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, 1999 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 Identification Number)
incorporation or organization)
2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016
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(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
stock, as of the latest practicable date.
Class Outstanding at September 30, 1999
- ------------------------------- ---------------------------------
Common Stock, without par value 4,001,073 shares
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,196,710 $ 2,217,723
Notes receivable, net 19,559,396 22,670,956
Resort property held for Vacation Ownership
Interest sales 20,834,225 21,378,311
Resort property under development 485,933 625,622
Land held for sale 1,593,885 1,602,492
Deferred assets 262,877 263,428
Property and equipment, net 4,006,991 4,753,834
Deferred income taxes 268,771 --
Other assets 1,788,470 3,027,821
------------ ------------
TOTAL ASSETS $ 51,997,258 $ 56,540,187
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 1,186,088 $ 769,298
Accrued and other liabilities 2,048,599 2,999,611
Deferred income tax liability -- 165,213
Notes payable 22,107,444 25,568,911
Notes payable to affiliates 894,078 1,200,000
------------ ------------
Total liabilities 26,236,209 30,303,033
------------ ------------
MINORITY INTERESTS (3,271) 17,901
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value; 10,000,000 shares
authorized; 380,468 and 305,978 shares issued and
outstanding; liquidation preference of $3,804,680
and $3,059,780 1,384,891 1,179,299
Common stock, no par value; 30,000,000 shares
authorized; 4,332,533 and 4,447,213 shares issued 19,818,183 20,118,701
Treasury stock, at cost, 339,640 and 446,140 shares (1,273,843) (1,487,618)
Additional paid in capital 279,450 279,450
Unearned ESOP contribution -- (400,000)
Retained earnings 5,555,639 6,129,421
------------ ------------
Total shareholders' equity 25,764,320 26,219,253
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,997,258 $ 56,540,187
============ ============
</TABLE>
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,
--------------------------- ----------------------------
1998 1999 1998 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
TIMESHARE REVENUES:
Sales of Vacation Ownership
Interests $ 5,633,797 $ 6,642,223 $ 16,881,611 $ 17,962,302
Resort operating revenue 3,342,697 3,475,879 8,929,975 9,696,624
Interest income 610,098 886,967 1,543,771 2,535,677
----------- ------------ ------------ ------------
Total timeshare revenues 9,586,592 11,005,069 27,355,357 30,194,603
----------- ------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership
Interests sold 739,509 923,577 2,347,826 2,538,162
Cost of resort operations 3,157,149 3,315,927 8,705,876 9,174,224
Sales and marketing 4,169,458 4,284,034 10,989,279 11,423,893
General and administrative 842,848 1,036,372 2,120,528 3,068,514
Provision for doubtful accounts 168,586 250,129 498,768 577,428
Depreciation and amortization 99,706 122,848 284,216 348,424
----------- ------------ ------------ ------------
Total cost of sales and operating
expenses 9,177,256 9,932,887 24,946,493 27,130,645
----------- ------------ ------------ ------------
Timeshare operating income 409,336 1,072,182 2,408,864 3,063,958
Income from land and other, net 4,435 8,429 21,975 64,826
----------- ------------ ------------ ------------
Total operating income 413,771 1,080,611 2,430,839 3,128,784
Interest expense 515,111 697,407 1,422,244 2,067,782
----------- ------------ ------------ ------------
Income before income taxes and minority
interests (101,340) 383,204 1,008,595 1,061,002
Income tax (expense) benefit 41,000 (150,000) (404,000) (418,000)
----------- ------------ ------------ ------------
Income before minority interests (60,340) 233,204 604,595 643,002
----------- ------------ ------------ ------------
Minority interests -- 8,928 -- 21,172
----------- ------------ ------------ ------------
Net income $ (60,340) $ 224,276 $ 604,595 $ 621,830
=========== ============ ============ ============
Net income per share
Basic $ (0.02) $ 0.05 $ 0.15 $ 0.15
=========== ============ ============ ============
Diluted $ (0.02) $ 0.05 $ 0.15 $ 0.14
=========== ============ ============ ============
</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,
---------------------------
1998 1999
------------ ------------
Cash flows from operating activities:
Net income $ 604,595 $ 621,830
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Undistributed minority interest -- 21,172
Deferred income taxes 398,750 433,984
Provision for doubtful accounts 498,768 577,428
Depreciation and amortization 284,216 348,424
Amortization of guarantee fees 39,075 5,300
Change in assets and liabilities:
Increase in resort property held for Vacation
Ownership Interest sales (3,419,011) (544,086)
Increase in resort property under development -- (139,689)
Increase in land held for sale (35,511) (8,607)
Increase in other assets (114,830) (1,240,851)
Decrease in accounts payable (1,090,112) (416,790)
(Decrease) increase in accrued and
other liabilities (331,032) 1,045,938
----------- -----------
Net cash (used in) provided by operating activities (3,165,092) 704,053
----------- -----------
Cash flows from investing activities:
Notes receivable, net (3,547,438) (3,688,988)
Increase in deferred assets (14,114) (5,851)
Purchases of plant and equipment, net (1,044,690) (1,093,767)
----------- -----------
Net cash used in investing activities (4,606,242) (4,788,606)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 9,716,404 15,165,666
Principal payments on notes payable (12,092,189) (11,204,199)
Principal payments on notes payable to
affiliates (387,143) (194,078)
Net proceeds from issuance of common stock 9,394,289 --
Preferred stock dividend payments (47,996) (48,048)
Acquisition of treasury stock (387,869) (213,775)
Unearned ESOP contribution -- (400,000)
----------- -----------
Net cash provided by financing activities 6,195,496 3,105,566
----------- -----------
Decrease in cash and cash equivalents (1,575,838) (978,987)
Cash and cash equivalents at beginning of period 3,226,038 3,196,710
----------- -----------
Cash and cash equivalents at end of period $ 1,650,200 $ 2,217,723
=========== ===========
See notes to consolidated financial statements
4
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
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 ("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
Registration 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 nine-month period ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999. 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.
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 nine
months or less. The following summarizes interest paid, income taxes paid and
capitalized interest.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------------
1998 1999 1998 1999
-------- --------- ---------- ----------
Interest paid $356,000 $ 651,000 $1,498,000 $1,983,000
Income taxes paid $ 2,000 $ -- $ 5,000 $ --
Capitalized interest $ 34,000 $ -- $ 357,000 $ --
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. SFAS 130 was adopted by the Company in
1998. There were no items of other comprehensive income, as that term is defined
in SFAS 130, in the nine months ended September 30, 1998 or September 30, 1999.
5
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which was 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 has a single segment in the timeshare resort industry.
Revenue from products and services are reflected on the income statement under
Sales of Vacation Ownership Interests and Resort Operating Revenue.
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 2001. The effective date was extended by
the issuance of SFAS No. 137, "Deferral of the Effective Date of FASB Statement
No. 133". 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.
NOTE 2. 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:
BASIC NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ (60,340) $ 224,276 $ 604,595 $ 621,830
Less: Series A preferred stock dividends (12,000) (11,969) (36,000) (35,907)
Series C convertible preferred stock
cumulation share dividends (4,938) -- (21,775) --
----------- ----------- ----------- -----------
Net income available to common
stockholders - basic $ (77,278) $ 212,307 $ 546,820 $ 585,923
=========== =========== =========== ===========
Weighted average shares of common stock
outstanding - basic 4,165,440 3,991,846 3,612,701 4,003,651
=========== =========== =========== ===========
Basic net income per share $ (0.02) $ 0.05 $ 0.15 $ 0.15
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ (60,340) $ 224,276 $ 604,595 $ 621,830
Less: Series A preferred stock
dividends (12,000) (11,969) (36,000) (35,907)
----------- ----------- ----------- -----------
Net income available to common
stockholders - diluted $ (72,340) $ 212,307 $ 568,595 $ 585,923
=========== =========== =========== ===========
Weighted average shares of common
stock outstanding 4,165,440 3,991,846 3,612,701 4,003,651
Add: Convertible preferred stock
(Series B and C) dilutive effect 110,541 85,711 110,541 102,083
----------- ----------- ----------- -----------
Weighted average shares of common
stock outstanding - dilutive 4,275,981 4,077,557 3,723,242 4,105,734
=========== =========== =========== ===========
Diluted net income per share $ (0.02) $ 0.05 $ 0.15 $ 0.14
=========== =========== =========== ===========
</TABLE>
Stock options and warrants to purchase 163,200 shares of common stock at
prices ranging from $3.25 per share to $8.125 per share were outstanding at
September 30, 1999 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 common shares. These options expire at various
dates between 1999 and 2004.
Series C Convertible Preferred Stock dividends are not required, nor were
they declared, subsequent to November 1, 1998.
NOTE 3. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 1999, the Company issued 89,850
shares of restricted common stock, valued at $94,926, to employees in exchange
for services provided.
During the nine months ended September 30, 1999, the Company purchased
106,500 shares of its common stock for $213,775.
For the nine months ended September 30, 1999, the Company recorded the
exchange of 74,490 shares of Series C Convertible shares for 24,830 common
shares.
NOTE 4. EMPLOYEE STOCK OWNERSHIP PLAN
On April 9, 1999 (effective January 1, 1999), the Company formed the ILX
Resorts Incorporated Employee Stock Ownership Plan and Trust (the "ESOP"). The
intent of the ESOP is to provide a retirement program for employees which aligns
their interests with those of the Company. During the nine months ended
September 30, 1999, the Company declared and funded in cash contributions of
$250,000 to the ESOP and in addition paid interest and fees of $13,579 on its
behalf as further described below.
7
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 1999, the ESOP entered into an agreement with Litchfield
Financial Corporation for a $500,000 line of credit, which is guaranteed by the
Company. The Company paid $10,000 in loan fees and interest of $3,579 on behalf
of the ESOP pursuant to this debt agreement and as of September 30, 1999, the
ESOP had borrowed $400,000 against this line of credit.
During the nine months ended September 30, 1999, the ESOP purchased 304,400
shares of the Company's common stock in the open market and, at September 30,
1999, held these 304,400 shares and $33,616 in cash. The debt is reflected on
the books of the Company.
NOTE 5. RELATED PARTY TRANSACTIONS
In July 1999, the Company entered into an agreement with an affiliate to
purchase sixty vacation ownership interests for the price of $500,000. The
vacation ownership interests consist of four ILX Premiere Vacation Club Platinum
memberships, fifty ILX Premiere Vacation Club Gold memberships and six Varsity
Clubs of America - South Bend Chapter Alumni House (3 bedroom) extended football
weekend memberships. The Company issued a promissory note for the purchase
price, which bears interest at 8%. The note is recorded as a Note payable to
affiliates on the face of the balance sheet. The agreement also modified the
terms of a previously existing Note payable to the affiliate and extended the
maturity date for a period of four years.
NOTE 6. SUBSEQUENT EVENTS
In October 1999, the Company agreed to provide up to $200,000 of working
capital financing to Sedona Worldwide Incorporated ("SWI") through December 31,
2000. SWI is currently consolidated as part of the Company and is included in
the Company's financial statements. This agreement was executed in anticipation
of the Company making a distribution of all of the shares of SWI's common stock
that the Company holds to the Company's shareholders on a pro rata basis,
effectively spinning off SWI. All amounts borrowed by SWI will bear interest
equal to the prime rate plus 3% per annum with interest payable monthly. The
entire unpaid principal will be due on December 31, 2000.
8
<PAGE>
ITEM II. 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 or other services at such resorts. The
Company currently owns five resorts in Arizona (including vacation ownership
intervals at the Roundhouse Resort in Pinetop), one in Indiana and one in
Colorado, and has an additional property in San Carlos, Mexico that it markets
through its ILX Premiere Vacation Club.
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,
------------------- ----------------------
1998 1999 1998 1999
------- -------- --------- ---------
<S> <C> <C> <C> <C>
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 58.8% 60.4% 61.7% 59.5%
Resort operating revenue 34.8% 31.6% 32.7% 32.1%
Interest income 6.4% 8.0% 5.6% 8.4%
----- ----- ----- -----
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 13.1% 13.9% 13.9% 14.1%
Sales and marketing 74.0% 64.5% 65.1% 63.6%
Provision for doubtful accounts 3.0% 3.8% 3.0% 3.2%
Contribution margin percentage from sale of
Vacation Ownership Interests (1) 9.9% 17.8% 18.0% 19.1%
As a percentage of resort operating revenue:
Cost of resort operations 94.4% 95.4% 97.5% 94.6%
As a percentage of total timeshare revenues:
General and administrative 8.8% 9.4% 7.8% 10.2%
Depreciation and amortization 1.0% 1.1% 1.0% 1.2%
Timeshare operating income 4.3% 9.7% 8.8% 10.1%
Selected operating data:
Vacation Ownership Interests sold (2) (3) 352 437 1,114 1,182
Average sales price per Vacation Ownership
Interest sold (excluding revenues from
Upgrades) (2) $13,387 $13,960 $ 13,018 $ 13,693
Average sales price per Vacation Ownership
Interest sold (including revenues from
Upgrades) (2) $16,005 $15,050 $ 15,161 $ 15,040
</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 143 annual and 418 biennial for the
three months ended September 30, 1998 and 184 annual and 506 biennial for
the three months ended September 30, 1999, and 503 annual and 1,221
biennial for the nine months ended September 30, 1998 and 537 annual and
1,289 biennial for the nine months ended September 30, 1999.
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, 1998
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales of Vacation Ownership Interests increased 17.9% or $1,008,426 to
$6,642,223 for the three months ended September 30, 1999, from $5,633,797 for
the same period in 1998 and increased 6.4% or $1,080,691 to $17,962,302 for the
nine months ended September 30, 1999 from $16,881,611 for the same period in
1998. The increase in the third quarter largely reflects both an increase in the
number of tours and an improved closing rate (sales as a percentage of tours) at
the Sedona sales office. The average sales price per Vacation Ownership Interest
sold (excluding revenues from Upgrades) increased 4.3% or $573 to $13,960 for
the three months ended September 30, 1999, from $13,387 for the same period in
1998 and increased 5.2% or $675 to $13,693 for the nine months ended
September 30, 1999 from $13,018 for the same period in 1998 reflecting higher
per unit sales prices for sales of ILX Premiere Vacation Club Vacation Ownership
Interests than for single resort Vacation Ownership Interests. ILX Premiere
Vacation Club was first introduced in June 1998.
The number of Vacation Ownership Interests sold increased 24.1% from 352 in
the three months ended September 30, 1998 to 437 for the same period in 1999 and
increased 6.1% from 1,114 in the nine months ended September 30, 1998 to 1,182
for the same period in 1999 due to the increase in the number of tours and the
improved closing rate at the Sedona sales office. Sales of Vacation Ownership
Interests in the three and nine months ended September 30, 1999 included 506 and
1,289 biennial Vacation Ownership Interests (counted as 253 and 644.5 annual
Vacation Ownership Interests) compared to 418 and 1,221 biennial Vacation
Ownership Interests (counted as 209 and 610.5 annual Vacation Ownership
Interests) in the same periods in 1998, respectively.
Upgrade revenue, included in Vacation Ownership Interest sales, decreased
48.3% to $476,124 for the three months ended September 30, 1999 from $921,722
for the same period in 1998 and decreased 33.3% to $1,592,429 for the nine
months ended September 30, 1999 from $2,385,830 for the same period in 1998,
because 1998 sales reflected the introduction of ILX Premiere Vacation Club late
in the second quarter of 1998. The Company made special offers to introduce the
program to its existing owners, which generated significant upgrade activity in
the 1998 third quarter and nine-month period sales. The average sales price per
Vacation Ownership Interest sold (including Upgrades) decreased 6.0% or $955 to
$15,050 for the three months ended September 30, 1999 from $16,005 for the same
period in 1998 and decreased 0.8% or $121 to $15,040 for the nine months ended
September 30, 1999 from $15,161 for the same period in 1998. The decrease
reflects the impact of decreasing Upgrade revenue as a part of overall Vacation
Ownership Interest sales.
Resort operating revenues increased 4.0% or $133,182 to $3,475,879 for the
three months ended September 30, 1999, from $3,342,697 for the same period in
1998 and increased 8.6% or $766,649 to $9,696,624 for the nine months ended
September 30, 1999 from $8,929,975 for the same period in 1998. The increase
reflects the opening of Varsity Clubs of America - Tucson Chapter in the third
quarter of 1998. Cost of resort operations as a percentage of resort operating
revenue increased to 95.4% from 94.4% for the three months ended September 30,
1999 from the same period in 1998, reflecting start-up costs of the restaurant
at the Roundhouse Resort. Cost of resort operations as a percentage of resort
operating revenue decreased to 94.6% from 97.5% for the nine months ended
September 30, 1999 from the same period in 1998 due primarily to 1998 expenses
including initial operating costs of Varsity Clubs of America - Tucson Chapter,
which did not open to revenue paying guests until July 1998.
Interest income increased 45.4% to $886,967 for the three months ended
September 30, 1999 from $610,098 for the same period in 1998 and increased 64.3%
to $2,535,677 for the nine months ended September 30, 1999 from $1,543,771 for
the same period in 1998 as a result of the increase in customer notes retained
by the Company consistent with its strategy to retain and borrow against, rather
than sell, the majority of its customer notes.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales increased from 13.1% for the three months ended
September 30, 1998 to 13.9% for the same period in 1999 and increased from 13.9%
for the nine months ended September 30, 1998 to 14.1% for the same period in
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
1999. The 1999 increase reflects the greater upgrade revenue in 1998, for which
there is no associated product cost, and variances in product mix between
periods.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests decreased to 64.5% for the three-month period ended September 30, 1999
from 74.0% for the same period in 1998, and decreased to 63.6% for the
nine-month period ended September 30, 1999 from 65.1% for the same period in
1998, reflecting the impact of sales and marketing changes made in the first
quarter of 1999. These changes have resulted in a greater number of tours and
increased closing rates at the Sedona sales office. In addition, marketing
efforts to the South Bend sales office, which had not been cost effective, were
substantially reduced in the third quarter.
The provision for doubtful accounts as a percentage of Vacation Ownership
Interest sales increased to 3.8% and 3.2% of sales of Vacation Ownership
Interests in the three- and nine-month periods ended September 30, 1999 compared
to 3.0% for the three- and nine-month periods ended September 30, 1998,
reflecting the Company's decision to increase the provision on new sales
effective in the third quarter of 1999.
General and administrative expenses increased to 9.4% and 10.2% of total
timeshare revenues in the three- and nine-month periods ended September 30, 1999
compared to 8.8% and 7.8% for the same periods in 1998, to $1,036,372 for the
three months ended September 30, 1999 from $842,848 for the same period in 1998
and to $3,068,514 for the nine months ended September 30, 1999 from $2,120,528
for the same period in 1998. The increases in 1999 reflect recognition of ESOP
contributions, increased professional fees, including fees to reissue the audit
reports of previous years, and costs related to development and implementation
of centralized reservations, owner services and reporting systems to support ILX
Premiere Vacation Club and to provide for expected future growth. In addition,
1998 general and administrative expense was reduced by successful appeals of
property tax assessments and the reduction of unused legal reserves.
The 35.4% increase in interest expense from $515,111 for the three months
ended September 30, 1998 to $697,407 for the same period in 1999 and 45.4%
increase in interest expense from $1,422,244 for the nine months ended
September 30, 1998 to $2,067,782 for the same period in 1999, reflect increased
borrowings against customer notes receivable as the Company retains and borrows
against more of such notes, net of decreases in interest rates and fluctuations
in the balances of borrowings outstanding.
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, 1998 and 1999,
cash (used in)/provided by operations was $(3,165,092) and $704,053,
respectively. The negative cash flow in 1998 was due primarily to an increase in
resort property held for Vacation Ownership Interest sales, which includes 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.
Cash provided by financing activities of $3,105,566 for the first nine
months in 1999 was lower than the $6,195,496 of 1998 because 1999 reflects
greater borrowings against retained customer notes receivable (as the Company
follows its post follow-on offering strategy of retaining and borrowing against,
rather than selling, a greater portion of its customer notes), and because 1998
reflects the proceeds, net of offering costs, of the follow-on offering of 1.6
million shares of common stock.
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
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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, 1998, the Company, excluding its Genesis subsidiary, had
NOL carryforwards of approximately $4.3 million, which expire in 2001 through
2012. At December 31, 1998, Genesis had federal NOL carryforwards of
approximately $1.7 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 Internal Revenue 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 nine-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.
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, 1998 and 1999 was $4,606,242 and $4,788,606,
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. The Company
intends to build twelve additional cabins at Kohl's Ranch commencing in 2000,
for which a financing commitment equal to the construction cost is in place.
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.
On April 9, 1999 (effective January 1, 1999), the Company formed the ILX
Resorts Incorporated Employee Stock Ownership Plan and Trust (the "ESOP"). The
intent of the ESOP is to provide a retirement program for employees which aligns
their interests with those of the Company. During the nine months ended
September 30, 1999, the Company declared and funded in cash contributions of
$250,000 to the ESOP and in addition paid interest and fees of $13,579 on its
behalf as further described below.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In August 1999, the ESOP entered into an agreement with Litchfield
Financial Corporation for a $500,000 line of credit, which is guaranteed by the
Company. The Company paid $10,000 in loan fees and interest of $3,579 on behalf
of the ESOP pursuant to this debt agreement and as of September 30, 1999, the
ESOP had borrowed $400,000 against this line of credit.
During the nine months ended September 30, 1999, the ESOP purchased 304,400
shares of the Company's common stock in the open market and, at September 30,
1999, held these 304,400 shares and $33,616 in cash. The debt is reflected on
the books of the Company.
The ESOP may purchase additional shares for future year contributions
through loans made directly to the ESOP and guaranteed by the Company. Such
borrowings are not expected to exceed $1,000,000.
CREDIT FACILITIES AND CAPITAL
The Company has an agreement with a financial institution for a $40 million
financing commitment under which the Company may sell certain of its customer
notes. The agreement provides for sales on a recourse basis with a percentage of
the amount sold held back by the financial institution as additional collateral.
Customer notes may be sold at discounts or premiums to the principal amount in
order to yield the consumer market rate, as defined by the financial
institution. At September 30, 1999, approximately $35.1 million of the $40
million commitment was available to the Company.
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% ($40 million) and
prime plus 3% ($3.5 million). The $3.5 million and $40 million commitments
expire in 2001 and 2002, respectively. At September 30, 1999, approximately
$29.6 million is available under these commitments.
In July 1999, the Company entered into an agreement with an affiliate to
purchase sixty vacation ownership interests for the price of $500,000. The
vacation ownership interests consist of four ILX Premiere Vacation Club Platinum
memberships, fifty ILX Premiere Vacation Club Gold memberships and six Varsity
Clubs of America - South Bend Chapter Alumni House (3 bedroom) extended football
weekend memberships. The Company issued a promissory note for the purchase
price, which bears interest at 8%. The note is recorded as a Note payable to
affiliates on the face of the balance sheet. The agreement also modified the
terms of a previously existing Note payable to the affiliate and extended the
maturity date for a period of four years.
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.
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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 test Year 2000 Compliance and make any
additional modifications where required. The identification of needed
modifications and upgrades of all significant internal applications was complete
at December 31, 1998.
In addition, the Company is communicating 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 $75,000 and estimates additional future costs of approximately
$15,000, 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.
The Company has developed a contingency plan in the event that any of its
systems or the systems of any third party with which it has a material
relationship are not Year 2000 Compliant. In the event that the Company is
vulnerable to any such Year 2000 Compliance issue, the worst case scenario could
include any or all of the following:
1. Inability to timely collect payments on customer notes;
2. Inability to timely or properly bill customers for resort charges;
3. Reduction in effectiveness of generating tours to sales offices;
4. Inability to purchase goods (including food, beverages and operating
supplies) from existing sources, thereby forcing the Company to use
alternative vendors at potentially less favorable pricing;
5. Inability to process payroll and/or perform other accounting functions on
an efficient basis; and
6. Suspension of some or all operations.
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
nine most recent fiscal years or the nine months ended September 30, 1999.
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 had arisen between the general contractor, Summit Builders, and
the Company's wholly owned subsidiary, VCA Tucson Incorporated, with respect to
amounts owed for the construction of Varsity Clubs of America - Tucson Chapter.
In May 1999, the dispute was settled for an amount of $1.3 million. Such cost is
included in resort property held for sale at September 30, 1999.
A dispute had arisen between Bowne of Phoenix, Inc. ("Bowne"), and the
Company regarding amounts owing for printing related to the Company's 1998
follow-on public offering. Bowne and the Company reached agreement on a payment
of $110,000 for such services, which Bowne subsequently sought to change. Bowne
filed suit in the Superior Court of Arizona seeking total payment of $154,720
plus interest and attorneys' fees. Approximately $46,000 of the $110,000 had
been paid to Bowne on account and the remaining amount is fully accrued on the
books of the Company. On September 15, 1999, the Superior Court granted the
Company's motion for summary judgement on the issue of whether the parties had
entered into a binding settlement agreement.
In June 1999, the Company brought suit in The Superior Court of the State
of Arizona against Deloitte & Touche LLP seeking compensatory and punitive
damages for breach of contract, breach of fiduciary duty and negligence. This
litigation is in its preliminary stage.
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
On July 26, 1999, the Company held its Annual Meeting of Shareholders. At
this Annual Meeting the shareholders were asked to vote on the following
proposal:
To elect seven (7) directors to serve until the next annual meeting of
shareholders of the Company, or until their successors are duly elected and
qualified.
The voting results were as follows:
Nominees recommended in the Proxy Statement:
Votes Against
Votes For or Withheld Non-votes
--------- ----------- ---------
Steven R. Chanen 2,776,599 74,097 322,030
Joseph A. Leonetti 2,576,147 74,097 322,030
Joseph P. Martori 4,576,613 74,097 322,030
Patrick J. McGroder III 2,776,613 74,097 322,030
James W. Myers 2,776,613 74,097 322,030
Nancy J. Stone 3,029,061 74,097 322,030
Edward S. Zielinski 2,776,520 74,097 322,030
16
<PAGE>
Shareholder nominee proposed at the Annual Meeting:
Joseph P. Martori, II 4,000,000
As a result of the vote, the following seven directors will serve until the
next annual meeting or until his or her successor is elected and qualified:
Steven R. Chanen Joseph P. Martori Joseph P. Martori, II
Patrick J. McGroder III James W. Myers Nancy J. Stone
Edward S. Zielinski
ITEM V. OTHER INFORMATION
None
ITEM VI. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
10-1 Credit Agreement between Patrick J.
McGroder, III, Nancy J. Stone, and James
W. Myers, Trustees for the ILX Resorts
Incorporated Employee Stock Ownership Plan
and Trust and Litchfield Financial
Corporation dated as of August 12, 1999
10-2 AGREEMENT TO MODIFY Amended and Restated
Promissory Note ($909,078) by ILX Resorts
Incorporated to Edward J. Martori dated
January 1, 1996 and the sale by Martori
Enterprises Incorporated to ILX Resorts
Incorporated and/or its nominee of certain
vacation ownership interests in ILX
Premiere Vacation Club and VCA South Bend
Incorporated
27 Financial Data Schedule (filed herewith)
(ii) Reports on Form 8-K
None
17
<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
Date: As of November 10, 1999
CREDIT AGREEMENT
(ILX ESOP)
THIS CREDIT AGREEMENT ("Agreement") is entered into as of August 12, 1999,
by and between Patrick J. McGroder, III, Nancy J. Stone, and James M. Myers, in
their capacity as Trustees for the ILX Resorts Incorporated Employee Stock
Ownership Plan and Trust, whose address is 2111 East Highland Avenue, Suite 210,
Phoenix, AZ 85016 ("Borrower"), and LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts corporation whose address is 13701 West Jewell Avenue, Suite 202,
Lakewood, CO 80228 ("Lender"), under the following facts:
R E C I T A L S:
A. Borrower is the Trustee of the ILX Resorts Incorporated Employee Stock
Ownership Plan and Trust. Borrower has requested that Lender extend a line of
credit to Borrower in the amounts and for the purposes set forth below.
B. Pursuant to the terms and conditions hereinafter set forth, Lender
agrees to establish a line of credit in favor of Borrower in maximum principal
amount of $500,000.00, to be secured by certain collateral now owned or
hereafter acquired as hereinafter set forth.
A G R E E M E N T S:
In consideration of the foregoing Recitals, and the covenants and
agreements hereinafter set forth, the legal adequacy and sufficiency of which is
hereby acknowledged, the parties hereby agree:
1. DEFINITIONS. In addition to the definitions set forth elsewhere in this
Agreement, the following terms shall have the following meanings unless
otherwise agreed.
1.1 "ADMINISTRATIVE COMMITTEE". The committee appointed by ILX Resorts
Incorporated ("ILX" or "Guarantor") pursuant to Section 10.02 of the Plan
(as hereinafter defined).
1.2 "ADVANCE". Means funding of a portion of the Line or Loan by
Lender.
1.3 "BORROWING PERIOD". The period of time during which Lender will
make an Advance to or for the benefit of Borrower pursuant to the terms
hereof, commencing on the date first set forth above and ending June 30,
2000.
1.4 "CODE". The Internal Revenue Code of 1986 as amended.
1.5 "COVERAGE RATIO". The ratio of the value (as shown in the reported
closing price as quoted by the American Stock Exchange) of the Stock and
other cash, cash equivalents or other collateral deposited by ILX with, and
acceptable tot he Lender, in its discretion as collateral for the Loan to
the outstandign principal balance of the Loan. At all times, the Coverage
Ratio shall be no less than 1.25. If, at any point in time the Coverage
Ratio is less than 1.25, within ten (10) days of Lender's written notice to
Borrower and ILX, the Coverage Ratio shall be restored to no less than 1.25
by either a principal pre-payment of the Loan or by ILX's deposit of
additional collateral with Lender in the form of cash or cash equivalent
securities or other collateral acceptable to Lender in its discretion so as
to restore the Coverage Ratio to not less than 1.25. By its execution
hereof ILX hereby grants Lender a first and prior duly perfected security
interest in any collateral delivered to Lender in order to maintain the
Coverage Ratio, and ILX agrees to execute such other documents and perform
such other acts as may be necessary or convenient to the perfection of
Lender's security interest on any such additional collateral including,
without limitation, the delivery of any such additional collateral to
Lender. Without limiting the foregoing, in the event any such additional
<PAGE>
collateral consists of promissory notes or accounts, ILX will endorse same
to Lender with recourse and deliver same to Lender and ILX agrees to
execute the Pledge Agreement appended hereto as EXHIBIT B-2 and the
Irrevocable Limited Power of Attorney appended hereto as EXHIBIT G-2. In
addition, ILX shall execute and file UCC-1 financing statements as
necessary or appropriate to perfect Lender's security interest. Any
accounts assigned to Lender shall be serviced by Concord Servicing
Corporation ("Concord") pursuant to the terms of that certain April 9, 1996
Agreement by and between Concord, ILX, ILE Sedona Incorporated, Los
Abrigados Partners Limited Partnership, and Lender. ILX and Lender will
provide Concord written advice in this regard in the form appended hereto
as EXHIBIT H, and in the event of an uncured Event of Default, Lender shall
have the right to direct Concord to pay to Lender all payments received by
Concord with respect to any such pledged accounts. All fees of Concord as a
result of ILX's pledge of accounts to Lender (including, without
limitation, Concord's fees for providing reports to Lender and Concord's
fees for servicing the subject accounts) shall be paid by ILX. Lender shall
use reasonable care and due diligence in connection with its possession of
any such additional collateral provided, however, that Lender shall have no
liability of any nature to ILX in connection with its possession of any
such additional collateral unless damages associated with Lender's loss or
holding of the additional collateral constitutes gross negligence or wilful
misconduct. Upon payment in full of the Indebtedness after the conclusion
of the Borrowing Period, Lender shall return any such additional collateral
delivered to it by ILX to ILX. In the event any such additional collateral
comprises, in Lender's discretion, accounts payable to ILX, any such
accounts shall be endorsed by Lender to ILX without recourse at the time of
Lender's delivery of same to ILX.
1.6 "ERISA". The Employee Retirement Employment Security Act of 1974,
as amended.
1.7 "GUARANTOR". ILX Resorts Incorporated, an Arizona corporation. ILX
is the "Employer" designated in the Plan. By its execution hereof, ILX
commits to make Contributions (as defined in the Plan) to the Plan in
amounts necessary to amortize the principal and interest payments due under
the Loan contemplated hereby.
1.8 "INDEBTEDNESS". All sums and other obligations owed to Lender by
Borrower whether under this Agreement or any other Loan Document
(including, without limitation, the Line Note) or otherwise.
1.9 "INTEREST RATE". Refers to the rate of interest due and owing from
Borrower to Lender, on the outstanding portion of the Loan, from time to
time. The "Regular Interest Rate" or "Regular Rate" refers to the interest
rate due and owing prior to an Event of Default. The Regular Interest Rate
shall be the Prime Rate plus 2.5% (but in no event less than 10.5%). The
"Default Interest Rate" or "Default Rate" shall mean the rate of interest
charged on and after an Event of Default has occurred. The Default Interest
Rate shall be the Regular Rate plus 6%. Provided, however, that in no event
shall the Regular Rate or the Default Rate exceed the highest rate of
interest permitted by law. The Interest Rate shall be adjusted with each
change in the Prime Rate from and after the date of the first Advance.
Provided, however, that no adjustment that results in a decrease in the
Interest Rate shall take effect during any period during which Borrower is
in default under the terms of the Line Note, this Agreement, or any other
Loan Document. Any such decrease shall not become effective until the first
day of the month following the date that all such defaults have been cured.
After cure of all defaults, the Interest Rate shall revert to the Regular
Interest Rate effective the first day of the month following the cure of
all defaults.
1.10 "INVESTMENT MANAGER". The agent of the Administrative Committee
appointed pursuant to Section 10.03(a) of the Plan.
1.11 "LOAN OR LINE DOCUMENTS". All documents executed by Borrower,
Lender, Guarantor, or third parties, or any of them, in connection with the
Loan more fully described herein, including but not limited to this Credit
<PAGE>
Agreement, the Line Note, the Pledge Agreement, the Guaranty and UCC-1
Financing Statements.
1.12 "PLAN". The ILX Resorts Incorporated Employee Stock Ownership
Plan and Trust as established by that certain document entitled ILX Resorts
Incorporated Employee Stock Ownership Plan and Trust dated April 9, 1999
(effective January 1, 1999) as may be amended from time to time.
1.13 "PLAN YEAR". January 1 through December 31 or such other 12-month
period as may be specified in the Plan as the Plan Year.
1.14 "PRIME RATE". Prime Rate means the highest rate of interest
published by THE WALL STREET JOURNAL as the base rate on corporate loans at
large United States money center commercial banks. If THE WALL STREET
JOURNAL (or any successor) ceases to exist or ceases to publish a
comparable Prime Rate, Lender will choose a new index which is based on
comparable information.
1.15 "RELEASE FEE". A principal and/or interest payment on the Loan
made by Borrower to Lender in order to secure Lender's release of its
security interest in one or more shares of Stock pledged to Lender pursuant
to paragraph 7.1, below, in order to allocate said share(s) of Stock to a
participant in the Plan.
1.16 "STOCK". Common stock issued by ILX Resorts Incorporated which is
readily tradeable on the American Stock Exchange, the New York Stock
Exchange or other established securities market approved by Lender, and
which otherwise qualifies as "company stock" within the meaning of the
Plan.
1.17 "STOCK PRICE". The average price per share of Stock purchased by
Borrower with the proceeds of the Loan.
1.18 "TRANSFER AGENT". Harris Trust and Savings Bank or its successor,
acting as the Transfer Agent for the common and unexchanged Stock of ILX
Resorts Incorporated.
1.19 "TRUST". ILX Resorts Incorporated Employee Stock Ownership Trust
as established pursuant to the Plan.
1.20 "TRUSTEE". The Trustee or Trustees of the Plan including the
Trustees executing this Agreement and any Successor Trustee appointed
pursuant to the Plan.
2. LOAN. Upon the terms and conditions contained herein, Lender hereby
agrees to extend credit to Borrower in a sum not to exceed $500,000.00 (the
"Line" or "Loan"). At Borrower's request, Lender may increase the foregoing
$500,000.00 Line in its sole discretion,
3. LOAN DOCUMENTS; SECURITY. Concurrently herewith, Borrower shall execute
a promissory note (the "Line Note") in the face amount of $500,000.00, in the
form attached hereto as EXHIBIT A. The Indebtedness (including, without
limitation, that portion evidenced by the Line Note) shall be secured, INTER
ALIA, by a collateral assignment of the Stock that was purchased with the
proceeds of the Loan pursuant to the Pledge Agreement appended hereto as EXHIBIT
B-1. Repayment of the Indebtedness and all other obligations of Borrower to
Lender under the Loan Documents will be guaranteed by the Guarantor pursuant to
the Guaranty in the form appended hereto as EXHIBIT C.
4. TERM AND REPAYMENT. The Loan shall bear interest at the applicable
Interest Rate and be paid as specified in the Line Note. If not sooner paid
pursuant to the provisions hereof, the Line Note shall be paid in full on or
before January 1, 2002 (the "Due Date").
<PAGE>
4.1 BORROWING PERIOD. During the Borrowing Period payments of interest
only shall be due and payable monthly on the first day of each month
commencing on the first day of the month following the date of this
Agreement.
4.2 REPAYMENT PERIOD. Commencing on the first day of the first month
after the end of the Borrowing Period (i.e., July 1, 2000), for a period of
eighteen (18) months (the "Repayment Period") Borrower shall make monthly
payments of interest on the first day of each month and in addition thereto
on each July 1 and January 1 thereafter prior to the Due Date (i.e., on
July 1, 2000, January 1, 2001, and July 1, 2001), Borrower shall pay to
Lender an amount equal to 25% of the principal balance outstanding on the
Loan on June 30, 2000. Each principal and/or interest payment on the Loan
shall constitute a Release Fee pursuant to the provisions of paragraph 7.1,
below.
5. Conditions to Loan. Satisfaction of or waiver by Lender of each of the
following requirements shall be conditions precedent to the making of each
Advance:
5.1 All of the Loan Documents in form and substance satisfactory to
Lender shall have been duly executed by all parties thereto, with the
signatures properly notarized and the instruments in proper form for filing
or recordation, as required, and shall have been filed or recorded and/or
delivered to Lender or Lender's agent, as appropriate.
5.2 All representations and warranties contained herein shall be true
and correct as of the day of closing and as of the day of making each and
every Advance.
5.3 Borrower, Guarantor and the Administrative Committee shall have
executed and delivered such certificates and resolutions as are required by
Lender.
5.4 There shall be no Event of Default (as defined in Paragraph 12,
below) then in existence.
5.5 No other person, firm, or entity shall have or claim a security
interest in the Stock acquired with the proceeds of the Loan as provided in
this Agreement, to the extent not yet released as security for the Loan.
5.6 All necessary UCC financing statements have been filed and Lender
has obtained a properly perfected first and prior security interest in the
Stock and other collateral identified in the Pledge Agreement securing
same.
5.7 Lender shall have received and approved such additional documents
and assurances as Lender may reasonably require.
5.8 Lender shall have received one or more attorney opinion letters
from counsel for Borrower in the form appended hereto as EXHIBIT D and
otherwise in form and substance satisfactory to Lender, addressed to Lender
covering such matters relating to Borrower, the Plan, and the Stock as
Lender in its discretion may require.
5.9 There shall have been no material adverse change to the financial
condition of Borrower or ILX, or ILX's operations or properties.
5.10 The Plan remains in continuing compliance with all local, state,
and federal laws, including, without limitation, the continued
qualification under the provisions of Sections 401 ET SEQ. and 501 ET SEQ.
of the Code and ERISA.
<PAGE>
5.11 Borrower hereby agrees to pay, and Borrower or Guarantor shall
have paid to Lender, all Lender's reasonable out-of-pocket expenses
including, without limitation, recording costs, filing fees and legal fees
and disbursements of Lender's counsel, incurred by Lender in connection
with the subject Loan, and the preparation of the initial Loan Documents
(which legal expenses shall not exceed $5,000.00) and any amendment or
modification thereof. Any unpaid reimbursements as provided in this
paragraph may be deducted by Lender from any Advance.
5.12 Borrower or Guarantor shall have paid Lender a one-time Facility
Fee in the amount of $5,000.00.
5.13 Borrower shall provide Lender a duly executed Request for Advance
in the form appended hereto as EXHIBIT E.
5.14 Lender shall have received the duly executed Authorizing
Resolution and Incumbency Certificate from Borrower, Guarantor and the
Administrative Committee in the form appended hereto as EXHIBIT F.
5.15 Lender shall have received the duly executed Irrevocable Power of
Attorney and Stock Power from Borrower in the form appended hereto as
EXHIBIT G-1.
5.16 The Coverage Ratio resulting after giving effect to the Advance
shall not be less than 1.25.
6. ADVANCES. Subject to the terms, limitations, and conditions herein and
in the Line Note, Lender agrees to advance funds to Borrower as follows:
6.1 PROCEDURES FOR ADVANCES. Advances shall be made in a minimum
amount of $50,000.00 (unless said minimum amount is waived by Lender).
Borrower shall have provided Lender an executed Request for Advance at
least five (5) days prior to the requested date of Advance. The initial and
subsequent Advances shall be funded upon receipt by Lender of a written
acknowledgment from the stock broker effecting the acquisition of the Stock
that said stock broker has or will acquire the subject Stock, has in its
possession a stock power with respect to same duly executed by Borrower,
conveying the subject Stock to Lender, and that said stockbroker has and
will hold such Stock (and all Stock purchased with the proceeds of the Loan
and not subject to a partial release as hereinbefore provided) in an
account in the name of Lender as custodian of the Stock held therein for
the ILX Resorts Incorporated Employee Stock Ownership Plan and Trust.
6.2 ENDORSEMENT OF NOTE. Upon making an Advance or receiving a
repayment of principal or interest, Lender shall endorse the Line Note as
appropriate or otherwise make such entries in its records as Lender may
deem necessary or appropriate to indicate the amount outstanding. Lender
shall provide Borrower a monthly statement reflecting the outstanding
balance due on the Line Note. In the absence of manifest error, Lender's
records shall be conclusive proof of the amount outstanding.
6.3 FEES. The following fees will be deducted from the sums Advanced:
6.3.1 FACILITY FEE. The $5,000.00 Facility Fee, to the extent not
previously paid.
6.3.2 LENDER'S EXPENSES. Any unpaid expenses of Lender pursuant
to paragraph 5.11, above.
6.4 FUNDING OF ADVANCE. Lender shall fund each Advance by wire
transfer to the stockbroker acquiring the Stock pursuant to a written
letter agreement by and between said stockholder and Lender referencing the
<PAGE>
terms set forth above in paragraph 6.1. By its execution hereof, Borrower
acknowledges and agrees that any and all Stock purchased with the proceeds
of the Loan shall be held by any such stockbroker in an account in the name
of Lender as custodian of the Stock held therein for the ILX Resorts
Incorporated Employee Stock Ownership Plan and Trust so as to perfect
Lender's security interest in same by possession. Lender shall have no
further responsibility or obligation with respect to the delivery or
disbursement of funds.
7. PLEDGE AGREEMENT. Borrower's obligations under this Agreement and the
Line Note (as well as all other obligations of Borrower to Lender shall be
secured, INTER ALIA, by a first, prior and only lien against (a) cash or cash
equivalent collateral, if any, acceptable to Lender and provided by ILX to
Lender in order to maintain the Coverage Ratio and (b) the Stock acquired by
Borrower with the proceeds of the Loan pursuant to the Pledge Agreement in the
form appended hereto, to the extent not released pursuant to paragraph 7.1
below.
7.1 PARTIAL RELEASES. At the end of each Plan Year that the Loan is
outstanding and a payment of principal and/or interest is made, at
Borrower's request, Lender shall grant a partial release of share(s) of
Stock pledged pursuant to the Pledge Agreement as follows: Lender shall
release the number of shares equal to the number of Shares held immediately
before the release for the current Plan Year multiplied by a fraction, the
numerator of which is the amount of principal and interest paid for the
Plan Year and the denominator of which is the principal and interest to be
paid for all future Plan Years, based on the interest rate in effect at the
end of the Plan Year.
7.2 FINAL RELEASE. All Stock and any collateral provided by ILX shall
be fully released from Lender's lien after the Borrowing Period upon
payment in full of the Indebtedness.
8. 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 each Advance:
8.1 The Plan and Trust qualify under the provisions of Sections 401 ET
SEQ. and 501 ET SEQ. of the Code and ERISA.
8.2 Borrower has taken all action to permit Borrower to enter into
this Agreement and any other agreement or transaction contemplated hereby,
and repay the Loan. 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, 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 his
official capacity as an agent of Borrower.
8.3 Neither Borrower nor the Plan are subject to any disciplinary
actions or proceedings by any governmental authority or trade organization.
8.4 Borrower's execution, delivery and performance of this Agreement,
the Loan Documents and the borrowings evidenced by the Line Note (a) will
not violate any law, regulation, indenture, agreement or any other
instrument to which Borrower is a party or by which Borrower or any of its
property is governed or 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 law, regulation, indenture, agreement or other
instrument, or result in the violation of any law or regulation or 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 Loan Documents, when executed
and delivered to Lender, will constitute the legal, valid and binding
obligations of respective signatories thereto in accordance with their
terms.
<PAGE>
8.5 All financial data that have been given to Lender with respect to
Borrower and/or ILX (a) are complete and correct in all material respects;
and (b) accurately present the financial condition of Borrower in all
material respects as of the date on which the same have been furnished. All
balance sheets disclose all known liabilities, direct and contingent (as
determined by GAAP), 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.
8.6 Neither the Borrower nor the Guarantor are 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 none is 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.
8.7 All other reports, papers, data and information given to Lender
with respect to Borrower, the Plan, and the Guarantor 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 applicable
subject matter.
8.8 Borrower has properly and timely filed all required federal,
state, county and municipal reports and submissions and has paid all
required fees due governmental entities. Borrower knows of no basis for a
material additional assessment of Borrower in respect of any such fees.
8.9 There is not now pending against or affecting Borrower or the
Guarantor, nor to their 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 or the Guarantor.
8.10 No authorization, consent, approval, license, exemption, filing
or registration with any court or 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.
8.11 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.
8.12 Borrower is not insolvent; has not 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 consented
thereto; does not have any 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 not generally failed to pay its debts as they become
due; has not taken any action, nor has any intention to take any action,
which would constitute an "act of bankruptcy" under the Federal Bankruptcy
Code or in contemplation thereof.
8.13 The purpose of this transaction is exclusively for commercial or
business purposes and the proceeds of each Advance will be used for the
purpose of acquiring Stock as set forth in Borrower's Request for Advance.
<PAGE>
8.14 That the undersigned comprise each and every Trustee under the
Plan.
9. PROTECTIVE COVENANTS.
9.1 So long as any of the Indebtedness remains unpaid, Borrower shall:
9.1.1 Not terminate and shall comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental
authority, including, without limitation, the Code and ERISA so as to
remain qualified under Sections 401 ET SEQ. and 501 ET SEQ. of the
Code and ERISA.
9.1.2 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 or authority having
jurisdiction over Borrower or any of its businesses.
9.1.3 Borrower acknowledges that the placement of any additional
liens upon the Stock acquired with the proceeds of the Loan and other
collateral encumbered by Borrower's Pledge Agreement may impair the
ability of Lender to obtain assurance that its security interest
remains in a prior position. 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 Stock owned by Borrower and encumbered
by the Pledge Agreement without Lender's prior written consent in its
sole discretion.
9.1.4 Borrower hereby subordinates any and all sums payable to
Guarantor, or to Borrower's or Guarantor's officers, trustees, or any
affiliates to repayment of the Indebtedness, and no such payments or
distributions shall be made to any such officers, trustees, or
affiliates if an Event of Default is outstanding and uncured.
9.1.5 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 Loan
Documents.
9.1.6 Not take any action with respect to any of the security for
the Loan 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 Loan Documents.
9.1.7 Permit Lender and/or its representative(s) at Borrower's
expense to review Borrower's books and records. Prior to an Event of
Default, said review shall take place not more often than annually.
Borrower or Guarantor shall reimburse Lender its reasonable and
necessary out-of-pocket expenses incurred in connection with any such
review (including, without limitation, travel and lodging) within ten
(10) days of Lender's invoice therefor. Any such invoice not paid by
Borrower in a timely fashion may be paid, at Lender's option, by an
Advance.
9.1.8 Not cause, suffer or permit the Coverage Ratio to be less
than 1.25.
10. FINANCIAL STATEMENTS, REPORTS AND TAX RETURNS.
10.1 REPORTS AND FINANCIAL STATEMENTS. Borrower shall furnish to
Lender the following-described complete and correct reports and financial
statements accurately reflecting the performance and financial condition of
<PAGE>
Borrower. The reports and financial statements shall be in such detail, be
in form and content and be prepared with such level of accounting control
as Lender may require from time to time. 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 or the Project's financial condition. The reports and financial
statements to be provided include:
10.1.1 Within forty-five (45) days after the end of each fiscal
quarter, Borrower shall provide Lender quarterly statements of account
as described in Section 11.15 of the Plan and an accounting of all
Employer contributions certified true and accurate by Borrower.
10.1.2 Within ninety (90) days after the end of each fiscal year,
Borrower shall provide Lender audited annual statements of account and
an accounting of all Employer contributions.
10.1.3 Within ten (10) days after each required filing deadline,
Borrower will furnish Lender with a copy of its executed and filed
federal tax return or report and/or with a copy of any extension forms
filed in lieu of the subject tax return or report.
10.1.4 Such other information and reports as Lender may
reasonably request from time to time.
10.2 AUDIT. Lender shall have the right to inspect and/or audit
Borrower's books and records at Borrower's or Borrower's accountant's place
of business during business hours. Borrower shall reimburse Lender's
reasonable and necessary out-of-pocket expenses incurred in any such
inspection or audit.
11. CROSS-DEFAULT. Any Event of Default under this Loan or any other
obligation from Borrower to Lender shall be deemed an Event of Default under any
and/or all of the other loans or agreements by Borrower with Lender or its
affiliates and any collateral under any or all of the above shall be deemed to
be collateral for the others; provided, however, that the Stock purchased with
the proceeds of the Loan shall not be deemed collateral for any other loan.
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, foreclosure or sale of any other collateral.
12. DEFAULT.
12.1 The occurrence of any one or more of the following shall
constitute an "Event of Default" hereunder, if any such breach or default
is not cured within ten (10) days (twenty (20) days in the case of a
non-monetary default) from Borrower's receipt of written notice:
12.1.1 Default in the performance of any obligation by Borrower
under the Indebtedness, the Line Note, the Pledge Agreement, other
Loan Documents, or otherwise, whether or not such default is with
respect to the payment of money or otherwise.
12.1.2 Any material misrepresentation or warranty contained
herein at any time proves to be false or misleading in any material
respect.
12.1.3 The levy of a material attachment, execution or other such
process against Borrower's property or any of it and the failure by
Borrower to obtain the discharge thereof or provide adequate bond
acceptable to Lender as security therefor within 60 days.
<PAGE>
12.1.4 Default in the performance of any other obligation of
Borrower to Lender under any other agreement between Borrower and
Lender.
12.1.5 Borrower's or Guarantor'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, filing of bankruptcy (either voluntary or involuntary) or
Borrower or Guarantor admits in writing its inability to make payments
on its debts as they mature.
12.1.6 The occurrence of any materially adverse change in the
financial conditions or operations of Borrower or Guarantor.
12.1.7 The occurrence of a material default in the performance of
any other payment obligation of Borrower whether owed to Lender or any
other person, firm, or entity.
12.1.8 The termination of Borrower.
12.1.9 Failure to maintain at all times a Coverage Ratio of not
less than 1.25.
12.2 Upon the occurrence of any Event of Default, Lender may, at its
option:
12.2.1 Declare all of the Indebtedness (including, without
limitation, the Line Note) immediately due and payable;
12.2.2 Commence foreclosure or otherwise enforce Lender's rights
against any security then held by Lender for the Loan in such order as
Lender may determine;
12.2.3 Terminate Lender's agreement to make further Advances
under this Agreement; and/or
12.2.4 Offset any indebtedness from any amounts due Borrower
under any other agreement between Borrower and Lender.
12.3 MARSHALING. Borrower specifically waives, to the fullest extent
permitted by law, any right to require marshaling of any of the assets
encumbered to secure the Indebtedness and to direct the order in which such
assets are sold.
12.4 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 attorneys' fees) of retaking, holding,
storing, processing and preparing for sale, selling, collecting,
liquidating and the like; (ii) then to the satisfaction of the
Indebtedness, 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.
12.5 REMEDIES. The remedies provided for herein are cumulative and
shall be in addition to any and all other rights or remedies provided for
in this Agreement, or any other Loan Document including, without
limitation, 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 Loan nor invalidate any notice of
default or act done pursuant to any such notice, nor prejudice Lender in
<PAGE>
the exercise of any of its other rights unless, in the exercise of the
rights or remedies undertaken by Lender, Lender realizes all amounts owed
to it in connection with the Loan.
13. MISCELLANEOUS.
13.1 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 if such default persists
or is repeated, and no express waiver shall affect any 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 after such notice. If no action is taken by Lender within the
seven (7) days following notice, said right shall conclusively be deemed to
have been Waived by Lender. The intent of this section is to avoid
unintentional waivers by Lender of any of its rights hereunder.
13.2 NO DULY OF LENDER. Nothing in this Agreement or any other Loan
Document shall impose or imply any duty or obligation whatsoever upon
Lender to take any action with respect to any of the security held by
Lender for the Loan or to preserve any rights of Borrower with respect to
any of the security held by Lender for the Loan.
13.3 AMENDMENT. This Agreement and the Loan Documents, 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.
13.4 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 reasonable attorneys' 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 this 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.
13.5 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 addresses as a party hereto may designate in writing) and
shall be tendered by personal delivery or by facsimile transmission 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
<PAGE>
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).
If to Borrower: Patrick J. McGroder, III, Nancy J. Stone and James M. Myers
in their capacity as Trustees for the
The ILX Resorts Incorporated Employee Stock Ownership Plan
and Trust
2111 East Highland Avenue, Suite 210
Phoenix, AZ 85016
Attention: Nancy J. Stone
Facsimile: 602-957-2290
with a copy to: ILX Resorts Incorporated
2111 East Highland Avenue, Suite 210
Phoenix, AZ 85016
Attention: Joseph P. Martori
Facsimile: 602-957-2290
If to Lender: Litchfield Financial Corporation
13701 West Jewell Avenue, Suite 200
Lakewood, CO 80228
Attention: Wayne M. Greenholtz,
Senior Vice President
Facsimile: (303)985-5375
with a copy to: Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
Attention: Jim Shippee,
Senior Vice President
Facsimile: (413)458-1020
and: James E. Brown, Esq.
James E. Brown & Associates, P.C.
1350 Seventeenth Street, Suite 306
Denver, CO 80202
Facsimile: (303)825-2828
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.
13.6 BINDING EFFECT; ASSIGNMENT. This Agreement may be assigned by
Lender. Borrower may not assign its interest in, or obligations under, this
Agreement except with the written consent of Lender, in its sole
discretion. Subject to the foregoing, 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.
13.7 INTERPRETATION AND VENUE. Except as provided below, 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 paragraphs of this Agreement are for
convenience only and do not define or limit any terms or provisions. Time
<PAGE>
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. Any action to enforce
or construe this Agreement or any other Loan Document shall be brought
exclusively in the District Court in and for Jefferson County, Colorado.
Borrower hereby consents to the foregoing exclusive jurisdiction and venue.
Provided, however, that nothing contained herein shall preclude Lender from
bringing one or more actions to enforce its rights hereunder in the State
of Arizona or any other state in which Borrower or Guarantor maintain
offices or assets.
13.8 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 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.
13.9 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.
13.10 MERGER. This Agreement represents the culmination of all prior
negotiations, representations, and agreements between the parties with
respect to the credit facility contemplated hereby. All such prior
negotiations, representations, and agreements are merged herein.
14. 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.
15. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year set forth above.
BORROWER:
ILX RESORTS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST
By: /s/ Patrick J. McGroder, III
----------------------------------------
Patrick J. McGroder, III, Trustee
By: /s/ Nancy J. Stone
----------------------------------------
Nancy J. Stone, Trustee
By: /s/ James W. Myers
----------------------------------------
James M. Myers, Trustee
<PAGE>
GUARANTOR:
ILX RESORTS INCORPORATED,
an Arizona corporation
By: /s/ Joseph P. Martori, Chairman
-------------------------------------
Joseph P. Martori, Chairman of the Board
LENDER:
LITCHFIELD FINANCIAL CORPORATION,
a Massachusetts corporation
By: /s/ Wayne M. Greenholtz
----------------------------------------
Wayne M. Greenholtz,
Senior Vice President
<PAGE>
LIST OF EXHIBITS
EXHIBIT A Line Note
EXHIBIT B Pledge Agreement
EXHIBIT B-1 Pledge Agreement of Borrower
EXHIBIT B-2 Pledge Agreement of ILX
EXHIBIT C Guaranty
EXHIBIT D Form of Attorney Opinion
EXHIBIT E Request for Advance
EXHIBIT F Authorizing Resolution and Incumbency Certificate
EXHIBIT F-1 Borrower
EXHIBIT F-2 ILX Resorts Incorporated
EXHIBIT F-3 Administrative Committee
EXHIBIT G Irrevocable Power of Attorney
EXHIBIT G-1 Irrevocable Power of Attorney and
Stock Power of Borrower
EXHIBIT G-2 Irrevocable Power of Attorney of ILX
EXHIBIT H ILX/Litchfield Letter to Concord
AGREEMENT
This Agreement is made and entered into as of the 26th day of July, 1999,
by and among the following parties: ILX Resorts Incorporated, an Arizona
corporation ("ILX"), Martori Enterprises Incorporated, an Arizona corporation
("MEI"), Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP") and Edward John Martori, a married man dealing with his sole
and separate property ("EJM").
RECITALS
A. The parties desire to effect certain transactions whereby certain
existing agreements will be modified or otherwise affected; namely those
transactions represented by the following documents and/or described below:
Installment Promissory Note in the face amount of $909,078 dated January 1,
1996 made by ILX payable to EJM (the "EJM/LAP Note"), which note is secured
by ILX's Class A limited partnership interest in LAP.
The sale by MEI to ILX and/or its nominee of certain vacation ownership
interests in ILX Premiere Vacation Club, an Arizona non-profit corporation
and VCA South Bend Incorporated, an Arizona non-profit corporation.
B. The parties desire to memorialize said transactions by this one,
all-inclusive agreement.
AGREEMENT
1. MODIFICATION OF EJM NOTE. Effective on August 1, 1999, the EJM/LAP Note
shall be amended and restated by the form of Installment Promissory Note
attached hereto as EXHIBIT A so as to be modified to read as follows:
Principal payments of $94,078.00 on or before August 15, 1999 and
$100,000.00 on or before December 15, 1999. Installments of interest only
at ten percent (10%) per annum shall be payable quarterly on the first day
of January, April, July and October of each year commencing October 1,
1999. The entire unpaid principal balance, together with all accrued and
unpaid interest thereon and other costs payable hereunder, shall be paid in
full on December 15, 2003.
Except as specifically provided herein, the EJM/LAP Note (as amended and
restated) and security therefor shall remain in full force and effect and
unamended hereby.
2. SALE OF VACATION OWNERSHIP INTERESTS. Effective August 1, 1999, MEI
shall sell and convey to ILX and/or its nominee, a total of sixty (60) vacation
ownership interests for a purchase price of $500,000.00. Such vacation ownership
interests consist of four (4) ILX Premiere Vacation Club Platinum memberships;
fifty (50) ILX Premiere Vacation Club Gold memberships and six (6) Varsity Clubs
of America - South Bend Chapter Alumni House (3 bedroom) extended football
weekend memberships. ILX shall issue to MEI a Promissory Note ("MEI Note") in
the form attached hereto as EXHIBIT B in the amount of $500,000.00 payable as
follows:
Principal payments of $100,000.00 on or before August 15, 1999, and
$100,000.00 on or before December 15, 2000 and December 15, 2001. Payments
of interest only at eight percent (8%) per annum shall be payable quarterly
on the first day of January, April, July and October of each year
commencing October 1, 1999. The entire unpaid principal balance, together
with all accrued and unpaid interest thereon and other costs payable
hereunder, shall be paid in full on December 15, 2002.
This MEI Note shall be secured by a Security Agreement, dated July 1, 1994,
also securing the EJM/LAP Note.
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<PAGE>
3. MISCELLANEOUS PROVISIONS. Any notice hereunder shall be given in writing
and hand-delivered. The provisions of this Agreement shall be governed and
interpreted in accordance with the laws of the State of Arizona. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. This instrument contains the entire agreement
of the parties and may not be modified except by a writing signed by the parties
affected thereby. Should one or more of the provisions of this Agreement be
determined to be illegal, wholly or partially unenforceable, or unreasonable,
the parties hereby empower the Court to enforce any other provision of this
Agreement to the fullest extent being possible under Arizona law. Each of the
parties hereto agrees in good faith to execute such further or additional
documents as may be necessary or appropriate to fully carry out the intent and
purpose of this Agreement. Time shall be of the essence in the performance of
each and every term of this Agreement. If any action is brought by either party
in respect of its rights under this Agreement, the substantially prevailing
party shall be entitled to recover from the other party its court costs, and
reasonable attorneys' fees as determined by the Court, to the maximum extent
permitted by law. No waiver by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy upon a breach hereof shall constitute a waiver of such
remedy. No waiver shall effect or alter the remainder of this Agreement, but
each and every covenant, agreement, term and condition thereof shall continue in
full force and effect with respect to any then existing or subsequent breach of
this Agreement. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one Agreement binding upon all of the
parties, notwithstanding that all of the parties are not signatories to the
original or the same counterpart.
Effective as of the date and year first written above.
ILX Resorts Incorporated
By: /s/ Nancy J. Stone
---------------------------------------
Its: President
---------------------------------------
Martori Enterprises Incorporated
By: /s/ Joseph P. Martori
---------------------------------------
Its: Chairman
---------------------------------------
Los Abrigados Partners Limited Partnership
By: ILE Sedona Incorporated, General Partner
By: /s/ Joseph P. Martori
---------------------------------------
Its: Chairman
---------------------------------------
/s/ Edward John Martori
- -------------------------------------------
Edward John Martori
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<PAGE>
EXHIBIT A
$909,078 EJM/LAP NOTE (AMENDED AND RESTATED)
A-1
<PAGE>
INSTALLMENT PROMISSORY NOTE
(AMENDED AND RESTATED)
$894,078.00 August 1, 1999
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned, ILX Resorts Incorporated, an Arizona
corporation (the "undersigned"), promises to pay to the order of Edward J.
Martori ("Payee"), at Tucson, Arizona, or at such other place as the holder
hereof may from time to time designate, the principal sum of Eight Hundred
Ninety-Four Thousand and Seventy Eight Dollars ($894,078.00), together with
interest thereon as computed below, as follows:
Principal payments of $94,078.00 on or before August 15, 1999 and
$100,000.00 on or before December 15, 1999. Installments of interest only
shall be payable quarterly on the first day of January, April, July and
October of each year commencing October 1, 1999. The entire unpaid
principal balance, together with all accrued and unpaid interest thereon
and other costs payable hereunder, shall be paid in full on December 15,
2003.
Interest shall be charged on the unpaid principal balance of this Note to
the date of maturity on a daily basis for the actual number of days any portion
of the principal is outstanding, computed on the basis of a 360-day year, at a
per annum rate (the "Note Rate") equal to ten percent (10%).
The undersigned acknowledges that the undersigned has agreed to the rate of
interest represented by the Note Rate, and any additional charges, costs and
fees arising out of or related to the transaction of which this Note is a part,
to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful money of
the United States of America and in immediately available funds, and when made
shall be first applied to accrued costs, expenses and fees, if any, then to
accrued interest that has not yet been added to principal, and then to the
reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, without penalty or premium, provided that each such payments
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall constitute a
"default" hereunder, and, upon the occurrence of any of the following, all
obligations hereunder shall, at the option of the holder hereof, become
immediately due and payable, without presentment for payment, diligence, grace,
exhibition of this Note, protest, further demand or notice of any kind, all of
which are hereby expressly waived: (i) any sum owing hereunder or under other
indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or application for any form of relief under any provision of Title 11,
United States Code, as amended from time to time (the "Bankruptcy Code") or any
other law pertaining to reorganization, insolvency or readjustment of debts is
filed by or against the undersigned, its assets or affairs; (iii) the
undersigned makes an assignment for the benefit of creditors, is not paying
debts as they become due, or is granted an order for relief under any chapter of
the Bankruptcy Code; (iv) a custodian, as defined by the Bankruptcy Code, takes
charge of any property of the undersigned; (v) garnishment, attachment, levy or
execution is issued against any of the property or effects of the undersigned;
(vi) there is a termination, failure to exist or dissolution of the undersigned;
or (vii) there is any default or breach of any representation, warranty or
covenant, or there is any false statement or material omission, by the
undersigned under any document forming part of the transaction in respect of
which this Note is made or forming part of any other transaction under which the
undersigned is indebted to Payee.
The undersigned hereby agrees: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
A-2
<PAGE>
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suite shall be determined by a court sitting
without a jury.
This Note is secured by a Security Agreement dated July 1, 1994.
This Note is executed to be effective as of the date set forth above.
ILX RESORTS INCORPORATED, an Arizona corporation
By:
-------------------------------
Its:
-------------------------------
ATTEST:
By:
-------------------------------
Its:
-------------------------------
A-3
<PAGE>
EXHIBIT B
$500,000 MEI NOTE
B-1
<PAGE>
INSTALLMENT PROMISSORY NOTE
$500,000.00 August 1, 1999
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned, ILX Resorts Incorporated, an Arizona
corporation (the "undersigned"), promises to pay to the order of Martori
Enterprises Incorporated, an Arizona corporation ("Payee"), at Phoenix, Arizona,
or at such other place as the holder hereof may from time to time designate, the
principal sum of Five Hundred Thousand Dollars ($500,000.00), together with
interest thereon as computed below, as follows:
Principal payments of $100,000.00 on or before August 15, 1999 and
$100,000.00 on or before December 15, 2000 and December 15, 2001.
Installments of interest only shall be payable quarterly on the first day
of January, April, July and October of each year commencing October 1,
1999. The entire unpaid principal balance, together with all accrued and
unpaid interest thereon and other costs payable hereunder, shall be paid in
full on December 15, 2002.
Interest shall be charged on the unpaid principal balance of this Note to
the date of maturity on a daily basis for the actual number of days any portion
of the principal is outstanding, computed on the basis of a 360-day year, at a
per annum rate (the "Note Rate") equal to eight percent (8%).
The undersigned acknowledges that the undersigned has agreed to the rate of
interest represented by the Note Rate, and any additional charges, costs and
fees arising out of or related to the transaction of which this Note is a part,
to the extent deemed to be interest under applicable law.
Each and every payment due under this Note shall be made in lawful money of
the United States of America and in immediately available funds, and when made
shall be first applied to accrued costs, expenses and fees, if any, then to
accrued interest that has not yet been added to principal, and then to the
reduction of the principal amount of this Note. This Note may be prepaid, in
whole or in part, without penalty or premium, provided that each such payments
shall be applied as set forth above.
At the option of the holder hereof, any of the following shall constitute a
"default" hereunder, and, upon the occurrence of any of the following, all
obligations hereunder shall, at the option of the holder hereof, become
immediately due and payable, without presentment for payment, diligence, grace,
exhibition of this Note, protest, further demand or notice of any kind, all of
which are hereby expressly waived: (i) any sum owing hereunder or under other
indebtedness of the undersigned to Payee is not paid as agreed; (ii) any
petition or application for any form of relief under any provision of Title 11,
United States Code, as amended from time to time (the "Bankruptcy Code") or any
other law pertaining to reorganization, insolvency or readjustment of debts is
filed by or against the undersigned, its assets or affairs; (iii) the
undersigned makes an assignment for the benefit of creditors, is not paying
debts as they become due, or is granted an order for relief under any chapter of
the Bankruptcy Code; (iv) a custodian, as defined by the Bankruptcy Code, takes
charge of any property of the undersigned; (v) garnishment, attachment, levy or
execution is issued against any of the property or effects of the undersigned;
(vi) there is a termination, failure to exist or dissolution of the undersigned;
or (vii) there is any default or breach of any representation, warranty or
covenant, or there is any false statement or material omission, by the
undersigned under any document forming part of the transaction in respect of
which this Note is made or forming part of any other transaction under which the
undersigned is indebted to Payee.
The undersigned hereby agrees: (i) to any and all extensions (including
extensions beyond the original term hereof) and renewals hereof, from time to
time, without notice, and that no such extension or renewal shall constitute or
be deemed a release of any obligation of the undersigned to the holder hereof;
(ii) that any written modification, extension or renewal hereof executed by the
undersigned shall constitute a representation and warranty of the undersigned
that the unpaid balance of principal, interest and other sums owing hereunder at
the time of such modification, renewal or extension are owed without adjustment
for offset, counterclaim or other defense of any kind by the undersigned against
B-2
<PAGE>
Payee; (iii) that the acceptance by the holder hereof of any performance which
does not comply strictly with the terms hereof shall not be deemed to be a
waiver or bar of any right of said holder, nor a release of any obligation of
the undersigned to the holder hereof; (iv) to offsets of any sums or property
owed to the undersigned by the holder hereof at any time; (v) that this Note
shall be governed by the laws of the State of Arizona applicable to promissory
notes made and to be paid in the State of Arizona; and (vi) to pay the holder
hereof upon demand any and all costs, expenses and fees (including reasonable
attorneys' fees) incurred in enforcing or attempting to recover payment of the
amounts due under this Note, including negotiating, documenting and otherwise
pursuing or consummating modifications, extensions, compositions, renewals or
other similar transactions pertaining to this Note, irrespective of the
existence of an event of default, and including costs, expenses and fees
incurred before, after or irrespective of whether suit is commenced, and in the
event suit is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suite shall be determined by a court sitting
without a jury.
This Note is secured by a Security Agreement dated July 1, 1994.
This Note is executed to be effective as of the date set forth above.
ILX RESORTS INCORPORATED, an Arizona corporation
By:
-------------------------------
Its:
-------------------------------
ATTEST:
By:
-------------------------------
Its:
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1999 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,217,723
<SECURITIES> 0
<RECEIVABLES> 25,812,578
<ALLOWANCES> 3,141,622
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,952,836
<DEPRECIATION> 2,199,002
<TOTAL-ASSETS> 56,540,187
<CURRENT-LIABILITIES> 0
<BONDS> 26,768,911
0
1,179,299
<COMMON> 20,118,701
<OTHER-SE> 4,521,253
<TOTAL-LIABILITY-AND-EQUITY> 56,540,187
<SALES> 17,962,302
<TOTAL-REVENUES> 30,194,603
<CGS> 2,538,162
<TOTAL-COSTS> 11,712,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 577,428
<INTEREST-EXPENSE> 2,067,782
<INCOME-PRETAX> 1,061,002
<INCOME-TAX> 418,000
<INCOME-CONTINUING> 621,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 621,830
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.14
</TABLE>
