Exhibit 10.5

 

AMENDMENT NO. 3

TO

LOAN AGREEMENT

 

AMENDMENT NO. 3, dated as of July 7, 2004 (this “Amendment”), to that certain
Loan Agreement, dated as of July 29, 2002, as amended by Amendment No. 1, dated
as of December 20, 2002 and Amendment No. 2, dated as of February 13, 2004 (as
amended by Amendments No. 1 and 2, the “Existing Loan Agreement”), among
Sunterra Corporation, a Maryland corporation (“Parent”), Borrowers (as defined
therein), the Lenders (as defined therein), and Merrill Lynch Mortgage Capital
Inc., as administrative agent and collateral agent for the Lenders (in such
capacity, “Agent”).

 

WITNESSETH:

 

WHEREAS, capitalized terms not otherwise defined herein shall have the same
meanings as specified in the Existing Loan Agreement;

 

WHEREAS, Sunterra West Maui Development, LLC (formerly known as Sunterra West
Marketing, LLC) (“Sunterra West”), a Borrower under the Loan Agreement, and
Signature Capital-West Maui LLC (“Signature”), a subsidiary of the Parent,
desire to purchase the 76.744 percent interest (the “Partnership Interest”) in
West Maui Resort Partners, L.P. (“West Maui”), that is not presently owned by
Signature, and Borrowers have requested and Agent has indicated its willingness
on behalf of the Lenders to lend against the assets and receivables that will be
owned by Sunterra West, Signature and West Maui at the closing of the purchase
of the Partnership Interest;

 

WHEREAS, Borrowers have requested that Agent and Lenders agree to amend the
Existing Loan Agreement as more specifically set forth herein; and

 

WHEREAS, Agent and Lenders have indicated their willingness to agree to such
amendment of the Existing Loan Agreement on the terms and subject to the
satisfaction of the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:

 

SECTION 1. Amendment. As of the Effective Date (as defined in Section 3 hereof):

 

(a) The definition of “Eligible Resorts” in Section 1.1 of the Existing Loan
Agreement is hereby amended by adding at the end thereof the following:

 

““Eligible Resorts” also means that certain resort containing 431 suites,
situated at Honokowaii, Kaanapali, District of Lahaina, Island and County of
Maui, State of Hawaii (the “West Maui Resort”).””

 

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(b) Section 3.5 (c) of the Existing Loan Agreement is hereby amended by deleting
it in its entirety and inserting, in lieu thereof, the following as Section
3.5(c):

 

“(c) All Borrowers desire to allocate among themselves (collectively, the
“Contributing Borrowers”), in a fair and equitable manner, their obligations
arising under this Agreement. Accordingly, in the event any payment or
distribution is made on any date by a Borrower (a “Funding Borrower”) under this
Agreement that exceeds its Fair Share as of such date, such Funding Borrower
shall be entitled to a contribution from each of the other Contributing
Borrowers in the amount of such other Contributing Borrower’s Fair Share
Shortfall as of such date, with the result that all such contributions will
cause each Contributing Borrower’s Aggregate Payments to equal its Fair Share as
of such date. “Fair Share” means, with respect to a Contributing Borrower as of
any date of determination, an amount equal to (a) the ratio of (i) the Fair
Share Contribution Amount with respect to such Contributing Borrower to (ii) the
aggregate of the Fair Share Contribution Amounts with respect to all
Contributing Borrowers multiplied by (b) the aggregate amount paid or
distributed on or before such date by all Funding Borrowers under this Agreement
in respect of the Obligations. “Fair Share Shortfall” means, with respect to a
Contributing Borrower as of any date of determination, the excess, if any, of
the Fair Share of such Contributing Borrower over the Aggregate Payments of such
Contributing Borrower. “Fair Share Contribution Amount” means, with respect to a
Contributing Borrower as of any date of determination, the maximum aggregate
amount of the obligations of such Contributing Borrower under this Agreement
that would not render its obligations hereunder or thereunder subject to
avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11
of the United States Code or any comparable applicable provisions of state law;
provided, solely for purposes of calculating the “Fair Share Contribution
Amount” with respect to any Contributing Borrower for purposes of this Section
3.5(c), any assets or liabilities of such Contributing Borrower arising by
virtue of any rights to subrogation, reimbursement or indemnification or any
rights to or obligations of contribution hereunder shall not be considered as
assets or liabilities of such Contributing Borrower. “Aggregate Payments” means,
with respect to a Contributing Borrower as of any date of determination, an
amount equal to (1) the aggregate amount of all payments and distributions made
on or before such date by such Contributing Borrower in respect of this
Agreement (including, without limitation, in respect of this Section 3.5(c)),
minus (2) the aggregate amount of all payments received on or before such date
by such Contributing Borrower from the other Contributing Borrowers as
contributions under this Section 3.5(c). The amounts payable as contributions
hereunder shall be determined as of the date on which the related payment or
distribution is made by the applicable Funding Borrower. The allocation among
Contributing Borrowers of their obligations as set forth in this Section 3.5(c)
shall not be construed in any way to limit the liability of any Contributing
Borrower hereunder. Each Borrower is a third party beneficiary to the
contribution agreement set forth in this Section 3.5(c).”

 

SECTION 2. Certain Covenants and Limitations. In consideration of the execution
and delivery of this Amendment by Agent and the Lenders, Borrowers hereby agree
as follows:

 

(a) Costs and Expenses. Borrowers shall pay all costs and expenses of Agent
incurred in connection herewith or otherwise due and owing as of the date hereof
pursuant to Section 9.4 of the Loan Agreement, including, without limitation,
the costs and expenses of

 

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Agent’s counsel, provided, however, that Borrowers shall not be required to pay
more than $50,000 of such costs and expenses.

 

(b) Joinder. By executing and delivering this Amendment, each of Signature, West
Maui and Resort Management International, Inc. (“Resort Management”) agrees to
become (i) a Borrower under, and to be bound by, and to comply with, the terms
and conditions of the Loan Agreement and each of the other Loan Documents; (ii)
an Additional Pledgor (as defined in the Pledge Agreement) under, and to be
bound by, and to comply with, the terms and conditions of the Pledge Agreement
and this Amendment shall be deemed to be “Counterpart Agreement” for all
purposes thereof; In addition, the information contained in the schedules
attached as Schedule II hereto, if any, shall be deemed to be a part of Schedule
II to the Pledge Agreement; and (iii) an Additional Grantor (as defined in the
Security Agreement) under, and to be bound by, and to comply with, the terms and
conditions of the Security Agreement and this Amendment shall be deemed to be a
“Counterpart Agreement” for all purposes thereof.

 

(c) Inventory Collateral Value. The Inventory Collateral Value for West Maui
Inventory shall not on the Effective Date exceed the lesser of (i) 35% of the
Gross Sell-Out Value for the West Maui Inventory that is Hard Inventory and (ii)
the cash cost to Signature and Sunterra West of indirectly acquiring such
inventory as part of their purchase of the Partnership Interest. Such Inventory
Collateral Value of the Time Share Inventory with respect to West Maui (the
“West Maui Inventory”) shall be reduced by 43.75% of the cumulative retail
prices that the related Time Share Interests have been sold as of the Effective
Date, so that the Inventory Collateral Value shall be zero at the time that 80%
of the West Maui Inventory has been sold (in terms of Gross Sell-Out Value).
Notwithstanding the preceding sentence, the Inventory Collateral Value for West
Maui Inventory shall not exceed amounts to be determined in accordance with the
schedule that is attached as Schedule I hereto.

 

(d) Transfer of Contract Files; Waiver. Borrowers shall, within sixty (60) days
of the Effective Date of the Amendment, cause all Contract Files held by Textron
Financial Services, Inc. (the “Textron Receivables”) pursuant to the Interim
Custodial Agreement (the “Textron Custodial Agreement”), by and among Textron
Financial Services, as Custodian, West Maui, as Borrower, Sunterra Financial
Services, Inc., as Administrative Agent, and the Agent, to be transferred to the
Custodian. Notwithstanding any other provision in the Loan Documents to the
contrary, the Textron Receivables shall be Eligible Receivables as of the
Effective Date, provided, however, that the failure to transfer to the Custodian
the Contract Files related to such Textron Receivables within fifteen (15) days
following the time period provided in the preceding sentence of this Section
4(d) shall cause such Textron Receivables to cease to be Eligible Receivables.

 

(e) Account Control Agreements. Borrowers shall, within sixty (60) days of the
Effective Date of the Amendment, cause the delivery to Agent of fully executed
account control agreements between Agent, West Maui and First Hawaiian Bank with
respect to each bank account referenced in Section 6(c) of the Collateral
Certificate.

 

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SECTION 3. Conditions Precedent to the Effectiveness of this Amendment. This
Amendment shall become effective as of the date hereof (the “Effective Date”)
provided that each of the following conditions precedent shall have been
satisfied on or before such date:

 

(a) Amendment. Agent has received counterparts of this Amendment executed by
Borrowers and Agent on behalf of Lenders, and by executing and delivering such a
counterpart, Signature, a Delaware limited liability company, West Maui, a
Delaware limited partnership and Resort Management, a California corporation,
shall each be deemed a “Borrower” under the Loan Documents.

 

(b) Other Documents, Etc. Agent shall have received from each of Signature, West
Maui, Sunterra West and Resort Management, as applicable:

 

(i) copies of the Organizational Documents of such Person, certified by the
Secretary of State of its jurisdiction of organization, along with all
amendments thereto, if applicable, or, if such document is of a type that may
not be so certified, certified by the secretary or similar officer or manager of
such Person, together with a good standing certificate from the Secretary of
State of its jurisdiction of organization and each other jurisdiction in the
United States in which such Person is qualified to do business and, to the
extent generally available, a certificate or other evidence of good standing as
to payment of any applicable franchise or similar taxes from the appropriate
taxing authority of each jurisdiction of organization, each dated a recent date
prior to the Effective Date;

 

(ii) resolutions of the Governing Body of such Person approving and authorizing
the execution, delivery and performance by such Person of the Loan Documents to
which it is a party, certified as of the date hereof by the secretary or similar
officer or manager of such Person as being in full force and effect without
modification or amendment;

 

(iii) signature and incumbency certificates of the officers or managers of such
Person executing the Loan Documents to which it is a party:

 

(iv) evidence satisfactory to Agent of the compliance by each such Person and
the owner of all the membership interests thereof of its obligations under the
Collateral Documents (including, without limitation, their obligations to
execute and deliver UCC financing statements, originals of securities,
instruments and chattel paper and any agreements governing deposit and/or
securities accounts as provided therein);

 

(v) (A) a completed Collateral Certificate dated as of the date hereof and
executed by an Authorized Officer of each such Person, (B) the results of a
search (including a recent update thereof), by a Person satisfactory to Agent,
of all effective UCC financing statements (or equivalent filings) made with
respect to any personal or mixed property of each such Person, together with
copies of all such filings disclosed by such search, and (C) UCC termination
statements (or similar documents) duly executed by all applicable Persons for
filing in all applicable jurisdictions as may be necessary to terminate any
effective UCC financing statements (or equivalent filings) disclosed in such
search (other than any such financing statements in respect of Permitted Liens);

 

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(vi) evidence that each such Person and the applicable Loan Party that owns all
of the membership interests of each such Person shall have taken or caused to be
taken any other action, executed and delivered or caused to be executed and
delivered any other agreement, document and instrument and made or caused to be
made any other filing and recording (other than as set forth herein) reasonably
required by Agent;

 

(vii) one or more Mortgages with respect to each Mortgaged Real Property,
creating on such real property of such Loan Party a perfected, highest available
priority Lien on such real property (subject only to Permitted Liens);

 

(viii) a Title Insurance Policy covering such Mortgaged Real Property containing
such endorsement and affirmative coverages as the Agent may reasonably request,
including a longform endorsement, if available;

 

(ix) a survey, in form, scope and substance satisfactory to the Agent, covering
such Mortgaged Real Property, certified to the Lender and Agent;

 

(x) such other agreements, instruments, approvals, legal opinions or other
documents reasonably requested by the Agent in order to create, perfect,
establish the highest available priority of or otherwise protect any Lien
purported to be covered by any such Mortgage (subject only to Permitted Liens).

 

(xi) either (A) letters or other evidence from the appropriate municipal
authorities (or other Persons) concerning applicable zoning and building laws,
(B) an ALTA 3.1 zoning endorsement for the applicable Title Insurance Policy,
(C) a zoning opinion letter, or (D) a zoning report, in each case in substance
reasonably satisfactory to Agent;

 

(xii) a Phase I environmental report (and, if recommended by the Phase I
environmental report, a Phase II environmental report), in each case reasonably
satisfactory in form and substance to Agent;

 

(xiii) physical conditions reports, which reports shall be reasonably
satisfactory in form and substance to Agent;

 

(xiv) a copy of each Property Management Agreement;

 

(xv) a certificate of occupancy for each Building located on such Mortgaged Real
Property; and

 

(xvi) evidence reasonably satisfactory to Agent that all statutorily required
registration documents and offering statements and all amendments thereto have
been filed with the applicable Governmental Authority where the Resort is
located and the Time Share Interests are being sold or marketed and that all
marketing and sales materials comply in all material respects with all
Requirements of Law of the state in which the Resort is located and the states
in which the Time Share Interests at the Resort are being sold or marketed.

 

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(c) Opinions of Counsel. Agent shall have received legal opinions from counsel
to each of Signal, West Maui and Resort Management, which counsel shall be
acceptable to Agent, covering such matters as Agent may request and in form and
substance satisfactory to Agent, including, without limitation, opinions of
counsel (which counsel shall be reasonably satisfactory to the Agent) with
respect to the creation and perfection of the security interests in favor of the
Agent in the Real Property, the enforceability of the Mortgages and such other
matters governed by the laws of each jurisdiction in which any Real Property is
located as the Agent may reasonably request, in each case in form and substance
reasonably satisfactory to the Agent.

 

(d) Representations and Warranties. The representations and warranties contained
in Section 4 of this Amendment and each of the Loan Documents shall be true and
correct in all material respects on and as of the Effective Date, before and
after giving effect to this Amendment, as though made on and as of such date
(except for any such representation and warranty that by its terms refers to a
specific date other than the date first above written, in which case it shall be
true and correct in all material respects as of such earlier date).

 

(e) No Default or Event of Default. No Default or Event of Default shall have
occurred and be continuing or shall occur after giving effect to this Amendment.

 

(f) Inventory Collateral Value. The Inventory Collateral Value for West Maui
Inventory shall not on the Effective Date exceed the lesser of (i) 35% of the
Gross Sell-Out Value for the West Maui Inventory that is Hard Inventory and (ii)
the cash cost to Signature and Sunterra West of indirectly acquiring such
inventory as part of their purchase of the Partnership Interest.

 

(g) Purchase and Sale Agreement. Agent shall have received a fully executed copy
of the purchase and sale agreement evidencing the purchase of the Partnership
Interest.

 

(h) Custodial Agreement. Agent shall have received a fully executed and
delivered Textron Custodial Agreement, in form and substance satisfactory to
Agent.

 

SECTION 4. Representations and Warranties. To induce Agent and the Lenders to
enter into this Amendment, each Borrower hereby represents and warrants to Agent
and the Lenders:

 

(a) Representations and Warranties. The representations and warranties contained
in this Section 4 and in each of the Loan Documents are true and correct in all
material respects on and as of the Effective Date, before and after giving
effect to this Amendment, as though made on and as of such date (except for any
such representation and warranty that by its terms refers to a specific date
other than the date first above written, in which case it shall be true and
correct in all material respects as of such earlier date).

 

(b) No Default or Event of Default. No Default or Event of Default has occurred
and is continuing or will occur after giving effect to this Amendment.

 

SECTION 5. Reference to and Effect on the Loan Document. As of the Effective
Date, any reference in any Financing Document to the Existing Loan Agreement
shall

 

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be to the Existing Loan Agreement, as amended hereby. The execution, delivery
and effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of Agent or any of the Lenders under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.

 

SECTION 6. Integration; Amendment. This Amendment sets forth in full the terms
of agreement between the parties with respect to the amendment described herein
and is intended as the full, complete and exclusive agreement governing the
relationship between the parties with respect to such amendment. This Amendment
supersedes all discussions, promises, representations, warranties, agreements
and understandings between the parties with respect to the amendment described
herein.

 

SECTION 7. No Third Party Beneficiaries. This Amendment shall be binding upon
and inure to the benefit of Borrowers, Agent and the Lenders and their
respective successors and assigns. No Person other than the parties hereto shall
have any rights hereunder or be entitled to rely on this Amendment, and all
third-party beneficiary rights are hereby expressly disclaimed.

 

SECTION 8. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Amendment by telecopier shall
be effective as delivery of a manually executed counterpart of this Amendment.

 

SECTION 9. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.

 

[remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.

 

[signature pages in separate document]

 

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Schedule I

 

INVENTORY COLLATERAL VALUE SCHEDULE

As Attached

 

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Schedule II

 

SCHEDULE II TO PLEDGE AGREEMENT

As Attached