RAINTREE RESORTS INTERNATIONAL INC - 10-Q - 20010814 - NOTES_TO_FINANCIAL_STATEMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2001
NOTE 1. GENERAL INFORMATION
General
The financial statements include the accounts of Raintree Resorts
International, Inc., a Nevada corporation, (the "Ultimate Parent") and all of
its wholly owned subsidiaries (collectively, the "Company"). The Company
develops, markets, and operates vacation ownership resorts in North America with
resorts in Mexico, Canada and the United States. The Company's headquarters are
located in Houston, Texas with administrative offices in Mexico City, Mexico and
Whistler, British Columbia, Canada.
Liquidity
In connection with the Company's August, 1997 purchase of its subsidiaries
in Mexico, the Company borrowed approximately $83 million and replaced such
borrowing with its Senior Notes. At June 30, 2001, the Company is, and will
continue to be, highly leveraged, with substantial debt service requirements.
The Company incurs significant liquidity needs to fund semi-annual interest
payments of $6.1 million due June 1 and December 1 on its Senior Notes. A
significant portion of the Company's assets are pledged against existing
borrowings. The Company has a shareholders' deficit, has incurred losses since
its inception and expects to incur a net loss for fiscal 2001. To achieve
profitable operations, the Company is dependent on a number of factors,
including its ability to reduce or restructure its Senior Notes with a reduction
in the principal amount outstanding, to increase its Vacation Interval inventory
through development projects and through the acquisition of existing resort
properties, and its ability to continually sell Vacation Intervals on an
economical basis, taking into account the cost of such intervals and related
marketing and selling expenses, and to attract new equity or equity equivalent
capital. The Company has historically incurred debt and issued equity securities
to fund negative cash flows from operating activities to make the payments on
previously incurred debt obligations. The Company expects that it will obtain
sufficient credit capacity or equity capital or complete a debt restructuring or
sale of assets or a combination of the foregoing to meet its debt service
obligations, including interest payments on its Senior Notes through the second
quarter of 2002. The Company also expects to be able to fund capital
requirements from anticipated capital project financings, which have not yet
been negotiated. However, should the Company not be able to successfully
negotiate additional credit capacity, there is no assurance that the Company
would be able to meet all of its working capital and short-term debt service
obligations unless it liquidates assets and reduces the size of its operations.
The Company's payment of the Senior Notes interest through June 2002 is
based on available cash and modifying the terms of its current credit
agreements. The Company is currently working on restructuring a portion of the
Senior Notes that would reduce the amount required for the interest payments.
The modifications to its credit agreements may involve increasing the allowed
amount of Vacation Interval receivables from Mexican obligors, or the portion of
collateral which can be based on Mexican currency and expanding the borrowing
limit. The Company is currently evaluating several alternatives for meeting this
additional working capital need and is in discussions and negotiations regarding
these modifications and restructurings. However, these discussions and
negotiations as well as discussions with new financing sources have not yet
resulted in commitments that will satisfy the Company's working capital needs
through June 2002.
In order to meet obligations in the long-term, the Company will need to
achieve positive net income by reducing its high leverage position, expand and
extend its current receivables hypothecation facilities and execute a capital
restructuring. The Company is pursuing several opportunities that may facilitate
a capital restructuring. While the Company believes it will be able to obtain
additional financing and execute a capital restructuring and has demonstrated
historically that it has been successful in such efforts to secure financing or
generate liquidity necessary to service its high leverage, should the Company
not close one or more of these opportunities or one or more that may arise in
the future, the Company's ability to operate would be jeopardized. If the
conditions described above continue to exist at the time of release of its
financial statements for the year that will end December 31, 2001, the Company's
status as a going concern could be jeopardized.
6
Basis of Presentation
The information contained in the following notes to the accompanying
consolidated financial statements is condensed from that which would appear in
the annual audited financial statements. Accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
Form 10-K Annual Report for the year ended December 31, 2000, filed by the
Company with the Securities and Exchange Commission.
The condensed consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. The Company believes the
presentation and disclosures herein are adequate to make the information not
misleading. The financial statements reflect all elimination entries and normal
adjustments that are necessary for a fair presentation of the results for the
three and six month period ended June 30, 2000 and 2001.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Fluctuations
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican pesos. The Mexican
pesos are translated to U.S. dollars for financial reporting purposes using the
U.S. dollar as the functional currency, and exchange gains and losses are
reported in income and expense. The net gains and losses are primarily related
to the increases or declines in the value of the peso to the U.S. dollar during
such periods.
The following presents the foreign currency exchange gains and losses for
the year 1999, 2000 and 2001 by quarter (in thousands):
The following table presents the quarter end exchange rates for the Mexican
peso:
Pesos = 1.00 US Dollar
1999 2000 2001
----- ----- -----
March 31 ........................ 9.516 9.233 9.520
June 30 ......................... 9.488 9.954 9.085
September 30 .................... 9.358 9.429
December 31 ..................... 9.522 9.600
The future valuation of the Mexican peso related to the U.S. dollar cannot be
determined, estimated or projected.
Cash and Cash Equivalents
The Company considers demand accounts and short-term investments with
maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents include $1.8 million in restricted funds at June 30, 2001.
7
Land Held for Vacation Ownership Development
The Company owns a parcel of land adjacent to its Regina Resort located in
Cabo San Lucas, Mexico. The Company plans to construct additional vacation
ownership facilities on this parcel of land. Although preliminary architectural
and engineering planning has commenced, no commitments have been made regarding
this planned expansion project.
Land held for vacation ownership development includes the cost of land, and
additionally, development costs and capitalized interest. Interest related to
these developmental properties of $0.2 and $0.4 million was capitalized during
each of the three and six months ended June 30, 2000 and $0.2 and $0.5 for the
three and six months ended June 30, 2001.
The Company capitalizes interest on expenditures incurred for land and
development when activities have commenced necessary to prepare the asset for
its intended use. The capitalization period ends when the asset is placed in
service or progress to complete the project is substantially suspended.
Impairment of Long-Lived Assets and Identifiable Intangibles
The Company periodically evaluates its long-lived assets and identifiable
intangibles for impairment. If upon evaluation the Company's management believes
that the cost of one of its assets may be impaired, the Company will (a)
evaluate the extent to which that cost is recoverable by comparing the future
undiscounted cash flows estimated to be associated with that asset to that
asset's carrying amount and (b) write down that carrying amount to market value
or discounted cash flows value to the extent necessary.
Loss Per Share
Basic per share results are computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Additionally, shares issuable for little or no consideration are
considered common shares and are included in the computation of basic earnings
per share. On December 5, 1997, in conjunction with the issue of Senior Notes
and on December 15, 2000, in conjunction with obtaining shareholder loans, the
Company issued warrants to purchase 1,869,962 and 2,000,000 shares of common
stock at a conversion price of $0.01 per share, respectively. Since the common
shares issuable under these warrants can be purchased for little or no cash
consideration and these warrants were fully vested upon issuance, they are
included in the computation of basic earnings per share as of the date they were
issued. At June 30, 2001, 2,596,455 warrants of the originally issued Senior
Notes and Shareholder loan warrants are outstanding.
At June, 2001, the Company had outstanding 722,500 stock options with a
weighted-average exercise price of $3.18 per share, 500,000 common stock
warrants with an exercise price of $5.00 per share and preferred stock with a
$5.9 million of Liquidation Preference convertible upon redemption at the
Company's option into shares of common stock valued at the Liquidation
Preference. These warrants, common stock options and preferred stock are not
included in diluted EPS as the exercise prices exceed the estimated fair value
of common stock. The Senior Notes and Shareholder loan warrants were included in
both the computation of basic and diluted EPS.
NOTE 3. VACATION INTERVAL RECEIVABLES AND OTHER TRADE RECEIVABLES
Vacation Interval receivables and other trade receivables were as
follows (in thousands):
December 31, June 30,
2000 2001
------------ ----------
Vacation Interval receivables ........... $ 78,709 $ 81,762
Other trade receivables ................. 6,985 7,756
Less - allowances for doubtful accounts . (9,554) (9,111)
-------- --------
Total ................................. $ 76,140 $ 80,407
======== ========
Allowances for uncollectible accounts increased by $2.3 million for
additional estimated reserves, and decreased by $2.7 million for receivable
write-offs, net of recoveries during the six months ended June 30, 2001.
8
The Company estimates that at December 31, 2000 and at June 30, 2001,
approximately 46% and 45%, respectively, of all of the Vacation Interval
receivables were U.S. dollar denominated, 37% and 38% of Vacation Interval
receivables were denominated in UDIs, an obligation denominated in pesos which
is adjusted for Mexican inflation ("UDI"), 11% and 12% of Vacation Interval
receivables were denominated in Mexican pesos, and 6% and 5%, respectively, of
Vacation Interval receivables were denominated in Canadian dollars.
NOTE 4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Summary of Accounts Payable and Accrued Liabilities (in thousands) -
Inventory acquisition liabilities are for the Cimarron, Kona and Puerto Mio
inventory purchases. Other accrued liabilities includes such items as
commissions, payroll, withholding taxes and legal accruals.
NOTE 5. NOTES PAYABLE
Summary of Notes Payable (in thousands) -
December 31, June 30,
2000 2001
-------------- ------------
Credit Agreement Notes and Loans .................................... $ 36,588 $ 33,517
Mortgages Payable ................................................... 4,112 4,637
Cabos West Notes Payable ........................................... 2,350 2,350
Notes Payable to Financial Institution and Other Debt ............... 2,142 1,093
Notes Payable to Shareholders ....................................... 1,000 --
-------- --------
$ 46,192 $ 41,597
======== ========
Credit Agreement Notes and Loans - The November 1998 amended credit agreement
with FINOVA Capital Corporation (FINOVA) includes a receivables based credit
facility of $20.0 million and a $16.5 million inventory based credit facility.
The aggregate borrowing limit under the credit agreement is $34.0 million.
FINOVA will lend 90% on pledged notes receivable denominated in United States
dollars and held by United States, Canadian and Mexican residents (Mexican
obligors limited to 15% of total receivables pledged). These notes are assigned
to the lender and as payments are received, they are applied to this loan. The
outstanding receivables loan balance bears interest at a fluctuating base rate
plus 175 basis points, which was 11.25% and 8.75% per annum at December 31, 2000
and June 30, 2001 respectively. The outstanding inventory loan balance bears
interest at a fluctuating base rate plus 225 basis points, which was 11.75% per
annum at December 31, 2000. Interest under the notes is due monthly. The
fluctuating base rate is the "Corporate Base" rate of Citibank, N.A., New York,
which the bank publicly announces from time to time, and is a rate charged by
the bank to its most creditworthy commercial borrowers. Also, the agreement
requires the Company to maintain certain minimum financial ratios including a
minimum capital requirement. The receivables line of credit matures 84 months
from the date of the last advance made against it, and as of December 31, 2000
and June 30, 2001, the outstanding balance of the receivables line of credit was
$14.6 million and $14.1 million, respectively. The inventory based credit
facility was $4.4 million as of December 31, 2000 and was paid in full in March
2001. As of June 30, 2001, the Company was not in compliance with the FINOVA
loan covenants related to the ratio of administrative, sales and marketing
expenses to Vacation Interval sales, "Adjusted Current Assets" to "Adjusted
Current Liabilities" ratio (as each is defined in the loan agreement) and the
minimum capital test covenant, but obtained timely waivers for such
non-compliance.
In November 1999, the Company entered into a notes receivable loan facility
with Textron Financial Corporation (Textron), and has a borrowing limit of $18.0
million, as amended. Certain of the Company's notes receivable collateralize the
loan, and the loan has two borrowing components. The first borrowing component
has a $13.0 million borrowing limit and is collateralized by up to 46% of notes
receivable denominated in Mexican pesos
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or UDI's and the remainder in U.S. dollars. The amount of UDI denominated notes
receivable is further limited to $3.0 million. Textron will lend 85%, 80% and
50% on pledged U.S. dollar, Mexican Peso and UDI denominated notes receivable,
respectively. The second borrowing component has a $5.0 million borrowing limit
and is collateralized by up to 15% of notes receivables denominated in Mexican
pesos and the remainder in U.S. dollars. Textron will lend up to 80% on these
pledged notes. These notes are assigned to the lender and as payments are
received they are applied to this loan. The agreement limits the use of proceeds
to payment of debt, sales, marketing, working capital, project development and
administrative costs, and for future expansion of timeshare development.
Additionally, the entire outstanding loan balance is to be paid in full on or
before December 31, 2005. The outstanding loans bear interest at a fluctuating
base rate based on the Chase Manhattan Bank prime rate plus 200 and 275 basis
points for the $13.0 million and $5.0 million components, respectively, that is
adjusted on the first day of each month with the interest due monthly. As of
December 31, 2000 and June 30, 2001, the outstanding balance under the $13.0
million portion of the loan facility was $12.7 million and $12.4 million, with
an interest rate on the outstanding balance of 11.5% and 9.0%, respectively.
Draws on the $5.0 million portion of the loan facility began in 2001, with an
outstanding loan balance of $4.4 million as of June 30, 2001 and an interest
rate of 9.75%.
The Bancomer November 1999 UDI based $7.0 million loan agreement and the
June 2001 additional $800,000 U.S. dollar borrowings are collateralized by the
Company's UDI denominated notes receivable. The collateral maintained by the
Company equals 3 times the outstanding borrowings under the loan. The notes
receivable are assigned to the lender and as payments are received, they are
applied to this loan. The loan bears simple interest at a rate of 12% per annum.
As of December 31, 2000 and June 30, 2001, the outstanding balance was $4.8
million and $2.6 million, respectively.
Mortgages Payable - Mortgages payable consist of the assignment of specific
Whiski Jack Vacation Interval receivables to related and third party buyers. The
mortgages payable bear interest at 8.25% to 15.25% during 2000 and at June 30,
2001, and were payable in monthly installments including interest over periods
ranging from twelve months to ten years during both periods. The average
interest rate paid was 11.4% during 2000 and 2001.
Cabos West Notes Payable - On September 17, 1998, in connection with the Cabos
West land purchase, the Company entered into notes payable secured by the land.
The notes bear interest at approximately 13% and are due on demand.
Notes Payable to Financial Institutions - In April 2000, the Company entered
into a note payable to North Shore Credit Union, in connection with the Canadian
units purchased, due on or before October 2001, with an interest rate of prime
plus 2.5%, which totaled 10.0% and 8.75%, and an outstanding loan balance of
$2.0 million and $1.0 million at December 31, 2000 and June 30, 2001,
respectively.
NOTE 6. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company has only one line of business which develops, markets and
operates luxury vacation ownership resorts in three geographic areas; Mexico,
Canada and the United States. The United States operations also include the
operations of a joint venture accounted for using the equity method of
accounting. The Company's reportable segments are based on geographic area. The
reportable segments are managed separately due to their geographic location with
managers focused on improving and expanding each segment's operations. However,
resource allocation is not based on individual country results, but based on the
best location for future resorts in order to enhance the Company's overall
ability to sell timeshare under a club concept. Revenues are attributed to
countries based on the location of the sale of the vacation ownership interest.
10
The following table presents segment information (in thousands):
Corporate
Mexico Canada U.S. and Other Total
------------ ------------ ------------ ------------ -----------
As of and for the three months ended
June 30, 2001:
Revenues from external customers ............ $ 16,015 $ 4,320 $ 18 $ 21 $ 20,374
Depreciation and amortization................ 336 41 -- 11 388
Operating income (loss) ..................... (888) 979 18 (590) (481)
Income tax expense........................... 656 387 -- -- 1,043
Capital expenditures ........................ 623 11 -- 8 642
Corporate
Mexico Canada and Other Total
------------ ------------ ------------ -----------
As of and for the three months ended
June 30, 2000:
Revenues from external customers ............ $ 20,024 $ 2,794 $ 52 $ 22,870
Depreciation and amortization................ 313 188 16 517
Operating (loss) ............................ (3,065) (70) (637) (3,772)
Income tax expense........................... 33 (36) -- (3)
Capital expenditures ........................ 346 162 10 518
Corporate
Mexico Canada U.S. and Other Total
------------ ------------ ------------ ------------ -----------
As of and for the six months ended
June 30, 2001:
Revenues from external customers ............ $ 40,899 $ 6,622 $ 55 $ 27 $ 47,603
Depreciation and amortization................ 667 83 -- 26 776
Operating income (loss) ..................... 4,027 587 55 (1,200) 3,469
Income tax expense........................... 1,229 111 -- -- 1,340
Capital expenditures ........................ 1,197 37 -- 8 1,242
Total assets ................................ 114,208 12,478 192 9,387 136,265
Corporate
Mexico Canada and Other Total
------------ ------------ ------------ -----------
As of and for the six months ended
June 30, 2000:
Revenues from external customers ............ $ 40,711 $ 5,472 $ 119 $ 46,302
Depreciation and amortization................ 602 226 32 860
Operating income (loss) ..................... 1,553 73 (1,056) 570
Income tax expense........................... 53 (16) -- 37
Capital expenditures ........................ 632 194 43 869
Total assets ................................ 124,037 12,337 4,510 140,884
Corporate and Other
The amounts shown as an operating loss under the column heading "Corporate
and Other" consist primarily of general and administrative costs that are not
allocated to the segments. Also, the U. S. joint venture is included in
Corporate and Other, after the operating loss, and had an equity gain of $0.02
million and loss of $0.01 million for the three months ended June 30, 2000 and
2001, respectively, and an equity loss of $0.04 million and gain of $0.5 million
for the six months ended June 30, 2000 and 2001, respectively.
NOTE 7. PAY-IN-KIND PREFERRED STOCK
The Pay-in-Kind Preferred requires that annual dividends be paid either in
cash equaling 9% of the Pay-in-Kind Preferred's $100 per share Liquidation
Preference, or in an equivalent number of shares of Pay-in-Kind Preferred valued
at the Liquidation Preference. Furthermore, the Company has the right, at its
option to redeem at any time the Pay-in-Kind Preferred, in whole or in part, but
not later than December 1, 2004, at which time redemption is mandatory upon
payment in cash of the Liquidating Preference and all accrued and unpaid
dividends or shares of capital stock valued at the Liquidating Preference.
11
NOTE 8. CONTINGENCIES AND COMMITMENTS
The Company is subject to various claims arising in the ordinary course of
business, and is a party to various legal proceedings, which constitute ordinary
routine litigation incidental to the Company's business. In the opinion of
management, all such matters are either adequately covered by insurance or are
not expected to have a material adverse effect on the Company.
NOTE 9. JOINT VENTURE FINANCING
The Teton Club, LLC ("Teton Club"), is a joint venture between the Company
and the owner and developer of the Teton Village area near Jackson Hole,
Wyoming. The Teton Club has a financing commitment from FINOVA consisting of
$33.3 million for construction financing, $7.5 million for pre-sale working
capital requirements and $20.0 million for receivables financing. The receivable
financing is a hypothecation line-of-credit and will be used to repay the
construction and pre-sale loans and to fund operating expenses. Also, the
agreement requires the Teton Club to maintain certain minimum financial and
operating ratio requirements. As part of the financing arrangement, the Company
is directly obligated for 25% of the construction loan, the pre-sale working
capital loan and the receivables loan to the extent of nonpayment by the Teton
Club. Additionally, the Company is responsible for any working capital deficits
at the Teton Club. As of June 30, 2001, the Teton Club had balances of $17.1
million and $5.4 million on the construction and accounts receivable financing,
respectively. The working capital loan was paid off in its entirety in June
2001.
NOTE 10. INVENTORY ACQUISITION
In May and July 2001, the Company entered into agreements with Diamond
Resorts International, a developer, marketer and manager of vacation ownership
resorts, to acquire vacation ownership intervals. The inventory to be purchased
will be financed with the proceeds from sales of the inventory or with the
proceeds from hypothecation of loans made to purchasers. The Company's
obligation to acquire the individual vacation ownership intervals will be
exercised only as required to meet current sales demands. The inventory
acquisition will include approximately 960 one-bedroom intervals from Diamond's
Kona Reef Resort on the Big Island of Hawaii and approximately 700 intervals
from Diamond's Polo Resort, located on the Las Vegas "Strip".
NOTE 11. EXCHANGE AND RIGHTS OFFERING TO PREFERRED STOCKHOLDERS AND NEW
PREFERRED OFFERING
In conjunction with seeking to restructure a portion of Senior Notes and
obtaining additional capital, the Company made an exchange and rights offering
to preferred stockholders and an offering of new Series C Preferred ("Proposed
Preferred Transaction"). The completion of the Proposed Preferred Transaction is
contingent on the completion of the restructuring of the portion of the Senior
Notes noted above. Based on responses to the Proposed Preferred Transaction, the
Company would 1) exchange 35,346 shares, $3,534,600 in book value, in currently
outstanding Pay-in-Kind stock for 3,718,750 shares of Series C Preferred, 2)
issue 2,479,167 shares Series C Preferred for $1,487,500 in cash and 3)
terminate 297,500 Warrants to purchase common stock at $5.00 per share
previously issued to Pay-in-Kind preferred stockholders.
The new Series C Preferred will have annual cumulative dividends at 8% and
participate with Common Stock on an as-converted basis, will rank senior to
existing Pay-in-Kind preferred stock and common stock, will not be redeemable
and, at the option of the holder, each share of Series C Preferred is
convertible into one share of common stock (subject to anti-dilution
adjustments). If all Series C Preferred are converted into common stock,
6,197,921 of common stock shares will be issued.
NOTE 12. SUBSEQUENT TERMINATION OF RETAINED INTEREST IN HOTEL CASH FLOWS
In July 2001, the Company and Starwood terminated the Asset Management
Agreement between the parties, which is reflected as Retained Interest in Hotel
Cash Flows for $4.0 million on the June 30, 2001 balance sheet. Starwood paid
the Company $5.4 million in conjunction with the termination. The Company will
record a gain of approximately $1.4 million during the third quarter 2001.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events that involve
risks and uncertainties, including those associated with the effects of (i)
international, national and regional economic conditions and conditions in the
international tourism and vacation ownership markets, (ii) the Company's
capacity to integrate acquisitions that it has made, and (iii) the availability
of capital resources necessary for the Company to execute its business strategy.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Discussions containing such forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as elsewhere herein.
Actual results may differ materially from those projected in the forward-looking
statements. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in this report. Considering the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. The following discussion should be read in
conjunction with the financial statements of Raintree Resorts International,
Inc. and related notes thereto, the management's discussion and analysis related
thereto, all of which are included in the Form 10-K Annual Report for the year
ended December 31, 2000, filed by the Company with the Securities and Exchange
Commission and the financial statements and notes thereto contained herein.
COMPARISONS OF THE SIX MONTHS ENDED JUNE 30, 2001 TO THE SIX MONTHS ENDED JUNE
30, 2000.
Segment Results
General. The Company has only one line of business which develops, markets
and operates luxury vacation ownership resorts in three geographic areas;
Mexico, Canada and the United States. The Company's reportable segments are
based on geographic area. The reportable segments are managed separately due to
their geographic location with managers focused on improving and expanding each
segment's operations. However, resource allocation is not based on individual
country results, but based on the best location for future resorts in order to
enhance the Company's overall ability to sell timeshares under a club concept.
Revenues are attributed to countries based on the location of the sale of the
vacation ownership interest.
The following presents segment data in thousands:
For the Six Months ended June 30,
------------------------------------------------------------------------------------------
Operating
Income Capital
Revenues % (Loss) % Expenditures %
------------- --------- ------------- ---------- ------------ ---------
2001 -
Mexico $ 40,899 85.9% $ 4,027 116.1% $ 1,197 96.4%
Canada 6,622 13.9% 587 16.9% 37 3.0%
United States 55 0.1% 55 1.6% -- 0.0%
Corporate and other 27 0.1% (1,200) (34.6)% 8 0.6%
-------- ----- -------- ----- ------- -----
Total $ 47,603 100.0% $ 3,469 100.0% $ 1,242 100.0%
======== ====== ======== ====== ======= =====
2000 -
Mexico $ 40,711 87.9% $ 1,553 272.5% $ 632 72.7%
Canada 5,472 11.8% 73 12.8% 194 22.3%
Corporate and other 119 0.3% (1,056) (185.3)% 43 5.0%
-------- ----- -------- ----- ------- -----
Total $ 46,302 100.0% $ 570 100.0% $ 869 100.0%
======== ====== ======== ====== ======= =====
Mexico's Segment Results - Comparison of the six months ended June 30, 2001
to the six months ended June 30, 2000. Revenues remained consistent while
operating income increased $2.5 million for the six months ending June 30, 2001
over the comparable prior year period. The current year increase in operating
income is predominantly caused by the prior year $6.2 million provision for loss
on the sale of property. Excluding the
13
impact of the prior year loss on the sale of property, operating income was down
$3.7 million. However, in 2001 the Company received deposits, on sales of $5.2
million, for which revenues are deferred pending title transfer on the
acquisition of the underlying units. The Company estimates the impact of
deferral of the sales was to reduce 2001 operating profit by $2.2 million.
Canada's Segment Results - Comparison of the six months ended June 30, 2001
to the six months ended June 30, 2000. Revenues increased $1.1 million,
primarily as the number of weeks sold increased 13.9% and the average price
increased $1,727. The increase in both the number of weeks sold and the average
price is due to the closing of Westin sales that had not been recognized
previously since titles had not been received on the underlying units. Operating
income increased $0.5 million in conjunction with the increased sales.
Consolidated Results
Comparison of the six months ended June 30, 2001 to the six months ended
June 30, 2000.
Vacation Interval sales remained the same for the six months ended June 30,
2001 when compared to the same period during 2000. The number of Vacation
Interval sales memberships sold decreased by 482, or 18.1%, from 2,668 for the
six months ended June 30, 2000 to 2,186 for the six months ended June 30, 2001.
Additionally, the average price increased $2,898 or 21.9% from $13,226 for the
six months ended June 30, 2000 to $16,124 for the six months ended June 30,
2001. However, the Company deferred 343 sales totaling $5.2 million pending
title transfer on the acquisition of the underlying units.
Rental and service fee income increased by $2.2 million, or 39.7% for the
six months ended June 30, 2001 compared to the comparable prior year period. The
increase results primarily from an increase of approximately 4,000 new members
paying service fees during the first six months of 2001 compared to the prior
year period.
Interest income on Vacation Interval receivables decreased by $0.2 million
or 4.3% for the six months ended June 30, 2001 compared to the prior year
period. The Company records UDI inflation impact on Vacation Interval
receivables as interest income, which was $0.2 million lower when compared to
the prior year.
Other income decreased approximately $0.7 million from approximately $1.3
million for the six months ended June 30, 2000 to approximately $0.6 million for
the six months ended June 30, 2001. The decrease in other income was due to a
$0.3 million decrease in hotel operation at the Villa Vera because of lower
occupancy and decreased average rates. Additionally, the Company had lower sales
at retail theme store operations.
Cost of Vacation Interval sales increased by $0.7 million, or 8.4% for the
six months ended June 30, 2001 compared to the same period during 2000. As a
percentage of Vacation Interval sales, Cost of Vacation Interval sales increased
from approximately 24% for the six months ended June 30, 2000 to approximately
26% for the six months ended June 30, 2001. The increase results from inventory
currently being acquired from Cimarron, Kona, Puerto Mio and Westin Whistler
that are at a higher cost per week acquired than the company's historical cost
rate per week of inventory.
Provision for bad debt reserves decreased approximately $0.7 million or
23.3% from approximately $3.0 million for the six months ended June 30, 2000 to
$2.3 million for the six months ended June 30, 2001. Based on a review of
historical receivables defaults, the actual default rate was less than the
anticipated default rate and therefore, the current rate used to determine the
provision was adjusted. The Company believes that the recorded reserve provides
adequate coverage of default risk for the Vacation Interval receivables under
current market conditions.
Advertising, sales and marketing expenses increased approximately $1.8
million, or 11.4%, from approximately $15.7 million for the six months ended
June 30, 2000, to approximately $17.5 million for the six months ended June 30,
2001. As a percent of Vacation Interval sales, advertising, sales and marketing
expenses increased from approximately 44.6% for the six months ended June 30,
2000 to approximately 49.8% for the six months ended June 30, 2001. The increase
in 2001 results from marketing costs associated with the $5.2 million deferral
of sales in Mexico (see Vacation Interval Sales discussion above). On a proforma
basis assuming the recognition of the deferral sales and the $0.9 million of
deferred commissions the advertising, sales and marketing expenses as a
percentage of Vacation Interval sales would be 45.6% which is an increase of
2.0% from the six months ending June 30, 2000.
14
Maintenance and energy expenses increased approximately $2.9 million, or
49.0%, from approximately $5.9 million for the six months ended June 30, 2000,
to approximately $8.8 million for the six months ended June 30, 2001. The
increase in expenses was caused by maintenance and energy expenses associated
with new units from the Westin Whistler acquisition in March 2000, the Cimarron
acquisition in May 2000, the addition of 42 units previously leased to Westin in
Mexico in October, 2000 and higher occupancy rates in Mexico. Additionally,
expenses increased as a result of maintaining a higher membership base from the
prior year.
Interest expense was approximately $0.5 million less in the first six
months of 2001 as compared to the first six months of 2000 due primarily to the
$5.5 million decrease in Senior Notes between periods. The weighted average
interest rate decreased 0.3% from June 30, 2000 to June 30, 2001, and the
average debt decreased $8.8 million.
The foreign currency exchange gain was approximately $1.6 million during
the first six months of 2001 compared to a loss of approximately $1.0 million
during the first six months of 2000. The decrease in the loss between periods
results from a stronger peso against the U.S. dollar during the six months of
2001 compared to the prior year period.
Foreign income and asset taxes increased $1.3 million for the six months
ended June 30, 2001 compared to the prior year period. The Company is subject to
Mexican asset taxes, a portion of which was previously subject to a three-year
exemption period, which is now expired.
MEXICO'S INFLATION AND CURRENCY CHANGES
Management believes that in interpreting the comparisons of operational
results discussed above, two factors are of importance: currency exchange rates
and inflation. Changes in costs between prior year and current year periods
could be the result of increases or decreases in the peso exchange rate and
inflation in Mexico. In particular, the average monthly peso exchange rate for
the six months ended June 30, 2001 was nearly unchanged when compared to the
average monthly peso exchange rate for the six months ended June 30, 2000.
However, the Company estimates that inflation in Mexico was approximately 7.0%
since June 2000. Expenditures in Mexico for advertising, sales and marketing,
maintenance and energy, and general and administrative expenses are primarily
settled in pesos, and were negatively impacted by the effect of inflation.
COMPARISONS OF THE THREE MONTHS ENDED JUNE 30, 2001 TO THE THREE MONTHS ENDED
JUNE 30, 2000.
Segment Results
The following presents segment data in thousands:
For the Three Months ended June 30,
--------------------------------------------------------------------------------------------
Operating
Income Capital
Revenues % (Loss) % Expenditures %
------------- --------- ------------- ----------- ------------- ----------
2001 -
Mexico $ 16,015 78.6% $ (888) 184.5% $ 623 97.1%
Canada 4,320 21.2% 979 (203.5)% 11 1.7%
United States 18 0.1% 18 (3.7)% -- 0.0%
Corporate and other 21 0.1% (590) 122.7% 8 1.2%
-------- ----- --------- ----- ------- -----
Total $ 20,374 100.0% $ (481) 100.0% $ 642 100.0%
======== ===== ========== ===== ======= =====
2000 -
Mexico $ 20,024 87.6% $ (3,172) 84.1% $ 346 66.8%
Canada 2,794 12.2% (70) 1.9% 162 31.3%
Corporate and other 52 0.2% (530) 14.0% 10 1.9%
-------- ----- --------- ----- ------- -----
Total $ 22,870 100.0% $ (3,772) 100.0% $ 518 100.0%
======== ===== ========== ===== ======= =====
Mexico's Segment Results - Comparison of the three months ended June 30,
2001 to the three months ended June 30, 2000. Revenues decreased $4.0 million,
or 20.0%, and operating loss decreased $2.3 million or 72.0% for the three
months ending June 30, 2001. The current year decrease in operating loss is
15
predominantly caused by the prior year $6.2 million provision for loss on the
sale of property. Excluding the impact of the prior year loss on the sale of
property, operating income was down $3.7 million. However, in 2001 the Company
received deposits, on sales of $5.2 million, for which revenues are deferred
pending title transfer on the acquisition of the underlying units. The Company
estimates the impact of deferral of the sales was to reduce 2001 revenues by
$5.2 million and operating profit by $2.2 million.
Canada's Segment Results - Comparison of the three months ended June 30,
2001 to the three months ended June 30, 2000. Revenues increased $1.5 million,
primarily as the number of weeks sold increased 40.7% due to the recognition of
the Westin sales that had been deferred until the second quarter of 2001.
Operating income increased $1.0 million in conjunction with increased sales.
Consolidated Results
Comparison of the three months ended June 30, 2001 to the three months ended
June 30, 2000.
Vacation Interval sales decreased by approximately $2.8 million, or 16.2%,
from approximately $17.3 million for the three months ended June 30, 2000 to
approximately $14.5 million for the three months ended June 30, 2001. The number
of Vacation Interval memberships sold decreased by 513, or 36.9%, from 1,390 for
the three months ended June 30, 2000 to 877 for the three months ended June 30,
2001. Additionally, the average price increased $4,082 or 32.8% from $12,429 for
the three months ended June 30, 2000 to $16,511 for the three months ended June
30, 2001. However, the Company deferred 343 sales totaling $5.2 million pending
title transfer on the acquisition of the underlying units.
Rental and service fee income increased by $1.1 million, or 35.5% for the
three months ended June 30, 2001 compared to the comparable prior year period.
The increase results primarily from an increase in new members for the second
three months of 2001 compared to the same prior year period.
Other income decreased approximately $0.9 million from approximately $0.6
million for the three months ended June 30, 2000 to a loss of approximately $0.3
million for the three months ended June 30, 2001. The decrease in other income
is associated with lower net revenues from closing cost recovery and the Villa
Vera hotel operations, which experienced lower occupancy levels and average
rates for the three months ended June 30, 2001 when compared to the same period
in the prior year.
Provision for bad debt decreased $0.7 million or approximately 49.6% from
approximately $1.5 million for the three months ended June 30, 2000 to $0.8
million for the three months ended June 30, 2001. Based on a review of
historical receivables defaults, the actual default rate was less than the
anticipated default rate and therefore, the current rate used to determine the
provision was adjusted. The Company believes that the recorded reserve provides
adequate coverage of default risk for the Vacation Interval receivables under
current market conditions.
Cost of Vacation Interval sales remained the same for the three months
ended June 30, 2001 compared to the same period during 2000. However, as a
percent of Vacation Interval sales, Cost of Vacation Interval sales increased
from approximately 24.5% for the three months ended June 30, 2000 to
approximately 28.9% for the three months ended June 30, 2001. The increase
results from inventory currently being acquired from Cimarron, Kona, Puerto Mio
and Westin Whistler that are at a higher cost per week acquired than the
Company's historical cost rate per week of inventory.
Advertising, sales and marketing expenses decreased approximately $0.2
million, or 2.6%, from approximately $8.1 million for the three months ended
June 30, 2000, to approximately $7.9 million for three months ended June 30,
2001. As a percent of Vacation Interval sales, advertising, sales and marketing
expenses increased from approximately 47.1% for the three months ending June 30,
2000 to approximately 54.7% for the three months ended June 30, 2001. The
increase in 2001 results from the marketing costs associated with the $5.2
million deferral of sales in Mexico (see Vacation Interval sales above). With
the recognition of the deferral sales and the $0.9 million of deferred
commissions the advertising, sales and marketing expenses as a percentage of
Vacation Interval sales would be 44.9% which is a 4.5% decrease from the three
months ending June 30, 2000.
Maintenance and energy expenses increased approximately $1.6 million, or
51.3%, from approximately $3.1 million for the three months ended June 30, 2000,
to approximately $4.7 million for the three months ended
16
June 30, 2001. The increase in expenses was caused by maintenance and energy
costs associated with the higher occupancy rates in Mexico and the costs
associated with maintaining a higher membership base.
Interest expense was approximately $0.3 million less in the second three
months of 2001 as compared to the second three months of 2000 due primarily to
the $5.5 million decrease in Senior Notes between periods. The weighted average
interest rate decreased 0.4% from June 30, 2000 to June 30, 2001, as well as the
average debt decreased $10.2 million, respectively.
Foreign currency exchange gain was approximately $1.9 million during the
second three months of 2001 compared to a loss of approximately $1.8 million
during the second three months of 2000. The decrease in the loss between periods
occurred due to a stronger peso against the U.S. dollar during the three months
of 2001 compared to the prior year period.
Foreign income and asset taxes increased $1.0 million for the three months
ended June 30, 2001 compared to the prior year period. The Company is subject to
Mexican asset taxes, a portion of which was previously subject to a three-year
exemption period, which is now expired.
MEXICO'S INFLATION AND CURRENCY CHANGES
Management believes that in interpreting the comparisons of operational
results discussed above, two factors are of importance: currency exchange rates
and inflation. Changes in costs between prior year and current year periods
could be the result of increases or decreases in the peso exchange rate and
inflation in Mexico. In particular, the average monthly peso exchange rate for
the three months ended June 30, 2001 strengthened when compared to the average
monthly peso exchange rate for the three months ended June 30, 2000. The Company
estimates that current period costs settled in Mexican pesos increased by
approximately 3.2% because of fluctuations in the average peso exchange rate
between periods. In addition, the Company estimates that inflation in Mexico was
approximately 7.0% since June 2000. Expenditures in Mexico for advertising,
sales and marketing, maintenance and energy, and for general and administrative
expenses are primarily settled in pesos, and were negatively impacted by the
combined effects of inflation and peso changes.
COMPARISONS OF JUNE 30, 2001 BALANCE SHEET AMOUNTS TO DECEMBER 31, 2000 BALANCE
SHEET AMOUNTS
Vacation Interval receivables and other trade receivables increased
approximately $4.3 million from approximately $76.1 million as of December 31,
2000 to approximately $80.4 million as of June 30, 2001. The increase in
Vacation Interval receivables is related to the increase in the level of sales
financing with approximately 533 additional loans.
Cost of unsold vacation ownership intervals and related club memberships
(unit inventory) decreased approximately $1.9 million from approximately $13.3
million as of December 31, 2000 to approximately $11.4 million as of June 30,
2001. The sale of units reduced unit inventory by approximately $9.2 million,
which was offset by purchases in Canada of approximately $2.7 million, and in
Mexico of approximately $3.6 million. The remainder of the decrease is primarily
from reinstatement of inventory from defaulting owners in Mexico.
Accounts payable and accrued liabilities increased $2.6 million from $24.9
million December 31, 2000 to $27.5 million which is related to the acquisition
of units in Kona.
Taxes Payable increased $4.0 million from $0.9 million to $4.9 million
primarily due to receipt of a refund relating to prior period VAT taxes paid
reflected as a reduction in prior year taxes payable, and increases associated
with higher revenues and the asset tax discussed above, resulting in a current
year net liability.
Unearned service fees increased approximately $5.8 million from
approximately $2.8 million as of December 31, 2000 to approximately $8.6 million
as of June 30, 2001. This balance was higher because a majority of the related
fees are typically invoiced at the beginning of each year and then earned
throughout the remainder of the year.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations primarily from the sale of
Vacation Interval weeks, receipt of payments on the Vacation Interval
receivables, and the receipt of service fees charged to members. With respect to
the sale of Vacation Interval weeks, the Company generates cash from all-cash
sales, cash down payments on financed sales and collection of principal and
interest on Vacation Interval receivables from financed sales. The Company also
generates cash through loans secured by Vacation Interval receivables. At June
30, 2001, the Company had $81.8 million of Vacation Interval receivables of
which approximately $45.8 million were pledged. At such date, approximately: (i)
45.3% of Vacation Interval receivables were U.S. dollar denominated, (ii) 37.8%
of Vacation Interval receivables were denominated in UDI's, an obligation
denominated in pesos which is adjusted for Mexican inflation, (iii) 11.6% of
Vacation Interval receivables were denominated in Mexican pesos and 5.3% of
Vacation Interval receivables were Canadian dollar denominated.
The Company intends to pursue a growth-oriented strategy. From time to
time, the Company may acquire, among other things, additional vacation ownership
properties, resorts and completed vacation ownership units, land upon which
additional vacation ownership resorts may be built (which may require capital
expenditures by the Company) and/or other operations in the vacation ownership
industry. The Company is evaluating certain resort asset acquisition or
development opportunities, but it currently has no contracts or capital
commitments relating to any potential acquisitions or developments other than
those discussed below. However, the Company is actively pursuing financing for
development of the Los Cabos land. In addition, the Company is evaluating
several strategic partnership opportunities, but it likewise has no firm
agreements relating to any such potential strategic partnership opportunities.
The Company has planned 2001 capital expenditures of approximately $3.6
million. These expenditures include the development of sales and marketing
programs, MIS/IT, accounting software and other office improvements.
Additionally, the Company has 2001 planned expenditures for the purchase of
Vacation Interval inventory in Palm Springs, California, Whistler, British
Columbia, Kona, Hawaii, Polo, Nevada and Puerto Mio, Mexico. The expenditures
for purchases of the Palm Springs, Kona, Polo and Puerto Mio inventory are
incurred only as the inventory is required when the sale of the related
timeshare is finalized pursuant to the agreement with the original developer. In
Whistler, the expenditures for purchases of inventory are incurred in the
ordinary business operations of the Whiski Jack subsidiary through the purchase
of individual condominium units which are resold as timeshare thereby limiting
the working capital requirement consistent with historical business and
financial practices. The total 2001 planned expenditures for inventory are $18
million. Also, the Company will expend approximately $3.7 million for the
refurbishment of the resort properties, substantially all of which is financed
through annual maintenance fees received from owners of Vacation Intervals.
The future development of the Los Cabos property will require project
financing for the first phase of approximately $6.5 million before development
can proceed. The Company is currently negotiating for such financing with both
U.S. and Mexican financial institutions and other investors. However, no
commitment has been received from such institutions or investors. The Cabos
project is included conditionally in the Company's 2001 plan, subject to
obtaining such financing.
At June 30, 2001, the Company had available inventory of developed Vacation
Interval weeks of 5,043 weeks for Club Regina in Mexico, which includes, 360
weeks at the Westin Whistler Hotel and 3,848 weeks available from Cimarron,
Kona, Polo and Puerto Mio where weeks are purchased as they are sold. Lastly,
there are 387 weeks remaining at Whiski Jack in Canada. Based on historical
sales levels and planned sales for 2001, the remaining inventory for Club Regina
and Whiski Jack will provide approximately 17 months and 7 months, respectively,
of inventory for sales in 2001. Also, at June 30, 2001, the Company had
approximately 1,158 of remaining developed Vacation Interval weeks at Teton Club
joint venture and anticipates it will sell this remaining inventory by the end
of 2003. The Company plans to increase its Vacation Interval weeks inventory
through development of additional properties and making acquisitions in the
short term from Puerto Mio, Polo Resorts and Kona Reef Resorts, developing its
land in Los Cabos, and making acquisitions in Mexico, the United States and
Canada.
To finance its growth strategy, in addition to accessing its existing lines
of credit, the Company may from time to time consider issuing debt, equity or
other securities, entering into traditional construction financing or credit
agreements, entering into joint venture or development agreements with respect
to its undeveloped property, or hypothecating additional Vacation Interval
receivables. The operating and financial restrictions and covenants in our debt
agreements, including our bank credit facilities and the indenture governing the
Senior Notes, may adversely affect our ability to finance future operations or
capital needs or to engage in other business activities. These debt agreements
18
include covenants that require us to meet certain financial ratios and financial
tests, including a minimum capital test, a maximum general administrative and
sales expenses to Vacation Interval sales ratio test and a minimum "Adjusted
Current Assets" to "Adjusted Current Liabilities" ratio (as each is defined
therein). In addition, the debt agreements restrict our ability to take
additional action without the consent of the lenders such as the incurrence of
additional debt or the sale of our interest in the resorts. Such covenants,
required ratios and tests may require that we take action to reduce debt or to
act in a manner that delays the achievement of our business objectives. If we
breach any of these restrictions or covenants or suffer a material adverse
change which restricts our borrowing ability under our credit facilities we
would be unable to borrow funds thereunder without a waiver. A breach or
inability to obtain timely waivers could cause a default under the Senior Notes
and our other debt. Our indebtedness could then become immediately due and
payable, in which case we may not have or be able to obtain sufficient funds to
make these accelerated payments, including payments on the notes.
At June 30, 2001 and December 31, 2000, the Company had outstanding $94.5
million of 13% Senior Notes, $14.1 million and $19.0 million outstanding under
the FINOVA line of credit that bears interest at 8.75% and 11.4%, $16.8 million
and $12.7 million outstanding under the Textron credit line that bears interest
at 9.2% and 11.5%, $2.6 million and $4.8 million outstanding under the Bancomer
loan that bears interest at 12%, $4.6 million and $4.1 million mortgage notes
payable that bears interest at an average interest rate of 11.4% for both
periods, and $3.4 million and $5.6 million of bank and other debt that bears
interest at an average interest rate of 11.8% and 12.6%. Approximately $15.6
million, $9.4 million, $7.8 million, $99.7 million, $2.7 million and $1.0
million of the outstanding debt which has stated repayment amounts is due in
2001, 2002, 2003, 2004, 2005 and thereafter, respectively. In addition to such
debt, the Company has $5.9 million of Pay-in-Kind Preferred Stock outstanding at
June 30, 2001. The Pay-in-Kind Preferred Stock is redeemable at any time before
December 1, 2004, at which time the redemption is mandatory. With the exception
of the $6.1 million semi-annual interest payments due June 1 and December 1 on
the Senior Notes, interest is paid monthly on all debt obligations of the
Company. At June 30, 2001, the Company had $1.0 million of accrued and unpaid
interest on Senior Notes. As of June 30, 2001, the Company was not in compliance
with the FINOVA loan covenant related to the ratio of administrative, sales and
marketing expenses to Vacation Interval sales, "Adjusted Current Assets" to
"Adjusted Current Liabilities" ratio (as each is defined in the loan agreement)
and the minimum capital test covenant, but obtained timely waivers for such
non-compliance.
At June 30, 2001, the Company was, and continues to be, highly leveraged,
with substantial debt service requirements. As discussed above, the Company
incurs significant liquidity needs to fund its semi-annual Senior Notes interest
payments due June 1 and December 1. A significant portion of the Company's
assets is pledged against existing borrowings. The Company has a shareholders'
deficit, has incurred losses since its inception and expects to incur a net loss
for fiscal 2001. To achieve profitable operations, the Company is principally
dependent on its ability to restructure its Senior Notes with a reduction in the
principal amount outstanding and to attract new equity or equity equivalent
capital. The Company has historically incurred debt and issued equity securities
to fund negative cash flows from operating activities and to make the payments
on previously incurred debt obligations. The Company expects that it will obtain
sufficient additional credit capacity or equity capital or complete a debt
restructuring, sale of assets or a combination of the foregoing to meet its debt
service obligations, including interest payments on its Senior Notes through
June 2002. The Company also expects to be able to fund capital requirements from
anticipated capital project financings, which have not yet been negotiated.
However, should the Company not be able to successfully negotiate additional
credit capacity, there is no assurance that the Company would be able to meet
all of its working capital and short-term debt service obligations unless it
liquidates assets and reduces the size of its operations.
The Company's borrowing capacities under the FINOVA and Textron notes
receivable based credit facilities are $20.0 million and $18.0 million,
respectively. The Company estimates that based on Vacation Interval receivables
not currently pledged, approximately $0.6 million and $1.3 million under the
FINOVA and Textron lines of credit respectively, at June 30, 2001, were
available for borrowing under the credit facilities. Additionally, the Company
has available $20.0 million of notes receivable based facility capacity through
the Cimarron Project Development, Management and Sales Agreement. This credit
facility with Textron can be utilized only in conjunction with the credit sales
of inventory acquired through the Cimarron agreement and outstanding loans bear
interest at a fluctuating base rate based on Chase Manhattan Bank prime rate
(7.0% at June 30, 2001) plus 225 basis points. Textron will lend 90% on pledged
notes receivable denominated in United States dollars and held by United States
residents. Borrowings can be made under this facility for 24 months after the
date of the first draw, and the facility matures five years from the date of the
first draw. No advances have been made under the receivables credit facility.
19
The Company's payment of the Senior Notes interest through June 2002 will
be based on available cash and will require modification to the terms of current
credit agreements although the Company is currently working on restructuring a
portion of the Senior Notes that would reduce the amount required for the
interest payments. The modifications to its credit agreements may involve
increasing the allowed amount of Vacation Interval receivables from Mexican
obligors, or the portion of collateral which can be based on Mexican currency
and expanding the borrowing limit. The Company is currently evaluating several
alternatives for meeting this additional working capital need and is in
discussions and negotiations regarding these modifications and restructurings.
However, these discussions and negotiations as well as discussions with new
financing sources have not yet resulted in commitments that will satisfy the
Company's working capital needs through June 2002.
In order to meet obligations in the long-term, the Company will need to
achieve positive net income by reducing its high leverage position, expand and
extend its current receivables hypothecation facilities and execute a capital
restructuring. The Company is pursuing several opportunities that may facilitate
a capital restructuring. While the Company believes it will be able to obtain
additional financing and execute a capital restructuring and has demonstrated
historically that it has been successful in such efforts to secure financing or
generate liquidity necessary to service its high leverage, should the Company
not close one or more of these opportunities or one or more that may arise in
the future, the Company's ability to operate would be jeopardized. If the
conditions described above continue to exist at the time of release of its
financial statements for the year that will end December 31, 2001, the Company's
status as a going concern could be jeopardized.
As part of the Teton Club financing arrangement with FINOVA, the Company is
directly obligated for 25% of the construction loan and receivables loan not
repaid by the Teton Club, and is also responsible for any working capital
deficits at the Teton Club.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this quarterly report.
Exhibit No. Description
10.1 -- FINOVA Side Letter No. 5 to Corporate Guarantee and Subordination
Agreement, dated June 7, 2001.
10.2 -- Textron Amendment to Loan and Security Agreement, dated June 1,
2001
10.3 -- Bancomer Amendement Agreement dated June 14, 2001
(b) Reports on Form 8-K.
None
21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrants, Raintree Resorts International, Inc. and CR Resorts Capital, S. de
R.L. de C.V., have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
RAINTREE RESORTS INTERNATIONAL, INC.
CR RESORTS CAPITAL, S. DE R.L. DE C.V.
Date: August 14, 2001 By: /S/ George E. Aldrich
--------------------------
George E. Aldrich
Senior Vice President
- Finance and Accounting
(Principal Accounting Officer)
22
EXHIBIT INDEX
Exhibit No. Description
10.1+-- FINOVA Side Letter No. 5 to Corporate Guarantee and Subordination
Agreement, dated June 7, 2001.
10.2+-- Textron Amendment to Loan and Security Agreement, dated June 1, 2001
10.3+-- Bancomer Loan Agreement dated June 14, 2001
+Filed herein
23
5/24/2001
SIDE LETTER NO. 5
June 7, 2001
CR Resorts Cancun, S. de R.L. de C.V.
CR Resorts Los Cabos, S. de R.L. de C.V.
CR Resorts Puerto Vallarta, S. de R.L. de C.V.
Corporacion Mexitur, S. de R.L. de C.V.
CR Resorts Cancun Timeshare Trust, S. de R.L. de C.V.
CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V.
CR Resorts Puerto Vallarta Timeshare Trust, S. de R.L. de C.V.
Promotora Villa Vera, S. de R.L. de C.V.
Villa Vera Resort, S. de R.L. de C.V.
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Attention: Mr. Brian Tucker
Dear Mr. Tucker:
Reference is made to that certain First Amended and Restated Loan and
Security Agreement dated as of April 23, 1999 (the "Original Loan Agreement"),
as amended by that certain Amendment No. 1 to First Amended and Restated Loan
and Security Agreement dated as of November 30, 1999 (the "First Amendment"), as
further amended by that certain Amendment No. 2 to First Amended and Restated
Loan and Security Agreement dated as of November 30, 2000 (the "Second
Amendment") and as further amended by various letter agreements executed prior
to the date hereof (the Original Loan Agreement, the First Amendment, the Second
Amendment and the foregoing letter agreements, collectively the "Loan
Agreement"), evidencing certain loan facilities from FINOVA Capital Corporation
("Lender") to CR Resorts Cancun, S. de R.L. de C.V., CR Resorts Los Cabos, S. de
R.L. de C.V., CR Resorts Puerto Vallarta, S. de R.L. de C.V., Corporacion
Mexitur, S. de R.L. de C.V., CR Resorts Cancun Timeshare Trust, S. de R.L. de
C.V., CR Resorts Cabos Timeshare Trust, S. de R.L. de C.V., CR Resorts Puerto
Vallarta Timeshare Trust, S. de R.L. de C.V., Promotora Villa Vera, S. de R.L.
de C.V., and Villa Vera Resort, S. de R.L. de C.V. (individually and
collectively, jointly and severally, "Borrower"). Reference is also made to that
Corporate Guarantee and Subordination Agreement executed by Raintree Resorts
International, Inc. ("Guarantor") dated as of November 23, 1998, as amended
prior to the date hereof (collectively, the "Guarantee Agreement") Unless
otherwise defined herein, all capitalized terms used herein shall have the same
meaning as set forth in the Loan Agreement.
Raintree Resorts International, Inc.
June 7, 2001
Page 2
1. Borrower represents and warrants to Lender that Borrower has obtained
from the Mexican federal government all necessary permits, consents,
approvals and authorizations to authorize the rendering and sale by
the Borrower of timeshare services from the Acapulco Project (the
"Approvals"). However the Approvals have not yet been obtained from
the State of Guerrero. Borrower agrees to obtain all required
Approvals from the State of Guerrero no later than September 24, 2001
and concurrently therewith supply to Lender a satisfactory opinion of
counsel, from counsel satisfactory to Lender, that Borrower has
obtained all Approvals from the Mexican federal government and the
State of Guerrero. Without limiting the generality of the provisions
of paragraph 7.1 of the Loan Agreement, setting forth the Events of
Default, the failure of Borrower to comply with the covenant contained
in this paragraph shall constitute an immediate Event of Default
without the benefit of any notice or grace periods.
2. Paragraph 4.1(k) of the Guarantee Agreement, without taking into
account this Side Letter, shall govern all matters pertaining to the
subject matter of that paragraph through the period ending December
31, 1999. For the period commencing January 1, 2000 and thereafter,
paragraph 4.1(k) of the Guarantee Agreement shall be amended and
restated in its entirety to read as follows:
"(k) The sum of (i) the total of Guarantor's consolidated costs
and expenses for commissions and selling relating to the retail sales
of time-share interests, use rights, memberships and fraction
ownership interests and (ii) the total of Guarantor's consolidated
general and administrative expenses, (the costs and expenses described
in clauses (i) and (ii) shall be tested without taking into account
any similar types of costs and expenses incurred by The Teton Club,
LLC ("Teton") and are hereinafter referred to as the "SGA Expenses")
shall not exceed the amount set forth below of the gross proceeds of
Guarantor's consolidated processed sales of retail time-share
interests, use rights, memberships and fractional ownership interests
for the same period (each net of cancellations of such sales and
exclusive of such sales generated by Teton) ("Net Sales"). The
foregoing covenant shall be tested quarterly on a trailing twelve (12)
month basis.
Test Date Covenant
--------- --------
3/31/99 and thereafter 65%
3. Any further discussions by and among Borrower and Lender, if any, and
all such discussions in the past, together with any other actions or
inactions taken by and among Borrower and Lender, shall not cause a
modification of the Loan Documents, establish a custom or waive
(unless Lender made such express waiver in writing), limit or
condition the rights and remedies of Lender under the Loan Documents,
all of which rights and remedies are expressly reserved. All of the
provisions of the Loan Documents, including, without limitation, the
time of the essence provision, are hereby reiterated and if ever
waived are hereby reinstated.
4. (i) Borrower and Guarantor hereby reaffirm, as if made as of the date
hereof, all of their respective representations and warranties
contained in the Loan Documents.
Raintree Resorts International, Inc.
June 7, 2001
Page 3
Borrower and Guarantor furthermore reaffirm the validity,
enforceability and legality of the Loan Documents, and all provisions
of the Loan Documents, as modified, are hereby confirmed and ratified.
Without limiting the generality of the foregoing, Borrower hereby
reaffirms the validity and enforceability of the security interests
granted to Lender in the Collateral. Borrower confirms that such
security interests will continue to secure the timely and faithful
performance of all Obligations, including, without limitation, the
obligations under this Side Letter. In the event of a conflict or
inconsistency between the provisions of the Loan Agreement or the
Guarantee Agreement, as amended up through the date of this Side
Letter, and the provisions of this Side Letter, the provisions of this
Side Letter will prevail. All terms, conditions and provisions of the
Loan Agreement and the Guarantee Agreement, as amended, are continued
in full force and effect and will remain unaffected and unchanged
except as specifically amended or modified hereby.
(ii) Borrower and Guarantor acknowledge that Lender has
performed, and is not in default of, its obligations under the Loan
Documents; that there are no offsets, defenses or counterclaims with
respect to any of Borrower's, Guarantor's or any other party's
obligations under the Loan Documents; and that Lender has not directed
Borrower to pay or not pay any of Borrower's payables. Neither
Borrower nor Guarantor presently has any existing claims, defenses
(personal or otherwise) or rights of setoff whatsoever with respect to
the Obligations. Borrower and Guarantor furthermore agree that they
have no defense, counterclaim, offset, cross-complaint, claim or
demand of any nature whatsoever which can be asserted as a basis to
seek affirmative relief or damages from Lender.
(iii) Borrower acknowledges that the indebtedness evidenced by
the Loan Documents is just and owing and agrees to pay such
indebtedness in accordance with the terms of the Loan Documents.
Borrower and Guarantor further acknowledge and represent that no event
has occurred and no condition presently exists that would constitute a
default or event of default by Lender under the Loan Agreement or any
of the other Loan Documents, with or without notice or lapse of time.
Borrower and Guarantor hereby ratify, reaffirm, acknowledge and agree
that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower and Guarantor.
5. Borrower and Guarantor represent and warrant that (i) they have the
full power and authority to execute and deliver this Side Letter; (ii)
all action necessary and required by Borrower's and Guarantor's
Articles of Organization and all other Legal Requirements for Borrower
and Guarantor to execute and deliver this Side Letter have been duly
and effectively taken; (iii) this Side Letter does not violate or
constitute a default or result in the imposition of a lien under the
terms or provisions of any agreement to which Borrower or Guarantor is
a party; and (iv) no consent of any governmental agency or any other
person not a party to this Side Letter is or will be required as a
condition to the execution, delivery or enforceability of this Side
Letter.
6. Guarantor acknowledges and agrees that the obligations of the Borrower
under this Side Letter constitute additional obligations of the
Borrower, the performance of which are guaranteed under the Guaranty
signed by the Guarantor.
Raintree Resorts International, Inc.
June 7, 2001
Page 4
7. This Side Letter will not be binding upon Lender until, in the manner
required below, it has been accepted by Borrower and Guarantor, and
once so accepted and agreed to this Side Letter shall be deemed to
amend and supplement the Loan Agreement and Guarantee Agreement,
constitute one of the Loan Documents and the obligations of the
Borrower under this Side Letter shall be deemed an Obligation.
8. Borrower shall pay to or reimburse Lender for all of Lender's
out-of-pocket expenses incurred in connection with the preparation of
this Side Letter, including without limitation, attorney's fees and
costs.
9. This Side Letter may be executed in counterparts, each of which when
taken together shall constitute one and the same instrument,
notwithstanding the fact that all parties have not signed the same
counterpart. In addition, this Side Letter may be executed by
facsimile and such facsimile signatures shall be deemed original
signatures for all purposes.
[SIGNATURE PAGE FOLLOWS]
Raintree Resorts International, Inc.
June 7, 2001
Page 5
In the event the foregoing represents an accurate statement of the
agreements that have been reached, please sign and return a copy of this Side
Letter to the undersigned.
Sincerely yours,
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By
Name:
Title:
[ACCEPTANCE APPEARS ON FOLLOWING PAGES]
Raintree Resorts International, Inc.
June 7, 2001
Page 6
Accepted this 7th day of June, 2001.
BORROWER
CR RESORTS CANCUN, S. DE R.L. DE C.V., a Mexican limited
responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
CR RESORTS LOS CABOS, S. DE R.L. DE C.V., a Mexican limited
responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
CR RESORTS PUERTO VALLARTA, S. DE R.L. DE C.V., a Mexican
limited responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
CORPORACION MEXITUR, S. DE R.L. DE C.V., a Mexican limited
responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
Raintree Resorts International, Inc.
June 7, 2001
Page 7
CR RESORTS CANCUN TIMESHARE TRUST, S. DE R.L. DE C.V., a
Mexican limited responsibility corporation with variable
capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
CR RESORTS CABOS TIMESHARE TRUST, S. DE R.L. DE C.V., a
Mexican limited responsibility corporation with variable
capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
CR RESORTS PUERTO VALLARTA TIMESHARE TRUST, S. DE R.L. DE
C.V., a Mexican limited responsibility corporation with
variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
PROMOTORA VILLA VERA, S. DE R.L. DE C.V., a Mexican limited
responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
Raintree Resorts International, Inc.
June 7, 2001
Page 8
VILLA VERA RESORT, S. DE R.L. DE C.V., a Mexican limited
responsibility corporation with variable capital
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
RAINTREE RESORTS INTERNATIONAL, INC., a Nevada corporation
By /S/ Douglas Y. Bech
--------------------
Name: Douglas Y. Bech
----------------
Title: CEO
-----
[TO BE RATIFIED BEFORE A NOTARY PUBLIC]
AMENDMENT AGREEMENT ENTERED INTO ON JUNE 1, 2001, TO THE PROMISSORY NOTES PLEDGE
AGREEMENT ("AGREEMENT"), DATED NOVEMBER 23, 1999 BY AND AMONG CR RESORTS CANCUN,
S. DE R.L. DE C.V. , CR RESORTS LOS CABOS, S. DE R.L. DE C.V., CR RESORTS PUERTO
VALLARTA, S. DE R.L. DE C.V., CR RESORTS CABOS TIMESHARE TRUST, S. DE R.L. DE
C.V., CR RESORTS CANCUN TIMESHARE TRUST, S. DE R.L. DE C.V., CR RESORTS PUERTO
VALLARTA TIMESHARE TRUST, S. DE R.L. DE C.V., (COLLECTIVELY THE "PLEDGORS") AND
TEXTRON FINANCIAL CORPORATION (THE "PLEDGEE").
R E C I T A L S
I. The representatives of the Pledgors hereby declare as follows:
A. The Pledgors are companies duly organized and existing under the laws
of the United Mexican States ("Mexico"), and have all the necessary
authorizations, corporate, governmental or otherwise to enter into
this Agreement in their capacity as Pledgors.
B. The Pledgors have the necessary authority for the execution and
delivery hereof and performance hereunder in accordance with its
organizational documents.
C. On November 23, 1999 the Pledgors and Corporacion Mexitur, S. de R.L.
de C.V. ("Mexitur"), in their capacity of Borrowers, entered into that
certain the Loan and Security Agreement (the "Textron Loan Agreement")
with Textron Financial Corporation as Lender and Raintree Resorts
International, Inc. as Guarantor, for the making of loans not to
exceed an outstanding balance of US$10,000,000.00 (Ten million dollars
00/100) (the "First Loan").
D. On November 23, 1999 the original Pledgors and the Pledgee entered
into a Promissory Notes Pledge Agreement (the "Promissory Notes Pledge
Agreement ") pursuant to which Pledgors have pledged in favor of
Pledgee the promissory notes described in Exhibit "A" (the "Original
Notes"), which Original Notes document the payment obligations of the
Pledgors as obligors under certain agreements for the rendering of
time-share services (the "Original Interval Contracts").
E. The Pledgors, Raintree Resorts International Inc., (the "Guarantor"),
and the Pledgee are parties to that certain Loan Agreement and to that
certain Loan Modification Agreement dated as of November 20, 2000 (the
"First Modification Agreement"), pursuant to which Pledgee agreed to
make a loan to Borrower in the maximum principal amount at any time of
US$13,000,000.00 (Thirteen Million Dollars 00/100), as amended (the
"Loan") to be guaranteed by the Guarantor, all pursuant to the terms,
provisions, and conditions set forth in the Loan Agreement, the First
Modification Agreement, and the other Textron Loan Documents, as such
term is defined in the Textron Loan Agreement; and
G. On December 29, 2000 the Pledgors, Mexitur, Promotora Villa Vera, S.
de R.L. de C.V. and Villa Vera Resort, S. de R.L. de C.V., in their
capacity of Borrowers, entered into that certain Second Loan
Modification Agreement to the Loan Agreement (the "Second Modification
Agreement") pursuant to which Pledgee agreed to extend to the
Borrowers the maximum principal amount of the Loan at any time to
US$18,000,000.00 (Eighteen Million Dollars 00/100) to be guaranteed by
the Guarantor, all pursuant to the terms, provisions, and conditions
set forth in the Textron Loan Agreement, the First Modification
Agreement, and the Second Modification Agreement (together the "Loan
Agreement") and the other Loan Documents, as such term is defined in
the Loan Agreement;
H. Neither the execution and delivery by the Pledgors of this Agreement
nor the performance of their obligations hereunder, will contravene or
conflict with, or result in a breach or violation of applicable law,
their organization documents, the FINOVA Loan Agreement, the Indenture
or the Mirror Notes (as such terms are defined in the Loan Agreement).
I. Pledgors obligations hereunder constitute their valid and binding
obligations enforceable against them jointly and severally in
accordance with their terms.
J. The representatives of the Pledgors have all necessary powers and
authority to execute this Agreement, which powers and authority have
not been revoked, limited or otherwise modified.
K. The New Existing Notes (as defined herein-below) are free and clear of
all encumbrances and limitations of ownership whatsoever, Pledgors are
in compliance of all of their respective obligations under the New
Interval Contracts (as defined herein-below) and have the authority to
encumber the New Existing Notes (as defined herein-below) as provided
for herein.
II. The representatives of the Pledgee and the Pledgors declare that, in
compliance with the terms of the Loan Agreement and in order to secure
the Obligations (the "Secured Obligations"), Pledgors wish to hereby
create in favor of Pledgee a first priority security interest in the
New Existing Notes and to agree to create a first priority security
interest in the Future Notes as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as set forth below.
C L A U S E S
ONE. Terms and Principles of Construction. (a) Capitalized terms used and
not otherwise defined in this Agreement shall have the meanings ascribed to them
in the Promissory Note Pledge Agreement, or the Loan Agreement.
(b) The following Principles of Construction shall apply for purposes
of this Agreement.
(i) The meanings set forth for defined terms in this Clause or
elsewhere in this Agreement shall be equally applicable to both the
singular and plural forms of the terms defined.
(ii) Unless otherwise specified, all references in this Agreement
to Clauses, Exhibits and paragraphs are to Clauses, Exhibits and
paragraphs in or to this Agreement.
(iii) The headings of the Clauses in this Agreement are included
for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
(iv) Any reference herein to any Person, whether identified under
such term or otherwise, shall be construed to include such Person's
successors and permitted assigns.
(v) Any reference to any agreement, contract or document herein
shall be construed to include such agreement, contract or document as
the same may be amended, supplemented, restated or otherwise modified
from time to time.
TWO. New Existing Notes.
(a) Pursuant to the Second Modification Agreement whereunder Pledgee
agreed to extend to the Pledgors the maximum principal amount of the Loan
at any time
up to US$18,000,000.00 (Eighteen Million Dollars 00/100) to be guaranteed
by the Guarantor, all pursuant to the terms of the Loan Agreement, as
amended by the First Modification Agreement and Second Modification
Agreement and the other Loan Documents, and in order to jointly and
severally secure the full and punctual payment and performance of the
Secured Obligations, the Pledgors hereby endorse in pledge in favor of the
Pledgee and grant to the Pledgee a first priority lien on and security
interest over the New Existing Notes (the "New Existing Notes") as
described in Exhibit "B" hereto, together with all rights, titles,
interests, powers, privileges and preferences pertaining or incidental
thereto.
(b) The pledge hereby created is granted as security only and shall
not subject the Pledgee to, or transfer or in any way affect or modify, any
obligation or liability of Pledgors with respect to any of the New Existing
Notes or the New Existing Interval Contracts (the "New Existing Interval
Contracts") to which they relate and described in Exhibit "B" hereto, or
except as otherwise provided in this Agreement or to the Pledge Note
Agreement, or any transaction in connection therewith.
(c) The Pledgors hereby endorse in pledge and deliver to the Pledgee
the New Existing Notes as listed in Exhibit "B", and the Pledgee hereby
takes delivery and acknowledges receipt of, the New Existing Notes, in
terms and for all purposes provided for by Article 334 section II of the of
the General Law of Credit Instruments and Transactions of Mexico. In
addition, within 60 (sixty) days following the date hereof the Pledgors
shall deliver to the Pledgee copy of the notice as to the creation of the
pledge sent to each obligor under the New Existing Notes, substantially in
the form attached hereto as Exhibit "C" (the "Notice"). Failure by the
Pledgors to deliver such Notice to the Pledgee with the acknowledgement by
each obligor within the 60 (sixty) day period mentioned above shall cause
those New Existing Notes to which the Notice and the acknowledgement where
not obtained shall not be considered Eligible Notes Receivables (as such
term is defined in the Loan Agreements) and shall be replaced as provided
in the Loan Agreement unless the respective obligor under any of the New
Existing Notes has made one or more payment thereunder into the lockbox
account referred to in the Notice.
(d) The Pledgors are the legal holders of the New Existing Notes and
have the unqualified right to pledge and grant a security interest therein
as provided in the Promissory Note Pledge Agreement, without the consent of
any other person or entity which has not been obtained; they will be the
legal holders of the Future Notes, and shall have the unqualified right to
pledge and grant a security interest therein as provided in the Promissory
Note Pledge Agreement without the consent of any other person or entity
(other than the Acknowledgement to be obtained from each Obligor thereunder
which has been obtained or will be obtained, as the case may be);
THREE. Interpretation
Except as otherwise provided herein, the pledge hereby created by the
Pledgors in favor of Pledgee shall be regulated by the provisions of the
Promissory Notes Pledge Agreement as amended by the First Modification to the
Promissory Pledge Agreement and this Second amendment
FOUR. Assignability.
This Agreement shall be binding upon and inure to the benefit of each of
the Pledgors and the Pledgee and their respective successors. The Pledgors may
not assign any of its rights or obligations hereunder without the prior written
consent of the Pledgee. The Pledgee shall have the right to assign its rights
hereunder pursuant to that provided under the Loan Agreement. Due to the
ancillary nature of this Agreement, the parties hereto expressly agree that the
pledge interest granted herein shall be automatically transferred upon
endorsement or assignment of the New Existing Notes.
FIVE. Novation.
Neither the execution hereof nor the pledge hereunder constitutes a
novation, amendment, payment, satisfaction or extinction of the Pledgors
Obligations. For all purposes hereof, the Pledgors acknowledge that the Pledge
Agreement is and will continue to be, as of the date of the hereof, a valid and
perfected security interest in the Existing Notes and the New Existing Notes.
SIX. Amendments.
No amendment, modification, termination, or waiver of any provision of this
Agreement, shall be effective unless the same shall be in writing and signed by
the Pledgee and the Pledgors.
Any reference made to the New Existing Notes in this Agreement, the Loan
Agreement or the Promissory Notes Pledge Agreement shall include and be
understood as the Existing Notes from the Pledgors and the New Existing Notes
endorsed under this Agreement and listed in Exhibit "B" hereto.
IN WITNESS WHEREOF, the parties hereto have themselves executed or caused
this Agreement to be executed by their duly authorized representatives as of the
date first above written.
The Pledgors The Pledgee
CR Resorts Cancun, Textron Financial Corporation
S. de R.L. de C.V.
By: /S/ Brian R. Tucker By:
-------------------- ----------------
Name: Brian R. Tcuker Name:
------------------- ----------------
Title: Attorney-in-fact Title:
---------------- ----------------
CR Resorts Los Cabos,
S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
CR Resorts Puerto Vallarta,
S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
CR Resorts Cancun Timeshare
Trust, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
CR Resorts Los Cabos Timeshare
Trust, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
CR Resorts Puerto Vallarta Timeshare
Trust, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
Acknowledged and Agree
Corporacion Mexitur, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
Promotora Villa Vera, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
Villa Vera Resort, S. de R.L. de C.V.
By: /S/ Brian R. Tucker
--------------------
Name: Brian R. Tucker
---------------
Title: Attorney-in-fact
----------------
EXHIBIT "A"
LIST OF ORIGINAL EXISTING NOTES
DESCRIPTION
[TO BE PROVIDED BY THE PLEDGORS]
EXHIBIT "B"
LIST OF THE NEW EXISTING NOTES
DESCRIPTION
[TO BE PROVIDED BY THE PLEDGORS]
[EXHIBIT "C"
MEMBER NOTICE AND ACKNOWLEDGEMENT
Date:
Mr. _______________
Dear Club Regina Member:
Pursuant to our recently established credit relationship with
Textron Financial Corporation, we are required to give you the following notice
with respect to your vacation ownership loan from Club Regina Resorts. Please
note that none of your rights and privileges as a Club Regina member have
changed. All of the services, amenities and wonderful vacation experiences you
have come to expect from Club Regina will continue under the same conditions at
the time you purchased your Club Regina membership. The notice is as follows:
In connection with that certain Contract of Purchase-Sale of
Membership (the "Interval Contract") and related Promissory Note (the
"Promissory Note") dated (Date) executed by you in favor of [name of CR
Operating Entity], S. de R.L. de C.V. ("CR"), please be advised that (i)
all rights of CR's derived from such Interval Contract have been assigned
and placed in a Payment Source and Administration Trust (the "Trust") with
BankBoston Mexico, S.A. as trustee (the "Trustee"), and (ii) all collection
rights under such Promissory Note have been pledged in favor of Textron
Financial Corporation (the "Pledgee"), by means of Pledge Agreement and
endorsement dated November 23, 1999 (the "Pledge"), as security under that
certain Loan and Security Agreement dated as of November 23, 1999 (the
"Loan Agreement").
All collection rights derived from the Promissory Note and the
Interval Contract shall be exercised by the Pledgee and, until further
notice is provided to you either by the Pledgee or the Trustee, all of your
payments under the Promissory Note and the Interval Contract shall be made
in accordance with the accompanying invoice or the present method of
payment. Payment by you of one or more monthly installments payable under
the Promissory Note and Interval Contract shall be deemed as your
acknowledgement of the creation of the Pledge and transfer in Trust
mentioned in the preceding paragraph.
In addition, upon notice sent to you by the Trustee, all other rights
of CR under the Interval Contract, shall be exercised exclusively by the
Trustee; provided, however, that CR's obligations under the Interval
Contract shall remain the responsibility of CR.
As indicated above your payment of one or more monthly installments
will indicate your acknowledgement of this notice. However, for our
records, would you please sign your acknowledgement in the space reserved
for such purposes below, and return this letter in the pre-addressed
envelope provided.
Sincerely,
(name of CR Entity)
By:
I hereby acknowledge receipt of this communication:
Name:
Date:
Place of signature:
Agreement Modifying the Irrevocable Trust Contract in Guarantee and Source of
Payment Number F626-99-5, entered into between:
i) C.R.Resorts Puerto Vallarta, S. de R.L. de C.V., C.R.Resorts Cancun. S. de
R.L. de C.V. and S.R. Resorts los Cabos, S. de R.L. de C.V. (hereinafter
jointly denominated the "Fiduciary Trustees,". all of which are represented
by Mr Gustavo Martin Ripol Bermudez.
ii) BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo Financiero BBVA
Bancomer (hereinafter denominated "Bancomer" or the "Fiduciary Trustee in
the First Place represented by Messrs. Gerardo Cuitlahuac Salazar Viezca
and Carlos David Velazques Thierry; and
iii) Fianzas Monterrey, S.A. (hereinafter denominated the "Fiduciary")
represented by the Fiduciary Delegate, Mr. Armando Vignau Quiros;
iv) With the appearance of C.R. Resorts Capital S.de R.L. de C.V. (hereinafter
denominated the "Accredited"); Corporacion Mexitur, S. De R.L. de C.V.
(hereinafter denominated "Mexitur", Club Regina, S.A.de C.V. (hereinafter
denominated "Regina" and DesarrolloTuristicos Regina S. De R.L. de C.V.
(hereinafter denominated "DTR"), all of which are represented by Mr.Gustavo
Martin Ripol Bermudez
In accordance with the following antecedents, declarations and clauses.
A N T E C E D E N T S
1. On November 26, 1999, the Accredited, with the appearance of the Founders of
the Trust, Mexitur, Regina and other entities, entered into a contract to
open a simple credit, with Bancomer, with a fiduciary guarantee (hereinafter
including its modifications, denominatedThe "First Credit") for an amount in
Investment Units equal to U.S. $7,000,000.00 (Seven million dollars, 00/100
currency of the United States, which amount was destined to the payment of
interests and taxes for retentions from the holders of bonds and warrans
issue by the Accredited and Raintree Resorts International in the
international markets. This First Credit has been modified by means of
modifying agreements dated August 18, 2000 and Decmber 15, 2000. On the date
of the present agreement, the Accredited owes Bancomer the amount of UDIS
5'861,108.70 correponding to the principal amount derived from the First
Credit.
2 On November 26, 1999 the parties hereunder subscribed an irrevocable trust
contract in guarantee and source of payment (hereinafter with its
modifications, denominated the "Trust") whose main object is to act as
instrument for the payment and in guarantee of the First Credit, for which
the Fiduciary Trustees have transmitted to the Fiduciary, among other
assets, the Portfolio and the Collection Rights derived from the sale of
Memberships for vacational periods in time share in the Founder of the
Trust's facilities. The said Trust has been modified by means of an
agreement dated December 15, 2000.
3 On the same date, the Accredited, with the appearance of the Fiduciary
Trustees and other parties, have entered into a contract with Bancomer to
open a simple credit in dollars (hereinafter denominated the "Second
Credit") for the principal amount of $800,000.00 (Eight hundred thousand
dollars 00/100) United States currency, which shall be destined to the
payment of liabilities to the holders of bonds and warrants issued by the
Accredited and Raintree Resorts International in the international markets.
4 The parties hereunder agree that the Trust must be modified so that, aside
from being an instrument of payment and guarantee for the First Credit, it
may be an instrument of payment for the Second Credit.
D E C L A R A T I O N S
1. The Founders of the Trust declare, through their representative:
a) C.R. Resorts Puerto Vallarta, S. de R.L. de C.V. is a mercantile
company, duly constituted and existing in accordance with Mexican
laws, with the capacity to enter into the present modifying agreement,
and to become obligated under the terms hereunder. Mr. Gustavo Martin
Ripol Bermudez has the corresponding faculties to represent the
company in this act with faculties that to date have not been modified
or restricted in any way.
b) C.R.Resorts Cancun, S. de R.L. de C.V. is a mercantile company, duly
constituted and existing in accordance with Mexican laws, with
capacity to enter into the present modifying agreement, and to become
obligated under the terms hereunder. Mr. Gustavo Martin Ripol Bermudez
has the corresponding faculties to represent the company in this act,
with faculties that to date have not been modified or restricted in
any way.
c) C.R. Resorts los Cabos S. de R.L. de C.V. is a mercantile company,
duly constituted and existing in accordance with Mexican laws,with
capacity to enter into the present modifying agreement and to become
obligated under the terms hereunder. Mr. Gustavo Martin Ripol Bermudez
has the corresponding faculties to represent the company in this act,
with faculties that to date have not been modified or restricted in
any way.
2. Bancomer declares, through its representatives.
a) BBVA Bancomer, S.A. Institucion de Banca Multiple, Grupo Financiero
BBVA. Bancomer is a mercantile company duly constituted and existing
in accordance with Mexican laws, with capacity to enter into the
present modifying agreement. Messrs. Gerardo Cuitlahuac Salazar Viezca
and Carlos David Velazquez Thierre have the faculties to represent the
company in this act, with faculties that to date have not been
modified or restricted in any way.
3. The Accredited, Mexitur, Regina, and DTR declare through their
representative:
a) C.R. Resorts Capital, S. de R.L. de C.V. is a mercantile company, duly
constituted and existing in accordance with Mexican laws, with
capacity to enter into the present modifying agreement and to become
obligated under the terms hereunder. Mr. Gustavo Martin Ripol Bermudez
has the corresponding faculties to represent the company in this act,
with faculties that to date have not been modified or restricted in
any way.
b) Corporacion Mexitur, S. de R.L. de C.V. is a mercantile company, duly
constituted and existing in accordance with Mexican laws, with
capacity to enter into the present modifying agreement and to become
obligated under the terms hereunder. Mr.Gustavo Ripol Bermudez has the
corresponding faculties to represent the company in this act, with
faculties that to date have not been modified or restricted in any
way.
c) Club Regina, S.A. de C.V. is a mercantile company, duly constituted
and existing in accordance with Mexican laws, with capacity to enter
into the present modifying agreement and to become obligated under the
terms hereunder. Mr. Gustavo Ripol Bermudez has the corresponding
faculties to represent the company in this act, with faculties that to
date have not been modified or restricted in any way.
d) Desarrollos Turisticos Regina, S. de R.L. de C.V. is a mercantile
company, duly constituted and existing in accordance with Mexican
laws, with capacity to enter into the present modifying agreement and
to become obligated under the terms hereunder. Mr.Gustavo Ripol
Bermudez.has the corresponding faculties to represent the company in
this act, with faculties that to date have not been modified or
restricted in any way.
4. The Fiduciary, through its Fiduciary Delegate, declares:
a) Fianzas Monterrey, S.A. is a mercantile company, duly constituted and
existing in accordance with Mexican laws, authorized as a bonding
institution by the Ministry of Treasury and Public Credit, with the
capacity to enter into the present modifying agreement, as Fiduciary
for theTrust and to become obligated under the terms hereunder. Mr.
Armando Vignau Quiros, in his capacity as fiduciary delegate, has the
corresponding faculties to represent the company in this act, with
faculties that to date have not been modified or restricted in any
way.
b) He agrees to continue acting as fiduciary in the Trust registered in
their fiduciary division number F626-99-5, which is modified through
the present agreement.
After declaring the above, the parties grant the following
C L A U S E S
First- C.R. Resorts Puerto Vallarta, S. de R.L. de C.V., C.R. Resorts Cancun,
S. de R.L. de C.V., and C.R. Resorts los Cabos, S. de R.L. de C.V., in
their capacity as Founders of the Trust and Fideicommissaries in Second
Place, BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo Financiero
BBVA Bancomer, in their capacity as Fideicommissary in the First Place, and
Fianzas Monterrey, S.A. in its capacity as Fiduciary, with the appearance
of C.R. Resorts Capital, S. de R.L. de C.V., Corporacion Mexitur, S. de
R.L. de C.V., Club Regina, S.A. de C.V. and Desarrollos Turisticos Regina,
S. de R.L. de C.V. hereby agree to modify the Section of Definitions, as
well as Clauses Third, Fourth, Ninth and Tenth in the Irrevocable Trust
Contract in Guarantee and Source of Payment number F626-99-5, to be drawn
up under the terms specified as follows:
"DEFINITIONS
A) Each and every one of the definitions included in the First Credit and
in the Second Credit shall have, when used in the present Trust with
the first capital letter, or with a Compact capital letter, the same
meaning assigned therein, unless they are defined otherwise in this
document.
B) The following definitions are privative of the present Trust.
"Appraisal" (Aforo) has the meaning, both in respect of the First
Credit and the Second Credit, the Portfolio derived from the sale of
Memberships, that has affected the patrimony of the present Trust,
whose value is equal to 3 (three) times of unpaid balance of the Frist
Credit and of the Second Credit. For the effects of the above,
Bancomer and the Founders of the Trust modify the terms of the
Appraisal established in Clause Eighteenth (III) (C) (1) in the
respective contract for the First Credit.
"Portfolio" means the present and future collection rights,
denominated in Investment Units that the Founders of the Trust have
before physical or moral parties acquiring Memberships, as far as may
correspond to them in fact and by right, including their accessory
rights that may affect this Trust in the amounts provided in this
contract.
"Total Portfolio" means the collection rights in Investment Units, and
the cash received as the product of this collection, derived from the
Purchase-and-Sale contracts entered into or assumed by the Founders of
the Trust with the purchasers of such Memberships, as well as the
Promissory Notes of the Portfolio documenting these, as far as may
correspond to them in fact and by right, in the understanding that
this concept includes, without limitation, all the funds derived from
the payment of Memberships, both those made in cash through a single
exhibition, and the initial payments and monthly periodical
amortizations, anticipated amortizations, ordinary interest and
moratory interest.
"Collection of Portfolio" means both (i) the Collection Rights with
respect to the amortization of the Portfolio, in accordance with the
mercantile commission contract entered into between the Founders of
the Trust and Mexitur, or the mercantile commission contract that
might be entered into for the same effect, with another moral party,
(ii) as well as the product of the said present or future collections.
"Collection of Fees" means, both (i) the collection rights with
respect to Maintenance Fees, and (ii) the product of the said present
and future collection rights.
"Purchase-and-Sale-Contracts" means the purchase-and-sale contracts of
Memberships, of which the Founders of the Trust may be title holders,
additionally documented by means of Promissory Notes for the
Portfolio, whose Collection Rights pertain to the Portfolio.
"Credit" means the First Credit and the Second Credit jointly, as well
as any other credit that may be granted by Bancomer to the Accredited,
and which, its case, the parties agree shall be paid with the flows
derived from the product of the Portfolio
"Capturing Accounts" mean the checking accounts without a checkbook,
opened by the Fiduciary, wherein the amounts produced by the Portfolio
for the creation of the Maintenance Fund and the Payment Fund are
deposited.
"Maintenance Fees mean the fees that the purchasers of Memberships
must pay to the Founders of Trusts 1, 2 and 3 as the case may be, and
with which Starwood shall be paid for maintenance services in the
Founders of the Trusts' installations, and to Mexitur for reservation
services and replacements.
"Collection Rights mean the collection rights of the liquid and
demandable amounts of money derived from the Purchase-and-Sale
Contracts forming the Portfolio.
"Maintenance Fund" This has the meaning attributed to this term in
Clause Fourth, paragraph 4.3, sub-paragrph (v) in this Trust .
"Payment Fund" This has the meaning attributed to this term in Clause
Fourth, paragraph 4.3, sub-paragraph (iii) in this Trust.
"Founders of the Trust" joinrly mean C.R. Resorts Puerto Vallarta, S.
de R.L. de C.V., C.R.Resorts Cancun, S. de R.L. de C.V., and C.R.
Resorts los Cabos, S. de R.L. de C.V., Mercantile companies duly
constituted and existing in accordance with Mexican laws.
"Trust" means the trust constituted by means of the contract
hereunder.
"Guarantee" means only in respect of the First Credit, the Portfolio,
the Promissory Notes in respect of the Portfolio, and the Collection
of the Portfolio which may be contributed in its moment, in order to
maintain the appraisal under the terms of this contract.
"Memberships" means the vacational periods in time-share corresponding
only to the use of vacational units in the Founders of theTrust's
facilities, which are derived both from the purchase of Regina's
Series "B" shares , as well as from the Purchase-and-Sale Contracts
entered into with any one of the Founders of the Trust and forming the
Portfolio.
"Promissory Note for Portfolio" means the promissory notes that the
buyers of Member-ships in installments subscribe in favor of the
Founders of the Trust in order to document additionally the respective
debts derived from the Purchase-and-Sale Contracts, and which the
Founders of the Trust shall deliver to the Fiduciary in order to
affect these to the present Trust.
"First Credit" means the simple credit with a fiduciary guarantee for
an amount in Invesment Units equal to U.S. $7,000,000.00 (Seven
million dollars 00/100) United States currency, including the
modifications and additions granted on November 26, 1999 by Bancomer
to the Accredited, with the appearance of the Founders of the Trust,
Mexitur, Regina and other parties.
"Second Credit" means the simple credit in dollars, for a principal
amount of $800,000.00 (Eight hundred thousand dollars 00/100 United
States currency , granted by Bancomer on the 14th day of June, 2001 to
the Accredited, with the appearance of the Founders of the Trust and
other parties.
"Third - Patrimony" The patrimony of the present Trust is formed by the
following:
3.1 By the present and future Portfolio which the Founders of the Trust
may generate due to the signing of the Purchase-and-Sale Contracts
that are required to maintain the Appraisal, both in respect of the
First Credit and of the Second Credit, as indicated in the respective
Credit Contracts.
3.2 With the product obtained from the Collection of the Portfolio and the
Collection of the Collection Fees with respect to Memberships, and in
its case, also with the product obtained due to the execution of the
Guarantee under the terms of the Trust hereunder.
3.3 The present and future Collection Rights of the Portfolio, documented
with the Purchase and Sale Contracts and with the Promissory Notes of
the Portfolio, as far as this may correspond to them in fact and by
right, including their accessory rights as well as the products of all
the relative collections.
3.4 The Collection Rights for the present and future Maintenance Fees, as
well as the funds received or should be received for these concepts.
3.5 The Capturing Accounts which the Fiduciary may open in order to
receive the Collection of the Portfolio and of the Maintenance Fees.
3.6 The insurance policies that have been contracted with the Founders of
the Trust and the amounts they must cover to the corresponding
insurance company or Companies in case a loss should occur which is
covered by these insurances.
3.7 Any other income which for any reason may be affected for the
fulfillment of the purposes of his Trust.
"Fourth - The purposes of thisTrust are the following":
4.1 That the Fiduciary may have the title of the patrimony under trust,as
long as the total amount has not been paid of the principal,interest,
commisions and other amounts owed to Bancomer, derived from the First
Credit, as well as the amounts derived from the Second Credit.
4.2 That the Fiduciary fulfill the following stipulations relative to the
Mechanics for Payments:
(i) To receive, through Mexitur or whomsoever may substitute it, the
income obtained from the Collection of the Portfolio, including
interest. With the resources obtained from the collection of the
said Portfolio, it shall form the Payment Fund referred to in
paragraph (iii) following. Furthermore, it shall receive through
Mexitur or from whomsoever may substitute the latter, 100% of the
income provided from the payment of Maintenance Fees in order to
ensure the payment of maintenance services, reservations and
replacements of equipment loaned by Starwood and Mexitur with
respect to the real estate occupied by the Founders of the Trust,
in order to form the Maintenance Fund as described in paragraph
(V) below.
(ii) To invest the cash which it must retain in low-risk instruments,
or in those instructed by the Trust's Technical Committee, and
which shall form part of the Patrimony of the Trust itself.
(iii)To integrate monthly a Payment Fund (the "Payment Fund")
destined to the payment of the principal amount and interests of
the First Credit, and of the Second Credit, under the terms and
conditions of the corresponding credit contracts. The Payment
Fund shall at all times be equal to the principal amount and
interests to be paid in full upon the immediate maturity, both of
the First Credit and of the Second Credit, and it shall be formed
with the monthly income arising from the collection of capital
and interests of the Portfolio, including anticipated payments or
"Cash Outs". This Payment Fund must be formed no later than on
the 20th day of each month, and in the event this is not a
working day, then the date shall be on the immediately prior
working day. If necessary, the Fiduciary shall carry out the
exchange operations to foreigh currency that may be necessary. In
case of the contrary, the Founders of the Trust shall contribute
the necessary resources to constitute the said Payment Fund no
later than on the following working day, and these funds shall be
deposited in the Fiduciary's account so that it may be able to
carry out the corresponding payment to Bancomer on the following
date of Payment of Principal and interests, both for the First
Credit and for the Second Credit. The above is with no liability
for the Fiduciary in the event that the said Fund cannot be
constituted, and in the understanding that Bancomer must inform
the Fiduciary, the amount it must retain for this concept, at
least one month immediately prior to the date of the following
amortization of the First Credit and of the Second Credit.
(iv) Mexitur shall deposit the product of the Collection of the
Portolio in a Capturing Account. The Fiduciary shall daily
withdraw the existing resources to invest these under the terms
of paragraph (ii) above, until constituting the Payment Fund. The
exceeding resources shall be delivered by the Fiduciary to
Mexitur, unless the Accredited is in default of the First Credit
or of the Second Credit. In which case the Fiduciary shall
deliver to Bancomer all the amounts received or which it may have
received.
(v) To maintain at all times a Fund denominated "Maintenance Fund",
equal to or more than U.S. $500,000.00 (Five hundred thousand
00/100) or its equivalent in pesos, as may be instructed by the
Technical Committee, in the account that the Fiduciary may
decide. This is for the purpose of guaranteeing that at all times
at least the said amount exists to pay Starwood and Mexitur for
maintenance, reservations and replacements in the event that the
Founders of the Trust should default in their respective payment
obligations.
(vi) As long as the Maintenance Fund is formed, and no instructions
exist from Bancomer under the terms provided in Clause Nineth,
paragrpah 9.3 in this document, the Fiduciary shall return the
product obtained from the Collection of Fees in excess of the
Maintenance Fund no later than on the following working day to
Mexitur, or whomsoever may substitute the latter. Likewise, it
shall send to Mexitur or whomsoever may substitute the latter,
the product derived from the Investment of the Maintenance Fund
on the last day of the month.
(vii)In the event that the Founders of the Trust should default in the
payment of maintenance, the Fiduciary, with the previous
instructions from Bancomer, shall make the payment to Starwood
and to Mexitur for maintenance, reservations and replacement of
equipment, or to whomsoever may substitute the latter with the
resources from the Maintenace Fund. At the same time, the
Fiduciary shall request the Founders of the Trust, the
reconstitution of the Maintenance Fund within a period not to
exceed 10 natural days after the advise.
(viii) In the event that the Founders of the Trust fail to constitute
the said Maintenance Fund as herein provided, the Fiduciary shall
use resources from the Collection of the Portfolio to
reconstitute the Maintenace Fund. When resources are received for
the concept of Fees and/or by the Founders of theTrust, which are
sufficient to reconstitute the Maintenance Fund, the Fiduciary
shall return to the Payment Fuind the resources taken, including
the interest earned.
(iv) Supervise that the Founders of the trust deliver to the Fiduciary
copy of the invoices issued by Starwood and Mexitur, within two
working days after the aforementioned companies issue these
invoices covering maintenance services.
4.4 That the Fiduciary maintain the Portfolio's Promissory Notes affected
in fiduciary property, both those which are contributed initially, as
well as those which are later placed in trust, in addition to or in
substitution of those which are existing, in order to conserve the
value of the Appraisal, to comply with the provisions contained in
this Trust, in the First Credit and in the Second Credit, releasing,
in its case, the Portfolio's Promissory Notes exceeding the value of
the said Appraisal.
4.5 That the Fiduciary, through Mexitur or whomsoever may substitute the
latter, collect, receive, and maintain the funds corresponding to the
Portfolio, including anticipated payments commonly denominated "Cash
Outs" as well as the interest earned by the Portfolio and the total
amount of Maintenance Fees.
4.6 That the Fiduciary apply monthly the product of the Collection of the
Portfolio, plus the interest generated by its investment, to the
constitution or the reconstitution of the Payment Fund, releasing the
Founders of the Trust from the excess, under the terms established in
paragraph 4.3 above, in the understanding that from the moment when
the Fiduciary receives instructions from Bancomer, stating that a
default has occured to the terms of the First Credit or Second Credit,
the Fiduciary shall deliver to Bancomer the total of the amounts
received, to be applied to the anticipated payment of the First Credit
and of the Second Credit respectively, as far as it can be possible.
4.7 That the Fiduciary, as long as it does not receive instructions to the
contrary from Bancomer, delivers to Mexitur or whomsoever is
substitutint the latter, the amounts received for Maintenance Fees,
except the part corresponding to the Maintenance Fund mentioned in
paragraph 4.3 (v) above, in order to cover the total amounts payable
for the said concepts, to the parties providing the respective
services.
4.8 That the Fiduciary, as from the date in which it receives instructions
from Bancomer indicating that a default has occurred to any of the
terms and conditions provided in the First Credit or in the Second
Credit, delivers to Bancomer each and every one of the amounts it
maintains, and is receiving as Collection of the Portfolio, or any
other, to be applied to the payment of the First Credit and the Second
Credit under the terms determined by Bancomer, and to apply the
corresponding amounts to Maintenance Fees for the payment of expenses
and fees for the maintenance herein provided, including specifically
the payments to Starwood and Mexitur.
4.9 That the Fiduciary deliver to Bancomer the amounts corresponding to
the Payment of capital and/or interest for the First Credit or for the
Second Credit, for the corresponding period, taking these amounts from
the Payment Fund, as far as may be possible.
4.10 That the Fiduciary receive from the Founders of the Trust, the
appropriation of the additional Portfolio that is required, in order
to maintain the Appraisal within the trust's patrimony: when the said
Portfolio is partially or totally amortized by the buyers of
Memberships and the respective amounts have been delivered to any one
of the Founders of the Trust; (ii) when the Portfolio should be
substituted by the Founders of the Trust when they do not meet the
requirements established in Clause Fifth of this contract; or (iii)
when any of the Portfolio's Promissory Notes documenting the Portfolio
remain in default, overdue during more than 90 days or is considered
incollectible under the terms of the Law. The Founders of the Trust
shall carry out the appropriation of the additional Portfolio in the
cases provided in this paragraph, within the 7 (seven) bank working
days to the date in which the Fiduciary requires the written
appropriation of the additional Portfolio. In case it is not carried
out in this way, this fact shall be a Case of Anticipated Maturity of
the First Credit and of the Second Credit.
4.11 That the Fiduciary, with the instructions from the Founders of the
Trust, negotiates, discounts, endorses, cedes or transfers under any
other way, in favor the the Founders of the Trust themselves, the
total or part of the Portfolio's Promissory Notes, providing that (i)
the Founders of the Trust previously substitute the titles which in
their total are for the amounts required to satisfy the Appraisals,
and (ii) the requirements provided in Clause Fifth of this Contract
are fulfilled.
4.12 In the event of the Accredited's default, or of any of the Founders of
theTrust to any of its obligations in accordance with the First
Credit, in accordance with Bancomer's instructions in this respect, it
proceeds to alienate the Portfolio in accordance with the execution
proceeding established in Clause Ninth hereunder, and delivers the
product of the said alienation to Bancomer in payment of the Second
Credit, and the remainder, if any, be placed at the disposal of the
Founders of the Trust to be distributed among them as the Founders of
the Trust themselves may indicate.
4.13 That the Fiduciary proceed to execute a mercantile commission contract
with Mexitur under the terms of Clause Tenth hereunder, to carry out
the Collection of the Portfolio and the collection of the Maintenance
Fees, and in the event that Mexitur should default in its obligations,
in accordance with instructions from Bancomer, it shall proceed to
hire a specialized office or a financial factorage institution who
provides collection services, under the terms indicated below,
increasing the Trust's patrimony with this Collection for all the
other effects established in this contract.
4.14 That the Fiduciary collect the amounts paid by the Insurers for
indemities due to losses, and apply these amounts under the terms of
Clause Sixteenth (E) in the contract covering the First Credit.
4.15 That once Bancomer extends the letter of settlement, evidencing that
the obligations derived from the Documents covering the First Credit
and the Documents covering the Second Credit have been fulfilled by
the Accredited, the Fiduciary shall then proceed to revert the
patrimony under Trust to the Founders of the Trust.
"Ninth - The Conventional Execution Proceeding." The parties participating In
this contract, based on article 83 of the Law for Credit Institutions in
effect, and applicable in a supplementary way, and in the understanding
that the Supreme Court of Justice of the Nation, in repeated writs of
execution has declared that the execution proceeding is constitutional,
such as agreed in this contract, and warned about the reach and legal
consequences, instruct the Fiduciary irrevocably, and the Fiduciary assumes
the respective obligation to do, so that assuming that it must carry out
the alienation of the Portfolio with respect to the First Credit, in the
event that a Case of Anticipated Maturity of the First Credit should exist,
and this is not remedied or paid by the Accredited or by any of the
Founders of the Trust, it shall proceed in accordance with the following
terms:
9.1 Bancomer shall communicate in writing with the Fiduciary, stating that
the Founders of the Trust have not fulfilled the obligations of payment
derived from the Documents covering the First Credit, requesting the
beginning of the conventional execution proceeding herein agreed upon,
for which, within the same communication, it shall include a statement
of account, certified by Bancomer's executive having faculties to do
so, showing the obligations in default.
9.2 As soon as the Fiduciary receives the communication referred to in the
foregoing pargraph, it shall notify the above to the Accredited and to
the Founders of the Trust, to the Commissioner and the Depository,
through a Public Notary or Broker, at the addresses set forth in this
contract, and granting them a period of One Working Day, in case of
failing to pay the principal, interests or accessories of the Credit,
and Seven Working Days in other cases, in both instances as from the
date of the latest notification mentioned, so that (i) they can
demonstrate in an authentic way, the fulfillment of the obligations in
default of the First Credit imputed by Bancomer; or, in its case, (ii)
to fulfill the outstanding obligations demanded by Bancomer.
9.3 After the period indicated in the foregoing paragraph has elapsed, and
the Accredited or the Founders of the Trust have not demonstrated to
the Fiduciary the fulfillment and payment of the obligations of the
First Credit, the Fiduciary (i) shall suspend any release of funds or
collection rights; (ii) it shall require from the Depository and the
Commissioner, through a Public Notary or Broker which it may select, so
that within a period of three Working Days, counting as from the date
of the said requirement, it may carry out the physical delivery of the
Portfolio's Promissory Notes, to whomsoever may be designated by
Bancomer, and it could be Mexitur itself, or another, duely endorsed in
favor of the Fiduciary, as well the product in cash derived from the
above mentioned Promissory Notes of the Portfolio, duely collected. The
Fiduciary shall continue collecting the Portfolio and the Maintenance
Fees through the Commissioner and Depository designated, under the same
conditions as those which have been agreed.
9.5 Once the FIDUCIARY receives from the Depository and Commissioner the
Portfolio's Promissory Notes, as well as the product in cash previously
collected by the Commissioner and Depository, it shall apply the
product in cash derived from the Collection of the Portfolio which at
that time may be found within the patrimony of the Trust to the payment
of the First Credit, under the terms of paragrah 9.6 following, and
Bancomer may instruct the Fiduciary so that, at Bancomer's election, it
may carry out one or more of the following options;
9.5.1 To continue with the Collection of the Portfolio and apply the
product received for this concept to the payment of the amounts
established in paragraph following, in the order and priority therein
established, in the understanding that when the First Credit has been
totally covered, the Fiduciary, without having to receive any
instructions, shall release the portion of the Portfolio which is
found in the patrimony of the Trust, and the amounts corresponding to
the Collection of Fees, including interests generated, in benefit of
the Founders of the Trust or the persons whom they may designate in
writing, and shall proceed to extinguish this Trust, since its
purposes have been fulfilled.
9.5.2 To discount, assign, or transmit, under any title, part or the total
amount of the Portfolio's Promissory Notes which are found within the
patrimony of the Trust to third parties, and apply the product
received for this concept to the payment of the amounts established in
the following paragraph 9.6, in the order and priority therein
established, and in the event of the total settlement of the First
Credit, the Fiduciary shall deliver by means of an endorsement in
ownership, the portion of the Portfolio which has not been discounted,
assigned or transmitted to third parties, as well as the amounts
responding to the Collection of Fees which may be found within the
patrimony of the Trust, including interest and accessories, to the
Founders of the Trust or to the parties who they may designate.
9.5.3 To deliver to Bancomer the Portfolio's Promissory Notes, for which it
shall endorse them in ownership, in the understanding that this fact
shall not imply the payment of the First Credit, but only insofar as
Bancomer can effectively collect the same and apply the product
received to the payment of the First Credit, as far as it may reach.
9.5.4 At the moment when,within the patrimony of the Triust, there are no
Promissory Notes on the Portfolio because the amount has been covered,
or is declared uncollectible, or due to another cause among those
provided in paragraphs 9.5.1, 9.5.2 and 9.53 above, the Fiduciary
shall release the amounts corresponding to the Maintenance Fees that
have not been employed under the terms of Clause Fourth hereunder,
including interests and accessories, in benefit of the Founders of the
Trust or whomsoever these may designate.
9.6 The Fiduciary shall apply the product of the Portfolio's collection
obtained in accordance with the present Clause, under the following terms:
(i) In the first place, to cover any fiscal obligation that may exist on
the Portfolio, or that may be generated due to the execution of this
contract
(ii) In the second place, to carry out the liquidation of outstanding Fees
in favor of the Fkiduciaary.
(iii)In the third place, to liquidate or reimburse the expenses that may
have been generated due to the execution of the Portfolio and which
have been paid by Bancomer.
(iv) In the fourth place, to liquidate the First Credit insofar as the
patrimony of the Trust may reach, against the presentation of the
statement of account certified by Bancomer's accountant, who shall
verify the debts existing in its favor and charged to the Accredited,
applied in the first place to the accessories and later to the
principal amount.
(v) In the fifth place, to deliver the remainder of the execution of the
Portfolio, if any, to the Founders of the Trust, in proportion to
their contributions made to the present Trust.
9.7 With respect to the First Credit.the Founders of the Trust and Bancomer
agree to submit to the conventional execution proceeding agreed in this
Clause, and they therefore grant their consent so that .in the event that
Bancomer should instruct this, the Fiduciary may proceed in accordance with
the agreement made in this Clause. The Founders of the Trust and Bancomer
aditionally agree that, if the execution proceeding does not fully satisfy
the obligations derived from the First Credit and guaranteed with this
Trust, they shall substitute the legal actions derived from the Portfolio's
Promissory Notes for the collection of any balance due, without prejudice
to the execution of the other guarantees agreed upon in favor of Bancomer,
and which will be independent and demandable in accordance with the
agreements made therein.
"Nineteenth - Applicable Legislation and Jurisdiction" This contract is
Interpreted in accordance with the laws in effect in the United Mexican
States.
The Founders of the Trust, Bancomer, Mexitur, Regina and the Fiduciar
expressly agree and accept, for all the corresponding effects, that the
fiduciary guarantee granted in favor of Bancomer with respect to the First
Credit has been constituted prior to May 23, 2000, and furthermore, that
this Trust documents an instrument for the First Credit and for the Second
Credit, and, therefore, the stipulations contained in Title II, Chapter V,
Section II of the General Law for Credit Titles and Operations are NOT
applicable.
The parties herewith submit to the jurisdiction of the competent courts in
Mexico City, Federal District with respect to the legal actions that might
arise under the present Trust, waiving any jurisdiction or code of laws
that may correspond to them by virtue of their present or future domiciles.
SECOND - With the exception of the modifications provided in this Agreement, the
Irrevocable Trust Contract in Guarantee and the Source of Payment number
F626-99-5 subsists in all its terms and conditions; consequently this
agreement does not imly novation or modification to the obligations
contained the above mentioned Trust, and therefore this Agreement and the
Irrevocable Trust Contract in Guarantee and the Source of Payment
F626-99-5, form a single instrumental unit, and each and every one of the
stipulations of the second are applicable to the first as it may
correspond.
THIRD- The parties in the present Contract agree to leave without effect the
modifying agreement of the Irrevocable Trust in Guaranteee and Source of
Payment number F626-99-5, executed on the 15th day of December, 2000,
except for the designation of Mr. Gustavo Martin Ripol Bermudez as
Mercantile Depository, for the effects established in the Trust
FOURTH - For the study and signature of this Contract, the Founders of the Trust
shall pay the Fiduciary on the date of signature of the Agreement, the
amount of $10,000.00 (Ten thousand pesos Pesos 00/100 Mexican Currency,
plus the corresponding Value Added Tax.
FIFTH - The parties set forth as their domiciles those which were established
in the Trust Contract which is modified through the present Agreement.
SIXTH - For the interpretation and fulfillment of this Contract, the parties
submit to the jurisdiction of the competent Courts in Mexico City, Federal
District, waiving at once the jurisdiction that may correspond to them by
virtue of their domicile or neighborhood.
In evidence of the above, this Agreement is prepared and signed on the 14th
day of June, 2001
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