) day of the first month following the Closing Date and
on the first (1st) day of each month thereafter. All payments received on the
Pledged Accounts shall be applied first to amounts, fees, costs and Lender
Expenses due under the Credit Agreement, then to interest due thereunder, then
to principal due thereunder or, at the option of holder, to any other
indebtedness or Obligations owed by Borrower or its affiliates to Lender or its
affiliates. In the event the funds received by Lender from the Pledged Accounts
are less than the required monthly payment hereunder, Borrower shall pay the
difference immediately. In the event that payments received from and on the
Pledged Accounts and forwarded to Lender exceed the amount required to fund the
then-due interest, the excess amounts and payments shall be applied to reduce
the principal outstanding under the Line of Credit Note and this Credit
Agreement.
12. EXTENSION OF BORROWING PERIOD.
Upon request of the Borrower, the Borrowing Period may be extended for
an additional twelve month period at Lender's sole discretion.
13. PRINCIPAL AMORTIZATION PERIOD.
Equal fully amortizing monthly payments of principal and interest shall
be due and payable beginning on the first (1st) day of the first month
immediately following the end of the Borrower Period and monthly thereafter
during the Amortization Period. If not otherwise paid during the Amortization
Period, all Obligations outstanding under the Credit Agreement and the Line of
Credit Note shall be due and payable in full ninety-six (96) months after the
Closing Date. The minimum monthly payment during the Amortization Period shall
be an amount which will amortize the unpaid balance of the Obligations over a
term of sixty (60) months. All payments received by Lender from and on the
Pledged Accounts shall be applied first to amounts, fees, costs and Lender
Expenses due under the Agreement, then to interest due hereunder, then to
principal due hereunder, or at the option of the holder, to any other
indebtedness owed by Borrower or its affiliates to Lender or its affiliates. In
the event the funds received by Lender from the Pledged Accounts are less than
the required monthly payment hereunder, Borrower shall pay the difference
immediately and the Borrower shall additionally pay to Lender a fee which shall
compensate Lender for its accounting services rendered in such a situation which
shall equal one percent (1%) of the deficit between the required monthly payment
and the underfunded
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status of Borrower's account which fee in no circumstances shall be less than
one hundred dollars ($100) per instance.
14. VOLUNTARY PRE-PAYMENTS.
Borrower may prepay all or a portion of the Line of Credit Note within
twenty-four (24) months of the Closing Date by tendering with any such
prepayment a fee of five percent (5%) of the amount of prepayment. Borrower may
prepay all or a portion of the Line of Credit Note commencing twenty-five (25)
months from the Closing Date through thirty-six (36) months from the Closing
Date hereof by tendering with any such prepayment a prepayment fee of three
percent (3%) of the amount of the prepayment. Commencing thirty-seven (37)
months from the Closing Date through sixty (60) months from the Closing Date,
any such prepayment shall be accompanied by a prepayment fee of two percent (2%)
of the amount of the prepayment. Thereafter, there shall be no prepayment fee.
In the event Borrower does not tender a prepayment fee as required herein,
Lender may deduct same from the amount of any tendered prepayment and apply the
remainder of the payment against the Obligations owing under the Line of Credit
Note and this Credit Agreement. Any such prepayments shall not delay or reduce
the next-due monthly installments. The prepayment penalties hereunder shall not
apply to principal payments during the Borrowing Period or the Amortization
Period which are collected by the Servicer through the natural payment of the
Accounts by the Account Debtors. The prepayment fees referenced herein are
understood to compensate the Lender for its costs associated with the Lender's
commitment of funds and other expenses associated with the providing of this
credit facility to Borrower.
15. MANDATORY PREPAYMENT.
Should the obligations outstanding ever exceed the Borrowing Base, then
the Borrower shall be required to immediately pledge additional eligible
Accounts sufficient to reinstate the Borrowing Base to its prescribed ratios.
Borrower may also, or in the alternative, repay in cash an amount equal to the
deficit under the Borrowing Base. No prepayment fee will be payable in
connection with prepayments in such circumstances. Mandatory prepayment shall
also arise should an Event of Default occur hereunder. Upon the occurrence of an
Event of Default, all Obligations outstanding hereunder shall immediately become
due and payable.
16. CONFIRMATION AUDIT OF PLEDGED ACCOUNTS.
Lender shall have the right to audit the Pledged Accounts by
confirmatory letters at any time prior to or after Closing. Lender shall have
the right to perform confirmatory telephone audits. Borrower agrees to furnish
or to cause Servicer to furnish Lender all information necessary for Lender to
conduct such audits.
17. REPRESENTATIONS AND WARRANTIES.
Borrower makes the following representations and warranties to Lender,
each of which shall be deemed made again as of the date of the Initial Advance
and any Subsequent Advance:
(a) Borrower is a corporation or partnership, duly organized,
validly existing, and fully qualified and authorized to do business in the State
of Arizona, and Borrower and its business and operations are in full compliance
with all applicable federal, state and local laws, ordinances and regulations.
Borrower is governed by the terms of its Articles of Incorporation or
constituent documents, true copies of which have been delivered to Lender. The
Articles of Incorporation or constituent documents are in full force and effect
and has not been amended or modified in any manner, except at indicated in the
copies furnished to Lender. There is no
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agreement of any kind other than as provided Lender which governs Borrower or
the relative rights and duties of the parties holding interests in Borrower.
(b) Borrower has taken all action to permit Borrower to enter
into this Agreement or any other agreement or transaction contemplated herein,
and the same is valid and binding upon Borrower. No officer or agent of Lender
shall be required to make any inquiry concerning the validity of any transaction
purported to be made by Borrower or the authenticity of any signature or
endorsements relating to same, and Lender may conclusively assume that every
obligation, agreement, instrument or act or thing done and executed by such
person purportedly on behalf of Borrower has been so executed or done in this
official capacity as an agent of Borrower.
(c) Borrower is not subject to any disciplinary actions or
proceedings by any governmental authority or trade organization with respect to
any licenses or permits held by Borrower.
(d) Borrower's execution, delivery and performance of this
Agreement, the Credit Agreement and the borrowing evidenced by the Line of
Credit Note (a) will not violate any indenture, agreement or any other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound; and (b) will not be in conflict with, result in a breach of
or constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of its property or assets, except as contemplated by the provisions of this
Agreement. Each of the documents which collectively constitute the Credit
Agreement, when executed and delivered to Lender, will constitute the legal,
valid and binding obligations of respective signatories thereto enforceable in
accordance with their terms.
(e) All financial data and other information of whatever
nature that have been given to Lender with respect to Borrower (a) are complete
and correct in all material respects and do not omit to state any material fact
necessary in order to make the statements herein or therein not misleading; and
(b) accurately present the financial condition of Borrower as of the date on
which the same have been furnished. All balance sheets and footnotes thereto
disclose all known liabilities, direct and contingent, as of their respective
dates. There has been no adverse change in the financial condition of Borrower
since the date of the most recent of each such financial statement given to
Lender other than changes in the ordinary course of business, none of which
changes has been materially adverse.
(f) Borrower is not a party to any agreement or instrument
materially and adversely affecting its present or proposed business, properties
or assets, operations or condition, financial or otherwise; and is not in
material default in performance, observance or fulfillment of any of the
material obligations, covenants or conditions set forth in any agreement or
instrument to which it is a party.
(g) All other reports, papers, data and information given by
Borrower to Lender with respect to Borrower and other persons and entities, are
accurate and correct in all material respects and complete insofar as
completeness may be necessary to give Lender a true and accurate knowledge of
the subject matters.
(h) Borrower has filed all required federal, state, county and
municipal income tax returns and has paid all taxes which have become due
pursuant to such returns or pursuant to any assessments received by it. Borrower
knows of no basis for a material additional assessment in respect of any such
taxes.
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(i) There is not now pending against or affecting Borrower nor
to its knowledge is there threatened any action, suit or proceeding at law or in
equity or by or before any administrative agency which, if adversely determined,
would materially impair or affect the financial condition or operation of
Borrower.
(j) Other than the approval of the creation of Timesharing
Interests real property interests by the applicable state in which the real
property interest is located, no authorization, consent, approval, license,
exemption, filing or registration with any court of governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
securities exchange, is or will be necessary to the validity of the rights
created under this Agreement.
(k) This Agreement, the documents relating thereto and all
aspects of the transactions contemplated therein do not violate any federal or
state laws or regulations, including without limitation laws or regulations
relating to usury and the Truth-in-Lending Act.
(1) Borrower has not made an assignment for the benefit of
creditors; has not suspended business or commenced proceedings for its
dissolution; has not filed bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings, or other proceedings for relief under the bankruptcy
laws for the relief of debtors, instituted by or against it or has consented
thereto: or has any judgment, writ or warrant or attachment, or similar process,
entered or filed against it or any of its property or assets which renders it
insolvent or impairs its ability to continue doing business and which has
remained unvacated, unbonded or unstayed for a period of 30 days.
(m) Borrower has good and marketable legal title to and is the
sole owner of the Pledged Accounts and the Pledged Accounts are not subject to a
security interest or other claim from third parties.
(n) The real property which is the subject of each Pledged
Account is free and clear from all material encumbrances which might have a
substantive negative impact upon the use of said real property as contemplated
by the Credit Agreement and, during the term of the Credit Agreement, shall
remain free and clear of all such material encumbrances.
(o) Borrower and the Project are in compliance with all state
laws and regulations, concerning the operation of the Project from which the
Pledged Accounts arise and the sale of interests therein. The Project possesses
the presence of no Hazardous Materials to Borrower's knowledge nor is Borrower's
current or proposed operation of the Project likely to cause the production or
location upon the Project of Hazardous Materials. The Borrower's operations of
the Project and the Project's current status are all in accordance with all
state, federal or other environmental rules, regulations and laws of every
nature.
(p) Borrower is not insolvent nor has made an assignment for
the benefit of creditors; has not suspended business or commenced proceedings
for dissolution or become insolvent; has not filed any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings for relief under bankruptcy, insolvency or receivership laws for the
relief of debtors, instituted by or against it or has consented thereto; or has
no judgment, writ or warrant of attachment, or similar process, entered or filed
against it or any of its property or assets, which renders it insolvent or
impairs its ability to continue doing business and which has remained unvacated,
unbonded or unstayed for a period of 30 days; has generally not failed to pay
its debts as they become due; has not taken any action, nor has any intentions
to take any action, which would constitute an "act of bankruptcy" under the
Federal Bankruptcy Code or in contemplation thereof.
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(q) The purpose of this transaction is exclusively for
commercial or business purposes.
18. PROTECTIVE COVENANTS.
So long as any of the Obligations remains unpaid, and to the extent the
failure to do so would have a material adverse effect upon the value Of the
Property, or upon Borrower's business, operations or financial condition,
Borrower shall:
(a) The Borrower shall at all times insure that the Project
and the Pledged Accounts are in compliance with all laws, rules and regulations
of whatever nature associated with the Borrower's operation of the Project and
its sale of real property interests therein including, without limitation, all
laws pertaining to timeshare sales and marketing activities, the providing of
consumer credit to third parties, the manner in which real property transactions
are closed, and all other laws and regulations that serve as a condition to or
might otherwise have a negative impact upon the enforceability of the Pledged
Accounts as represented in the Credit Agreement.
(b) True and correct pro-forma copies of all end-loan consumer
documents which pertain to the sale of real property interests in and to the
Project have been submitted by Borrower to Lender for review and the Borrower
shall not use documents that materially differ form those as submitted absent
notification to Lender. All such documents are and will always be in complete
compliance with all rules and regulations applicable thereto and will continue
to so remain in compliance during the term of the Credit Agreement.
(c) Comply with the requirement of all applicable laws, rules,
regulations and orders of any governmental authority, including, without
limitation, applicable usury laws, Truth-in-Lending laws, subdivisions law,
consumer credit laws, Timesharing Interest sales and registration laws and the
Interstate Land Sales Full Disclosure Act.
(d) Keep adequate records and books of account reflecting all
financial transactions in conformity with (i) generally accepted accounting
practices applied on a consistent basis, and (ii) all applicable requirements of
any governmental agency having jurisdiction over Borrower or any of its
businesses.
(e) Borrower acknowledges that the placement of any additional
liens upon the Pledged Accounts described in the Credit Agreement may impair the
ability of Lender to obtain assurance that its security interest remains in a
prior position and that the Obligations will be repaid in accordance with the
Credit Agreement. Accordingly and to facilitate the purposes of this Agreement
and to avoid causing damage to Lender, Borrower agrees that it shall not create
or suffer to be created any additional lien upon any of the Pledged Accounts
without Lender's prior written consent which will not be unreasonably withheld.
(f) Upon the request of Lender, execute or cause the
execution, acknowledgment and delivery of such further instruments (including,
without limitation, declarations of no set-off) and do such further acts as may
be necessary, desirable or proper to carry out more effectively the purposes of
this Agreement or the other Credit Agreement.
(g) Not take any action with respect to any of the security
for the Obligations held by Lender from time to time which is inconsistent with
the provisions and the purpose of this Agreement or which would adversely affect
the rights of Lender under the Credit Agreement.
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(h) Lender shall have the right to make reasonable periodic
audits of Borrower's books and records and those of the Project, and to verify
the Pledged Accounts.
(i) Borrower shall not use Lender's name, or the name of any
of Lender's affiliates, in connection with its business activities, except as
necessary in Borrower's dealing with governmental agencies, financial
institutions, and Borrower's internal business matters.
(j) Borrower shall supply Lender on a monthly basis with all
forms of Timeshare Interest inventory reconciliation reports as Leader may
reasonably require to insure that Borrower's Pledged Accounts are consistent
with its available and unencumbered sales inventory.
19. FINANCIAL STATEMENTS: REPORTS AND TAX RETURNS.
Audits, Tax Returns and Financial Statements. Borrower shall
furnish to Lender on an annual basis the audit of ILX Resorts Incorporated
within ninety (90) days after the end of its fiscal year. Borrower shall
additionally supply Lender with copies of the ILX Resorts Incorporated federal
income tax returns within ten (10) days of the filing of same. Borrower shall
supply evidence of the filing of tax deadline extensions when applicable.
Borrower shall supply Lender with copies of all other records, reports and
accountings that Lender may reasonably request. Borrower shall give Lender
prompt notification of any event which has, or the commencement of any
litigation which if adversely determined would have a material adverse effect on
Borrower's financial condition. On a quarterly basis, Borrower shall also supply
Lender with a copy of ILX Incorporated's internally prepared unaudited financial
and operating statement along with a certificate from Borrower's chief financial
officer that said statements are true and correct and have been prepared in
accordance with GAAP.
20. AUDIT.
Lender shall have the right to inspect and/or audit Borrower's books
and records at Borrower's place of business during business hours upon ten (10)
days notice to Borrower.
21. TIMESHARING INTEREST SALES PRICE LIST.
Upon Lender's request, Borrower shall provide Lender with a current
Timesharing Interests sales price list and minimum sales prices regarding the
sale of Timesharing Interests to third party retail purchasers.
22. SERVICING REPORTS.
Servicer and/or Borrower shall provide Lender upon request by Lender
with copies of all reports produced by Servicer with respect to the Pledged
Accounts.
23. CROSS-DEFAULT.
Any defaults under this loan or any other obligation from Borrower or
its affiliates to Lender or its affiliates shall be deemed a default under any
and/or all of the other loans or agreements with Lender or its affiliates and
any collateral under any or all of the above shall be deemed to be collateral
for the others. Lender, at its option may exercise any of its rights and
remedies under these agreements to cure a default under any of
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the agreements, including but not limited to retention of and/or application of
payments on the Pledged Accounts, and/or any other collateral.
24. DEFAULT.
The occurrence of any one or more of the following events and/or
occurrences shall constitute an "Event of Default" hereunder:
(a) Default in the performance of any obligation by Borrower
under any of the documents which constitute the Credit Agreement, whether or not
such default is with respect to the payment of money or otherwise;
(b) Borrower's failure to comply with the provisions of any
financial covenant or any other covenant, condition or obligation contained in
the Credit Agreement;
(c) Any warranty or representation contained herein at any
time proves to be false or misleading in any respect;
(d) The levy of an attachment, execution or other such process
against Borrower's property or any of its assets with respect to a claim or
claims aggregating $100, 000 or more and the failure by Borrower to obtain the
discharge thereof or provide adequate bond acceptable to Lender as security
therefor within 30 days after attachment;
(e) Default in the performance of any other obligation of
Borrower to Lender under any other agreement between Borrower and Lender;
(f) Borrower's entry into or granting of a general assignment
for the benefit of its creditors, the voluntary or involuntary appointment of a
receiver for all or substantially all of its assets, Borrower's bankruptcy or
Borrower admits in writing its inability to make payments on its debts as they
mature;
(g) The occurrence of any material adverse change in the
financial conditions or operations of Borrower;
(h) The occurrence of a default in the performance of any
other payment obligation of Borrower, whether owed to Lender or any other
person, firm, or entity, which default gives rise to a liability of $100,000.00
or more, which obligation is not contested or defended by Borrower in good
faith;
(i) The occurrence of a monetary event of default in any other
agreement material to Borrower's business to which Borrower is a party;
(j) The occurrence of any event of default under this loan or
any other obligation from Borrower or its affiliates to Lender or its affiliates
shall be deemed a default under any and/or all of the other loans or agreements
with Lender or its affiliates and any collateral under any or all of the above
shall be deemed to be collateral for the others. Lender, at its option may
exercise any of its rights and remedies under these agreements to cure a default
under any of the agreements, including but not limited to retention of and/or
application of payments on the Pledged Accounts, and/or any other collateral.
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Provided, however, that with regard to events referenced above
that do not involve the payment of funds to Lender by Borrower pursuant to the
Credit Agreement, it shall not be considered an event of default hereunder and
Lender shall not assert its remedies under this agreement until Lender provides
Borrower with notice of the occurrence of said event of default and Borrower
fails to cure such within twenty (20) days after the receipt of said notice or
such longer period of time as may reasonably be required due to the nature of
the event of default.
25. REMEDIES.
Upon the occurrence of any Event of Default, Lender may:
(a) Declare all of the Obligations immediately due and
payable;
(b) Commence foreclosure or otherwise enforce Lender's rights
against any security then held by Lender for the Obligations in such order as
Lender may determine;
(c) Terminate Lender's agreement to make further Advances
under this Agreement;
(d) Offset any indebtedness from any amounts due Borrower
under any other agreement between Borrower and Lender;
(e) Exercise any and all other rights and/or remedies which
may be available to Lender either in law or at equity.
Marshalling. Borrower specifically waives, to the fullest extent
permitted by law, any right to require marshalling of any of the assets
encumbered to secure the Obligations and to direct the order in which such
assets are sold.
Disposition of Proceeds. Subject to the provisions of all applicable
law, the net cash proceeds resulting from the sale or other disposition of all
or any part of the security held by Lender shall be applied in the following
order: (i) first, to the costs and expenses (including any trustee's and
attorney's fees) of retaking, holding, storing, processing and preparing for
sale, selling, collecting, liquidating the Collateral securing the repayment of
the Obligations and the like, including all costs associated with work-out
negotiations, litigation and bankruptcy proceedings, legal and administrative
costs; (ii) then to the satisfaction of the Obligations, with application to
principal, interest, charges and expenses to be in such order and manner as
determined by Lender in its sole discretion; and (iii) then to satisfaction of
any remaining obligations of Borrower hereunder. Any surplus after such
application shall be delivered to Borrower, and Borrower shall be liable for,
and shall pay to Lender on demand, any deficiency remaining after such
application.
Remedies Cumulative. The remedies provided for herein are cumulative
and shall be in addition to any and all other rights or remedies provided for
herein or at law or in equity including any banker's lien and right of offset.
The exercise of any right or remedy by Lender hereunder shall not constitute a
cure or waiver of any default in connection with the Obligations nor invalidate
any notice of default or act done pursuant to any such notice, nor prejudice
Lender in the exercise of any of its other rights.
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26. MISCELLANEOUS.
(a) Waiver. No waiver by Lender of any default or breach by
Borrower hereunder shall be implied from any omission by Lender to take, or any
delay in taking, action on account of such default other than the default
expressly made the subject of the waiver and any such express waiver shall be
operative only for the time and to the extent therein stated. Any waiver of any
covenant, term or condition contained herein shall not be construed as a waiver
of any subsequent breach of the same covenant, term or condition. The consent or
approval by Lender to or of any act by Borrower requiring further consent or
approval shall not be deemed to waive or render unnecessary the consent or
approval to or of any subsequent similar act. Notwithstanding anything set forth
herein to the contrary, if no notice of a default or waiver is required
hereunder and none has been given, Lender shall not be deemed to have waived any
rights which it may have hereunder until seven (7) days following receipt by it
of written notice from Borrower alerting Lender to the fact that the time for
exercising any right or remedy hereunder has elapsed without exercise thereof
and such time for exercise shall automatically be extended to seven (7) days
following notice, said right shall conclusively be deemed to have been waived by
Lender. The intent of this paragraph is to avoid unintentional waivers by Lender
of any of its rights hereunder.
(b) No Duty of Lender. Nothing in this Agreement shall impose
or imply any duty or obligation whatsoever upon Lender, and Lender shall be
under no duty to take any action to preserve rights of Borrower with respect to
any of the security held by Lender for the Obligations. Borrower waives any and
all impairment of recourse and/or impairment of collateral defenses which it may
possess against the Lender.
(c) Amendment. The Agreement and the Credit Agreement, and the
terms of each of them, is the entire agreement between the parties and may not
be changed, waived, discharged or terminated orally, but only by an instrument
or instruments in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is asserted.
(d) Indemnification. To the fullest extent permitted by law,
Borrower agrees to indemnify and hold harmless Lender, and Lender's officers,
directors, shareholders, agents, attorneys and employees (collectively
"Indemnitee"), from and against any and all liability, loss, damage, costs or
expense, including court costs and attorney's fees, that Indemnitee may
hereafter suffer, incur, pay or lay out or in any manner be held liable for, by
reason of any breach, default, misstatement or misrepresentation of any of the
statements, warranties or representations of Borrower contained in the Credit
Agreement or any related agreement, or by reason of any breach or default by
Borrower, or any of Borrower's employees, officers or agents, in the performance
of any duties, covenants or obligations arising under this or any related
agreement. In this connection, but without limitation, Borrower agrees to
reimburse any Indemnitee promptly upon demand for any payments made or losses
suffered by such person with respect to any liability, damage, loss or claim to
which the foregoing indemnity relates.
(e) Notices. Any notice, demand or request which may be
permitted, required or desired to be given in connection herewith shall be in
writing and directed to the parties at the respective addresses set forth below
(or at such other addressed as a party hereto may designate in writing) and
shall be tendered by personal delivery or by facsimile transmission with
verifiable transmission capability or be deposited in the U.S. mail, registered
or certified, return receipt requested. Such notice, if forwarded by mail, shall
be deemed effective seventy-two (72) hours after deposited in the U.S. mail, or
if personally delivered, upon delivery. A registered mail or certified mail
receipt will be prima facie evidence of the giving of such notice and the date
thereof. If such notice is personally served, such notice shall be effective
upon delivery or if such notice is sent by facsimile transmission, such notice
shall be effective upon the completion of the transmission of the same (so long
as the sender retains evidence of the recipient's(s') receipt).
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If to Borrowers: ILX Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2780
Los Abrigados Partners Limited Partnership
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2780
ILE Sedona Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2780
VCA Tucson Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J, Stone
Facsimile: 602-957-2780
VCA South Bend Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2780
Premiere Development Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2780
With a Copy To: General Counsel
ILX Incorporated
2111 East Highland, Suite 210
Phoenix, AZ 85016
Facsimile: 602-957-2780
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If to Lender: Litchfield Financial Corporation
13701 West Jewell Avenue
Lakewood, CO 80228
Attention: Wayne M. Greenholtz,
Senior Vice President
Facsimile: 303-985-5375
With a copy to: Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
Attention: Jim Shippee
Facsimile: 802-694-1237
With a copy to: Heartsill Ragon III
Gill Law Firm, P.A.
3801 TCBY Tower
Little Rock, Arkansas 72201
Facsimile: 501-372-3359
Nothing herein contained shall be construed as preventing the
parties hereto, respectively, from changing the place to which
notice shall be addressed, but no such change shall be valid
unless it is given in accordance with the terms of this
paragraph.
(f) Attorney's Fees. After an Event of Default, Borrower shall
promptly indemnify and hold harmless the Lender and its successors and assigns
from and against all reasonable and necessary legal fees and related costs which
are incurred by Lender and/or its successors and assigns which pertain to or
arise from participation in "work-out" or similar discussions and negotiations,
participation in all litigation or bankruptcy proceedings and all other
discussions, negotiations or involvement associated with the enforcement of the
Credit Agreement or Lender's attempts to realize and foreclose upon the
Collateral.
(g) Binding Effect; Assignment. This Agreement may be assigned
by Lender. Borrower may not assign its interest in, or obligation under, this
Agreement except with the written consent of Lender. Subject to the forgoing,
all of the terms, covenants, conditions, representations and warranties hereof
shall inure to the benefit of, and be binding upon, the successors and assigns
of Lender and Borrower. Borrower hereby consents to the Collateral Assignment of
Lender's interests in and to the Credit Agreement to third party creditors of
Lender without the need for any further consent of whatever nature by Borrower.
Should Lender's assignee assume rights under the Credit Agreement, Lender
covenants and agrees that it will continue to perform the Credit Agreement in
accordance with its terms and condition and shall recognize said assignee as the
lawful and enforceable successor in interest to Lender.
(h) Interpretation and Venue. This Agreement shall be governed
and interpreted under Colorado law. Whenever the context requires, all words
used in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
paragraph of this Agreement are for convenience only and do not define or limit
any terms or provisions. Time is of the essence in the performance of this
Agreement by Borrower. The invalidity or unenforceability of any one or more
provisions of this Agreement will in no way affect any other provision.
(i) Preparation of Agreement. The parties hereto acknowledge
that this Agreement has been negotiated and prepared in an arms-length
transaction and that both Lender and Borrower have negotiated all
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the terms contained herein. Accordingly, the parties agree that neither party
shall be deemed to have drafted the Agreement and the Agreement shall not be
interpreted against either party as the draftsman.
(j) Other Acts and Documents. The parties agree to undertake
such other acts and execute such other documents as may be reasonably necessary
to effect the purpose and intent of this Agreement.
(k) Merger. This Agreement represents the culmination of all
prior negotiations, representations, and agreements between the parties with
respect to the purchase and sale contemplated hereby. All such prior
negotiations, representations, and agreements are merged herein.
(1) Advice of Counsel. Each party acknowledges to the other
that such party has been advised by legal counsel in connection with the
negotiation and execution of this Agreement and that each party understands the
terms and conditions contained herein and that each has entered into this
Agreement voluntarily.
(m) JURY WAIVER. BORROWER HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL IN THE EVENT OF ANY DISPUTE OR LITIGATION ARISING HEREUNDER OR UNDER ANY
RELATED DOCUMENT EXECUTED IN CONNECTION HEREWITH.
(o) Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statement" shall include all notes and schedules thereto.
(p) Construction. Unless the context of any this document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or". The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, paragraph, exhibit and similar references are to this Agreement unless
otherwise specified. Any reference in this agreement to the Credit Agreement or
any other Agreement to which Lender and Borrower are a party shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions and supplements thereto.
(q) Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by this
reference.
(r) Amendment and Restatement. It is recognized and agreed by
and between Lender and Borrower that this document constitutes an amendment and
restatement of the terms and conditions of that certain Secured Line of Credit
Lending Agreement entered into between said parties on or about April 9, 1996.
As evidenced by the signatures of the Borrower below, the Borrower jointly and
severally do hereby covenant and agree that the Credit Agreement, as amended,
continues to remain in full force and effect and free from all counterclaim or
set off rights or other defenses to payment of every nature.
(Signature Blocks Found on Following Page)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year set forth above.
LENDER:
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Wayne M. Greenholtz
-----------------------------
Wayne M. Greenholtz,
Senior Vice President
BORROWER:
ILX RESORTS INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Title: Chairman
---------------------------
ILE SEDONA INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Title: Chairman
---------------------------
LOS ABRIGADOS PARTNERS
LIMITED PARTNERSHIP
By: ILE Sedona Incorporated,
General Partner
By: /s/ Joseph P. Martori
--------------------------
Title: Chairman
-----------------------
VCA TUCSON INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Title: Chairman
---------------------------
VCA SOUTH BEND INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Title: Chairman
---------------------------
PREMIERE DEVELOPMENT INCORPORATED
By: /s/ Joseph P. Martori
-----------------------------
Title: Chairman
---------------------------
25
EXHIBIT 10-2
AGREEMENT FOR SALE AND TRANSFER OF
PROMISSORY NOTE
THIS AGREEMENT FOR SALE AND TRANSFER OF PROMISSORY NOTE is entered into
as of September 29, 1998, by and between ILX Resorts Incorporated, an Arizona
corporation ("ILX") and Martori Enterprises Incorporated, an Arizona corporation
("MEI").
RECITALS:
A. MEI desires to sell to ILX, and ILX desires to purchase from MEI,
all of MEI's interest in that certain Installment Promissory Note, in the amount
of $1,300,000.00, dated August 8, 1997 (the "Note") a true copy of which is
attached to this Agreement, subject to the terms and conditions set forth in
this Agreement.
AGREEMENTS:
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto agree as
follows:
1. Transfer of MEI Interest. MEI hereby sells to ILX and ILX hereby
purchases from MEI, all of MEI's right, title and interest in, to, and under the
Note.
2. Consideration. In consideration for MEI's transfer of the Note, ILX
shall:
a. Pay to MEI One Hundred Thousand Dollars ($100,000.00)
on the date of this Agreement;
b. Pay to MEI Seven Hundred Eleven Thousand Four Hundred
Seventy-Eight and 78/xx ($711,478.78) on or before
October 20, 1998.
3. Representations and Warranties of MEI. MEI represents and warrants
to ILX as follows:
3.1 Ownership of the Note. MEI has, or will have on or before
October 31, 1998, good and marketable title to the Note free of any lien,
security interest, lease, or encumbrance whatsoever. Upon delivery of
appropriate instruments evidencing transfer of the Note, ILX will own all right,
title and interest in and to the Note free and clear of any liens, encumbrances,
equities or claims.
3.2 Capacity. MEI has full power and authority to enter into
this Agreement and to carry out its obligations hereunder. This Agreement
constitutes a valid and legally binding obligation of MEI. To MEI's actual
knowledge, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by MEI with
any of the provisions hereof will (i) violate, or conflict with, or result in a
breach of
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any provision of, or constitute a default (or an event which, with the giving of
notice or the lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon the Note, under any term, condition or provision of any agreement or other
instrument or obligation to which MEI is bound, or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Note.
3.3 No Breach of Statute, Decree or Order. To MEI's actual
knowledge no material claim, action or proceeding is pending or threatened
against MEI with respect to a default under, or a violation or breach in any
material respect of, any applicable statute, law, ordinance, decree, order, rule
or regulation of any governmental body, nor, to MEI's actual knowledge, is there
any basis for such a claim, action or proceeding. To MEI's actual knowledge the
consummation of this Agreement and the sale of the Note contemplated hereby will
not constitute or result in any such default, breach or violation.
4. Miscellaneous
4.1 No Broker. Each Party represents and warrants to the other
that no person has acted in the capacity of broker or finder on their behalf to
bring about the negotiation or consummation of this Agreement. Each party shall
indemnify and hold harmless each other against every claim or liability asserted
against any of them by any person acting or claiming to act as a broker or
finder on behalf of each other.
4.2 Notices. Any notice or other communication required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by registered mail, postage prepaid, addressed to the appropriate party as
follows:
In the case of MEI:
Joseph P. and Edward J. Martori
2111 East Highland, Suite 210
Phoenix, Arizona 85016
In the case of ILX:
ILX Resorts Incorporated
2111 East Highland, Suite 210
Phoenix, Arizona 85016
Attention: Nancy J. Stone, President
or such substituted address as any party (or other party to whom a copy is to be
sent) shall have given notice to the other in writing.
4.3 Amendment. This Agreement may be amended or modified in
whole or in part only by an agreement in writing executed in the same manner as
this Agreement and making specific reference hereto.
2
<PAGE>
4.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one instrument.
4.5 Binding on Successors and Assigns. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
parties hereto and their respective successors, assigns, executors and personal
representatives.
4.6 Severability. If any one or more of the provisions
contained in this Agreement or any application thereof shall be invalid, illegal
or unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions of this Agreement and any other application thereof shall
not in any way be affected or impaired thereby; provided, however, that to the
extent permitted by applicable law, any invalid, illegal or nonenforceable
provision may be considered for the purpose of determining the intent of the
parties in connection with the other provisions of this Agreement.
4.7 Waivers. The parties may, solely by written agreement, (a)
extend the time for the performance of any of the obligations or other acts of
the parties hereto, (b) waive any inaccuracy in any of the representations
contained in this Agreement or in any document delivered pursuant to this
Agreement, (c) waive compliance with, or modify, any covenant or condition
contained in this Agreement, and (d) waive or modify performance of any of the
obligations of any of the parties hereto; provided, that no such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall operate as a waiver of, or an estoppel with respect
to, any subsequent or other matter or failure.
4.8 Headings. The headings of the Articles and Sections of
this Agreement are inserted for convenience only and in no way alter, amend,
modify, limit or restrict the contractual obligations of the parties.
4.9 Documentation Expenses. Each party shall share equally in
the costs and legal fees associated with the documentation of the transactions
contemplated hereby.
4.10 Expenses. Except to the extent provided herein to the
contrary, each party hereto shall bear its own expenses and no party shall be
responsible for any debt, liability or obligation, cost, expense or fee of any
nature whatsoever (including, without limitation, any and all legal, accounting
and other professional fees and expenses) incurred by any other party in
connection with the negotiation, execution or performance of this Agreement.
4.11 Attorney's Fees in Dispute. Notwithstanding the
foregoing, should either party hereto institute any action or proceeding against
the other to enforce any provision hereof, for injunction or for damages by
reason of any alleged breach of any provision of this Agreement or for a
declaration of such party's rights or obligations hereunder, or any judicial
remedy, the prevailing party shall be entitled to receive from the losing party
such amount as the court or arbiter may adjudge to be reasonable for attorneys'
fees, costs and expenses of the prevailing party. Should relief be awarded to
both parties, such attorneys' fees, costs and expenses shall be
3
<PAGE>
adjudged against the parties in any manner the court or arbiter shall deem
equitable.
4.12 Representation by Counsel. Each party acknowledges that
it has had the opportunity to consult with, and has consulted with, independent
counsel regarding this Agreement and the transactions contemplated hereby, and
that the fact that this Agreement or other document or instrument that is part
of this transaction was prepared by counsel for any one or more of them shall
not affect the interpretation of this Agreement, or such other document or
instrument.
4.13 Entire Agreement; Law Governing. All prior negotiations
and agreements between the parties hereto are superseded by this Agreement, and
there is no representation, warranty, understanding or agreement other than
those expressly set forth herein or in an Exhibit or Schedule delivered pursuant
hereto, except as modified in writing concurrently herewith or subsequent
hereto. This Agreement shall be governed by and construed and interpreted
according to the laws of the State of Arizona.
4.15 Further Assurances. After the Closing hereunder, each of
the parties hereto shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered such instruments and documents and take
such action as may be necessary or advisable to carry out its obligations under
this Agreement and under any schedule, exhibit, document, agreement, certificate
or other instrument delivered pursuant hereto, and with respect to any filing or
other documentation required in connection with the Note.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement to be effective as of the date set forth above.
ILX RESORTS INCORPORATED MARTORI ENTERPRISES INCORPORATED
By: /s/ Nancy J. Stone By: /s/ Joseph P. Martori
------------------------------- -------------------------------
Nancy J. Stone Joseph P. Martori
Its: President Its: Chairman
------------------------------ ------------------------------
President Chairman
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 29th day of
September 1998, by Joseph P. Martori, as Chairman of Martori Enterprises
Incorporated, on behalf of the corporation.
Stephanie D. Castronova
--------------------------------------
Notary Public
My Commission Expires:
March 20, 2002
4
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 29th day of
September 1998, by Nancy J. Stone, as President of ILX Resorts Incorporated, on
behalf of the corporation.
Stephanie D. Castronova
--------------------------------------
Notary Public
My Commission Expires:
March 20, 2002
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1998 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,650,200
<SECURITIES> 0
<RECEIVABLES> 22,278,258
<ALLOWANCES> 3,367,967
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,973,125
<DEPRECIATION> 1,721,302
<TOTAL-ASSETS> 49,195,580
<CURRENT-LIABILITIES> 0
<BONDS> 19,129,251
0
1,384,891
<COMMON> 19,819,477
<OTHER-SE> 5,256,965
<TOTAL-LIABILITY-AND-EQUITY> 49,195,580
<SALES> 16,881,611
<TOTAL-REVENUES> 27,555,357
<CGS> 2,347,826
<TOTAL-COSTS> 24,946,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 498,768
<INTEREST-EXPENSE> 1,422,244
<INCOME-PRETAX> 1,208,595
<INCOME-TAX> 484,000
<INCOME-CONTINUING> 724,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 724,595
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
